The CLARITY Act and the balancing challenge: neither too rigid nor too flexible

For many years, digital asset regulations in the United States have been stuck in a difficult position. On one hand, the industry needs clarity and specific rules rather than the current ambiguity. On the other hand, if those rules are too rigid and inflexible, they could hinder innovation and drive companies to other jurisdictions. The CLARITY Act is an effort to find that balance—a comprehensive federal framework that isn’t so strict that it quickly becomes outdated.

The issue isn’t simply that lawmakers need to “write clearer laws.” The real challenge is designing a system that is detailed enough to eliminate uncertainty but flexible enough for regulators to adapt to technological developments. If too rigid, laws become useless when new technologies emerge. If too soft, they risk recreating the very problems CLARITY aims to solve.

Why Excessive Rigidity in Regulation Can Stifle Innovation

When policymakers draft financial laws, they often face a philosophical challenge: how to protect the market without over-restricting so that good innovations can’t develop?

In the case of digital assets, excessive rigidity can be damaging. If CLARITY forces all tokens to meet traditional securities standards, many innovative projects may become non-compliant. If it imposes overly complex registration requirements, small organizations might give up, leaving only large corporations operating. The result is concentration of power, reduced competition, and regulations that are supposed to protect consumers could actually harm them by limiting choices.

Crypto companies argue that overly strict approaches will push them abroad, to jurisdictions with friendlier but less regulated environments. Some countries have recognized this and benefited from the shift. The problem for the U.S. is that not all of those jurisdictions prioritize consumer protection equally. So, the balance isn’t about choosing between “regulation” and “no regulation,” but between “regulation in the U.S.” and “companies moving overseas.”

The Stablecoin Debate: Balancing Financial System Protection and Flexibility

One of the most contentious issues in CLARITY involves stablecoins—digital currencies designed to maintain a stable value.

The core question is: should stablecoins be allowed to offer profit-generating mechanisms? That is, should holders of stablecoins be able to earn interest on their holdings, similar to how traditional banks offer savings accounts?

Traditional banks argue that allowing this is too rigid, as it could pull deposits out of the banking system. If users can earn higher returns from stablecoins than from traditional savings accounts, they might withdraw their funds. This could alter liquidity incentives across the entire financial system and even pose systemic risks.

Crypto companies, on the other hand, say that restricting these features is overly rigid. They argue that banning profit generation from stablecoins limits their utility, making digital assets less attractive. If stablecoins can’t offer any value beyond maintaining stability, why would anyone use them?

This debate isn’t just about what’s “better.” It’s about how stablecoins function within the larger financial system. Any decision will have broad implications—from system stability and consumer protection to fair competition. That’s why negotiations are lengthy and complex.

Negotiating Structure: Regulators Demand Flexibility, Businesses Seek Certainty

Another major obstacle involves defining the boundaries of authority among federal agencies. Currently, many agencies—from the CFTC to the SEC and others—claim jurisdiction over different aspects of digital assets. This overlap creates business uncertainty.

CLARITY aims to clarify those boundaries. But here, rigidity can be an issue. If laws specify “Agency A oversees X, Agency B oversees Y,” that’s clear. But what if technology evolves so that a product doesn’t clearly fall into X or Y? If the language is too rigid, it could create new gaps or limit disputes that laws intend to avoid.

Conversely, if laws are too vague and flexible, they may leave too much ambiguity. Regulators might still argue over their authority, and companies may remain unsure which agency will oversee their activities.

Lawmakers must navigate between the Scylla of outdated rigidity and the Charybdis of ongoing ambiguity. The only way to do this is to craft laws with clear principles that also grant regulators the authority to adapt to unforeseen future cases.

Stakeholders Have Different Priorities

Traditional banks want clear rules that stablecoins cannot perform functions that banks provide. They don’t want stablecoins to replace bank deposits. They fear that insufficient regulation could leave loopholes for stablecoins to exploit.

Crypto companies want CLARITY to be specific enough so they can comply without waiting for case-by-case guidance from regulators. They want clear rules—even if strict—as long as they are clear.

Economic policymakers want the U.S. to maintain a competitive edge in digital assets. They worry that overly strict laws will push innovation elsewhere.

These objectives aren’t entirely conflicting, but they’re not easy to reconcile. Negotiations have involved finding common ground that all parties can accept.

Political Timing and Practical Roadmap: When Will CLARITY Pass?

Laws aren’t drafted in a political vacuum. As elections approach, time on Capitol Hill becomes scarce. Legislators prioritize issues that matter to voters. Bipartisan cooperation becomes more fragile.

However, there are signs that CLARITY isn’t viewed as a niche political issue. Financial agency leaders have publicly encouraged legislative action. When top executive agencies get involved, it often signals that the issue is strategically important. This can create pressure to act before political attention shifts elsewhere.

If current negotiations reach an agreement in the coming months, the bill could advance within the upcoming legislative cycle. If disagreements persist longer, progress may be delayed. The key difference is that CLARITY faces structural debates rather than ideological opposition. Lawmakers widely recognize the need for clarity. The question is how to achieve it without making it too rigid and counterproductive.

What Must Happen Before It Becomes Law

For CLARITY to move from draft to law, several conditions must be met. Committees need to finalize language acceptable to key stakeholders. Floor schedules must align with manageable political risks. Any differences between House and Senate versions must be reconciled. Finally, it must be approved by the leadership.

When these elements come together, passage can happen quickly. Until then, discussions will continue behind closed doors, shaped by industry feedback and economic analysis on how to balance flexibility with clarity.

A Realistic Outlook

If negotiations on stablecoin structure and regulatory boundaries reach an agreement in the coming months, the bill could advance. If disagreements persist, passage may be delayed.

The key point is that not all delays are due to opposition. Many are because lawmakers are trying to strike a balance—avoiding excessive rigidity while ensuring sufficient clarity. That’s a difficult problem.

CLARITY represents more than just regulation; it reflects whether the U.S. can integrate new financial technology into its established legal framework without sacrificing innovation. Other countries have made progress. Delays carry economic consequences.

It’s widely understood that clarity reduces friction. Clarity—if not too rigid—attracts capital, supports compliance, and stabilizes markets. This shared understanding motivates resolving outstanding disagreements rather than abandoning efforts altogether.

So, when will CLARITY be enacted? The answer depends on how quickly lawmakers can reach consensus. If negotiations conclude early and political conditions are favorable, the bill could move within a few months. If debates drag on, delays may extend due to technical disagreements and electoral dynamics.