CLARITY Act's Senate Defeat Could Rebuild Crypto Middlemen, GenLayer CEO Warns

A single vote sealed the fate of the CLARITY Act in the Senate, and GenLayer Labs CEO Albert Castellana believes the aftermath could reshape how crypto companies build. According to Castellana, the 50–49 defeat raises the likelihood that firms will lean on more custodians and permissioned systems as they navigate continued regulatory uncertainty.

Castellana, who co-founded GenLayer Labs, told crypto.news that the Senate result was disappointing because the legislation had been converging on a principle he considers essential: regulation should follow control. Entities that hold customer funds, decide who may transact, or stand between two parties carry responsibilities that differ fundamentally from those of developers who publish software or users who join an open network, he said.

Without rules that recognize that distinction, he warned, companies may react to legal risk by adding custodians, restricting access, or placing another intermediary between users and blockchain applications.

“Every one of those decisions can look reasonable on its own. But you do that enough times, and suddenly you've rebuilt most of the intermediaries crypto was supposed to get rid of.”

A one-vote shortfall for a sweeping market-structure bill

Senators voted 50–49 against invoking cloture on H.R. 3633, leaving the measure 10 votes short of the 60 needed to open formal debate. As crypto.news previously reported, the failed motion blocked immediate consideration of a framework designed to split digital-asset oversight between the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Under the proposal, the CFTC would have gained authority over qualifying digital commodities and registered spot-market intermediaries, while the SEC would have retained jurisdiction over assets and transactions governed by securities laws.

The bill also contained provisions covering decentralized software developers, stablecoin rewards, government ethics, and prediction-market contracts that could clash with state or tribal gambling rules. Its revised classification framework would have designated $XRP as a digital commodity in secondary-market transactions, regardless of Ripple's holdings.

Castellana argued that regulatory uncertainty does not necessarily halt product development. Instead, legal concerns shape how products are designed and offered.

“You add another custodian. You make the frontend permissioned. You use a centralized provider because it's easier to explain to lawyers. You block the US. You keep an admin key because somebody wants a clear responsible party,” he said.

For American users, those engineering choices can determine whether they keep direct access to a protocol or are pushed into a company-controlled interface capable of restricting transactions, imposing identity checks, or excluding US residents altogether.

Control as the dividing line for regulation

Rather than debating whether a project as a whole is decentralized, Castellana proposed locating where each system places the power to force an outcome.

“For me the simplest test is: who can actually force an outcome? Can you freeze my money? Move it? Stop my transaction? Change the rules underneath me? Override the result? If you can, then you have control.”

By that logic, publishing code does not automatically give a developer control over the finished protocol. Operating a single validator or holding governance tokens may likewise fall short of the power needed to determine what happens to funds or transactions.

Authority can also be distributed unevenly across a single product. Castellana pointed to a permissionless protocol paired with a company-controlled frontend as one possible configuration, while another network might rely on independent validators yet retain an administrator key capable of changing its rules.

“I would much rather regulate the place where the power actually exists,” he said.

The distinction carries weight for developers because market-structure legislation has included protections meant to separate passive software development from regulated financial activity. With the Senate motion defeated, federal agencies remain responsible for interpreting existing securities and commodities laws unless Congress revives the proposal.

Stablecoin clarity arrives, but DeFi and wallet questions linger

The GENIUS Act has already established clearer requirements for payment-stablecoin issuers, including standards for reserves and redemptions. Castellana acknowledged that the law settles an important slice of the regulatory puzzle, but noted that its focus is on the money itself rather than the applications built around it.

“So I don't think stablecoin payments are waiting for CLARITY. They aren't. But we are getting clarity on the money faster than we are getting clarity on the economy that will be built around it.”

Questions persist once stablecoins move into decentralized finance, custody products, self-hosted wallets, or trading applications, according to Castellana: companies must still determine whether a participant acts as an intermediary or merely supplies software.

Regulation is also advancing through separate measures. The SEC's work on tokenized securities offers one example: a Sep. 11 report covered the agency's proposed 60-day rulemaking process for transfer agents, which would allow blockchain-based systems to maintain securities ownership records. Castellana added that the SEC has also opened a path for tokenized stocks to run on public, permissionless blockchains, though access to trading venues remains controlled and the exemption is temporary.

“Maybe that's a reasonable bridge for now,” he said “The risk is that bridges have a habit of becoming permanent infrastructure.”

For US investors, blockchain settlement alone does not determine whether a token confers legal ownership of a share. The issuance structure, the official ownership register, custody terms, and applicable securities rules continue to govern voting, dividends, and other shareholder rights.

Bitwise's Hougan: the bull market does not hinge on Congress

Not everyone views the vote as consequential for markets. Bitwise Chief Investment Officer Matt Hougan warned in January that a failed CLARITY Act could stall the 2026 bull market, yet one day after the Senate tally he struck a different tone in a Sep. 16 client memo, calling the outcome “a speed bump, not a roadblock.”

Hougan grounded his revised outlook partly in the disconnect between Bitcoin's trajectory and the bill's fading prospects. Bitcoin climbed from a July 1 low of $57,950 to more than $80,000 by Sep. 4, even as Polymarket traders cut the probability of passage.

The immediate market reaction to the vote was still sharp. BTC dropped 3.7%, ETH fell 5.2%, and $XRP slid 7.3%, while liquidations totaled $669 million.

Hougan also observed that institutional companies kept building blockchain products while the bill's fate hung in the balance, citing Robinhood's blockchain launch, Morgan Stanley's Solana ETF, and the Depository Trust \u0026 Clearing Corporation's first settlement of tokenized stock trades. In his view, SEC and CFTC rulemaking can sustain continued development without a new statute, though he conceded that a future administration could reverse agency rules.

AI agents pose the same control question

Castellana extended the control principle to AI agents capable of negotiating agreements or initiating transactions. Whoever grants an agent authority over funds — a company or an individual — remains accountable for that decision, he said.

“I don't think ‘the AI did it’ can become an excuse,” Castellana said.

Automated agents may eventually enter vast numbers of agreements that cannot anticipate every possible outcome in advance. Disputes could center on whether work was completed, whether its quality met the agreed standard, or whether one party breached the terms.

GenLayer is developing a system in which agents can define terms, acceptable evidence, and collateral requirements before entering an agreement, according to Castellana. If a dispute arises, independent validators evaluate the evidence, and participants retain the ability to challenge the result.

“We need to verify the agreement, the evidence and the process used to reach the outcome,” he said.

The legislative path forward remains open. The House passed H.R. 3633 by a 294–134 vote in July 2025, but the Senate later prepared different language. Any revived Senate version would still require approval from the House, or reconciliation between the two chambers, before it could reach the president.