Negotiations over the long-awaited U.S. Digital Asset Market Clarity Act, known as the CLARITY Act, have reportedly narrowed to one of the bill’s most politically sensitive issues: ethics rules for federal officials and the question of who should enforce them. After months of drafting and bargaining, a dispute over a “code of conduct” provision is threatening to complicate legislation that many in the digital asset industry view as important for regulatory certainty.

The broader CLARITY framework is intended to create federal market-structure rules for digital assets, including clearer oversight responsibilities for U.S. regulators and standards for trading venues and issuers. That makes the ethics dispute more than a side issue: it is now one of the remaining questions that could shape whether a wider crypto market bill can attract enough bipartisan support.

Democratic senators say the current version of the proposal remains insufficient, particularly on ethics provisions for elected officials and related consumer protection and market-integrity safeguards. Republicans, by contrast, argue that ethics enforcement should remain with the Department of Justice (DOJ) under a single national framework, rather than allowing state attorneys general to take action.

Proposed ethics restrictions in the CLARITY Act

According to the latest Senate draft made public Wednesday, the CLARITY Act would prohibit the president, vice president, members of Congress, and other senior federal officials, as well as their spouses, from issuing or sponsoring digital assets while in office. The restriction would apply to officials covered by the bill’s ethics framework.

The draft also includes a restriction aimed at crypto trading platforms. Under the proposed language, platforms would be barred from listing assets issued or sponsored by covered officials. As described in coverage of the text, the prohibitions are scheduled to expire in 2029, after President Donald Trump’s current term ends.

The proposed restrictions focus on “issuing or sponsoring” digital assets while in office, rather than personal ownership. Covered officials would still be permitted to hold cryptocurrencies during the restricted period, even if they could not issue or sponsor new digital assets under the draft language.

Democratic senators call for stronger provisions

In a joint statement released Wednesday, seven Democratic senators said the current CLARITY Act text “falls short.” They called for stronger provisions on ethics for elected officials, consumer protection, illicit finance, conflicts of interest, and market integrity.

“Key provisions including those addressing ethics for elected officials, consumer protection, illicit finance, conflicts of interest and market integrity must be strengthened,” the senators said.

Senator Angela Alsobrooks, speaking at a Semafor event on Wednesday, said negotiations may be “fairly close,” but described the ethics language as a dealbreaker. She indicated that she would not support the legislation on the Senate floor unless stronger ethics provisions are included.

Alsobrooks’ concern centers on both the substance of the restrictions and the enforcement structure behind them. She said lawmakers cannot simply assume that DOJ will enforce the law effectively, framing the issue as a matter of credibility rather than a theoretical legal dispute.

Democratic scrutiny of the proposal has been intensified by attention to President Trump’s expanding crypto-related business interests, which have reportedly included meme coin activity and broader digital asset exposure. Critics argue that those interests create incentives and potential conflicts that should be addressed through stronger ethics rules and enforcement mechanisms.

Senator Elizabeth Warren has also indicated that she views the draft as inadequate, arguing that it would not stop the president from profiting from new crypto activity in a way that could be economically significant. Separately, former SEC official Amanda Fischer argued that the restrictions could still allow the president to benefit from existing crypto projects, with the proposed limits focused on future income streams.

Republicans support DOJ-only enforcement

Republicans dispute the claim that the ethics provisions are too weak and oppose Democratic calls to give state attorneys general a clearer enforcement role. They argue that federal ethics requirements should be enforced through a single national mechanism, the DOJ, rather than through a patchwork of state-level interpretations and political priorities.

The enforcement question matters because state attorneys general often play visible roles in consumer protection and financial enforcement, while federal criminal and ethics enforcement traditionally runs through federal agencies and DOJ. In the CLARITY talks, that division has become a proxy for a larger question: whether crypto rules should prioritize uniform national implementation or additional enforcement backstops.

Attorney and former Republican Senate candidate John Deaton said the CLARITY Act is federal legislation and that DOJ, not “fifty different state AGs,” is the appropriate body to enforce federal law. From that perspective, allowing state officials to intervene could undermine the uniformity that supporters say the bill is designed to provide.

Other Republican-aligned commentators have described the current ethics language as unusually strong. Senator Bernie Moreno characterized the draft as containing “the most powerful ethics language in US history.”

Patrick Witt, a former White House and Senate counsel, suggested that the disagreement may reflect two incompatible Democratic positions: either that ethics rules would be meaningless without enforcement by state attorneys general, or that the proposal could not be changed in a way that would satisfy constitutional concerns. Witt argued that the first position would effectively reject the enforceability premise behind existing federal ethics laws, while the second would be difficult or impossible to satisfy without violating constitutional principles.

Policy and industry observers still see room for compromise

Despite the dispute over ethics enforcement, several observers believe the bill can still move forward through further negotiation. Kristin Smith, former CEO of the Blockchain Association and now president of the Solana Policy Institute, told Cointelegraph that the latest draft reflects meaningful compromise on ethics, a component seen as necessary to move Senate Democrats closer to supporting the measure.

Smith also stressed that ethics is only one part of the broader legislative package. She pointed to other additions in the Senate’s work, including a disclosure regime, an illicit finance section, and improved spot market regulation. In her view, rejecting the bill solely over ethics could mean lawmakers lose not only the ethics language but also the rest of the proposed regulatory structure.

“There is no version of a ‘no’ vote that produces a stronger bill,” Smith said. “A ‘no’ vote produces no bill at all: no disclosure regime, no illicit finance protections, no spot market improvements, no ethics provisions, nothing.”

Vincent Chok, co-founder and CEO of stablecoin issuer First Digital, similarly suggested that the fact negotiations have narrowed to ethics rather than the overall structure indicates progress. He framed the question as less about whether the United States needs a framework and more about how to finalize one that can attract broad support.

Chok said no regulatory system is likely to be perfect at the outset, but businesses can adjust if the market receives clear rules. Extended periods of uncertainty, he said, make it harder to justify long-term investment and product development.

Other industry figures expressed cautious optimism while still criticizing the starting point of the ethics proposal. Salman Banaei, head of public policy at Plume, a blockchain network focused on tokenized real-world assets, said compromise may be possible, but warned that the White House’s initial ethics proposal was “not a good starting point.”

The core unresolved issue remains enforcement. The current draft appears to rely heavily on DOJ to implement the ethics provisions, while Democrats want a mechanism that would allow state attorneys general to act if federal enforcement falls short. How lawmakers balance those competing positions without stalling the broader CLARITY framework may determine whether the bill advances to its next stages.

As negotiations continue, the central question is whether lawmakers can agree on an enforcement structure that addresses Democratic concerns about DOJ reliability while preserving the Republican preference for a single federal enforcement lane. The bill’s timetable remains tied to that dispute, with attention now on the next revised ethics draft and any language clarifying whether enforcement authority could extend beyond DOJ.