Senate Democrats are pushing to rewrite the CLARITY Act's ethics provisions after rejecting a White House-backed proposal from GOP senators, Politico reported.

The CLARITY Act, one of the most consequential pieces of digital asset legislation pending in Congress, would establish a market structure framework defining which cryptocurrencies fall under SEC versus CFTC oversight—a distinction the industry has sought for years to reduce regulatory uncertainty.

Senator Ruben Gallego dismissed the latest Republican draft as "not a serious effort" following months of bipartisan negotiations.

Dispute Deepens Over Enforcement Authority

The central disagreement revolves around how to prevent President Donald Trump from profiting from digital assets. Trump's family has been tied to crypto ventures including World Liberty Financial, and the president has personally promoted digital assets, creating conflict-of-interest concerns that Democrats view as central to the bill's credibility. Democrats maintain they cannot back ethics rules enforceable solely by the Department of Justice, an agency under the president's own administration. Negotiations involving Gallego, Senators Cynthia Lummis and Bernie Moreno, and the White House ultimately collapsed over whether state attorneys general should also have enforcement authority.

In an interview on Thursday, Gallego stated:

"I can't imagine that that's a serious effort – after all the work that we've done with our Republican colleagues, that they would take the months and months of work and somehow interpret that and turn around and think what they offered was even remotely close."

Gallego indicated he is now collaborating with Senator Thom Tillis and other unnamed Republicans on a counterproposal, adding, "We are still in this fight."

Lummis defended the GOP proposal, while Tillis called the White House-approved language "good" but acknowledged that further modifications may be needed to secure the 60 votes required to overcome a Senate filibuster and advance the legislation. Tillis noted that another round of discussions with the White House is anticipated to determine whether additional revisions would be "acceptable" to the president.

The impasse has also cast doubt on the bill's timeline. Senate Majority Leader John Thune stated he no longer expects the Senate to pass the CLARITY Act before lawmakers depart for the August recess, pushing potential floor consideration into the fall.

Expectations that the CLARITY Act could deliver long-awaited regulatory clarity for the US cryptocurrency industry have been cited as one factor behind bullish market sentiment this year. However, prediction market odds of the bill's passage have declined amid disagreements over ethics provisions and other issues slowing negotiations.

Industry Pressure and Proposed Compromise

Coinbase CEO Brian Armstrong recently warned that portions of the company's business could relocate overseas if the United States fails to pass clear cryptocurrency legislation. While Coinbase intends to maintain most of its operations domestically, Armstrong said regulatory clarity is essential to prevent capital, businesses, and users from migrating offshore.

Amid the ongoing standoff, crypto commentator Crypto Sensei proposed a compromise framework in a post on X. The suggestions included retaining the DOJ as the primary enforcer while imposing statutory deadlines for investigations, establishing an independent ethics review body to oversee DOJ decisions, and permitting state attorneys general to intervene only under limited conditions if the DOJ fails to act. Crypto Sensei also called for annual disclosures detailing ethics complaints, investigations, and enforcement actions to enhance transparency.