Clarity Act Stalls Out on the Motion to Proceed; SEC Issues “Innovation Exemption”; CFTC Issues No-Action Provision for Providers of “Passive Software”; and more.

The Clarity Act Stalls Out on the Motion to Proceed

On September 15, 2026, the Senate did not vote to pass the motion to proceed on the Clarity Act by a 49-50 vote, falling 11 votes short of the 60 votes needed to advance the legislation to floor consideration. All 49 votes in favor came from Republicans, and every voting Democrat and Independent opposed cloture. Republicans Susan Collins (R-ME), Josh Hawley (R-MO), Jerry Moran (R-KS), and Thom Tillis (R-NC) voted no. Senator Tillis initially voted yes before changing his vote to no and subsequently entering a motion to reconsider the vote.

This vote followed the release of new text of the Clarity Act, released on September 14, 2026, which included additional changes to the bill’s ethics, stablecoin yield, developer protection, and Agriculture Committee provisions. Republicans said the final draft incorporated 126 substantive changes requested by Democrats. 

Notably, the new text changed the Blockchain Regulatory Certainty Act (BRCA), which protects non-custodial developers from treatment as money transmitters or financial institutions under the Bank Secrecy Act (BSA), limiting the protections to civil liability and removing explicit protections against criminal liability under 18 U.S.C. § 1960.  

What’s next? Democrats recently expressed a desire to continue the bipartisan negotiations. That said, no new cloture vote has been scheduled and the legislative calendar is increasingly constrained by the November midterm elections. While the Senate could revisit the measure through the pending motion to reconsider or a renewed effort later in Congress, 60 votes are required to invoke cloture and overcome the procedural hurdle.

SEC Issues “Innovation Exemption” 

On September 17, 2026, the SEC issued the long awaited “Innovation Exemption,” providing conditional relief for Tokenized Securities Venues (TSVs) to facilitate onchain trading of tokenized stock through permissioned automated market makers and liquidity pools (together called “AMM Liquidity Pools” by the SEC). 

The five-year exemption provides relief from the Securities Exchange Act of 1934 definitions of “exchange” for qualifying TSVs and “dealer” for qualifying liquidity providers. The relief is subject to conditions, including limits on the securities and trading volume available on TSVs, requirements that tokenized shares provide holders with the same rights as the corresponding traditional shares, and a requirement that TSV smart contracts be auditable, publicly available, and deployed on public, permissionless blockchains. 

The SEC is seeking public comment on the exemption and longer-term rules for onchain securities trading. As DEF mentioned on X, we look forward to providing comments on the innovation exemption to assist the SEC in moving toward proposed rulemaking.

CFTC Issues No-Action Provision for Providers of “Passive Software”

On September 17, 2026, the CFTC’s Market Participants Division issued a no-action position for providers of “passive software,” extending no-action relief previously granted to self-custodial wallet provider Phantom Technologies Inc. in Staff Letter 26-09 in March 2026. 

Subject to “certain specified provisions,” CFTC staff will not recommend enforcement against qualifying software providers or their personnel for failing to register as introducing brokers or associated persons when they provide and market software that facilitates users’ trading with registered futures commission merchants, introducing brokers, and designated contract markets. 

As DEF’s Senior Counsel, Ayana Dow, highlighted on X, the no-action relief shows that the CFTC recognizes that passive software providers can facilitate user transactions without necessarily being treated as regulated intermediaries. The announcement is also significant because it makes this relief available to qualifying software providers more broadly, rather than requiring individual software providers to seek their own no-action letters. 

House Ways and Means Committee Markup on Digital Asset Tax Legislation 

On September 16, 2026, the House Ways and Means Committee voted 38-5, with a resounding bipartisan majority, to advance the Digital Asset Tax Certainty Act (H.R.10357) to the full House floor. The bill, the text for which was released on Monday ahead of the markup, would modernize federal tax treatment for digital assets, including tax policy governing transaction fees, stablecoins, digital asset loans, mining and staking income, and wash sales.

One notable omission from the final committee package was the deferral election proposed in the Tax Clarity for Mining and Staking Act (H.R. 9175), which would have allowed miners and stakers to elect to defer recognition of income from newly created digital assets rather than recognizing the rewards as income when received – an important policy for base layer blockchain infrastructure. H.R. 10357 instead provides that mining and staking rewards are treated as ordinary income but does not resolve the separate question of when that income must be recognized. For example, under the current tax treatment of staking rewards, a taxpayer who receives $500 in staking rewards would owe ordinary income tax on the $500 when it is received, with no deferral option. The omitted proposal would have provided an election to defer that recognition until the assets were later sold or otherwise disposed of. 

The final tax package also incorporated the approach of existing wash-sale rules to digital assets, incorporating an approach proposed in the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act (H.R. 9172). Under current law, wash-sale rules generally do not apply to digital assets, allowing a trader to sell their digital assets at a loss, repurchase the same or substantially similar assets minutes later, and still claim a loss. The new provision would generally disallow that loss where the investor reacquires the same digital asset within the applicable 30-day wash-sale window. 

The final package now heads to the full House, though no floor vote has been officially scheduled.

House Small Business Committee Hearing “Main Street Meets Crypto: What Digital Assets Mean for Small Businesses”

On September 15, 2026, the House Small Business Committee’s Subcommittee on Innovation, Entrepreneurship, and Workforce Development held a hearing, “Main Street Meets Crypto: What Digital Assets Mean for Small Businesses,” examining how digital assets and blockchain technology could be used by small businesses. Witnesses discussed potential use cases, including lower transaction costs, faster settlement, cross-border payments, and blockchain-based customer loyalty programs. Members also focused on the practical risks of adoption, including price volatility, fraud, tax and reporting obligations, and the need for appropriate consumer protections. 

One theme from the hearing was that small business owners should not need to become blockchain experts to take advantage of the technology. Blackbird Labs CEO Ben Leventhal said technology providers should handle the underlying infrastructure and make blockchain-enabled products effectively “plug-and-play” for merchants, while other witnesses emphasized that clearer regulatory rules and guidance could help businesses evaluate the opportunities and risks of adoption. The discussion also highlighted, including improved cash flow, lower payment friction, access to customers and suppliers across borders, and new tools for acquiring and retaining customers. 

You can watch the full hearing here.

Secretary Bessent Testifies Before House Financial Services Committee on the International Financial System

On September 15, 2026, Treasury Secretary Scott Bessent testified before the House Financial Services Committee during its hearing, “The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System,” where his remarks focused primarily on the G20, the IMF and World Bank, economic growth, and U.S. sanctions policy. 

When asked about the illicit-finance risks potentially posed by protocols that lack an identifiable accountable party or KYC requirements, Bessent said he is pushing for passage of the Clarity Act because it would give the Treasury additional authority to address such issues. Bessent also discussed Treasury’s implementation of the GENIUS Act, noting that the Department is currently working through stablecoin rulemaking and expects greater use of dollar-backed stablecoins to increase demand for U.S. dollar-denominated safe assets (particularly Treasury bills) and thereby support the dollar relative to other currencies. 

Of note, Rep. Andrew Garbarino (R-NY) asked how the Treasury would ensure that its rulemaking preserves Congress’s distinction between financial intermediaries and developers of decentralized technologies that do not custody customer assets or control transactions. Bessent declined to comment on the ongoing rulemaking, and Garbarino emphasized that Congress intended such developers and technology providers to remain excluded from the Digital Asset Service Provider (DASP) definition.

Notable and Quotable

“What does the [SEC Innovation Exemption] not do? This order is not about decentralized finance. Truly decentralized systems that are driven by automated software do not give rise to the foundational concerns underlying securities regulation, namely that an intermediary you trust to act on your behalf will be foolish, careless, or compromised. An investor does not need an exemption to avail herself of permissionless smart contracts that mediate peer-to-peer trading.”

— SEC Commissioner Hester Peirce on the SEC’s Innovation Exemption

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