Kristin Smith on Why the Clarity Act Comes Down to a Memecoin

Transcript

So, it's really coming down. It's coming down to a memecoin, guys. Like, this is where we're at. Um, which is kind of wild and in some ways hilarious. Hi everyone. Welcome to Unchained, your no hyper resource for all things crypto. I'm your host, Laura Shin. Thanks for joining this live stream. And we will first take a quick word from the sponsors who make the show possible. This episode is brought to you by Cape, America's privacy first mobile carrier. Same premium service you'd expect from any other carrier, but designed so your number, your location, and your data actually stay yours. Get 33% off 6 months at cape.co/chained.

Today's guest is Kristen Smith, president of the Salonith Policy Institute. Welcome, Kristen. It's great to be here, Laura. >> Great to have you. Oh my gosh, this is just it's like crunch time. This is something the industry has been looking forward to for many years and last week there was sort of a flurry of news about the Clarity Act and it's facing not only a very tough timeline but as far as I can understand very tough vote math to be passed in 2026 at all uh let alone before the midterm. So, um, you know, some of the things I saw were Senate Majority Leader John Thun said that Clarity will likely not have enough votes before the August recess begins. I noticed polymer market odds are at about

30%. Um, but before we get into all the details about, you know, what's in it, what the sticking points are, things like that, just give us a sense of this timeline, why does it look so tricky? Why does it look like the clock might run out? >> Yeah. Well, there there are only so many legislative days in a year. You know, in in crypto, we have scarce digital assets. There only be 21 million Bitcoin. And in Congress, there will only ever be a certain number of legislative days and hours every year. And, you know, to get a standalone bill signed into law, there are multiple procedural votes. Um, and it takes up uh quite a bit of time to get it through the actual Senate floor. Um I think if

you recall last year with the Genius Act, Genius took about four weeks. Um but that included some failed procedural votes along the way. And so with uh clarity, we need to condense that. We need to be able to move it uh faster and quicker. But I think the good news is the number of issues remaining are are very few uh and very small. And so hopefully we can get those worked out, get the process kicked off and uh you know wrap this up next week before before they leave. Um you know the thing to know about this bill is that you need 60 votes in order for it uh to pass. And the reason you need 60 is because in the

Senate, any single uh senator can stand up and filibuster legislation unless you get this 60 vote threshold in order to end debate and limit it to a certain number of hours. And so that 60 number is very important. You know, we have 53 Republicans in the Senate right now. Uh one of those is Senator McConnell who's not actively voting. uh you have a couple of those that you know may or may not uh haven't decided where they're at yet. So we're going to need a good number of Democrats to join with the Republicans to have that critical 60 votes to get this signed into law. And so that's where the leverage comes in.

That's where the why the negotiations are happening between both sides. Um but I think we're getting very close and I'm I'm very optimistic we can get this done. >> Okay. And before we get further into the vote math, I just want to understand, so you know, one of the deadlines is the August 7th recess, but then what happens after that? So, if we're looking to try to pass this in 2026, um or or before the midterms, then kind of what are the remaining windows? Yes. So, this window we have right now before the Senate recesses for the August work period is the most critical window. I think we really want to see substantial action in the Senate. We'd like to see it get all the way through

uh this August because what happens is is Congress doesn't come back until September. Uh the House and Senate are on slightly different schedules. Um but they're only in for a couple of weeks in September. And you know, September is a a very busy time in DC because the government funding uh expires on at the end of September. Uh there are things like the National Defense Authorization Act that needs to be uh you know redone every year and um you know you mix in a bunch of Jewish holidays there just aren't a lot of days for for voting in September. So um very very limited time there. Then they go home for the month of October leading up to the early

November election and then it's a complete wild card what happens after that. um that's the lame duck period between the election and when the new Congress is sworn in. That's the November December time frame. Sometimes those are incredibly productive and they get a lot of things done. Uh sometimes, particularly when there's a change in the balance of power in one of the houses, um they often times uh you know decide to pack up and go home. So, we really need to get this through the Senate now, kick it over back to the House, so the House can move quickly in September, which the House because of the way the rules are structured structured, they can move more quickly than the Senate. Um, and then from there, it's off to the president's desk for signature.

Okay. Okay. Wow. So, yeah, that's this looks like really tight math. So, now let's go to the vote math. Um, you already mentioned so Mitch McConnell isn't voting and so if there's usually 53 Republicans then that sort of knocks the number down to 52, but I don't know. Do all of the Republicans support clarity or is there even a question there? >> Uh, I think most of them support clarity. Uh, there is an open question from uh, a couple of the members. If you if you look back at the Genius vote, you had Ran Paul uh and Senator Holly. Both of them did not uh vote for Genius. Um it's unclear if that will be the same

case or not with clarity. Um but regardless, you're going to need, you know, somewhere between eight or more Democrats on board. I think the good news is if you look back to Genius, there were 18 Democrats that ultimately ended up voting for that bill and you have a really active block of uh seven or eight of them in in the Senate that are actively involved in the negotiations. And so I think if you can get that block, they will bring with them another 10 or so members. And so I think that um you know it's definitely possible to get the 60 votes needed but we need a couple of things. Um most

importantly we need to strike a deal uh well not we the industry but the we need the Senate and the White House to come up with a deal on ethics language. Um we also need to get a deal around the blockchain regulatory certainty act. Um there are a couple of these little outstanding issues that need to happen, but I think if they can get, you know, a couple of these things off the table, that should be enough for them to move forward with a vote and uh, you know, hopefully have the votes to get this signed into law. >> Okay. And for any members of the audience that are interested in reaching out to their senators, I wondered if you had any specific names you wanted to drop of Democrats that seem like they would be movable.

Yeah, I mean, listen, I think, you know, there's a there's a group of seven of them that I think are very involved in the negotiations. Um, that senators, and I will probably miss one, also Brooks, Ggo Warner uh Waro um Gillibrand was not on the letter with them, but she's heavily involved as well. So, um, you know, there there are I think any of those 18 senators, uh, when I don't have the list in front of me that, um, did that that voted before, I think are fair game targets again. Um, but I think, you know, listen, there's some great tools out there. If you want to message your congressman or senator, if you go to uh stand with crypto, they've got uh tools

on their website. The blockchain association, also my former organization put out a tool as well. um that you can generate your own letter and uh get it sent over. Um so very easy to do and I think you know regardless of um who your members of Congress are on the Republican side or the Democratic side, you should be weighing in um with those members because you know we want to make sure all the Republicans show up and absolutely as many Democrats as possible uh get the message that we have to get this done. >> Yeah, I actually use that tool. It was a great little tool. So, I recommend people looking it up.

>> Um, okay. So, in a moment we're going to talk about this compromise that needs to happen around ethics. But first, we'll take a quick word from the sponsors who make the show possible. >> If you hold crypto on your phone, your biggest vulnerability isn't your wallet, it's your carrier. AT&T, Verizon, and T-Mobile have been breached again and again, and SIM swaps are still one of the easiest ways for attackers to drain accounts. That's where Cape comes in. America's privacy first mobile carrier. Same premium service, but Cape rotates the identifier on your SIM every 24 hours, deletes your call and text metadata after a day, and protects against SIM swaps with a 24word recovery phrase that only you control. You also

get two middle toend encrypted secondary numbers for banking and signups, so you stop handing your real number to every app that asks. Go to cape.co/ co/chained and use code unchained for 33% off your first 6 months. Back to my conversation with Kristen. So, there was a new draft that included this new ethics language that the Democrats originally wanted, but the language was something that they were actually not happy with. So, tell us what this ethics language says and why it remains a sticking point.

>> Yeah. Well, first of all, I do think the inclusion of ethics language that was signed off on by Trump was a very big deal. I think the fact that he agreed to something like this is highly unusual. Um, you know, most asset classes don't have their own specific ethics provisions that go along with them. And in fact, um, most presidents don't impose any kind of restrictions um, on themselves. So I think the fact that he agreed to this uh is incredibly significant and really can start off a negotiation. Um you know essentially he agreed to no no issuing or sponsoring of digital assets with uh you know devesting those assets or putting them

in a blind trust if if they already have them and that the department of justice can enforce them um with civil penalties. So this is u much stronger than anything that has ever existed before and so I do think it is actually a pretty good starting point. Um I am also though not surprised that the Democrats be like, "Oh, we will take exactly the first offer we get from Donald Trump. Um you know, the Democrats are also incredibly good negotiators." And so they're having conversations right now um with a small group of them, um along with Senator Tillis from North Carolina, uh who is a Republican, uh who's not running for reelection and has um you know, not been afraid to push back against Donald Trump. uh you know

they're they're talking they're working on coming up with something um but you know this is a language that is going to apply to every uh member of Congress as well as the president and the vice president. So I think they're trying to find a path forward. Um I think it's going to come down to sort of the enforcement mechanism around this and maybe a couple other details but you know from my conversations on the hill these are very very active negotiations. I think they're very very very close and you know I think it's you know if you look at the politics of it I think it's in the best interest of the Democrats to come back with something right like they're they're going to be put in a tough position if you know Trump has

said hey I'm willing to do all these things and their answer is no so I think they will come back with something and if it is workable and reasonable I think that you know Donald Trump I think wants to get this done I think he wants the US to be the crypto capital of the world. He wants a win. Uh and so I think that the politics could be in our favor uh you know if if we can get some language moving back and forth here in the next uh 24- 48 hours. >> One of the pieces that the Democrats objected to was that the Department of Justice would be in charge of policing.

Why was that something that they didn't like? >> Yeah. Well, you know, the the the president appoints uh or nominates the attorney general to run the Department of Justice. And so, the concern has been that uh you know, that attorney general might not um you know, be willing to go and push back against a president who uh you know, put them there. And so there have been some discussions around what other kinds um of enforcement mechanisms could come into play. Uh there's been some discussion that maybe the state attorneys general would would play a role there, but you start running into some sort of almost constitutional

issues with, you know, the power of the states versus the power of the federal government. Um and so there are discussions going on to try to find some middle path there. And I'm I'm optimistic there are I mean this this is definitely outside of my area of of policy expertise, but my understanding is there have been a lot of really creative solutions that have come to the table. And I'm I'm hopeful that that um you know that they can find one that works for all parties involved because if you know listen if this is really truly uh an issue for Democrats which I think uh it is like I think they're going to want to do something about it and this is an opportunity for them to to put something in place that prevents um you know the kind of activity that

they that they're uh find objectionable from happening going forward. And one other piece that I didn't understand was that the proposed ethics clause will end in 2029. But does that mean then this or what Trump is proposing is is an ethics clause that only applies to him and to no other president or I I didn't fully understand like why that was part of the clause. Um I I think that the the date is open for interpretation or open for negotiation right now. And so that could be some of the changes, but yes, it would essentially, you know, free up Trump to do what he wanted after leaving

office is my understanding. And so um so yeah, I think this is one of the issues that is that is open and part of the negotiations. I would say though I think one kind of maybe frustrating thing from the industry is that you know this is a bill that is designed to regulate the crypto space and you know what government officials like the activities that they do uh are you know it's very different than how to regulate a you know spot exchange or something like that. And so you know the industry doesn't really have a seat at the table. You know we're not in the room for these negotiations. since we don't really have a dog in the fight other than we need an agreement on this issue in order to get the votes uh needed to get this bill done. So, it's a little bit of a tough

issue because um you know, we're not in the room for it and and we're not seeing um you know, the language and the proposals like we might with some of the other sections uh just because we're not really a party to the negotiations, >> right? So, it's basically like the Democrats and President Trump are having a fight and um our bill is being held hostage. This reminds me of something that happened earlier having to do the banks, but anyway. Um >> Yeah. Yeah.

>> So, one one last thing, and I know it's probably going to change, but I'm just curious. So, uh, during, so let's say that it goes through as it's proposed. Then what would that mean for Trump's crypto businesses while he's in office? Or no, I guess you answered it. They would go into a trust or he'd divest, but then after the clause expires, then he could resume as presumably. Okay. Okay. >> That's my understanding. Yeah. >> Okay. I So, okay. The the confusion point for me was I thought he was saying it shouldn't apply to any other president. So that was why I was asking about the 2029 number. Oh, or the 2029 date. Um, but okay. So, do you have a sense of what it is that the Democrats want and whether or not Trump or the

Republicans would be open to any of that? >> I mean, I think that's that's sort of the big question. I I think they want to have some sort of enforcement mechanism that's outside of of the DOJ. And so I I don't know what the answer to that is, but I think they're looking at some creative um solutions there. And I think the big question is can they come up with something that, you know, Trump will sign off on. So it's really coming down it's coming down to a memecoin, guys. Like this is where we're at. Um which is kind of wild and in some ways hilarious, but it's like the original sin of him being reelected.

>> Yeah. But listen, you know what? It's the We can complain about this all day long. I would take an enthusiastic Donald Trump who loves crypto so much that he wants to be in the business over, you know, fighting Gary Gendler any day. So, this is like a way way better position to be in. Um, but yeah, it is a bit of a comedy uh for sure. Um, that it's all come down to this. >> Okay, so now let's talk about the meat of Clarity. um what are the you know main provisions of clarity that you feel the crypto industry can be most excited about? Yeah. So listen, I mean I think what we can be most excited about about is like in total that this will provide

a framework that really allows for uh the adoption of digital assets on a more mainstream basis. And I think the integration of the traditional financial world with the crypto world and so I think it's it's really the impact of like you know there's there's all these institutions that are sitting on the sidelines that are maybe thinking about upgrading. maybe they want to use Salana for something but they're not sure. Uh there's also asset allocators that want to come in and invest. When we have this framework that's going to unleash a lot of capital um and a lot of activity and I think I think that is what is most exciting to me. Um but there are some parts of the bill that I think are really really positive for the crypto industry. Um, one of those is the

blockchain regulatory certainty act which provides uh protections for for software developers so that they're not treated as money transmitters. I think that that is really important. Um, and then there are other parts of the act that you know might be a little bit ownorous but I think provide that sort of path forward. So for example um you know the exchanges would be subject to uh market regulation which today there's no spot you know regulator for crypto. So um you know that will be you know something that that certain entities will have to you know comply with but I think it will have the impact of span expanding the total market. Um you know the other one issue that we've talked

about many many times in the past is that you know we haven't had a clear pathway for new uh crypto assets to um launch in the United States. And so this provides a regime where you know those assets are declared to be commodities. However, they're still subject to some security-like disclosures. And so, you know, it it's again it's not the wild west of the like 2018 like everyone's issuing white papers and making tokens, but there's a framework to move forward. And so, you know, I think that's why they call it the clarity act. it provides you know sort of this clarity for how to operate how to make sure that you know businesses who want to you know come into the US or start up in the US

they know what the rules are and and they can move forward so um you know really huge opportunity and I would say the bill you know we've we've gone through several versions of crypto market structure legislation over the past you know eight years and a lot of them have uh you know been early drafts they weren't really super wealth well thought out. Um, but through that process over time, you know, we're now at 600 plus pages of legislation and you know, there's been a lot of the details have have been worked out and I would say, you know, most of it uh, you know, 99% of this is is agreed to right now.

It's just those, you know, couple little remaining issues that we need to get across the finish line. But again, active conversations going on and I and I think that um you know there there's a real chance we can get this done next week. >> Yeah, I think the blockchain regulatory certainty act uh the way that it protects developers for working on non-custodial projects I think is something that a lot of people will really care about. Um, but I'm curious, are there any provisions that give you pause >> or that you think at least the industry will will have that feeling about?

>> Yeah. I mean, listen, I there's some stuff in there that quite frankly I think a few years ago we we even though things were bad, we probably would not have have agreed to. But, you know, we're in we're in a new spot. I mean, just the the disclosure regime alone is, you know, substantial. Um so that is something that I think you know we will work through there will be a pathway but it doesn't mean there there's no work there. Um you know I think we also have this whole section um you know for those uh decentralized and namely projects.

You know I think again a few years ago this might not be something people were comfortable with but you know I think there's just been this realization that this is only viable path forward to do this on on any large scale. And so yeah listen like some of this stuff is going to be be hard to deal with. It's going to cost money. You're going to need lawyers. You're going to need compliance. But at least there's a path forward which we've never fully had before. And it will probably be a lot easier than engaging in litigation with with the SEC or or getting, you know, debanked by by the banking regulators or or whatever else. So, um so yeah, some of these things I think uh you know, when push comes to shove, it's it's going to take a little bit of work, but um but again, better than the

alternative we've been living in in the past. >> Okay. So, I hate to end on a slightly negative note, but I think it's important to ask if clarity doesn't pass this year, then walk me through kind of what you think that might look like in terms of when might be the next best uh you know, chance for it to pass or or or essentially what you think will happen. >> Yeah. I mean, so I don't think all all hope is lost if it doesn't pass. Um, I mean, I do think that we have the, you know, really strong regulators at the SEC and the CFTC that can move forward with developing rules that fit within authority that they currently have. Not

any new authority, but that, you know, the rules they currently have. So, I I do think we can see uh, you know, some progress. Um, but uh, yeah, I I think it's going to be a step backwards for the US. I think as I mentioned before there's there's a lot of money sitting on the sidelines that you know wants to enter this space um you know either directly as an investment or or through upgrading the technology and I think some of that you know won't come to fruition if we don't get this built done. So I do think it's it's hugely important. I think we're at this big inflection point um as an industry like this is you know the time to to get something like this done and I cannot tell you Laura there have been thousands and thousands and thousands of hours

between staffers and senators and members of Congress and the White House like there's been so much time and effort put into this bill. It is it is ready to go. I think there have been a lot of uh you know improvements and changes over time. uh we should be able to get the votes if we can close out these couple little issues and um you know I do think there's time left. They may have to extend a little bit past August 7th. They might need to get into the you know 8th 9th or 10th but I've heard um you know there are folks on the hill that are talking about that as a possibility. So you know this is definitely something that can get done and it's not a guarantee it gets done.

uh but the pathway exists and I think you know all the all of my colleagues on the industry side who are working on the ground in Washington you know it is uh all hands on deck folks are on the hill they're talking to media they're helping get letters together etc it is a full-blown lobbying effort right now and um you know I'm I'm I think we've got great people that are working hard and and hopefully we'll succeed in getting this done >> actually that's something I didn't understand about the clock so they can actually push it past the 7th. They can they can the the the calendar is not set in stone. So, um I mean even today we we or I guess it was maybe late last night, we have had Donald Trump

saying that they should cancel Senate should cancel the August recess so they can do the the Save America Act, right? Um so, you know, they they do have an option of changing of changing the days. Um, oftentimes what happens is sometimes they'll go home early because they've finished their business, but there's a there's a long to-do list in the Senate right now and it's tricky to maneuver things. They have a bunch of nominations they need to get done, etc. So, I I do think the option of extending a couple days uh is is on the table. >> Ah, okay. Okay.

And one other thing you mentioned all the money that's waiting on the sidelines for clarity um that people are hoping to deploy here in the US. If that doesn't happen, if it doesn't pass this year, do you have any sense of where that money will go? >> Uh I don't have a sense. It seems like everyone wants to go to like AI these days or do things that are outside of crypto. So um but no I do think there is a lot of uh I think there's a lot of interest in in crypto at least among you know allocators I've spoken to actually what I meant was like other countries I don't know if there are other jurisdictions that people are looking at as you know where kind of cryp the crypto industry can flourish.

>> Yeah. Yeah. No, I mean, listen, I think that, you know, the Middle East is still a spot that, you know, despite some of the, you know, geopolitical issues they're having over there. I think there's still a lot of interest over there right now. I think Asia is, you know, another place where, uh, you know, Japan is like playing out a a framework right now. And, um, so yeah, I think there are, um, uh, other parts of the world, um, that are more interested in investing. But, you know, the what's really cool about what the Genius Act did last summer is we're now seeing different jurisdictions around the globe that are that are looking to that that are trying to modify their own rules.

And I think if the US can be the leader with the Clarity Act, I think we're going to see other jurisdictions around the globe kind of copy our framework. And so, you know, I I want the US I'm I'm a US citizen. I want the US to be a leader. I want the US to um you know set the standard for everyone else to adopt globally and you know be be the ones that are that are using this technology uh you know first and and being most effective with it. So um but no I I think there will be some uh you know other activity around the globe um but but you know the US is still uh I think kind of the crown of prize and and we want the US to be actively engaged as

well. >> Yeah, I would agree with that. I tweeted that my worry is if we're not the leaders in this technology then it will upset the global balance in some way that does not seem positive to me. So that's >> Yeah. Yeah. Yeah. I think I think you're I think you're right. So um yeah, we we want the US to to to be in the game. >> Okay. Well, Kristen, as usual, it was such a pleasure chatting with you. Thank you so much for coming on Unchained. >> Yeah, thanks for having me, Laura.

>> And thanks to everyone for tuning in to this live stream. We will catch you tomorrow. Bye now. Nothing you hear on Unchained is investment advice. This show is forformational and entertainment purposes only. and my guest and I may hold assets discussed on the show. For more disclosures, visit unchainedcrypto.com.