Stalled Crypto Legislation May Have Delivered Faster Benefits
Hougan argues that the market’s response to the stalled legislation is easier to understand when considering the regulatory actions that followed. In his view, several compromises included in the bill would have been less favorable to parts of the crypto industry than measures subsequently taken by federal agencies.
Stablecoin Rewards Remain a Competitive Advantage
Stablecoins are one example. The GENIUS Act prohibits stablecoin issuers from paying interest or yield, but it does not impose the same explicit restriction on rewards offered by intermediaries such as cryptocurrency exchanges. Negotiations over the Clarity Act had sought to address that gap amid concerns from banks about competition for deposits.
Hougan argued that the bill’s failure therefore benefits platforms such as Coinbase, which use stablecoin rewards to attract customers. The outcome leaves an important distinction between restrictions placed directly on issuers and the rewards that intermediaries can offer users.
Established Exchanges and Tokenization Gain Flexibility
Hougan also identifies established crypto exchanges as potential beneficiaries of the stalled Clarity Act. The legislation was designed to create a more comprehensive federal market structure for digital assets, a framework that could have reduced some regulatory barriers facing new competitors.
Without the legislation, Hougan argues, incumbent exchanges retain advantages built through their existing state licenses and infrastructure. Tokenization is another area in which he says regulators have moved faster than Congress might have under the proposed legislation.
Two days after the Senate vote, the Securities and Exchange Commission approved a five-year conditional “innovation exemption” for qualifying venues. The exemption allows those venues to trade tokenized US-listed stocks through permissioned automated market makers and liquidity pools without registering as traditional exchanges. Certain liquidity providers also received conditional relief from dealer registration.
Hougan argued that immediate experimentation under the exemption could prove more useful to tokenization companies than waiting years for studies and subsequent rulemaking contemplated by legislation.
SEC Guidance Addresses Revenue-Generating Tokens
Hougan’s fourth area is revenue-generating tokens, particularly protocols that use revenue to repurchase their own tokens.
SEC staff clarified on September 25 that when a crypto network is functional, announcing a buyback program for a non-security crypto asset does not by itself constitute a promise of the “essential managerial efforts” used in determining whether an investment contract exists under the Howey test.
The clarification is staff guidance rather than an SEC rule and does not carry the force of law. Hougan said it reduces uncertainty for protocols including Hyperliquid, $NEAR and Uniswap that use or have adopted mechanisms tied to protocol revenue and token supply.
Speed Comes With Less Regulatory Durability
Hougan acknowledged that the trade-off is durability. Agency interpretations and exemptions can be changed by future regulators, while legislation would establish rules that are more difficult for a future administration to reverse.
Market observers following the Clarity vote have raised the same concern. JPMorgan analysts said agency action could fill some of the regulatory gap, but noted that rules created by the SEC and the Commodity Futures Trading Commission are less durable than legislation because future administrations can modify them and courts can challenge them.
Hougan nevertheless argues that growing adoption by major financial institutions could make a broad reversal increasingly difficult over time.
“Crypto sacrificed long-term certainty and got better rules, faster,” Hougan wrote.
Why This Matters
The debate highlights a central tension in US crypto regulation: agency action can deliver immediate flexibility for stablecoin platforms, exchanges, tokenization businesses and token-based protocols, while legislation offers a more durable legal framework. For market participants, the stalled Clarity Act may leave existing opportunities open in the short term, but the longer-term status of those opportunities remains exposed to future regulatory decisions, administrative changes and court challenges.
Frequently Asked Questions
How did the stalled Clarity Act benefit Coinbase and other platforms?
Hougan argued that the bill’s failure left intermediaries such as Coinbase able to use stablecoin rewards to attract customers because the GENIUS Act does not impose on intermediaries the same explicit prohibition on interest or yield that applies to stablecoin issuers.
What did the SEC’s innovation exemption allow?
The five-year conditional exemption allows qualifying venues to trade tokenized US-listed stocks through permissioned automated market makers and liquidity pools without registering as traditional exchanges. Certain liquidity providers also received conditional relief from dealer registration.
Are the SEC’s crypto interpretations permanent?
No. SEC staff guidance and agency exemptions do not have the same durability as legislation. Future regulators can modify agency actions, and courts can challenge rules created by the SEC or the CFTC.