Clarity Act criticized as favoring crypto middlemen over decentralized technology

Clarity Act delays spark debate over its focus on crypto intermediaries

The U.S. Digital Asset Market Clarity Act, a proposed law aimed at regulating cryptocurrency markets, has been postponed until mid-September. Critics argue the bill prioritizes crypto exchanges and brokers over the core technology behind digital assets like Bitcoin and Ethereum.

The Clarity Act has become the main legislative effort for crypto regulation in Washington. Supporters claim it will bring much-needed rules to the industry, while opponents say it favors large companies that act as middlemen in crypto transactions.

Hermine Wong, a lecturer at Berkeley Law, argues that the bill’s structure could harm innovation by focusing too much on intermediaries rather than the decentralized technology that makes crypto unique.

Key concerns about the Clarity Act

• The bill dedicates 44-77% of its language to regulating crypto exchanges, brokers, and custodians, while only 2-4% addresses the underlying blockchain technology.
• Crypto super PACs, funded mostly by large companies like Coinbase and Ripple, spent over $200 million in the 2024 election cycle to support pro-crypto lawmakers.
• The bill’s delay comes as Congress has only 14-16 legislative days left before midterms, making its passage uncertain.
• Critics say the bill treats crypto as a single industry, ignoring differences between decentralized projects and centralized businesses.

Why the bill’s focus on middlemen matters

The original vision of cryptocurrency, as outlined in Bitcoin’s 2008 whitepaper, was to create a financial system without middlemen. Blockchain technology allows people to send money directly to each other without banks or payment processors.

Wong compares the Clarity Act to a hypothetical medicine law that focuses only on how pharmacies sell drugs rather than ensuring the drugs themselves are safe and effective. She argues that regulating crypto exchanges does not address the core technology or its potential benefits.

The bill’s supporters, including Senator Cynthia Lummis, say it will bring clarity to the crypto industry. However, opponents claim it could create a new class of regulated intermediaries, moving away from crypto’s decentralized roots.

Political influence and the future of the bill

The crypto industry’s political spending has grown significantly in recent years. In the 2024 election cycle, crypto super PACs spent over $200 million, with 80% of the funds coming from just three companies: Coinbase, a16z, and Ripple.

Despite Republican control of Congress and the White House, the Clarity Act has missed multiple deadlines. A procedural vote in September will determine whether the Senate will even consider the bill, but its chances of passing are considered low.

Democrats have not proposed an alternative bill that focuses on the technology itself. Some critics say this leaves the door open for a bill that could better support innovation while still protecting consumers.

What is still unclear

• Whether the bill will pass before the midterm elections, given Congress’s limited remaining schedule.
• How the bill would affect decentralized projects that do not rely on intermediaries like exchanges.
• Whether Democrats will propose an alternative that addresses the technology directly rather than just the businesses built around it.

Sources

• CoinDesk