Democratic Congress to Rewrite CLARITY Act as Crypto Faces Ethics Test

Crypto companies poured $233 million into political committees during the 2026 US midterm cycle, according to Public Citizen's analysis of federal filings — and still watched Democrats sweep both chambers of Congress, putting the stalled CLARITY Act on a new negotiating table in January.

The Senate failed to advance the market structure bill in September, with disagreements over ethics provisions contributing to the impasse. Now Democrats will control the agenda in both chambers, and Senator Elizabeth Warren, the most senior Democrat on the Senate Banking Committee, is expected to chair the panel in the next Congress.

The party's electoral resilience ran straight through crypto's biggest spending targets. In Ohio, Democrat and longtime crypto skeptic Sherrod Brown defeated Republican Senator Jon Husted despite crypto-backed PACs spending $64 million against him.

What changes under Democratic control?

Stronger consumer protections, tougher scrutiny of political conflicts and a shift in regulatory power toward the Securities and Exchange Commission are all likely in the next round of negotiations, according to reports of internal Democratic discussions. House Democrats are said to be considering expanding proposals from Representative Maxine Waters into a broader market structure bill, one that would add new ethics restrictions on public officials' crypto activities.

That would begin separating the industry's push for clear rules from the controversies around President Trump's personal crypto ventures. Incoming House Oversight Committee Chair Robert Garcia plans to pursue inquiries into corporate corruption, and Democrats have signaled investigations into the Trump family's business dealings.

Hadley Stern, head of institutions at Silence Laboratories and founder of Fidelity Digital Assets, said Democrats are right to "go after" those conflicts — "that's what's poisoning the bipartisan deal."

"A sitting president's family launching memecoins and a stablecoin is a real governance problem," Stern said. "If I'd done that at Fidelity, I'd have been walked out the same afternoon."

He argued the industry of 2026 is unrecognizable from 2022's "FTX and a bunch of tokens" — stablecoins now have a federal law, Treasuries and credit funds sit onchain, and tokenized equities are on the way. "You don't regulate that by pretending it doesn't exist," he said.

What would the industry have to concede?

Not every Democrat sees the bill as dead. Congressman Shri Thanedar said the CLARITY Act can still pass, but with stronger ethics requirements attached.

"President Trump's blatant corruption has set back progress on crypto legislation, so Democrats will need strong anti-corruption provisions that apply to the President, not just Congress," Thanedar said.

Paul Brody, founder and CEO of Nightfall Networks and former global blockchain lead at EY, expects banks to emerge as winners, pressing for crypto companies to meet the same consumer protection and security standards. The industry has resisted, but Brody called accepting "similar conditions" a "wise strategy," given blockchain ecosystems remain "vastly more flexible, programmable and efficient." He also flagged a possible presidential veto and noted crypto ranks as a "low priority" beside corruption investigations, budget fights and the war.

Lindsay Fraser, chief policy officer at the Blockchain Association, rejected the framing of protection versus innovation: "We can protect consumers while ensuring the law reflects how the technology actually works." The goal, she said, is "lasting policy that earns public trust, gives builders a future in this country, and strengthens American financial leadership."

Will the Binance hack shape the vote?

Lawmakers are also weighing the fallout from the Binance hack — the largest in crypto history, with over $6.3 billion stolen on Oct. 29. Thanedar said the incident is a "clear example of the danger of not enacting appropriate legislation," while conceding the bill "wouldn't solve every potential problem" but would provide "much-needed certainty" and "security guardrails."

Maylea Ma, deputy general counsel at 1inch, took the opposite view: the hack "highlights problems the legislation does not address." The breach involved a centralized exchange's hot wallet and signing failure, she said, but the current draft contains "no insurer, no loss payee, and no hot wallet cap" that would have mitigated the loss or prevented it.

Amanda Fischer, policy director at Better Markets, said the episode showed how "unfit for purpose the crypto ecosystem is for mainstream finance" and argued exchanges should not act as custodians because of the "honeypot risk."

Ma said the incident is "likely to impact" the next CLARITY vote and could make lawmakers less willing to pass industry-friendly legislation without stronger consumer protections attached. Crypto spent years convincing Washington it deserved a seat at the table; the new Congress will decide what that seat costs.