Clarity Act Deeper Dive
14 July 2026
Stablecoins and the future of institutional finance. What’s happening with the Clarity Act?
The about-turn had taken the rest of the world by surprise. Stablecoins became a major component of regulated finance on 18th July 2025, when the Genius Act was signed into law in the US, soon after an executive order from the new president had signalled a major change in federal attitudes to digital assets. Partisan wrangling under the previous administration had left American lawmakers behind digital finance regulators elsewhere, including Europe, whose MiCA framework was regarded at the time as ‘restrictive’ but at least clear.
Successful international $ coin issuers, such as Tether and Circle, will operate onshore in the US under Genius and are expected to be joined early next year by major Wall Street houses, who are also working on their own tokenised deposit projects[5], which harness the same mechanics as stablecoins for internal institutional use. Significant new names such as the Open Standard[6] consortium, whose planned global $ stablecoin has just been announced, are also emerging.
The Genius Act, governing the oversight, issuance and backing of stablecoins, including their 1:1 reserve requirements, carves them out specifically as a cash-like payment instrument, where regimes elsewhere often include them in a broader legal frameworks for digital assets also encompassing ‘crypto-native’ instruments such as Bitcoin and tokenised versions of real-world assets.
Enter ‘Clarity’, an Act at the moment defying nominative determinism, which seeks to institutionalise the oversight of digital assets as a whole in the US. The Act, which has already passed the House of Representatives and the Senate Banking Committee, defines the classes of digital asset, who supervises their trading, and how consumer protection as well as financial crime prevention will work. It is now in a procedural race in the Senate, where it must pass between the July 13th return from summer recess and the end of the legislative period on August 7th at a time when other business including a voter registration bill might crowd it out. If it can’t be passed by the deadline, it may well
fall foul of mid-term campaigning priorities in the Autumn ahead of the November vote. The results may also change the party political machinations around the Bill.
What is holding it up? The Act requires 60 of 100 votes, in a Senate where governing Republicans only control 53. The necessary horse-trading has foundered so far on arguments about ethical standards, at a time when Democrat politicians are focusing on Trump family business links the crypto industry, as well as complicated discussions about which of the SEC and CFTC should supervise what, and, perhaps most importantly, the issue of stablecoin yield. As it stands, the Bill strikes a compromise between banning yield outright – in order to protect banks from possible deposit flight and the consequential theoretical harm to lending capacity - and allowing crypto companies to craft incentives for their use. Banking advocate groups continue to argue that this will hit smaller community banks in particular.
Most regulators worldwide ban stablecoin yield outright for the same reason. The European Commission, which is running a consultation on revisions to MiCA, is re-examining the same issue, though is likely to return to the same conclusion. Banks typically create credit based on the ratio between their cash on deposit and the total amount of lending, and usually convince policymakers that a reduction in deposits would harm the economy. Canny observers point to money market funds, which resemble stablecoins in many ways, but are able to pass on yield to their investors. If tokenised money market funds were able to gain the regulatory permissions of cash onchain, they would quickly become a highly popular version of digital money.
In the mix are also discussions about ‘digital public money’, or CBDCs, an acronym which became politicised to the extent that the notion is now banned in the US. Many of these projects have slowed down or transformed into state-backed instant payment systems, such as those in Brazil and India. Regional initiatives are underway to link some of these systems cross-border. The outlier is the European Central Bank, which is expected to roll out the Digital € in 2029, and whose Pontes programme will emulate the settlement qualities of wholesale CBDC later this year. European stablecoins, which for now have a very different reserve requirement to the US, are also emerging.
A complicated worldwide patchwork of stablecoin regulation is developing, reflecting local views on the relative importance of the traditional banking sector, capital control choices, worries about illicit finance and in many cases concerns about monetary sovereignty. But as US legislators debate the Clarity Act, it is already clear that stablecoins are here to stay, have already revolutionised payments, are heading into the centre of institutional finance, and offer enormous benefits to corporate users especially cross-border. How they are regulated is an unfished story.
If you’re interested in how this story develops; talk to Freemarket.
