Senate’s CLARITY Act Fails Procedural Vote, SEC Unveils “Innovation Exemption” for Tokenized Stocks
Washington D.C. – The U.S. Senate’s CLARITY Act, a landmark piece of legislation aimed at structuring the digital asset market, failed a procedural vote by a narrow margin of 49 to 50. Just two days later, the Securities and Exchange Commission (SEC) issued an “Innovation Exemption,” effectively greenlighting the on-chain trading of tokenized U.S. stocks.
Financial commentator Wen Hongjun believes this outcome, while seemingly a setback for legislative certainty, may actually accelerate Wall Street’s migration to the blockchain. The exemption, he argues, truly elevates the importance of trading pair rules, with compliant payment stablecoins now directly integrated into the settlement leg of the U.S. stock market on-chain.
Who Will Be the Market Maker, Which Chain Will Be Used, Whose Pool Will Be Tapped, and Whose Currency Will Set the Price?
On September 15th, the U.S. Senate’s procedural vote on the CLARITY Act (Digital Asset Market Structure Act) fell short of the 60-vote threshold, failing 49 to 50. This significant deficit, a full 11 votes shy of the supermajority, has drastically reduced market predictions for its legislative success this year from over 80% in February to single digits.
On September 17th, the SEC unveiled its “Innovation Exemption,” permitting qualified “Tokenized Securities Trading Venues” (TSVs) to utilize licensed Automated Market Maker (AMM) liquidity pools for the on-chain trading of tokenized U.S. equities.
This timing is not coincidental but rather a strategic division of labor. As Paul Atkins stated in his announcement, “With Congress unable to advance the CLARITY Act this week, the SEC is taking a step forward today within its statutory authority.” In simpler terms, when Congress cannot provide certainty, the executive branch takes action.
Legislation aims to provide “legal certainty” to industries, but Wall Street has never waited for approval to innovate. What it requires is a pathway that ensures “doing so won’t lead to prosecution.” The failure of the CLARITY Act has seen the SEC’s Section 36(a) exemptive authority fill the void. While the path may differ, the direction remains unchanged.
Administrative exemptions are faster than legislation but are considerably more fragile, with a five-year sunset clause, temporary status, and conditional terms. The next administration could revoke it, courts could challenge it, and a change in SEC leadership could rewrite it. The industry is well aware that if Congress cannot deliver, the focus shifts back to how much space the SEC and CFTC can unlock under existing laws.
In essence, the industry has traded “legislative permanence” for “administrative speed.” This is a time-bound transaction.
The roadblock this time was not technical provisions but ethical clauses. Democrats demanded enforceable bans on profits from cryptocurrency for presidents and high-ranking officials during rule-making periods. Republicans, on September 14th, presented a 630-page version incorporating 126 amendments requested by Democrats, yet still failed to secure votes. Furthermore, if the Senate shifts hands after the midterm elections, the Banking Committee could be led by Elizabeth Warren.
My conclusion is that the failure of the bill does not mean the migration to the blockchain will stop. I have repeatedly emphasized that Trump will not disappoint, and the bill’s failure will actually accelerate the migration. Because the window is only five years, and it’s first-come, first-served, the migration of talent, capital, and industry officially begins this week. Once the industry has migrated to the blockchain, and the interests of Wall Street financiers behind the Democratic Party are secured, the deed will be done. Will subsequent legislation fail? Or will it pass under a different name, with the benefits merely redistributed to their own financiers?
Technical Breakdown: Four Key Points
- Dual Exemption: TSVs are exempted from the definition of “exchange,” and market makers providing liquidity in their own capital within the pool are exempted from the definition of “dealer.”
- Must Be True Equity: Tokens must retain corresponding dividend and voting rights; synthetic versions are explicitly prohibited. Robinhood’s Stock Tokens, Kraken’s xStocks, and Ondo’s offshore products only offer price exposure without shareholder rights. Their current forms cannot enter this arena and must restructure their products to do so.
- Permissionless Chain + Permitted Participants: Smart contracts must be auditable, public, and deployed on a “public, permissionless” distributed ledger. However, participants are permitted, limited to U.S. persons, and must comply with sanctions regulations. This provision effectively blocks two types of entities: traditional institutions seeking to launch private consortium chains and DeFi purists aiming for fully open, KYC-free pools.
- Strict Controls: There are caps on the number of listed tickers and trading volumes. Trading must halt in sync with primary listing exchanges. Issuers must be notified in writing before third-party tokenization, with the right to object.
Most media outlets have covered the above points. What truly warrants amplification are the trading pair rules.
Under the exemption, tokenized U.S. stocks can only be traded against three types of assets: another tokenized NMS stock, non-security crypto assets (such as stablecoins issued by compliant payment stablecoin issuers), or tokenized money market funds. Each pair constitutes an independent pool, with its own reserves and pricing.
The SEC has directly incorporated “compliant payment stablecoins” into the settlement leg of the on-chain U.S. stock market.
This represents a leap in the positioning of stablecoins, elevating them from “transaction mediums within the crypto sphere” and “cross-border payment tools” to units of account and settlement assets in the U.S. capital markets. The GENIUS Act provided them with legal status, and the Innovation Exemption has provided them with use cases.
Even more intriguing is the third option: tokenized money market funds. The GENIUS Act prohibits interest payments on payment stablecoins, forcing the on-chain “cash leg” to bifurcate into two forms:
- Non-interest-bearing payment stablecoins: Pure settlement, high liquidity, and pricing benchmarks.
- Interest-bearing tokenized MMFs: Capital parking and yield accrual (e.g., BUIDL, BENJI, USTB).
Wall Street’s familiar tiered cash management system is being meticulously rebuilt on-chain. Whoever’s cash leg is chosen as the primary trading pair will simultaneously gain three advantages: float, order flow, and pricing benchmarks.
This is where market making truly lies. It’s not about who lists the most stocks, but about whose cash leg becomes the market’s unit of account.
- Issuer Layer: Circle/USDC, banks and payment consortia like the OUSD camp, and brokerage firms’ own stablecoins – who will become the default pricing currency for tokenized U.S. stock pools?
- Public Chain Layer: Ethereum, Solana, and BNB Chain, by meeting the criteria of “public and permissionless,” can directly serve as settlement networks for TSVs, indirectly benefiting from the spillover of compliant trading volume. The phrase “public and permissionless” is the biggest hurdle for traditional institutions building their own closed chains.
- Platform Layer: DeFi mainstays like Uniswap, Hyperliquid, and Aave are essentially gaining a compliant lane, but KYC gates and other guardrails will limit their speed. Their positions differ: Uniswap is an AMM model directly written into the exemption; Hyperliquid, with its on-chain order book architecture, is already in discussions with regulators for implementation pathways but hasn’t secured a position in this round; Aave represents the next step, where tokenized U.S. stocks, once eligible as collateral, will open the door to leverage and re-collateralization for lending protocols.
DeFi will henceforth be formally bifurcated into two worlds: “permissioned pools” and “permissionless pools.” The divergence point is not technology but the willingness to implement KYC.
- Asset Side: Names like Securitize, Superstate, Ondo Finance, and Dinari, already involved in tokenization, are the most obvious early applicants. Ondo is particularly noteworthy, appearing on two lists: its existing offshore Global Markets product is ineligible due to offering only price exposure, but it acquired Oasis Pro in 2025, securing SEC-registered broker-dealer, ATS, and transfer agent licenses. Oasis Pro was one of the earliest institutions in the U.S. approved to settle digital securities with fiat currency or stablecoins like USDC and DAI. While its offshore products need modification, its onshore licenses are ready, representing a strategic approach for the five-year window.
Licenses, cash legs, and chains are all indispensable. Those possessing only one are merely supporting the U.S. (dollar and Treasury bonds).
The market’s reaction over the past two days has been telling: Securitize up nearly +15% in a single day, UNI up nearly +18% in 24 hours, Bullish up +6%, with Coinbase and Robinhood rising in tandem.
It’s also important to remember a parallel second path: In March of this year, the SEC approved Nasdaq’s proposal for tokenized trading of Russell 1000 constituents and index ETFs, with full launch planned for October, utilizing the existing NSCC/DTCC clearing pipeline. The same company will soon have two stock markets: one operating through Wall Street’s old pipes, and another through public chains and AMMs. They will compete directly for the same underlying assets.
The market’s appetite is already evident: Token Terminal data shows the scale of tokenized stocks approaching $3.2 billion, with year-over-year growth exceeding 1200%. Over the past 30 days, DEX trading volume reached approximately $15.75 billion, with nearly $3 billion occurring over weekends when NYSE and Nasdaq are closed. That $3 billion over the weekend represents demand that the old system cannot accommodate.
Stablecoins have been upgraded from “payment/remittance tools” to “units of account and settlement in capital markets.” Their demand now extends beyond crypto trading to 24/7 U.S. stock trading, including weekends. This is a pool of entirely different magnitude.
While the GENIUS Act’s prohibition of interest on stablecoins might seem to weaken them, the exemption’s inclusion of tokenized MMFs in trading pairs effectively permits the coexistence of a “non-interest-bearing settlement layer” and an “interest-bearing parking layer” on-chain. The tiered cash management system on-chain has truly taken shape at this moment.
This is what Wall Street is truly vying for. Whichever “currency” (in reality, all are dollars) becomes the primary trading pair determines the price benchmark, liquidity depth, and settlement rhythm. Today, the door to trading has opened; tomorrow, the door to collateral will open. The key to both doors is “stablecoins,” a.k.a. Hayek’s “on-chain dollars” born from free competition in currency.
The U.S. has integrated stablecoins into the infrastructure of its capital markets. Taiwan’s VASP special law and central bank are still discussing them within the framework of “payment tools.” This gap in positioning is more dangerous than any technological disparity.
My view from Series-8 remains unchanged: general-purpose retail TWD stablecoins will struggle to find clear use cases in the short term. However, this exemption serves as a reminder: the real battlefield is not retail payments but the settlement leg of capital markets.
Taiwanese brokerages and financial holding companies should not be asking “whether to issue stablecoins,” but rather: “Within this five-year window, do we have the capability to connect to the cash leg, custody leg, and settlement leg of on-chain U.S. stocks?”
Taiwan holds a critical position in the global AI computing power supply chain. It should leverage this physical advantage to gain a voice in on-chain U.S. dollar settlement.
The failure of the CLARITY Act proves only one thing: rules may lack clarity, but the migration of technology and innovation will not wait for you.
Stablecoins are not just settlement networks for new ledgers; they are becoming Wall Street’s new battleground. And the true game of the “Innovation Exemption” has never been about “whether stocks can go on-chain.” It’s about who will be the market maker, which chain will be used, whose pool will be tapped, and whose currency (the dollar) will set the price.
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