Clarity Can Accelerate Crypto Innovations, but Protect Existing Players

The failure of Clarity's promotion in the Senate has shifted the focus of crypto regulation in the U.S. to the SEC and CFTC: these agencies are already trying to expand legal trading of digital assets and access for institutional players, but without Congress, key oversight gaps remain unresolved.

The Clarity Act on the digital asset market has not gained traction in the Senate. Now, the next stage of rule-making for the crypto industry effectively depends on the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. This opens the door to new on-chain tools, tokenization, and institutional trading, but simultaneously raises the question: how sustainable can regulatory certainty be if it is created by agencies rather than legislators?

Company executives and lawyers generally agree on one point: regulation of digital assets will continue to evolve. Disagreements arise when it comes to the reliability of such a process. Some believe that the actions of the SEC and CFTC provide a sufficient basis for launching new products, while others warn that rules created by agencies can be more easily revised under political or judicial pressure.

Lev Breido, an associate professor of law at the William & Mary Law School, believes that the Clarity situation has revealed internal contradictions within the crypto industry. Disputes have arisen over a wide range of provisions: from ethical standards to the struggle for profitability, in which local banks are involved.

The coalition that seemed united against Gensler realized that definitions create winners and losers.

SEC and CFTC Fill Gaps Without New Legislation

Despite the legislative pause, regulators have already begun to act. On September 17, the SEC introduced a five-year "Innovation Exemption." This allows qualified platforms to trade tokenized U.S. stocks through a blockchain liquidity pool while the agency prepares permanent rules.

On October 5, the CFTC requested comments on rules for margin retail trading of cryptocurrencies and on a new registration category for crypto markets. This does not mean an immediate launch of a ready regime: it refers to a lengthy process of public discussion and subsequent norm-setting work.

Another important direction concerns asset custody. The SEC's proposal from October 1 will allow state-level trust companies to provide custody for clients' crypto assets. Investment advisors and funds will also be able to store such assets independently, provided they meet established conditions.

Looking ahead to 2027, Breido expects the SEC to focus on finalizing rules for the issuance and custody of digital assets, as well as continuing to develop the exemption for tokenized stocks. In his assessment, the joint interpretive release from the SEC and CFTC published in March has become an important support: it replaces previous recommendations and allows the agencies to coordinate their approach within the existing legal framework.

The main unresolved issue remains. Ordinary spot trading without leverage still lacks a full federal regime, aside from the CFTC's authority to combat fraud and manipulation. This gap was supposed to be closed by Clarity.

Why Business Sees Opportunities in the Pause

For some market participants, the absence of legislation does not appear to be just an obstacle. On the contrary, some executives believe that working through regulatory agencies can yield commercial results faster than a lengthy legislative process.

The SEC and CFTC are already taking active steps to provide the markets with the necessary regulatory certainty. This could trigger a wave of M&A deals in digital assets, traditional financial services, and fintech.

Paul McCaffrey, head of the digital assets division at investment bank KBW, assessed the situation as follows.

Matt Hougan, Chief Investment Officer at Bitwise, also believes that a departmental approach is more favorable in the short term. In his opinion, the passage of the law would still require several years of subsequent rule-making. He also expects that more protocols will start using token buybacks, especially the "buy and burn" model, as SEC clarifications, according to him, increase investor confidence.

For developers, the most crucial question is whether the regulator will separate software creation from financial intermediary activities. Cathy Yoon, Chief Counsel at Temporal, a research and development company in the Solana ecosystem, expressed hope that the SEC will recognize developers as software creators and will not automatically consider their work as securities activities.

The fact that SEC staff are willing to speak directly on these topics can already be considered a victory.

At the same time, Yoon emphasized that the responses from agency staff to frequently asked questions are not official SEC rules.

Michael Lay, global head of digital assets at market maker Flow Traders, believes that comprehensive regulation is inevitable as financial markets transition to 24/7 trading. He is closely monitoring exceptions for innovations and potential rule changes for transfer agents, while European and Asian regimes are already moving forward.

The Main Risk is Not the Idea of Rules, but Their Implementation

Lawyers expect gradual progress but consider the practical application of new approaches to be the most challenging stage. Derek Lowery, head of the legal department at Newton Labs, formerly known as Magic Labs, calls implementation the main gap in the current system.

The biggest gap is implementation.

According to Lowery, without legislation, oversight of trading venues, intermediaries, DeFi, and spot markets remains more complex. At the same time, existing anti-money laundering, sanctions compliance, and record-keeping requirements provide compliance teams with a foundation to rely on.

Kevin Kreutzer, Chief Legal Officer at D3, a company working with domain name tokenization, believes that tokenized real-world assets particularly need clearer jurisdictional boundaries.

The actions of agencies are important and useful, but they do not provide the long-term certainty that a law can offer.

Jim Petrila, Chief Legal Officer at Dromos Labs, developer of Aerodrome and Velodrome, views the situation more optimistically. He believes that the growth of liquidity and the spread of tokenized securities on public blockchains could make a reversal nearly impossible within two years.

For DeFi, this is a bullish signal.

However, the benefits of the new regulatory phase may be distributed unevenly. Hougan believes that the failure of Clarity maintains a regulatory barrier that benefits Coinbase, Kraken, and other large incumbents. This situation could delay the emergence of competitors capable of reducing costs.

As a result, the market presents a paradoxical picture: experiments may proceed faster, but the question of who will be able to compete and how robust the new rules will be remains open. According to Breido, only Congress can create a comprehensive framework with the durability of full legislation.

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