CLARITY Act: Senate Banking Releases New Text, Sets Thursday Markup

This report was originally sent directly to clients of Galaxy Trading and Galaxy Asset Management on the morning of May 12, 2026. Trade or invest with Galaxy to receive the most timely research directly in your inbox.

Overview

The CLARITY Act is moving again. Shortly after midnight on Tuesday, May 12, the Senate Banking, Housing, and Urban Affairs Committee (SBC) released a revised 309-page Amendment in the Nature of a Substitute (ANS), or updated draft text, covering the bulk of the digital asset market structure framework. The committee will hold its executive session on Thursday, May 14 at 10:30 a.m. ET in Room 538 of the Dirksen Senate Office Building. Amendments will be filed this week in the days preceding Thursday’s markup.

The May text is substantially longer than the 278-page January draft and reflects the negotiations that have dominated the spring: the Tillis-Alsobrooks compromise on stablecoin yield, tightening of the Blockchain Regulatory Certainty Act (BRCA), law enforcement concerns about DeFi, flexibility around tokenization, and the Banking Committee's effort to bring along Senator John Kennedy (R-LA) on housing supply policy. Several issues remain unresolved going into Thursday. The largest U.S. banking trade groups rejected the stablecoin yield compromise on May 9, four days before the scheduled markup, and Democrats led by Senator Gallego (D-AZ) are pressing for ethics provisions that the bill text does not contain.

On Tuesday morning, Polymarket was pricing passage by year-end at roughly 67%-75%, up materially from below 50% in mid-April, though they retraced some of those gains in the afternoon. The market's revaluation reflects the fact that the bill is moving rather than any resolution of its substantive controversies. Our view remains that the comfortable path to enactment runs through a bipartisan committee vote, which is what we will be watching for on Thursday. A party-line markup would weaken the bill's prospects on the floor regardless of its substantive merits.

This note walks through the structural differences between the January and May drafts, identifies where the negotiated compromises have landed in the new text, and flags the substantive choices that institutional investors should track ahead of Thursday's session.

Background

The Digital Asset Market Clarity Act of 2025 passed the House of Representatives on July 17, 2025, by a vote of 294-134. All 216 Republicans who voted supported the bill, with 78 Democrats crossing the aisle to vote in favor and 134 voting against. The bill establishes federal regulatory authority for digital asset markets: jurisdictional boundaries between the SEC and CFTC, a decentralization-based test for when network tokens are not securities, a disclosure regime for ancillary asset originators, federal registration and AML obligations for digital commodity intermediaries, and developer protections under the BRCA.

In the Senate, work has proceeded on parallel tracks. The Agriculture Committee released a discussion draft in November 2025 and advanced the Digital Commodity Intermediaries Act, focused primarily on CFTC authority over digital commodity spot and derivative markets, out of committee on Jan. 29 on a partisan vote. The Banking Committee, chaired by Senator Tim Scott (R-SC), released its first “amendment in the nature of substitute” (ANS) on Jan. 12. That ANS (updated draft text) represented the committee's base negotiating text and went substantially beyond the House-passed bill, organizing material into nine titles covering securities, illicit finance, DeFi, banking, regulatory innovation, software developer protections, customer property, customer protection, and other matters.

A Banking Committee markup was initially expected in mid-January but postponed after Coinbase withdrew support over the handling of stablecoin rewards. The four months between then and now have been consumed by negotiation: between crypto and banks on stablecoin yield, between crypto and law enforcement on the BRCA, between the White House and Senate Democrats on ethics, and between Senate Banking and Senate Agriculture on jurisdictional reconciliation. The White House Council of Economic Advisers published a 21-page analysis in early April finding that a full stablecoin yield ban would increase bank lending by only $2.1 billion, or 0.02% of outstanding loans, materially weakening the deposit-flight argument. Senators Tillis and Alsobrooks reached an agreement in principle on March 20, the text of which has now been incorporated into the May ANS in the form of a substantially rewritten Section 404. Galaxy Research published a report last week with a comprehensive model showing that GENIUS Act stablecoins with yield pass-through would result in substantially greater net foreign inflows to the U.S. banking system than domestic interbank deposit migration.

What Happens This Week

The procedural sequence for the rest of the week is straightforward but compressed.

• Monday, May 11 (last night): The Senate Banking Committee released the revised ANS text at approximately 12:25 a.m. Tuesday morning. The text is 309 pages, up from 278 pages in the January draft. The full text is available through the committee's public posting.

• Tuesday through Wednesday, May 12-13: Members file amendments. Under committee rules, amendments must generally be filed at least 24 hours in advance of consideration, though Chairman Scott has discretion to accept later filings. We expect some committee Democrats to introduce amendments related to ethics, banking-aligned stablecoin yield restrictions, market regulator quorum, and possibly BRCA.

• Thursday, May 14 at 10:30 a.m. ET: The Banking Committee convenes in executive session in Dirksen 538. The committee will work through filed amendments and then vote on the substitute. A live video feed will be available through the committee website. The session could run several hours given the number of amendments expected. If the markup runs late, a recess and reconvening on Friday is possible.

For the bill to advance from committee, the committee must report it favorably. A favorable report does not require unanimous support, but the margin matters for floor prospects. The five Democrats we are watching are Warner (VA), Alsobrooks (MD), Gallego (AZ), Warnock (GA), and Cortez Masto (NV). If all five vote yes, the bill's prospects on the floor look very strong. If all five vote no and the bill advances on a purely partisan basis, the odds of floor passage are meaningfully diminished. One possible scenario is somewhere in the middle, with two or three Democrats voting yes (Warner for his leadership on digital asset issues and success in gaining substantial anti-illicit finance provisions; Alsobrooks for her leadership on the Tillis-Alsobrooks stablecoin compromise; Gallego as ranking member on SBC’s Subcommittee on Digital Assets). Chairman Scott's public framing has been that he needs all Republican committee members plus meaningful Democratic support to clear the bill on terms the Senate floor can pass.

The White House is targeting July 4 as a presidential signing date. That timeline requires committee passage this week, floor reconciliation with the Agriculture Committee's January text, floor passage with 60 votes, House reconciliation with the July 2025 H.R. 3633, and presidential signature, all before the August recess. The calendar remains very tight even with a successful markup.

Structural Comparison: Title-by-Title

The May draft preserves the nine-title structure from January but adds three new sections (§109 on insider trading, §702 on insolvency safe harbor, §904 on the Build Now Act) and substantially expands several others. The table below summarizes the scope of each title, the January draft posture, and the high-level changes in the May text.

• Title I Responsible Securities Innovation (§§101-110)

  • Overview

    • SEC jurisdiction over ancillary assets, disclosure regime for ancillary asset originators, network token treatment, securities intermediary modernization

  • January Draft Posture

    • 9 sections; established ancillary asset framework via new §4B of the Securities Act of 1933; tied non-security treatment to "common control" test in §104(b); preserved SEC exemptive authority but did not codify Reg BI or investment adviser fiduciary duties

  • May Draft Changes

    • Adds §109 (Application of Insider Trading Laws) preserving §10(b)/Rule 10b-5 for primary offerings while exempting secondary-market commodity-like trading; expands §102 disclosure regime with new (m) anti-evasion, (n) fiduciary obligations, and (o) savings clauses; restructures §104 with new safe harbor framework including 49% beneficial ownership threshold and decentralized governance system carve-outs; renames §105 from "Financial Interests" to "Characteristics of Network Tokens" with grandfather provision tightened to exclude 1940 Act-registered ETPs; expands §108 to preserve Reg BI and Investment Adviser fiduciary duties for digital commodity advice

• Title II: Protecting Against Illicit Finance (§§201-206)

  • Overview

    • BSA treatment of digital asset activities, examination standards, Preventing Illicit Finance Through Partnership Act, Financial Technology Protection Act, kiosks, illicit use study

  • January Draft Posture

    • Established BSA framework for digital asset activities and digital asset service providers; created examination standards aligned to FFIEC; codified PIFTPA and FTPA as standalone components; kiosk provisions modeled on state money transmitter frameworks

  • May Draft Changes

    • Section structure unchanged; moderate edits throughout on BSA scope, examination triggers, and information-sharing mechanisms; §206 study scope rewritten with materially different reporting requirements; kiosk provisions trimmed by approximately 600 characters

• Title III: Responsible Innovation in Decentralized Finance (§§301-313)

  • Overview

    • Delineates CeFi from DeFi for regulatory purposes; establishes rulemaking framework for "non-decentralized finance trading protocols"; addresses offshore stablecoins, cybersecurity, monetary instrument definitions, risk management, mixers, and foreign adversary activities

  • January Draft Posture

    • Defined "decentralized ledger finance trading protocol" and "non-decentralized finance trading protocol" through three-part disjunctive exclusions test (control authority, transparent rules-based operation, censorship authority); §302 obligations attached to "distributed ledger application layers"; cybersecurity emergency carve-out limited to "incidents" only

  • May Draft Changes

    • Renames §302 from "application layers" to "distributed ledger messaging systems"; restructures §301 definitions with new explicit statutory protections for validators, sequencers, oracle providers, node operators, and incident response councils; adds new safe harbor for decentralized governance systems acting in ministerial capacity; broadens cybersecurity emergency scope from "incidents" to "incidents or imminent threats"; cross-references BRCA non-controlling developer immunity from §604(b)(3); rewrites §309 on mixers and tumblers; substantially rewrites §307 monetary instrument definition

• Title IV: Responsible Banking Innovation (§§401-404)

  • Overview

    • Permissibility of digital asset activities for banks, joint rules on portfolio margining, capital and netting agreement treatment, stablecoin rewards

  • January Draft Posture

    • §404 titled "Preserving Rewards for Stablecoin Holders"; allowed activity-based rewards with broad carve-outs; rulemaking by SEC and CFTC jointly; no civil penalties

  • May Draft Changes

    • §404 renamed "Prohibiting Interest and Yield on Payment Stablecoins" and rewritten end-to-end; adds Treasury as joint rulemaker with SEC and CFTC; introduces "economically or functionally equivalent" test; adds $5m per-violation civil penalty enforced by Treasury; expanded reporting on dollar primacy and Treasury market effects in addition to deposit outflows; expands §401 permissibility provisions by about 700 characters

• Title V: Responsible Regulatory Innovation (§§501-508)

  • Overview

    • CFTC-SEC innovation sandbox, international cooperation, automated regulatory compliance study, tokenization, post-quantum cryptography adoption, foreign trading volume reporting

  • January Draft Posture

    • §505 covered "tokenization of securities and other real-world assets" with joint SEC-CFTC framework, qualified third-party custodian standards, RWA-specific definitions and rulemaking, CFTC enforcement authority; §501 sandbox provisions oriented toward joint agency authority

  • May Draft Changes

    • Narrows §505 to "Tokenization of Securities" only; SEC sole agency authority; removes RWA, derivatives, and tokenized financial instrument definitions; grants SEC explicit flexibility to adapt regulatory requirements "in light of the unique technological or other characteristics" of digital assets; retains §501 sandbox provisions with minor edits; rewrites §507 on international coordination; substantially rewrites §503 automated regulatory compliance study

• Title VI: Protecting Software Developers and Software Innovation (§§601-605)

  • Overview

    • Software developer protections, NFT safe harbor, NFT study, Blockchain Regulatory Certainty Act (BRCA), Keep Your Coins Act

  • January Draft Posture

    • §604 BRCA exempted non-controlling developers from money transmitter classification and §1960 prosecution; §601 framework for protecting software publication generally

  • May Draft Changes

    • Preserves §604 BRCA verbatim, with one substantive insertion: new subsection (d) preserving §1960(b)(1)(C) application to persons acting with specific intent to transfer funds known to be criminal in origin or destination; minor narrowing of rule of construction in (e)(2); expands §601 protecting software developers by approximately 100 characters; modestly edits §602 NFT safe harbor

• Title VII: Protecting Customer Property (§§701-702)

  • Overview

    • Customer property protections for ancillary assets and digital commodities in bankruptcy

  • January Draft Posture

    • §701 conformed Bankruptcy Code §§741, 746, 561, 752 to add ancillary asset and digital commodity treatment

  • May Draft Changes

    • §701 substantively unchanged from January (two typo corrections only); adds §702 Insolvency Safe Harbor extending Bankruptcy Code §§362, 546, 553, 556, 561, 562 safe harbors, plus FDI Act §11, Dodd-Frank §210, and SIPA §5(b)(2)(C), to digital commodity transactions with commodity brokers, stockbrokers, financial institutions, financial participants, and securities clearing agencies

• Title VIII: Protecting Customer Property (§§701-702)

  • Overview

    • Educational materials, savings clauses, financial literacy study, SIPC consultation on broker-dealer disclosures

  • January Draft Posture

    • §801 educational materials provision; §802 savings clauses preserving existing federal/state regulatory authority; §803 financial literacy study; §804 SIPC consultation

  • May Draft Changes

    • Rewrites §801 with different educational scope; substantially rewrites §804 SIPC consultation; modestly edits §802 and §803

• Title IX: Protecting Customer Property (§§701-702)

  • Overview

    • Joint Advisory Committee on Digital Assets, MOU between SEC and CFTC, FinCEN appropriations, rulemakings, effective date

  • January Draft Posture

    • Five sections; established Joint Advisory Committee membership and operations; mandated SEC-CFTC MOU; appropriated funds to FinCEN

  • May Draft Changes

    • Adds §904 Build Now Act (community development block grant housing supply incentive, unrelated to digital assets, originally Kennedy-Warren bipartisan bill S. 2441); rewrites §901 Joint Advisory Committee membership and operations; substantially rewrites §902 MOU; preserves §905 (renumbered from §904 rulemakings) and §906 (renumbered from §905 effective date) with minor edits

We address the most material substantive changes in turn.

Section 404: Stablecoin Yield Compromise Lands in Text

Section 404 is the most consequential change in the May draft and the provision most likely to determine whether the bill clears committee on Thursday with bipartisan support. The January draft's framing was permissive ("preserving rewards"); the May draft's framing is prohibitive ("prohibiting interest and yield"). The substantive change is more nuanced than the title swap suggests, but it is meaningful.

The January draft prohibited interest or yield paid "solely in connection with the holding of a payment stablecoin" while preserving broad activity-based rewards covering wallet use, account use, platform participation, loyalty programs, settlement activity, liquidity provision, governance, validation, and staking. The May draft adds a second prohibition prong: payments "on a payment stablecoin balance in a manner that is economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit." This is the Tillis-Alsobrooks compromise text. It is meaningfully tighter than the January version.

That said, the May draft preserves substantial space for activity-based reward programs. Subsection (c)(2)(A) carves out "bona fide activities or bona fide transactions that are not economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit." The required rulemaking under (c)(3) must issue a non-exhaustive list of permissible rewards, with the statute itself explicitly enumerating: transaction, payment, transfer, conversion, remittance, settlement activity (including rebates), market-making liquidity provision, posting collateral in connection with trading, putting assets at credit or investment risk, governance voting, validation, staking, and use of products or services including participation in loyalty, promotional, subscription, or incentive programs.

The single most important sentence in the new §404 is subsection (c)(3)(B): permissible rewards "may be calculated by reference to a balance, duration, tenure, or any combination of the foregoing." This is a meaningful concession to the crypto industry. It means rewards calculated as a function of balance or holding duration are not per se prohibited as long as the underlying activity is bona fide and the arrangement is not economically equivalent to a deposit. Intermediaries may need to adjust reward programs but will not be required to eliminate balance-referenced calculation entirely.

The May draft also makes several structural changes that affect enforcement and scope. Treasury joins the SEC and CFTC as a joint rulemaker. A new "covered party" definition includes digital asset service providers and their affiliates but excludes permitted payment stablecoin issuers and Comptroller-registered foreign issuers, which remain subject to the GENIUS Act's separate prohibitions under §4(a)(11). A new $5 million civil monetary penalty per violation is enforceable by Treasury upon referral from the SEC or CFTC. A good-faith reliance safe harbor in (c)(5) protects covered parties that structure programs in good faith with reliance on the statutory carve-outs, with a 90-day cure period if a subsequent rulemaking or adjudication determines a program falls outside the safe harbor.

The expanded reporting requirements in subsection (h) are worth flagging. The Federal Reserve, OCC, FDIC, NCUA, and Treasury are required to submit a joint report within two years analyzing: stablecoin adoption (domestic and foreign); effects on U.S. Treasury yields and demand across durations, effects on the dollar's use in global foreign exchange transactions and reserves; effects on unbanked and underbanked access; payment costs; and the impact of non-dollar stablecoins and foreign CBDCs on dollar primacy. The January draft required only a Fed-OCC-FDIC report on deposit outflows. The expansion signals that Senate Banking is reading payment stablecoins as a Treasury demand and dollar dominance story, not just a deposit-flight story.

The banking lobby's May 9 rejection of the Tillis-Alsobrooks compromise raises the question of whether Republican committee members will hold the line on Thursday. We expect the compromise text to survive committee largely intact. The banks have made clear their preference for a stricter prohibition, but the political calculus favors the negotiated outcome: the White House is publicly committed to the compromise, the CEA report has empirically weakened the deposit-flight argument, Coinbase has reversed its January opposition, and Chairman Scott has held the markup date despite trade group pressure. The more interesting question is what amendments banking-aligned senators will offer on the floor.

Title III: CeFi/DeFi Line Redrawn With Explicit Validator and Oracle Protections

Title III contains some of the most substantively important changes in the May draft. The high-level redrafting of §301 is structural, but the underlying policy choices favor the crypto industry on the central CeFi/DeFi delineation question.

The most significant change is the new (a)(2)(C) "Exclusions" provision in §301. The January draft defined a "non-decentralized finance trading protocol" by a three-part disjunctive test (control authority, transparent rules-based operation, or censorship authority). Any protocol meeting one of those tests was subject to the §301 rulemaking framework, which would in turn apply Exchange Act registration and BSA obligations to its operators. The May draft preserves the same three exclusionary tests but adds an explicit statutory carve-out: a protocol is not a "non-DeFi trading protocol" by reason of, individually or in combination, "compiling network transactions or relaying, searching, sequencing, validating, or acting in a similar capacity"; "providing computational work, operating a node or oracle service, or procuring, offering, or utilizing network bandwidth"; or "participating in an incident response or security council."

These exclusions are a substantial protection for validators, MEV searchers and builders, sequencers, oracle providers like Chainlink and Pyth, node-as-a-service providers, and DeFi protocol security councils. The January draft addressed the validator question only obliquely through the §301(g)(2) cybersecurity emergency carve-out. The May draft codifies these protections directly into the definition of who is subject to the §301 framework. Combined with the BRCA's separate immunity for non-controlling developers (now expressly cross-referenced in §301(d)(2)(B)), the May text materially narrows the population of digital asset infrastructure participants that could be required to register with the SEC or comply with BSA obligations under §301.

The new (a)(2)(B) "Special Rule" provides additional protection: a decentralized governance system, "solely by virtue of the operation of the decentralized governance system," is not a person or group of persons under common control. This pushes back on the analytical move under which DAO participation has been treated in litigation and enforcement actions as evidence of concerted action by participants. The provision is repeated three times across the bill (§2(5)(D), §104(b)(3)(B)(i), §301(a)(2)(B)), reflecting an intentional belt-and-suspenders approach.

The cybersecurity emergency carve-out in §301(f)(2) has been broadened to cover "imminent threats" in addition to specific documented incidents, but the May draft also adds a prohibition: emergency measures may not be used to implement protocol upgrades, governance decisions, or economic changes unrelated to mitigating the underlying cybersecurity threat. This addresses the abuse case where a security council uses incident-response privileges to push contested protocol changes.

Section 302 has been renamed from "decentralized finance application layers" to "distributed ledger messaging systems." The substantive obligations have been narrowed and reorganized, with the focus on the messaging and communication layer rather than on the broader application stack. This is consistent with the validator and infrastructure exclusions in §301 and reflects a more refined understanding of which layer of the DeFi stack is most appropriate for AML obligations.

Sections 307 (monetary instrument definition), 308 (risk management standards), and 309 (mixers and tumblers study) have all been substantially rewritten. The §309 mixer study in particular is materially different from the January draft and worth a close read by counsel for any privacy-tool-adjacent project.

We note one drafting issue worth tracking. Section 301(f)(3) references "multi-signature arrangement under subsection (a)(3)" but subsection (a) contains only paragraphs (1) and (2). This appears to be either a drafting error or a placeholder for a provision expected to be added at markup. We would expect a manager's amendment to clean this up.

Section 604 BRCA: Preserved With a Narrow Criminal Carve-Out

The BRCA presents the issue on which so far it has been the hardest to reach compromise. In the May draft, the substantive immunity for non-controlling developers is preserved verbatim from January. However, the May text also adds one substantive provision and one minor narrowing.

The substantive addition is subsection (d) titled "Clarification of Treatment." It preserves the application of 18 U.S.C. §1960(b)(1)(C), which is the criminal money transmitter statute's "illegal money transmission" prong, to any person who acts "with the specific intent to transfer, on behalf of another person, funds that are known by the initial person to be" derived from a criminal offense or intended to be used to promote or support unlawful activity. The mens rea standard is high: specific intent plus actual knowledge. This is more protective of developers than the DOJ's posture in some recent §1960 prosecutions, but it provides clarity to the statute and preserves the criminal hook for bad-actor cases involving knowing facilitation of crime.

This is the Tornado Cash and Samourai Wallet carve-out, and it is the minimum that Senator Chuck Grassley needed to drop his January objection to BRCA's inclusion. The May 604 text is consistent with the DOJ's August 2025 position (articulated by former Acting AAG Matthew Galeotti) that truly decentralized, non-custodial software does not constitute money transmission. The Galeotti speech and the new (d) carve-out together establish a defensible boundary: the BRCA shields good-faith, non-controlling developers, while specific-intent-plus-knowledge criminal facilitation remains prosecutable.

The minor narrowing is in subsection (e)(2), the rule of construction concerning "financial institution" treatment under Title 31 chapter 53 subchapter II. The May 604 text adds the qualifier "based on conduct outside the scope of subsection (c)." This means anti-money-laundering treatment can only attach based on conduct that is itself outside BRCA's protected categories (software publication, self-custody hardware/software provision, infrastructure support). The change tightens the safe harbor and aligns it with the substantive immunity in (c).

For institutional purposes, the BRCA remains effectively intact. Non-custodial application developers, infrastructure participants, validator operators, custody software providers, and protocol developers continue to operate within BRCA's protective scope. The (d) carve-out should not affect any participant who is not specifically intending to facilitate criminal money flows with knowledge of their criminal character.

Whether Senator Catherine Cortez Masto's law enforcement concerns can be addressed within this framework, or whether she will press for further amendments on Thursday, is one of the more delicate questions going into the markup. Our base case is that the May text holds, but a Cortez Masto amendment offered during markup is possible and should be tracked carefully.

Section 904 Build Now Act: Vehicle Strategy and the Kennedy Vote

The May draft incorporates the Build Now Act as Section 904. The provision is unrelated to digital assets. It amends Section 106 of the Housing and Community Development Act of 1974 to adjust Community Development Block Grant allocations based on housing growth improvement rates: jurisdictions exceeding the median rate receive bonus allocations, jurisdictions below the median have allocations reduced by 10%, and the redistributed amounts fund the bonuses. The provision sunsets in fiscal year 2043.

The Build Now Act was introduced as S. 2441 on July 24, 2025, by Senator John Kennedy (R-LA) and Senator Elizabeth Warren (D-MA). It was advanced unanimously out of Senate Banking Committee as part of the ROAD to Housing Act (S. 2651) on July 29, 2025. The Senate passed it as a floor amendment to the FY2026 NDAA in October 2025, though it was dropped in NDAA conference when the House declined to include housing language. The Senate passed it again in March 2026 as part of the 21st Century ROAD to Housing Act, which combined the Senate ROAD bill with the House's Housing for the 21st Century Act. That legislation has been awaiting House action.

The inclusion of the Build Now Act in the CLARITY substitute serves three purposes. First, it creates a second legislative vehicle for a provision that has been awaiting House action on the standalone housing bill. Second, it provides a bipartisan hook: a Kennedy-Warren bill placed inside the CLARITY substitute is a deliberate signal of the committee's bipartisan reach. Senator Kennedy is a member of the Banking Committee and was a participant in the January markup discussions. Including his signature housing bill in the substitute may secure his vote and creates a political cost for him to defect even if he has reservations about specific crypto provisions. Third, it creates pressure on Senator Warren that may not change her vote on CLARITY itself but does complicate the political messaging if she opposes the package. Warren's objections to CLARITY are substantive on the crypto provisions, particularly on ethics, and we do not expect her to vote yes regardless of the Build Now Act's inclusion. The marginal political gain from including the provision is therefore primarily on the Kennedy side.

The committee has precedent for pairing housing and digital asset provisions. The 21st Century ROAD to Housing Act that passed the Senate in March 2026 included a separate provision prohibiting the Federal Reserve from issuing a central bank digital currency through 2030. Pairing housing with crypto in legislative vehicles is now a recognizable Senate Banking pattern.

Section 702: New Insolvency Safe Harbor for Digital Commodity Transactions

The May draft adds a Section 702 titled "Insolvency Safe Harbor." This is one of the cleanest pieces of new institutional infrastructure in the bill and is entirely net new in public discussions about CLARITY.

Section 702 deems a purchase, sale, loan, margin loan, extension of credit, repurchase, reverse repurchase, or other transaction involving a unit of a digital commodity, occurring with a commodity broker, stockbroker, financial institution, financial participant, or securities clearing agency, to be: (1) a commodity contract for purposes of Bankruptcy Code §§362(b)(6), 362(o), 546(e), 553, 556, 561, and 562; FDI Act §11; Dodd-Frank Title II §210; and SIPA §5(b)(2)(C); and (2) a margin payment for purposes of Bankruptcy Code §548(d)(2)(B).

This maps digital commodity transactions onto the same safe harbor regime that applies to swaps, forwards, repos, and securities contracts under existing law. The practical effect is significant: counterparties can close out positions, exercise contractual netting rights, and apply collateral against obligations without being subject to the automatic stay or to fraudulent transfer and preference clawback liability. The Bankruptcy Code safe harbors are what allow the swap and repo markets to function in a default scenario. Extending them to digital commodity transactions with the named institutional counterparties is what makes a genuine institutional prime brokerage, clearing, and financing market for digital commodities possible at scale.

For institutional trading and lending desks, §702 substantially reduces the legal-risk premium that has been embedded in counterparty pricing for institutional digital commodity transactions. Every digital commodity trade with an institutional counterparty currently carries some risk that a bankruptcy filing would result in a §362 automatic stay nightmare or a §547 preference claim. Section 702 maps that risk onto the same safe harbor architecture that institutional counterparties already understand and price into swap and repo markets. The same applies to an institutional investor as a borrower or lender in digital commodity financing transactions: the §702 treatment of margin payments under §548(d)(2)(B) is the fraudulent-transfer safe harbor that makes routine margin posting workable in stressed credit conditions.

The provision is narrow in two ways worth understanding. First, it applies only to transactions with the named institutional counterparties (commodity broker, stockbroker, financial institution, financial participant, or securities clearing agency). Retail and non-institutional counterparties are not within its scope. Second, it applies only to digital commodity transactions. Ancillary asset transactions are governed separately under the §701 customer property regime, which itself is essentially unchanged from January (two typo corrections only).

Section 505: Tokenization Narrowed, SEC Exemptive Authority Expanded

Section 505 in the May draft is approximately half the length of the January version (4,400 characters versus 9,400). The narrowing is structural and consequential.

The January draft contemplated a sweeping tokenization framework covering securities, derivatives, commodities, and real-world assets with joint SEC and CFTC jurisdiction. The May draft is securities-only and SEC-only. Removed entirely: the "financial instrument" definition (which had bridged securities, derivatives, futures, and bank deposits); the "real-world asset" definition (which had covered real estate, physical commodities, equipment, and contractual rights); the "qualified third-party custodian" definition with attendant verification and audit standards; the "tokenized financial instrument" definition (which had bridged securities and derivatives); the joint SEC-CFTC study and rulemaking; CFTC enforcement authority under CEA §6(c)(1); the misrepresentation provisions for tokenized real-world assets; and the state-sovereignty study on tokenization's effect on state property regimes for firearms, automobiles, and real estate.

What remains in the May text is a focused securities-only provision. The SEC alone is the rulemaking and enforcement agency. The scope is limited to tokenized securities, which are treated for all regulatory purposes as the underlying security except as provided by the new §106(a) modernization framework or by SEC rule, regulation, or order. Critically, the May draft adds explicit flexibility for the SEC to adapt regulatory requirements "in light of the unique technological or other characteristics of digital assets or substantially similar technology" or as the Commission determines necessary or appropriate in the public interest, consistent with investor protection, market integrity, and capital formation.

This flexibility is the answer to a major criticism of the January draft, which had been raised by attorneys and compliance professionals working on tokenization projects and by former regulators. The concern was that the January text imposed rigid statutory requirements that limited the SEC's longstanding discretion under Securities Act §28 and Exchange Act §36 to grant exemptive relief and accommodate innovation. The May text explicitly preserves and expands that discretion for tokenized securities specifically. Under Chair Atkins, the SEC has been actively using no-action relief and staff guidance to facilitate tokenization activity, including for tokenized equities. The May §505 codifies that path.

The narrowing of scope also reflects political reality. The tokenization of commodities, derivatives, and broader real-world assets remains contested at both the federal-versus-state level and the SEC-versus-CFTC level. The May draft defers those questions. The Superstate, Secueitize, xStocks, Ondo, and BUIDL universe of tokenized Treasury exposure, tokenized equities, and tokenized fund interests is squarely within the May §505 scope as tokenized securities. The tokenized commodities, derivatives, real estate, and contract-right universe gets no statutory framework here at all and is left to existing law and future legislation.

The new May text is a meaningful improvement on January’s version. SEC exemptive authority is preserved and expanded for tokenized securities; the federal framework for tokenized securities is clearly established; and the more contested categories are reasonably deferred. The remaining work on tokenized real-world assets will happen through SEC and CFTC rulemaking and possibly through future legislation.

Section 2: "Common Control" Becomes "Coordinated Control"

The Section 2 definitional changes are subtle in form but consequential in effect. The defined term "common control" in §2(4) has been renamed "coordinated control." The substantive definition (whose meaning is determined by SEC rule under §104(b)) is unchanged. But "common control" continues to appear elsewhere in the bill as a general concept, including in the definitions of "decentralized governance system," "related person," and several Title III provisions.

The bifurcation is the point. The January draft used "common control" both as the SEC-style general affiliate test (the longstanding concept that pervades the securities laws) and as the specific decentralization test for distributed ledger systems under §104(b). The May draft separates the two. "Common control" refers to the general affiliate test (used in relationship definitions, governance-system definitions, and Title III). "Coordinated control" refers to the §104(b)-specific decentralization test for distributed ledger systems. The new framework cleanly distinguishes "is this person affiliated with that person under traditional control tests?" from "is this distributed ledger system controlled in a coordinated manner that would prevent it from receiving non-security treatment?"

The new §2(5)(D) Rule of Construction reinforces the separation: a decentralized governance system is not deemed to be a person or group of persons acting under common control. This carve-out is repeated in §104(b)(3)(B)(i) and §301(a)(2)(B), as noted above.

Other Section 2 changes worth noting:

• Digital commodity: The definition now references the Commodity Exchange Act (CEA) "as added by this Act," confirming that the CLARITY Act amends the CEA to add the digital commodity definition (consistent with the Agriculture Committee's parallel framework).

• Distributed ledger application (§2(10)): Narrowed from "composed of a distributed ledger protocol, including a smart contract" to "composed of source code that is publicly available, including a smart contract." The definition now focuses on publicly available source code rather than protocol composition.

• Distributed ledger protocol (§2(11)): The January draft covered source code of a distributed ledger "or distributed ledger application." The May draft limits coverage to source code of a distributed ledger only. Applications and protocols are now cleanly separated definitional concepts.

• Distributed ledger system (§2(12)): Minor restructuring so that the "together with its distributed ledger protocol" qualifier attaches only to "a distributed ledger" and not to applications or networks of applications.

These definitional refinements affect cross-references throughout the bill and matter for the application of substantive provisions in Titles I and III. They are subtle but should be reviewed carefully by counsel working on protocol-level legal analysis.

Breaking Down Committee Membership

The Senate Banking, Housing, and Urban Affairs Committee in the 119th Congress has 24 members: 13 Republicans and 11 Democrats.

The Republican side is uniformly supportive. All 13 Republican members carry SWC grades of A and have voted yes on both GENIUS and SAB 121 (where applicable, given freshman tenure). Chairman Scott (SC), Senator Hagerty (TN, GENIUS lead sponsor), Senator Cynthia Lummis (WY, Digital Assets Subcommittee Chair), and Senator Bernie Moreno (OH) are the strongest pro-framework voices on the Republican side. Senator Thom Tillis (NC) has been the lead negotiator on stablecoin yield and has exhibited a constructive but guardrails-focused posture. We do not expect any Republican defections in committee. The Democratic side is the relevant uncertainty. Eleven Democrats range from strongly supportive to strongly opposed, and the markup vote will turn on how many of the five constructive Democrats vote yes:

• Senator Warner (VA), ranking member on the Securities Subcommittee and a member of the Digital Assets Subcommittee, is the senior Democratic deal-maker on the committee. He has supported every major digital asset vote, voted yes on GENIUS and SAB 121, and carries an SWC A grade. His national security and AML focus has been a constructive influence on the bill's illicit finance provisions.

• Senator Alsobrooks (MD), a freshman, co-led the Tillis-Alsobrooks stablecoin yield compromise and has been the most active Democratic negotiator on bill text. She is among the most likely Democratic yes votes.

• Senator Gallego (AZ), the top Democrat on the Digital Assets Subcommittee, is the third constructive Democrat. He voted yes on GENIUS and has been a consistent voice for a workable federal framework. He also serves as the lead negotiator on ethics, which may ultimately emerge as the decisive sticking point for the legislation.

• Senator Cortez Masto (NV), ranking member on Financial Institutions and Consumer Protection, has law enforcement-related reservations about BRCA and has pressed for changes to address those concerns. The May draft's new Section 604(d) carve-out preserving Section 1960(b)(1)(C) for specific-intent criminal conduct was the answer to her objections as well as those of Chair of Judiciary Chuck Grassley. Her vote will turn on whether she views the 604(d) carve-out as sufficient.

• Senator Warnock (GA), ranking member on the Economic Policy Subcommittee, voted yes on GENIUS in final form but has consistently pushed for tougher AML and illicit finance language. His vote is the most conditional of the five and would largely depend on how others on committee vote.

A vote in which all five of Warner, Alsobrooks, Gallego, Cortez Masto, and Warnock support the bill would be an 18 to 6 markup result and would signal very high floor viability. A vote in which only Warner, Alsobrooks, and Gallego support is our base case and would be a 16 to 8 result, sufficient to advance the bill but with a more challenging floor path. A purely party-line 13 to 11 result is the downside case and would meaningfully reduce the probability of floor passage in 2026. Senator Kim (NJ) is a secondary target for the markup vote but his recent statements suggest he is more likely to vote with the skeptical caucus on this particular bill text absent additional concessions.

The remaining four Democrats are unlikely to vote yes. Senator Blunt Rochester (DE) has been swing-to-skeptical and voted no on the GENIUS final cloture. Senators Van Hollen (MD), Smith (MN), Reed (RI), and Ranking Member Warren (MA) are the consistent no votes and are expected to oppose CLARITY in committee.

The Coming Markup

Several questions will shape the read on the Banking Committee markup outcome.

Margin of support

A vote that brings along Senators Warner, Alsobrooks, and at least one additional Democrat signals viability at 60 votes on the floor. A vote that splits the Democrats roughly evenly is workable. A party-line or near-party-line vote is a warning sign for floor prospects.

Stablecoin yield amendments

The Tillis-Alsobrooks compromise is now in the text. We expect amendments from banking-aligned senators seeking to tighten the prohibition and from crypto-aligned senators seeking to expand the activity-based carve-outs. Our base case is that the text survives intact, but the volume and substance of amendments will indicate where future floor pressure will come from.

Ethics amendments

Democrats led by Senators Gallego (D-AZ) and Gillibrand (D-NY) have been explicit that the bill cannot pass without ethics provisions. The White House’s public position is that it will accept across-the-board ethics rules but reject anything targeting specific officeholders. Leadership on the Banking Committee believes that the Committee's jurisdiction over ethics issues is limited, so this question may be deferred to the floor or to a separate vehicle. We expect ethics amendments to be offered in committee by Democrats notwithstanding the jurisdictional question, both to put the issue on record and to test Republican appetite for any compromise language ahead of the floor.

BRCA amendments

The new §604(d) criminal carve-out is the negotiated answer to Grassley-Durbin concerns. Whether Senator Cortez Masto offers an additional amendment, and whether any such amendment gains Republican support, will indicate whether the BRCA compromise holds for the floor.

DeFi amendments

The new §301 validator and oracle exclusions are substantively favorable to the industry. We do not expect significant amendment activity targeting these provisions in committee, but the cybersecurity emergency carve-out and the §302 messaging system framework could see amendment activity.

Tokenization amendments

The narrower §505 scope is unlikely to draw significant amendment activity. If amendments are offered, they are most likely to come from senators wanting to restore some version of the broader RWA framework, which would be an industry-favorable expansion. If the committee reports the bill favorably with a bipartisan margin on Thursday, the path to a floor vote in June or early July becomes credible. If the bill clears committee on a party-line vote, or if Chairman Scott is forced to recess the markup, the timeline compresses materially and the July 4 White House target becomes very difficult to meet. We will be in Washington on Thursday and will provide a follow-up note that evening with our read on the committee vote and what it signals for the next phase.

Likelihood of Passage in 2026

Polymarket places odds of CLARITY Act passage in 2026 have risen from 43% at the end of April to as high as 73% last week (and recently traded at 69%). In our report three weeks ago, we wrote that the odds had risen to a 50-50 coin flip. This week’s events, culminating with Thursday’s markup in Senate Banking, may prove decisive for the bill’s prospects (either positive or negative). Given compromise language on rewards and BRCA, odds have improved.

At lot is at stake for U.S. capital markets and there are a lot of moving pieces among myriad stakeholders, but we are now cautiously optimistic with a view of 55% likelihood that the bill will become law in 2026.