CLARITY Act Faces New Consumer Protection and Ethics Demands After Midterm Shift

The next phase of the CLARITY Act debate may turn on a question the crypto industry has long resisted: what obligations should accompany clearer federal rules? Democrats’ control of both chambers from January gives them an opening to reshape the stalled bill, with consumer protections, political ethics and regulatory authority likely to feature in negotiations.

The political shift also complicates the industry’s recent efforts to turn campaign spending into legislative influence. Crypto companies contributed $233 million to political committees during the 2026 US midterm cycle, according to Public Citizen’s analysis of federal filings. In Ohio, Democrat Sherrod Brown, a longtime crypto skeptic, defeated Republican Sen. Jon Husted despite crypto-backed political action committees spending $64 million to defeat him.

Those results arrive after the Senate failed to advance the CLARITY Act in September. Disputes over ethics provisions contributed to the impasse. The bill is intended to establish federal rules for crypto markets, but a Democratic majority could push negotiators to address issues that the industry’s preferred version doesn’t settle.

The crypto spent $233 million on the 2026 US midterm elections. Source: Public Citizen

Ethics and market rules return to the table

Sen. Elizabeth Warren, among crypto’s most outspoken critics in Washington and the senior Democrat on the Senate Banking Committee, is expected to chair the panel in the next Congress. House Democrats are also reportedly discussing a broader market structure proposal that could expand on ideas from Representative Maxine Waters.

That approach could give the Securities and Exchange Commission a larger role, add consumer safeguards and impose new ethics restrictions on public officials’ crypto activities. It may also let lawmakers debate market rules apart from the controversies surrounding President Donald Trump’s personal crypto ventures.

Democrats have signaled plans to investigate the Trump family’s business dealings and other corporate interests. Incoming House Oversight Committee Chair Robert Garcia plans to pursue inquiries into corporate corruption. Hadley Stern, head of institutions at Silence Laboratories and founder of Fidelity Digital Assets, says the industry should welcome scrutiny of those matters because they’re complicating bipartisan negotiations.

“A sitting president’s family launching memecoins and a stablecoin is a real governance problem,” Stern tells Magazine. “If I’d done that at Fidelity, I’d have been walked out the same afternoon.”

Stern argues that today’s digital asset sector differs sharply from the industry Democrats faced the last time they held the gavel. He points to its evolution from “FTX and a bunch of tokens” in 2022 toward a federal stablecoin law, onchain Treasuries and credit funds, and tokenized equities in development. His point is that lawmakers are now dealing with a wider set of financial products and businesses, making the terms of market rules more consequential.

Related: Trump’s memecoin ventures derailed CLARITY Act, Scaramucci says

Comparable standards may be part of a deal

The legislation’s prospects may depend on whether crypto firms accept stricter expectations for security and consumer protection. Paul Brody, founder and CEO of Nightfall Networks and former global blockchain lead at EY, expects banks to benefit from that push. They’ll argue that crypto companies should meet the same demanding standards for protecting customers and securing financial services.

Brody says the industry has resisted that position, but accepting similar conditions could be a practical strategy. Blockchain based systems, he argues, still offer greater flexibility, programmability and efficiency. His view is that those advantages could remain even as firms take on tougher requirements.

Lindsay Fraser, chief policy officer at Blockchain Association, likewise rejects the idea that protecting consumers and supporting innovation must be opposing goals. “We can protect consumers while ensuring the law reflects how the technology actually works,” she says. Fraser describes the objective as “lasting policy that earns public trust, gives builders a future in this country, and strengthens American financial leadership.”

Rep. Shri Thanedar, a Democrat who remains hopeful the CLARITY Act can pass, has also said any legislation should include stronger ethics requirements. For crypto businesses, the emerging choice is less about whether market structure legislation can survive a change in political control and more about what safeguards they’ll accept to make a durable bill possible.

The Binance hack raises questions the bill may not answer

Security concerns add urgency, but they also expose limits in the current draft. On Oct. 29, the Binance hack resulted in more than $6.3 billion being stolen, making it the largest hack in crypto history and sharpening scrutiny of exchange security and customer protections.

Thanedar says the bill wouldn’t fix every possible problem, but could provide “much-needed certainty” and “security guardrails.” He sees the hack as evidence of the risks that can follow when appropriate legislation is absent.

Maylea Ma, deputy general counsel at 1inch, draws a narrower lesson. In her view, the incident doesn’t make the current draft more persuasive because the breach involved a centralized exchange’s hot wallet and a failure in signing. She says the draft includes no insurer, loss payee or hot wallet cap that would have limited Binance’s loss, and sets no security standards that would have prevented the incident.

Amanda Fischer, policy director at Better Markets, said the episode showed how “unfit for purpose the crypto ecosystem is for mainstream finance.” She also argued that exchanges shouldn’t act as custodians, calling that arrangement a “honeypot risk.”

Binance hack shows how ‘unfit’ crypto is for mainstream finance. Source: Amanda Fischer

Ma expects the hack to affect the next CLARITY vote and says it could make lawmakers less willing to approve legislation favored by the industry unless stronger customer protections accompany it. That’s a significant challenge for negotiators: a bill can offer clearer market rules while leaving specific exchange security failures beyond its reach.

Related: Crypto Biz: CLARITY Act setback puts Coinbase in the spotlight

A narrower path to bipartisan support

Even with a Democratic majority, market structure legislation isn’t necessarily finished. But the route to a deal looks narrower. Ethics provisions helped stall the September effort, Democrats are considering a broader proposal, and the Binance incident has renewed arguments for safeguards that the current draft may not contain.

There are also political limits. Brody says a presidential veto remains possible and expects crypto to rank below issues such as corruption investigations, budget battles and the war. That means even a workable compromise could compete for attention with higher priority disputes.

The industry has spent years pressing Washington for clearer rules. Its next test is whether it can accept terms that address public concerns about conflicts of interest, consumer losses and exchange security. A CLARITY Act that earns support across changing political majorities will likely need to show that market access and accountability can advance together.

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