It’s time to admit it. The Clarity Act is dead this year.
And it might be dead for longer than that.
Many people worked very hard to pass comprehensive crypto legislation through the U.S. Congress since Trump came to office. But it’s not going to happen. Too many Democrats are against the bill. Too many issues remain unresolved. And, most decisively, time is running out as Washington turns to the Midterms.
Even if the Senate passes its version on September 15, the House has cut eight legislative days from late September, leaving no realistic time to reconcile the two chambers' bills before the calendar runs out.
The grim reality is that the digital assets industry still lacks a guiding law more than a decade after asking for one. With Democrats favored to retake the House and possibly the Senate as well, the industry will try to remake the legislation with different partners. But it will be an uphill battle, with many Democrats dead-set against much of Clarity and the crypto industry widely associated with Trump’s personal crypto dealings.
The industry will thus likely remain in legal limbo. Still, the process has been useful for seeing where consensus lies. The problem isn’t really agreeing on what most people want. It’s really politics and that a few people in the American system have the power to wreck the work of the majority.
With Congress once again failing to act, the onus of policy activity will inevitably fall back on the regulators. Here the SEC and the CFTC have a stacked agenda beyond whatever Congress decides. For instance, the SEC’s recent rulemaking on the “Regulation of Crypto Assets” defines key terms like “security” and will help entrepreneurs raise capital under existing securities laws.
For privacy projects, the stakes of this rulemaking are higher than for most of the industry. Teams building with zero-knowledge tech have operated for years without knowing whether privacy features themselves are likely to encourage agency enforcement.
The question now is whether the SEC's proposed definitions will focus on how a token is sold (which seems to be the case from the press release) or the project’s privacy features themselves. If the analysis stays with the economics of the sale, a shielded protocol gets the same treatment as a transparent one, and privacy teams have a compliance path for the first time. If the framework assumes a readable ledger, limbo continues for this corner of the industry no matter what Congress does next.
In absence of “native” crypto legislation, it’s likely that crypto will increasingly become part of the regulated financial industry where it is safe to operate. The fight for new rules, and new forms of financial activity onchain, will go on. With or without Clarity.
Privacy Roundup
Provable opened early access to Shield Swap on Aleo, allowing traders to keep portfolio details, identities, and transaction sizes private while separating that data from the market information needed to execute trades.
Privacy Boost launched V2 on OP Mainnet, extending private activity from balances and transfers to receiving capital, deploying funds into DeFi and managing them through existing team wallets without exposing transaction history or other positions.
World open-sourced ProveKit, the zero-knowledge proving toolkit that powers World ID, allowing mobile applications to verify claims such as age, nationality or possession of an identity document without receiving the underlying data.
Miden and EthSystems signed an MOU to explore privacy-preserving infrastructure for institutional payments, settlement, stablecoin transfers, and tokenized assets, with auditability and policy-based controls built into the systems..
Thanks for reading this edition of Privacy Dispatch. Please subscribe to receive this newsletter every Tuesday.
Till next time.