Senate Delay Stalls Clarity Act, Token Classification Rules Draw Fire

The Clarity Act doesn't touch tax incentives for offshore token issuance. Projects operating out of the Cayman Islands and similar jurisdictions maintain a financial advantage the Act does nothing to neutralize. Without a federal tax consideration for U.S.-based issuance, the incentive to stay offshore doesn't go away, critics of the bill said.

The Act's focus on U.S.-organized originators makes the offshore gap worse. A global crypto project already benefiting from a friendlier tax environment abroad has little reason to come back onshore. Critics say the offshore gap is a structural problem needing a separate legislative fix, and no sign of one is on the horizon.

Critics argue the Act might replace one kind of uncertainty with another. The definitions could be interpreted differently by the SEC and the CFTC. Conflicting readings between those two agencies have created problems before. The Act doesn't fully resolve who has the final word.

Decentralized finance protocols and tokenized securities don't map cleanly onto the three-category framework. The Act seems built around a version of the crypto market where the lines between fundraising and network infrastructure were cleaner. DeFi has blurred those lines. Tokenized real-world assets are doing the same thing from a different direction.

A rigid framework risks locking in rules that are already behind the curve, critics said. The crypto market evolves faster than most legislative cycles. By the time the Clarity Act clears committee and becomes law, the industry it was designed to regulate might look different.

Whether Congress has the appetite for revisions before a potential shift in power is a different question. Thune's September deadline, or the announcement the deadline won't be met, has put the effort on shaky ground. AlphaScala previously reported that the CLARITY Act odds sank to 27% after the Senate delay, and that the delay risks the US crypto lead.