Is the Clarity Act Dead? with Tyler Williams

16:46Beimnet Abebe:Rats. But yeah, it's a really interesting setup, but I humbly respect how hard of a job it is. Yeah, I know. Everybody is quick to be a critic. Oh, yeah. And no matter what you do, somebody's going to tell you you did the wrong thing. this guy just went out and hiked rates. And I bet you, I mean, I haven't paid attention, but I'm sure Trump is fuming.

17:14Alex Thorn:Well, I did see one thing that's been interesting, right? Because of course Trump was calling for Jay Powell to cut rates. He ostensibly put in a guy who's known to be dovish. That guy has not managed to yet cut rates. So Trump can't be super happy. The White House did put out, I think I saw some headlines on the terminal leading in and before that they would respect the Fed's decision. So that's good. I haven't seen, though. I mean, luckily, thank goodness, I don't have a true social account, so I'm not like following. You know, you haven't seen the paste yet on the, you know, the reposter. I have it on push alerts.

17:48Alex Thorn:Well, I'm sure he probably is fuming, but it's his guy now, so he can't, you know, be that mad. You know, he can blame Jay when Jay was, you know, appointed by someone else.

17:57Beimnet Abebe:But yeah, so just to add on to this, Warsh is actively engaging in like these different kind of panels, right, to look at what are better measures of inflation? How should we look at them? You know, what are – what's the appropriate balance sheet policy? Like he's looking at a bunch of things. What's like the most effective like communication strategy? but unfortunately none of that matters when you've got a war raging in the Middle East and the back end of the bond market that's on fire. Can't really do all of that. Because you could make an argument and some people do and I was talking to some guy the other day and he's like, yeah, like the new measure of like core PCE, like they're rejiggering it a little bit.

18:45Beimnet Abebe:It's actually puts PCE a bit lower. The Dallas Trimmed Mean PCE is better than the current corporate VC. There's lots of arguments to be made that even the latest inflation reports, things like airfares and lodging, which aren't huge, there's some aberrations in the data. So you can make the argument that you are seeing positive things on the inflation front, but I think that's all horseshit because, like, the end of the day, prices are just too damn high, and they're still going up.

19:25Alex Thorn:Yep, and they're going up too quickly. Yeah. And the labor market's tight. Yeah, exactly. Well, there you go. Yeah, that doesn't need to cut for employment because employment's looking good and does need to hike because of inflation because it ain't looking that good.

19:39Beimnet Abebe:Yeah, I mean, the best thing that the Fed could do, which they can't do, is to print molecules.

19:45Alex Thorn:Yeah.

19:45Beimnet Abebe:Like, yeah, go print some oil. Can we print some oil? But it's so crazy to me. Like, this is so self-induced. Well, maybe it's forced. It depends on, I guess, your politics. But without a war in Iran, like, oil would be 60 bucks a barrel.

20:02Alex Thorn:Yeah, I know.

20:04Beimnet Abebe:And diesel wouldn't be at$6 a gallon.

20:06Alex Thorn:Let's put a pin in that now. But I know people are seeing it at the pump. I've seen it out there just at the – which is gasoline. lean, but... Why isn't that part of the Fed's... Did I? Yeah, I'm not sure.

20:18Beimnet Abebe:People spend a lot of money on that.

20:20Alex Thorn:Of course they care. I mean, imagine if Jay Powell had access to an Air Force. How would the world have been different? Such a calm man, a Grateful Dead fan. That's a thought experiment for a different day, Pim, but it's always been great to talk to you. Markets, by the way, just throwing this out here real quick, Bitcoin, block clocks, we're having a Wi-Fi issue. 76K even? 76K after the failure of the clarity act we kind of expected that both that clarity ultimately would probably fail but also that it wouldn't be too damaging to crypto markets partly this is what i've been saying in our coverage um it was priced in to fail so you know and also i saw on the hike you know also fine no no real impact so we're just sort of still in that range so we'll put a pin in that nothing much more to report on crypto act price action at the moment bimnet obibi my friend from galaxy trading thank Thank you so much.

21:11Beimnet Abebe:Thanks for having me.

21:13Alex Thorn:Let's go now to our guest, Tyler Williams, former official at the U.S. Treasury Department, former head of policy at Galaxy. Tyler, welcome back to Galaxy Brains after about 21 months. It's great to be back with you, Alex. I've missed you guys, and it's good to be back with you, especially on today. It's an extra special day because we had the Clarity Act before the U.S. ended today. Yeah, we are recording on Tuesday, September 15th, around 5 p.m. We've just witnessed a failure of what the cloture vote on the motion to proceed on the Digital Assets and Margaret's Clarity Act, the Clarity Act in the U.S.

21:55Alex Thorn:Senate. Is that right? That's right. That's right. There was a footfall, so to speak. The Senate failed to proceed forward to get onto the bill. And what that means for your listeners is they needed to get to 60 votes in order for the U.S. Senate to consider the bill and have further debate. That failed. What I would remind people of is bills often fail to reach that threshold at first. And if you recall back to early part of 2025, this also happened to the Genius Act, which then proceeded forward and was reconsidered and brought back up and had a successful motion to proceed vote. But there is a difference here, Tyler, right?

22:41Alex Thorn:Because we are at the end of the 119th Congress. So that occurred sort of, you know, I guess a few months into the 119th. We're heading into a midterm year. The House is only in session until this Friday, I think. And the Senate is only in session until early October. Is there still a chance for the Clarity Act to pass the Senate in 2026? There is a chance. I would say it would be in a better position if they had have had a successful vote. I would be lying if that wasn't a true statement. That said, I think there still is a possibility that they can move forward and get on to the bill. The next really 24, 36 hours would be pretty crucial.

23:28I think if they can find a negotiated outcome to resolve some of the issues that are outstanding and some of the political issues that are outstanding between the R's and the D's, they could possibly come back as early as Thursday and have another vote. I think it's just important to remind folks that anytime you're having a legislative exercise, they go through fits and starts. There are a lot of passions involved in policymaking and senators and staff and both the administration and in Congress have spent thousands of hours on this. So rest assured, people are going to try to find a way out of this mess and try to proceed forward.

24:15So there is that possibility still.

24:17Alex Thorn:I saw this thing just procedurally since I know you've worked in the Senate and I don't know if you would call yourself a parliamentarian, but you know some of the ins and outs of the world's most deliberative body. You know, at the end of the vote, Senator Tillis changed his vote to no and then said a bunch of words that I didn't quite catch or understand. But my I was told by Natalia Lee, who's much smarter at this than I am, that what he was doing was on Senator Thune, Leader Thune's behalf, preserving the ability to redo the vote. Is that what happened? Yeah, it's not much more complicated than that.

24:56You have to be a no vote to file a motion to reconsider. So someone needed to switch their vote or vote no, at least on the Republican side, to preserve the optionality to bring the bill back for consideration. I see. It's really not much more complicated than that. Tillis was a yes, and then he switched his vote to a no, so he preserved the optionality to reconsider the measure.

25:20Alex Thorn:Yes, and it was unanimously allowed that it could be reconsidered in the future, which is, I guess, standard, right? Standard parliamentary procedure there. Another thing to ask here, you know, the vote only got 49 yes votes. That included several Democrats in particular, you know, setting, I guess it would have been 50-49 in favor if Senator Tillis had not, but then he wouldn't have been able to preserve. So they basically got 50 votes. That included several Democrats who have been longtime supporters and really worked very hard on this bill. Any idea why some of those senators ultimately voted no?

25:59Like, is that sort of, you know, it's going to fail?

26:02Alex Thorn:We can see that? It's really just like caucus dynamics. And, you know, remember back to the Genius Act, that same thing happened. Yeah. And it's really just sort of caucus dynamics, the preservation of sort of unanimity among the senators. And if they know they're not going to be able to successfully move forward to get on the bill, it's not really a there's no cost to them voting. no, but there might be a political cost to them voting yes. Yeah, that makes sense. That was my thought. You know, another thing that I've noticed was, you know, we've been waiting for things out of the SEC, like the innovation exemption.

26:42Alex Thorn:Of course, they published regulation crypto assets now several weeks ago, which is a full formal proposed rulemaking, which will have a whole process of rulemaking. But innovation exemption is thought to be more of like a sandbox, a temporary time-limited exemption. I don't think the commission has said this, though. CFTC Chairman Mike Selig has said this about other things they might do that perhaps they might wait a little bit to see clarity resolve one way or another before moving forward on some of these interpretive guidances or exemptive reliefs or sandboxes. Do you expect now that those may start, I don't know, innovation exemption as a concrete example, But, you know, we've been sort of waiting for those.

27:27I don't know if it's going to happen. The short answer is, yes, I always think it was contemplated. And particularly when I was in the government and we worked on writing the presidential report in digital asset markets and we released that in July of 2025. It was always contemplated. And you can flip to the back of the public report. And it literally says, you know, option one, and I'm truncating this for everyone, option one is we'll pursue legal certainty through legislation. And we wanted that both for stable coins and for market structure. And then in the absence of legislation, the expectation was that the SEC and the CFTC and the other regulators across the government would use their existing legal authorities to create and pursue regulatory certainty for the markets to exist and flourish in the United States.

28:20So that was always the expectation. Timing of these things, the bill is not dead yet. And there's lots of noise out there, I would say, on Twitter right now and calling the bill dead and not even doing some postmortems immediately. I don't expect the market regulators to move with such alacrity that it's going to happen tomorrow. However, I do think it's totally within the realm of possibility that you could see substantive actions taken from the SEC and the CFTC in the coming weeks, or even possibly while Congress is still in town. Remember, the Senate is in session for three weeks. And so there is a possibility that the senators could reconsider the bill.

29:08As we just talked about, Senator Tillis preserved the optionality for the Republicans to bring the bill back up for debate. And sometimes you have a second bite of the apple. So I think the market regulators are going to continue to consider how they can move with speed and pace, because you have to remember on the back end of the administration, you have a certain time window to get rules and regulations done. And if you want to have durability from an Administrative Procedure Act perspective, you need to give yourself sufficient time so that you can propose rules and then finalize rules within that time window.

29:45And to do so and also preserve the flexibility thereafter when you finalize a rule to prevent reopening that and even using Congressional Review Act and other mechanisms to overturn rules.

29:59Alex Thorn:Yep, that's helpful. And, you know, you worked in the U.S. Treasury Department for a long time. Well, I guess not that, you know, 18 months or so. I mean, about almost half of the president's term. Alexander Hamilton created the Treasury Department, or I guess was the first Treasury Secretary. I guess technically, did the Congress create it? I suppose the Congress created it. What was it like to work in Treasury on these issues? I mean, you were, I believe, the first ever senior Treasury official dedicated to working on digital assets. What was that like? What did that say about this administration's determination to do work on digital assets?

30:43Yeah, no, it was a great experience. There's so many talented career and political officials at the Treasury Department. And you heard a lot of noise in the previous administration, particularly that the administration and the officials who work there, whether they're civil servant or political appointees, were hostile to digital assets. I personally never felt like that was the case. In many ways, I felt that they hadn't been given an opportunity to actually work on the issues in a substantive capacity. And if you think about the Treasury Department and just how it's structured, the Treasury Department is obviously, it's the chief economic spokesperson for the U.S.

31:30government. And it serves as a finance ministry, collects taxes, sells debt, very critical functions to the well-functioning of any economy, and in particular, the well-functioning of the U.S. economy. And Treasury is sort of divided in three core verticals. You have domestic finance, you have international affairs, and then you have the terrorism and financial intelligence division. And within TFI, you have FinCEN and OFAC. And I'm giving you that background because I had a pretty unique role where I sort of worked across every vertical at the Treasury Department, including the IRS and some of the other bureaus within the department.

32:11So it was a really unique perch in terms of how the government and how the Treasury Department think about digital asset policymaking because it is not a monolith, so to speak. It's not solely about whether or not it's a security or whether it's not. It is many other things. And I think that Treasury has a pretty unique view into both domestic policy and foreign policy. And I thought it was an amazing experience and I loved working there and it was great working for Secretary Besta and all the people there. It was great.

32:45Alex Thorn:You mentioned terrorism and financial intelligence, that sort of one of those verticals at Treasury. I've heard a lot from critics of the Clarity Act that it didn't do enough to fight illicit finance and terrorism and support the powers of the government to interdict illicit funds. One, is that true? What powers does the Treasury Department have today? And was Clarity going to be more supportive of that? Or, you know, are those critics right that Clarity didn't do enough for that? No, I would say they're just, they either want to sell a narrative that more needs to be done, or they want to sell a narrative that they don't want the bill to happen.

33:29But to say that the Clarity Act and the legislation that was considered today on the Senate floor, the legislation was considered in terms of the process to get onto the bill. So, you know, I can't recall exactly how many pages were added into the bill to consider during the Senate Banking Committee, but it's something around 200 to 300 different pages of legislative texts and authorities that were put into the bill. And almost all of them dealt with how to interdict illicit finance. And whether or not you talk about Section 301, which is protocols that portend to be decentralized but aren't actually decentralized and specific rulemaking there, whether you're talking about adding an additional special measure so that Treasury has the capabilities to go after and sever classes of transactions that are touching illicit finance, whether you talk about the whole law that was put into Title III as well.

34:36There are so many examples of additional tools and authorities that are given to the U.S. government to help interdict illicit finance. I think it would be totally false to say that there wasn't enough done in the bill to consider how to interdict illicit finance and how to make sure that the industry is operating in the most hygienic fashion it possibly can.

34:59Alex Thorn:Yeah, I was surprised to see those claims repeated so much. I thought it strained credulity given how much we've seen was added to clarity. Another question, you know, we see, especially with the rise of AI enabled cyber attacks, I saw there was a big, it appears there was a big hack of revolutes like KYC database or exploit, I should say, because I think they were sort of socially engineered into losing a bunch of personal information. of their users. You know, I know this is a tough question for the government and those who work on illicit finance, but the Bank Secrecy Act, which is sort of the opposite of secrecy, it requires substantial collection of personally identifiable and identifying information by financial institutions on their users.

35:50Alex Thorn:Isn't that a huge risk? Like, shouldn't we be moving towards some sort of, you know, zero knowledge or, you know, unique identifiers that are, that don't require an individual to store their information at every place that they bank or every website they sign up for? Where's the government on modifying the BSA, you know, especially in light of the increased cyber risks that it poses? It's a great question. I mean, I think, Let me answer the question from a human perspective. I totally agree with you. I think that if you want to reduce instances in individuals and institutions' vulnerabilities of interacting and transmitting value on the internet, you have to find a way to protect them in very localized cybersecurity mechanisms.

36:42And I think, you know, on a personal level, I don't think that the current construct of the BSA is very supportive of that. And what I mean by that is, you know, traditionally, the BSA requires very specific identifier information, like you said. So financial institutions who are architects under the Bank Secrecy Act, they have to collect that information on their counterparties and on their customers. And when the Genius Act came through and got signed into law, permitted payment stablecoin issuers were added into that definition of who is a financial institution. So what I don't think has been explored as fervently as it needs to is what other types of entities can provide that type of identifying information such that individuals and institutions are able to carry their identifying information a little bit more locally and in a manner that cryptographically protects their identities.

37:44And I think we will get there at some point. And AI is certainly pushing the envelope on that. And as we see more commerce move into whatever the agentic economy ends up becoming, I think we will need to have updates to the BSA in terms of who is collecting this information, how it is stored, how it is provisioned, what types of other information from an individual capacity can serve as that sort of credentializing mechanism, both to businesses and consumers and so on. So I think you're spot on. But the problem has always been we need Congress to update the law. Yeah. Well, that can be tough, but I agree with you today.

38:30It can be tough.

38:31Alex Thorn:Federal law, though, is federal law. I'll give you that. What I think, just to double click on something that we talked about a minute ago, what I think is so interesting is there's many criticisms that the legislation doesn't do enough to put digital asset intermediaries on similar footing as other financial institutions. And to me, the entirety of Title II of the bill is about that. It's saying how people who are current registrants either on their state MTLs or registered as money services businesses today, how they will be upgraded in the future. And that was a big piece of the Clarity Act, ensuring that these new types of intermediaries, whether they're brokers, dealers, custodians, digital commodity exchanges, etc., how they would be upgraded in terms of how they comply with the Bank Secrecy Act.

39:21So if you want to advance the thinking in terms of how the government is going to regulate these types of intermediaries and interact with consumers and people and businesses alike, you need to update the law, which has been this whole exercise for the past, I don't know, six years or so, maybe more.

39:38Alex Thorn:Yeah, it doesn't make a lot of sense to me because there is no real federal legislation currently or regulatory framework at the federal level currently regulating digital assets intermediaries, right? I mean, there's a couple of things that surely apply. I would say the Genius Act is, obviously, relative to permitted payment stablecoin issuers. However, within the Genius Act, there is a construct of who a digital asset service provider is. And so I don't think that has been fully fleshed out. And it'll take rulemaking and more action from an administrative side to clarify. But I think that, you know, to say that nothing exists, I don't think that's entirely true.

40:22We have a stablecoin framework. It'll come live in January of 2027. And so you see the ecosystem today. What's the total outstanding float of stablecoins? 315 billion, something of that nature. And, you know, we've had stablecoin issuers being licensed and regulated on a state basis for the most part and having money service business registrations from the treasury department. But we really haven't seen the switch turn on yet in terms of stablecoin issuers being licensed at a federal level.

40:55Alex Thorn:Secretary Besson at that roundtable, I guess in March of last year at the White House, said that we're going to grow, maintain and grow U.S. dollar dominance and we're going to use stablecoins to do that. I see multiple benefits to Americans, to businesses, to the financial system, and to the country for upgrading our dollar transport system with blockchains and stablecoins. But how big of an influence was expanding dollar dominance in the government's interest in promoting stablecoins? Stablecoins are an extraordinarily powerful tool. They're an extraordinarily powerful payment system. And any time that you can put dollars on people's phones around the world and you can do it in like nanoseconds, that's a pretty powerful thing.

41:48And what I don't think we've seen 100 % sort of play out is because the law isn't totally effective yet, we haven't seen businesses become licenses, stablecoin issuers. And then under the Genius Act in Section 18, it contemplates comparability and reciprocity. So how the U.S. is going to interact with other jurisdictions around the world, how comparability frameworks are going to be built. And I think once we see that sort of connect, we'll see more dollars flowing into those jurisdictions and we will see more sort of cross-border commerce that will be running on the backs of payment stable coins.

42:33Alex Thorn:Sticking on that topic of American sort of capital markets dominance, this is one of the big arguments for clarity that its proponents have repeatedly said. I saw Senator Lemmis on the floor of the Senate today made this case that if the U.S. doesn't lead on digital assets market regulation, then our, you know, competitors, if not even antagonists, will do so. So how big of a risk did the U.S. government see that, you know, I don't know, China as the example has been given not just for clarity, but also for genius, right? I mean, they have the DCEP, right, the sort of digital yuan. How big of an influence has international competition been in promoting, you know, genius and clarity together?

43:17You're the research guy, so you'll have to fact check me on whether or not this is right. But the last I checked, if you look at the top 10 exchanges in the digital asset space on a global basis, eight of the top 10 are outside the U.S. And on a daily spot trading activity in the crypto economy, what is it like? Almost only around 10 to 12 percent of the daily spot spot trading activity occurs through U.S. intermediaries. and I think it's low single digits in terms of the futures trading volume. So I think if you view that as a problem, which I do, then the counter would be the best way to get those markets to come back into the US is to set a global standard and do that through the Clarity Act.

44:09And if you don't do that, you run the risk of allowing how value transposes through blockchain networks to be owned and to be domesticated, not through U.S. built tech, not through U.S. intermediaries, and not controlled through the use and utility of the U.S. dollar. Unfortunately, we haven't seen that play out in terms of the utility of dollar denominated assets. Those are still widely the preferred mechanism for payment stable coins. However, it's tough to say where the industry is going to go in 10 years or so. And it's tough to say if we won't see a more sort of multipolar geopolitical economy where we have different sort of siloed payment networks and siloed systems.

44:57Like it seems to me that that could be the run rate that we're on.

45:00Alex Thorn:Yeah, I think just, I was looking a moment ago, just today, today's volume, you're seeing about 15 to 16 billion in spot volume on ex-US exchanges versus about three and a half billion onshore. So, and that onshore, you know, is dominated by Coinbase and Kraken. And then it's, you know, offshore, it's Binance, OKEx, BitGet, you know, etc. So, yeah, I mean, I guess it's, and also just as an aside, I haven't checked this very recently, but the spot volume in crypto is maybe 80 % on centralized exchanges and only about 20 % on chain today. So it's mostly on most trading is on centralized exchanges and most of those are broad.

45:48Alex Thorn:Before we wrap, Tyler, you know, what gets you excited for the digital assets industry? Let's say clarity doesn't happen in the 119th Congress. And, you know, I think Senator Lummis again has said it may not happen until 2030 if it doesn't happen now. Now, let's say that doesn't happen, that it doesn't happen until 2030 or if at all. Comprehensive crypto market structure legislation in the United States. You know, where does crypto go from here, like as an industry and or on the policy? Yeah, I mean, people are acting like the industry is dead because the Clarity Act didn't get signed in law. And like, yes, I 1000 % believe that it would be a good thing for the United States to enact like sensible market structure legislation.

46:33Absolutely, full stop. In the absence of that, what gets me excited, I think we'll see a lot of progressive activity from the market regulators. I think we won't see Congress quit trying to create legal regulatory certainty through law, but we'll see the market regulators continue to move ahead. We'll see the Genius Act come online in a real earnest way in the beginning of 2027. And thereafter, we'll see a lot of work and rulemaking exercises still pursuant to Genius that will talk about foreign jurisdiction, reciprocity, comparability. We'll see a lot of hard work done on that. And obviously, the public will have an ability to comment on it.

47:15And what I think you could see is lots of interesting geopolitical work that happens in a bilateral basis and through executive agreements. And hopefully they're done pursuant to the Genius Act. But I think there's lots of trade relations to explore. I think there's lots of ways that people are contemplating using stable coins and interacting with digital asset markets that we will see continue to progress. So tokenization will continue to be a theme. Stable coins will continue to be a theme. Infrastructure will continue to be a theme. And regardless of clarity, the regulators are going to try to provide that type of market certainty in terms of how you do business and get regulated from the OCC, the FDIC, the Fed, and the credit union regulators.

48:09So we will continue to see that progressive activity.

48:11Alex Thorn:Who is minding the store now that you're not a treasury, Tyler? Can we feel confident that there's a strong team there still working on these issues? There is a great team, both at a career and political level. So they will stay focused on getting all of this done. And the Presidential Working Group on Digital Asset Markets, it still exists. And I was one person who was helping push things ahead. I think that infrastructure will stay intact. and I've always thought that it was extremely helpful to have people like David Sachs serving as sort of the nucleus and Patrick Witt at the White House because it's a nucleus and it's a clearing function for policy and that team still meets all the time.

48:57You know, when I was there, we had regular meetings once a week where we all talked about what we were working on and it was just a good collaborative effort so that everyone was sort of moving towards the North Star trying to create legal and regulatory certainty so that the businesses knew how to interact in the U.S. We knew what they were doing so that we knew how to write smart rules in a progressive fashion.

49:20Alex Thorn:And we'll shout out to those people working hard down there near Capitol Hill by the Treasury Department at the White House. Last question, Tyler, former official at the Treasury department. Sir, what is next for Tyler Williams? Well, I am a senior advisor at Hogan Lovel's Cadwalader working in their public policy team and working on a handful of other things. More to come on that as soon as I figure it out. My friend Tyler Williams, former senior counselor to the Treasury Secretary for Digital Assets and former head of policy at Galaxy. Thank you so much for coming back on Galaxy Brains and I'll rap soon about you, sir, I promise.

50:01Alex Thorn:Thanks, sir. Good to be with you. All right. Thank you, Tyler.

50:09Alex Thorn:Thank you for listening to Galaxy Brains, the weekly podcast from Galaxy Research. I'm Alex Thorne, head of firmwide research at Galaxy. Follow me on X at Intangible Coins. Follow Galaxy Research on X at GLXY Research. Read our written reports at galaxy.com slash research. And don't forget, if you like Galaxy Brains, to like and subscribe on your favorite podcast platforms like YouTube, Spotify, Apple Podcasts, and more. We'll see you next time.