By Miles Jennings, a16z crypto policy chief and general counsel
Compiled by Chopper, Foresight News
Nearly four years have passed since crypto exchange FTX—founded by Sam Bankman-Fried (SBF)—declared bankruptcy. During these four years, the U.S. Congress has held multiple hearings, the Department of Justice has secured convictions for the misappropriation of customer funds at FTX, and creditors have also recovered nearly $10 billion in assets.
But Congress has never put in place a set of safeguards, even though these measures could have prevented and contained this fraud case earlier.
Congress has pushed related legislation for years. The House of Representatives has passed the Market Structure bill twice, granting regulators the power to stop FTX. The most recent vote took place in July 2025, with bipartisan approval by a vote of 294 to 134. Earlier this year, the Senate Banking Committee and the Senate Agriculture Committee also considered the corresponding version of the bill—the CLARITY Act—which is now set to move into the Senate’s first round of floor debate.
On September 15, the Senate will vote on whether to open the debate on the bill. If the bill becomes law, crypto exchanges serving U.S. users must implement the risk-control safeguards that FTX failed to have at the time; if the bill is not passed, these security gaps will continue to exist.
FTX’s collapse was not because regulators failed to spot a clever and complex fraud scheme. The fraud itself contained no technical sophistication: FTX simply deliberately concealed the fact that it had misappropriated customer assets. At the time, the industry had no independent custodian, no customer asset segregation system, and no information disclosure requirements. There was also no regulatory oversight to enforce these protection rules. After the fraud was exposed, users rushed to withdraw their funds, the platform collapsed, and a $8 billion hole in the funds was left behind.
These保障 mechanisms that could have prevented a crisis have existed for nearly a hundred years—only they have never covered the spot market for digital assets. As early as 1936 (the Commodity Exchange Act), futures commission merchants were required to segregate customer assets, and securities brokerage firms holding customer assets had to comply with regulations concerning custody, reserves, capital, information disclosure, and audit inspections—among which were the U.S. Securities and Exchange Commission (SEC)’s Customer Protection Rules. In 1970 (the Securities Investor Protection Act), a complementary framework was added for broker bankruptcy scenarios.
These are not any novel innovations, but well-established rules that have long been standard practice in regulated markets.
That is to say, the state of affairs that everyone in Washington has been complaining about for years is not a neutral, natural condition. Whether the digital asset market will endure is no longer the real question—the key is: what kind of rules will govern it.
The CLARITY Act brings digital commodity brokers, dealers, and exchanges under regulatory oversight, introducing proven, mature regulatory mechanisms from traditional finance into the crypto industry: segregation of customer property, qualified custody, restrictions on conflicts of interest among related parties, mandatory disclosure, listing standards, restrictions on insider trading, and the designation of a compliance officer responsible for ensuring the company follows the law.
It clarifies long-standing jurisdictional conflicts between the SEC and the Commodity Futures Trading Commission (CFTC)—conflicts that have been easy to expand in interpretation and to weaponize. It no longer relies on project sponsors’ unprovable arguments such as “fully decentralized enough”; instead, it replaces that with a set of written, legally determinative standards. It specifies the issuer’s information disclosure obligations, lock-up periods, and restrictions on insider trading.
In short, the CLARITY Act requires the digital asset market and intermediaries to follow regulatory rules broadly comparable to those applied to traditional markets and traditional intermediaries.
At present, there are three categories of opposition voices obstructing the bill from being put to a full Senate vote. First, they believe the bill’s essence is to loosen crypto industry regulation. Second, public officials who hold crypto assets would profit from it. Third, stablecoin interest income would cause a drain on bank deposits. These three views are all worth discussing, but none of them can serve as a reason to maintain the status quo.
First, some argue that CLARITY’s “regulatory easing” will cause crypto to develop uncontrollably. This claim rests on an incorrect premise—that all crypto assets are inherently within the scope of securities regulation. But that is not the case. Multiple court rulings have already confirmed this. The boundary of whether crypto assets are securities has remained unclear to date, and mainstream assets like Bitcoin and Ethereum are generally not recognized as securities.
The CLARITY Act attempts to resolve two extreme misconceptions: that everything on-chain is a security, and that there is no security on-chain at all. Neither extreme position has ever matched reality, and in the end, the unresolved jurisdictional disputes are borne by ordinary consumers. The “Wild West” opponents describe is exactly the status quo.
It is precisely the absence of rules that allowed FTX to disguise itself as a legitimate business. A foreign exchange is subject to almost no information disclosure requirements, yet it competes side-by-side with local institutions. Local institutions, however, are forced to deal with fragmented state-by-state regulation, constantly shifting asset classifications, and repeatedly changing enforcement interpretations. This is not a fair market at all—it is punishing participants that operate in compliance.
Second, officials who hold cryptocurrencies could profit from it. This concern is understandable, and public officials should not profit from the industries they regulate. But this is a matter of government ethics governance, applicable to all asset classes.
Whether a market of trillions of dollars should have a federal-level regulatory framework and whether public officials should follow ethical rules are two separate issues. Bundling the two together is like expressing dissatisfaction with the former, and rejecting the latter legislation as a result—ultimately exposing millions of market participants to risk.
These concerns are not unique to cryptocurrencies. Officials trade stocks, hold real estate, and hold shares in private companies—and the rules that constrain conflicts of interest among them are not tailored to a specific asset class. If moral standards were made for only a single asset, it would be no different from a whack-a-mole game, because anyone determined to profit from it could easily bypass the rules. If Congress believes the current rules are too weak, the solution should be to strengthen regulation across all assets—not to bundle a market-structure bill with an added provision that applies only to one asset while leaving other assets unregulated.
The text of the CLARITY Act itself already includes unprecedented restrictive provisions. Vetoing the bill would not limit anyone’s holdings; instead, it would leave relevant activities in an unregulated state. The bill requires token issuers to fulfill disclosure, lock-up, and insider trading restrictions equivalent to those required of public companies—yet these systems are completely absent today. The “opaque, rule-less asset market” that opponents talk about is precisely the situation that would continue after the bill is vetoed.
Third, stablecoin rewards would siphon deposits from the banking system. Banks argue that stablecoin balances provide interest-like returns—effectively an unregulated savings account—diverting bank funds that would otherwise flow to households and small businesses.
This view currently lacks empirical support. Even if we assume the risks are real, the revised bill text from the negotiations already addresses them: the bill bans purely passive interest income, but allows reward income that comes from genuine business activities. The latest version also authorizes the Treasury Department; once there is solid evidence of deposit outflows, further restrictions can be added.
But fundamentally, this is not just a deposits issue. The White House Council of Economic Advisers estimates that if such earnings were completely and indiscriminately banned, the impact on the scale of bank lending would be about $2.1 billion—only two ten-thousandths of the overall lending scale. This looks more like an anti-competitive demand packaged as a financial stability rationale.
Even if the Senate version of the CLARITY Act is submitted to the President for signature, it would be the product of many-party compromise—legislation always is. The crypto industry accepts a federal regulatory framework in exchange for a clear, written law. No one can deny that this deal is far better than continuing to maintain the status quo.
Regulators alone cannot solve this dilemma. Rules issued by regulators can be overturned when a new administration takes office; any regulatory rule can also be challenged in court, dragging on for years. In recent years, the legal treatment of the entire industry has indeed swung dramatically with changes in government.
Companies that hold other people’s funds should not be built on a compliance framework that a new administration may overturn. Large institutions also would not be willing to invest in building critical infrastructure in such an environment. Regulatory certainty itself is a public good, and only congressional legislation can truly achieve it.
If the Senate does nothing now, the destructive power of the next major crypto crisis would be greater.
When FTX went bankrupt, the crypto industry was still largely a retail market at the margins of the financial system. But times are different now. In July 2025, Congress passed the GENIUS Act to build a federal regulatory framework for U.S. dollar stablecoins. Since then, the total stablecoin supply has surpassed $300 billion, trading volumes have surged, and stablecoin issuers are now among the major holders of U.S. Treasury securities. However, the GENIUS Act only covers the on-chain circulation of dollars; it does not touch the underlying blockchain infrastructure that carries these assets.
Other on-chain sectors have also seen a similar surge in scale. The market value of tokenized assets has grown substantially, far exceeding crypto-native assets. The U.S. Depository Trust & Clearing Corporation, DTCC, which custody securities worth more than $11.4 trillion, completed its first formal business transaction for tokenized assets in July and will roll out tokenized services comprehensively next month. BlackRock, Fidelity, Franklin Templeton, and Goldman Sachs have all implemented digital asset business and have publicly stated their support for the CLARITY Act.
Members from both chambers and both parties have already completed the most difficult negotiation work; now it is the Senate’s turn to run through the legislative process. Every week of delay means there will be another chance for exchanges to custody U.S. users’ assets without having to comply with safeguards that are, in other financial fields, only natural to require.