CLARITY Act Failure: What Agency Rules Mean for DeFi and Stablecoin Accounting
The Digital Asset Market Clarity Act has stalled in the Senate, and US crypto regulation is now being constructed through a patchwork of agency exemptions, interpretive releases, and proposed rules rather than a single statutory framework. For accounting firms, auditors, and CFOs managing digital-asset positions, that distinction is not academic: it determines how stable the rules you are building compliance programmes around actually are, and how exposed your clients remain to the one gap Congress did not close, comprehensive federal oversight of spot cryptocurrency markets.
What the CLARITY Act Was Trying to Do
The Digital Asset Market Clarity Act was designed to draw a definitive line between digital assets that function as securities and those that function as commodities, assign clear jurisdiction to either the SEC or the CFTC, and establish registration pathways for exchanges, intermediaries, and DeFi protocols operating in the US. Its Senate failure does not mean regulation stops. It means the shape of regulation reverts to whatever the two agencies can accomplish within their existing statutory authority, without the additional tools Congress would have provided.
Why the coalition fractured
Lev Breydo, an assistant professor of law at William and Mary Law School, told CoinDesk that the bill's collapse exposed fault lines the industry had papered over during its campaign against the previous SEC leadership. Ethics provisions, a running dispute with community banks over stablecoin yield, and the unavoidable reality that precise definitions create winners and losers all contributed. A coalition that had looked unified turned out to have competing interests once the legislative text got detailed enough to matter.
That observation carries a direct implication for accounting and legal teams: the political difficulty of legislating crypto is not simply a question of partisan will. It reflects genuine distributional conflicts inside the industry itself. Future legislative attempts will face the same pressures.
The Agency Landscape That Replaces Legislation
With the CLARITY Act sidelined, three specific regulatory actions now define the near-term framework. Each has implications for how firms account for digital assets and how they structure client advisory services.
The SEC's five-year tokenized-stock exemption
Introduced in September, the SEC's innovation exemption allows qualifying venues to trade tokenized US equities through blockchain liquidity pools while the agency develops permanent rules. This is a time-limited safe harbour, not a statutory right. Breydo expects the SEC to spend the next year or more completing offering and custody rules and extending its tokenized-stock programme, treating the agencies' March joint interpretive release as the operative foundation for coordination between the two regulators.
For firms advising clients who hold or intend to issue tokenized securities, the accounting treatment question becomes urgent. Tokenized equities may carry the same economic substance as their traditional counterparts, but the infrastructure through which they settle, blockchain liquidity pools rather than a central securities depository, can affect how trades are recorded, how settlement finality is determined, and how custodial arrangements are disclosed in financial statements.
CFTC proposals and the spot-market gap
The CFTC has been moving on two fronts: seeking feedback on rules for leveraged retail crypto trading and proposing a new registration category for crypto market participants. Both initiatives start a formal public comment and rulemaking process, meaning they could be years from taking effect, and neither closes the central gap the CLARITY Act was meant to address. Ordinary spot cryptocurrency trading, the vast majority of market volume, still lacks comprehensive federal oversight beyond the CFTC's existing anti-fraud and anti-manipulation powers.
For a deeper look at how the CFTC framework is developing after CLARITY stalled, see our earlier analysis of how the CFTC crypto framework is evolving after CLARITY stalled.
SEC custody and the broker-dealer perimeter
A separate SEC proposal would permit state trust companies to safeguard client crypto assets and would allow investment advisers and funds to hold digital assets directly under certain conditions. This matters for accounting firms advising registered investment advisers: the custody rules that apply to client assets are relevant to how those assets appear on balance sheets, how segregation is demonstrated, and what disclosures auditors need to form an opinion on financial statements that include digital asset holdings.
DeFi Accounting: The Developer Question
One of the most consequential open questions for firms with DeFi exposure is where the regulatory perimeter sits between writing software and operating a financial intermediary. Cathy Yoon, chief legal officer at Temporal, a Solana-focused research and development firm, has been watching whether the SEC will treat protocol developers as software creators or subject their work to securities-enterprise obligations.
Why the distinction matters for your books
If a DeFi protocol's developer team is deemed to operate a financial intermediary, the obligations that follow, registration, recordkeeping, AML programme requirements, and potentially broker-dealer or exchange registration, change the cost structure and risk profile of any fund or corporate treasury that has allocated to that protocol's tokens or that routes transactions through it. The SEC has signalled, through staff FAQs, that it is willing to distinguish software from intermediation, but as Yoon noted, staff FAQs are not SEC rules. They carry persuasive weight but can be revised or withdrawn without formal rulemaking.
For DeFi accounting specifically, the practical implication is that positions in governance tokens or liquidity-pool receipts from protocols with an uncertain regulatory status should carry a disclosure note in financial statements. Auditors reviewing those statements need to consider whether management's assertions about the nature of those positions are consistent with the regulatory environment as it currently stands, not as clients hope it will eventually resolve.
Stablecoin Accounting Under Continuing Uncertainty
The CLARITY Act's failure arrives alongside the GENIUS Act, which has passed and moved stablecoin yield off-chain while directing issuers toward bank-like reserve and disclosure requirements. The two legislative developments interact: GENIUS gives stablecoin issuers a clearer statutory path, but the absence of CLARITY leaves the broader market structure, including how stablecoin-denominated DeFi transactions are categorised for regulatory and accounting purposes, without a comprehensive framework.
Reserve treatment and balance sheet classification
For firms advising corporate treasuries that hold USDC or other fiat-backed stablecoins, the current accounting treatment under US GAAP does not yet have a dedicated standard. The Financial Accounting Standards Board's guidance on crypto assets, effective for fiscal years beginning after December 15, 2024, addresses fair-value measurement for assets meeting the definition of a crypto asset as an intangible. Whether a particular stablecoin falls inside or outside that definition depends on its specific characteristics, and the answer can differ between a fully reserved dollar-denominated token and a yield-bearing or algorithmically stabilised variant.
The GENIUS Act's reserve requirements, once implemented, may increase the likelihood that major fiat-backed stablecoins receive treatment closer to cash equivalents for some accounting purposes, but that interpretation will need confirmation through standard-setter guidance, not assumption. For context on how stablecoin accounting positions are evolving alongside legislative change, our piece on stablecoin and NFT accounting under the Digital Asset Tax Certainty Act covers the parallel tax-side developments.
Token buybacks and buy-and-burn models
Bitwise Chief Investment Officer Matt Hougan noted that agency action may actually be more favourable in the short term than legislation that would have required years of follow-up rulemaking. He also flagged that SEC clarification is already prompting more protocols to adopt token buyback structures, particularly buy-and-burn models. For accounting teams, buy-and-burn mechanics require careful analysis: the economic substance of burning tokens can resemble a share repurchase, a return of capital, or a reduction in circulating supply with no direct financial-statement impact, depending on who controls the mechanism and what the token represents. None of those treatments is automatically correct, and each requires a defensible position documented in the working papers.
What Incumbents Gain and Who Bears the Cost
Hougan argued that the CLARITY Act's failure preserves a regulatory moat for established, licensed crypto exchanges. Without clear statutory pathways for new entrants to register and operate, incumbents face fewer new competitors, which slows any downward pressure on trading costs. Kevin Kreuser, general counsel at D3, a domain-name tokenisation firm, made a similar point about tokenized real-world assets: jurisdictional boundaries remain unclear enough that participants in this segment face asymmetric legal risk depending on how aggressively they move ahead of formal guidance.
The M and A angle
Paul McCaffery, head of digital assets at investment bank KBW, takes a more optimistic near-term view, arguing that the SEC and CFTC moving proactively is already unlocking merger and acquisition activity across digital assets, traditional financial services, and fintech. That observation is consistent with a pattern where regulatory uncertainty concentrates activity in larger, well-capitalised players who can absorb compliance costs and legal risk, while smaller entrants wait for clearer rules. For accounting firms advising on digital-asset M and A, that environment means due diligence on regulatory status, including spot-market exposure and AML programme adequacy, carries more weight than in a legislatively settled environment.
Practical Steps for Accounting and Legal Teams Now
Derek Lowrey, head of legal at Newton Labs, put the implementation challenge plainly: without legislation, overseeing venues, intermediaries, DeFi protocols, and spot markets remains structurally harder. At the same time, he noted that existing AML obligations, sanctions screening requirements, and recordkeeping rules give compliant teams a workable foundation. That is the right framing for advisory practices: the absence of comprehensive legislation does not create a compliance vacuum, it creates a floor of existing obligations that continue to apply, and a ceiling of uncertainty about what additional requirements may emerge.
Michael Lie, global head of digital assets at Flow Traders, pointed to the competitive pressure coming from European and Asian regulatory regimes that are already further advanced. For US-based firms advising clients with cross-border digital-asset activity, that comparison matters: a client operating in both the EU under MiCA and the US under the current agency-only framework faces two very different compliance regimes with limited harmonisation between them. Mapping those obligations separately and clearly is both a service differentiator and a risk-management necessity.
Jim Petrila, chief legal officer at Dromos Labs, which develops the Aerodrome and Velodrome protocols, offered a bullish counterpoint: growing liquidity and tokenized securities on public blockchains could make regulatory reversal practically difficult within two years, as the economic interests embedded in those systems become too large to unwind. That may prove correct, but it is not a compliance strategy. Agency rules made without statutory authority remain subject to legal challenge, and any firm advising clients to treat current exemptions as permanent is taking on legal risk it may not be pricing correctly.
Frequently Asked Questions
Does the CLARITY Act's failure change existing AML and sanctions obligations for crypto firms?
No. Bank Secrecy Act obligations, OFAC sanctions screening requirements, and FinCEN recordkeeping rules continue to apply to money services businesses and other covered entities regardless of what happens with market-structure legislation. The absence of CLARITY does not create any exemption from those obligations.
How should auditors treat DeFi protocol positions where the developer's regulatory status is unresolved?
Where the regulatory classification of a DeFi protocol is genuinely uncertain, auditors should request that management document their assessment of the legal status of positions held, including any legal opinions obtained. The position should be disclosed as a contingency or uncertainty in the notes to the financial statements if the resolution could materially affect reported amounts.
Does the FASB crypto asset guidance apply to stablecoins like USDC?
The FASB's ASU 2023-08 applies to crypto assets that meet its specific definition, which includes being an intangible asset, residing on a distributed ledger, being secured cryptographically, and not giving the holder a claim on the issuer. Most fiat-backed stablecoins, which do give the holder a redemption claim on the issuer, may fall outside that definition and require separate accounting analysis under existing financial instrument or monetary asset frameworks. Firms should assess each stablecoin on its specific terms.
Are token buyback and buy-and-burn transactions taxable events for corporate holders?
The tax treatment of buy-and-burn transactions depends on the structure. If the holder's tokens are acquired by the protocol and destroyed, the holder may recognise a gain or loss on disposal. If the burn mechanism operates by reducing supply without a direct transaction with holders, the tax consequences differ. Neither treatment has been definitively addressed in IRS guidance to date, so firms should document their position and monitor future guidance. For the parallel legislative context, the Digital Asset Tax Certainty Act proposals are relevant.
What does the SEC's tokenized-stock exemption mean for accounting firms advising clients who use those venues?
The exemption is a time-limited safe harbour, not a permanent rule. Positions acquired through exemption-based venues should be accounted for according to the economic substance of the underlying instrument, typically as equity securities at fair value, with disclosure of the venue type and the temporary nature of the regulatory permission under which the trades were executed. If the exemption is withdrawn or not renewed, the status of outstanding positions would need to be reassessed.
Source: CoinDesk Policy