The recent failure of the Digital Asset Market Clarity Act in the Senate has redirected the focus of U.S. crypto regulation towards the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). This shift opens up new avenues for on-chain trading and investment, but it leaves a critical question unresolved: how much regulatory certainty can be achieved without legislative action from Congress?

Executives and legal experts agree that regulatory advancements will continue, although opinions differ on whether actions taken by agencies can provide a stable foundation or if they will leave businesses vulnerable to fluctuating political and legal environments.

Lev Breydo, a law professor at William & Mary Law School, indicated that the Clarity Act highlighted existing divisions within the crypto industry, particularly concerning ethics and competition with community banks. He remarked, “A coalition that looked unified against Gensler found out definitions create winners and losers.”

Despite the setback, regulatory agencies are acting swiftly to address the gaps left by the failed legislation. The SEC has introduced an “Innovation Exemption” that allows certain venues to trade tokenized U.S. stocks using blockchain liquidity pools while it develops permanent regulations. Meanwhile, the CFTC has sought public input on new rules for leveraged retail crypto trading and a registration category for crypto markets, initiating a lengthy feedback and rule-making timeline.

Additionally, the SEC's custody proposal from October 1 aims to permit state trust companies to safeguard client crypto assets and allow advisors and funds to manage them under specific conditions.

Looking ahead to 2027, Breydo anticipates the SEC will focus on finalizing offering and custody regulations while building on its tokenized-stock exemption. He views the agencies’ March joint interpretive release as a significant step forward, establishing a framework that could enhance coordination within existing laws.

However, a major gap persists, particularly regarding ordinary, unleveraged spot trading, which still lacks comprehensive federal oversight beyond the CFTC’s anti-fraud and anti-manipulation powers. Closing this gap was a key aim of the Clarity Act.

Accelerated Activity Expected

For some industry leaders, the legislative failure may actually accelerate commercial opportunities. Paul McCaffery, head of digital assets at investment bank KBW, noted, “The SEC and CFTC are already moving proactively to provide the regulatory certainty markets need, and that’s unlocking a wave of M&A across digital assets, traditional financial services, and fintech alike.”

Bitwise Chief Investment Officer Matt Hougan expressed that the current approach by the agencies is preferable in the short term over potential lengthy legislative processes. He anticipates an increase in protocols adopting token buybacks, particularly buy-and-burn models, due to SEC clarifications that boost investor confidence.

Developers are closely monitoring whether regulators will differentiate between software development and operating as a financial intermediary. Cathy Yoon, chief legal officer at a Solana-focused R&D firm, expressed hope that the SEC will recognize developers as creators of software without categorizing their work as a securities enterprise. “The fact that the SEC staff is even willing to say these things explicitly is a win,” she stated, while cautioning that staff FAQs do not constitute official SEC rules.

Michael Lie, global head of digital assets at market maker Flow Traders, believes comprehensive regulation is inevitable as finance evolves towards 24/7 trading. He is particularly focused on innovation exemptions and potential changes to transfer-agent rules, noting advancements in European and Asian regulatory frameworks.

Challenges of Implementation

Legal professionals foresee progress developing in stages, with implementation being the most challenging aspect. Derek Lowrey, head of legal at Newton Labs, emphasized, “The biggest gap is implementation.” Without new legislation, regulating venues, intermediaries, decentralized finance (DeFi), and spot markets remains complex. Nevertheless, existing anti-money laundering and record-keeping requirements provide compliant teams with a foundation to continue building.

Kevin Kreuser, general counsel at D3, highlighted the need for clearer jurisdictional boundaries regarding tokenized real-world assets. He noted, “Agency action is welcome, but it does not provide the same long-term certainty as legislation.”

Jim Petrila, chief legal officer at Dromos Labs, has a more optimistic perspective, arguing that increased liquidity and tokenized securities on public blockchains could make regulatory reversals impractical within two years. “For DeFi, the signal is bullish,” he stated.

However, the advantages may not be evenly distributed. Hougan pointed out that the failure of the Clarity Act may maintain a regulatory edge for established firms like Coinbase and Kraken, potentially delaying competition that could drive costs down. The emerging scenario suggests quicker experimentation, but significant uncertainties remain regarding competitive dynamics and the stability of new regulations.

Breydo concluded that only Congressional action can create a comprehensive regulatory framework with lasting durability.