Stop us if you’ve heard this one before, but the U.S. Senate has a new draft of its digital asset market structure bill that reportedly still doesn’t address the crypto ethics elephant in the room.
Senators will reconvene on Monday, July 13, following their two-week Independence Day holiday, starting a four-week countdown until they leave town again on August 7 for their traditional month-long summer break. Consensus holds that if Senate leaders are unable to schedule a floor vote for their digital asset market structure bill (CLARITY Act) by that date, the legislation might not get another shot this year, considering the number of other, more consequential bills also awaiting passage.
Before this recent break, Sen. Cynthia Lummis (R-WY) suggested senators would continue to work on eliminating CLARITY’s remaining obstacles, then “put out a text over July 4th, and give people one last really thorough look of the bill, and then we’re moving in July.”
But like so many other unfulfilled CLARITY promises, July 4 came and went, and we’re still waiting on that text. On Thursday, Coindesk reported on the existence of a new work-in-progress draft that adds 70 additional pages to the 594-page tome that advanced out of the Senate Banking Committee in May.
The add-ons follow Banking’s negotiations with the Agriculture Committee, which approved its more threadbare version of the bill in January, as well as ongoing discussions with stakeholders and senators from both parties.
There was some minor movement on the ‘illicit finance’ issue this week, as Sen. Ron Wyden (D-OR) sent a letter to Senate leadership asking them not to mess with CLARITY’s Section 604, aka the Blockchain Regulatory Certainty Act (BRCA). The BRCA would offer broad legal immunity to developers of noncustodial decentralized finance (DeFi) platforms if/when those platforms are used for illicit purposes.
However, there’s still no sign that anything resembling consensus has been made on CLARITY’s biggest hurdle, the ‘ethics’ issue. The Dems’ desire to include language that would limit or outright prohibit crypto profiteering by elected officials and their families still doesn’t appear to be getting any buy-in from the White House, probably because the president has zero interest in derailing the crypto gravy train that earned him over a billion dollars last year.
CLARITY would delegate the bulk of digital asset oversight to the Commodity Futures Trading Commission (CFTC), whose chairman, Michael Selig, went on Fox Business on Wednesday to urge the Senate to push CLARITY over the finish line.
Selig dismissed the Dems’ ethics concerns, saying their refusal to budge on this front is “just derailing the real opportunity to have a bipartisan bill.” Selig warned that if CLARITY fails to pass, it will “end up with regulators like me writing all the rules.”
Given Selig’s default position involves removing any and all regulatory obstacles in the digital asset sector’s path, we suspect stakeholders would be only too happy to leave things in regulators’ hands. At least, until there’s a different occupant of 1600 Pennsylvania Ave. who shows more interest in nominating people to serve at those agencies.
Unfilled regulatory agency seats now a ‘he said/she said’ blame game
We haven’t heard much on this topic for a while, but a lesser-known issue Dems have with CLARITY involves ‘quorum,’ aka the fact that agencies like the CFTC and Securities and Exchange Commission (SEC) are currently understaffed. Only three of the five SEC seats are filled, and none of those three are Dems. The CFTC has had four empty seats for nearly a year, meaning the Trump-appointed Selig effectively is the CFTC.
Dems have accused Trump of having no interest in filling these empty seats and even less interest in observing the historical practice of ensuring whichever party is in the minority in Congress has some representation in agency leadership ranks.
On July 9, the White House pushed back on those assertions. In a letter to Senate leaders of both parties, deputy chief of staff Dan Scavino and director of legislative affairs James Braid claim Trump has nominated Democrats to “key positions,” including spots on the National Labor Relations Board, the International Trade Commission, and the Surface Transportation Board.
The letter further claims that “prior to the Senate Democrats’ June 10, 2026, letter, the White House had already solicited suitable Democratic names to the [CFTC and SEC]. The White House has not received names in response to this request.” The letter closes by reminding Senate leadership that its work “to confirm personnel remains essential, and we appreciate the opportunity to continue to work together in a partisan way.” In other words, the fault is yours, not ours.
The White House can perhaps afford to be even more cavalier regarding its filling of agency seats following last month’s U.S. Supreme Court ruling that overturned a 1935 ruling by the same court, and gave the president the freedom to appoint or remove ‘independent’ agency officials at his whim.
Trump celebrated the ruling in a pair of Truth Social posts, one of which called it “a Monumental Ruling” and “the Greatest Increase in Presidential Power in the last 100 years.” Simply put, it doesn’t matter who Trump appoints to the CFTC and SEC, because they’ll either do as he says or they’re out.
Prediction markets failed to predict a drubbing this ugly
In addition to promoting CLARITY, the CFTC’s Selig has also been attacking state-level efforts to exert some authority over crypto operators, including the new 0.2% tax on crypto transactions that Illinois Gov. J.B. Pritzker recently signed into law. Last week, Selig penned a Washington Times op-ed in which he claimed Illinois had “slammed the brakes on technological progress by approving what is effectively a ‘sin tax’ on blockchain technology.”
Selig has also routinely gone to bat for crypto-friendly prediction markets, including a recent appearance on former Fox News personality Glenn Beck’s podcast. Selig explained why the ‘swaps’ offered by the likes of Kalshi and Polymarket are totally not gambling, subject to the CFTC’s exclusive jurisdiction, and immune to states’ efforts to enforce their gambling laws.
That narrative took a major hit this week when Judge Analisa Torres in the U.S. District Court for the Southern District of New York (SDNY) denied Kalshi’s bid for a preliminary injunction against New York’s efforts to enforce its gambling laws against prediction markets. (You might recall Torres for her ruling in the SEC v Ripple Labs suit.)
Torres rejected Kalshi’s argument that the federal Commodity Exchange Act (CEA) trumps state gambling laws, noting that certain provisions in the CEA indicate that “Congress did not intend to regulate so broadly as to exclude all state gambling laws from regulating transactions involving swaps.”
Torres believes “the CEA leaves room for states to regulate tangential issues that may arise from trading swaps and other financial products” on CFTC-registered designated contract markets (DCMs). “New York’s gambling laws, which seek to regulate gaming in the state, complement rather than conflict with federal law.”
Torres also ruled that Kalshi failed to prove it would suffer ‘irreparable harm’ from a New York enforcement action, noting that its theoretical harms “are largely monetary.” Also, the costs of geolocating customers to prohibit interactions with residents of states that object to unlicensed wagering “are typically insufficient to constitute irreparable harm.”
Finally, Kalshi failed to prove its “speculation” that the CFTC would revoke Kalshi’s DCM status following legal challenges by New York gaming regulators. Torres noted that Kalshi has been similarly challenged in other states, “but the CFTC has not altered Kalshi’s DCM status.”
New York Gov. Kathy Hochul and New York Attorney General Letitia James issued a joint statement saying, “New York’s gambling laws are designed to protect consumers. Kalshi tried to ignore them. Yesterday, they lost in court. We will continue to hold all gambling platforms accountable to the law—and that includes prediction markets.” Hochul later tweeted: “Gamble with our laws and you’re going to lose. Just ask Kalshi.”
Kalshi has already filed an appeal of the Torres ruling. Meanwhile, individual states defending their turf against prediction markets have updated their legal filings to incorporate the Torres ruling.
New York is one of nine states that the CFTC has sued in response to state suits against CFTC-approved DCMs offering sports betting. But as of Thursday afternoon, Selig has yet to officially weigh in on the Torres ruling, beyond tweeting a clip from his pre-ruling Fox Business interview in which he insisted that the CFTC is “pursuing a series of rulemakings that will enhance guidance for prediction market participants and registrants” that will clarify “the types of events that may underpin event contracts.”
Now, after all that dry legal talk, let’s have a singalong, shall we?
Poly plots US return, adds Lightning deposits
The Torres ruling comes at an unfortunate time for Polymarket, which has embarked on a PR blitz ahead of its formal return to the U.S. market after being blackballed by the CFTC’s previous leadership in 2022. Since Polymarket’s 2025 acquisition of the CFTC-registered derivatives exchange QCX and Selig’s appointment as CFTC chair, the company has gone all-in on the USA.
The Associated Press reported this week that Polymarket has embarked on a multi-pronged PR effort that includes hiring social media influencers to sing its praises (and allegedly fake winning wagers), striking ‘integrity’ deals with U.S. sports leagues, and trying to counter negative press arising from (a) customers making bank off insider information (some involving U.S. military secrets) and (b) legal complaints by users over how Polymarket decides how a market/bet resolves.
Prediction markets have long offered crypto payment options, and many of Polymarket’s execs have crypto resumes, including two Coinbase (NASDAQ: COIN) veterans (head of U.S. operations Dan Lee and regulatory affairs chief Natalie Oblazny). So it’s no surprise that Polymarket is now allowing customers to make ‘instant’ BTC deposits “faster and more privately” via the Lightning Network.
Given Lightning’s well-earned reputation for being buggy AF and an obstacle to law enforcement efforts, one envisions this development creating more problems than it solves. But for the time being, the Torres ruling will probably be the headache getting the most aspirin.
Oh, and just for fun, Polymarket’s odds on CLARITY being signed into law this year currently sit at just 40%. Fun stuff.
Block fined (again)
On July 8, the New York Attorney General’s office announced that it and “a bipartisan coalition of 45 other attorneys general” had reached a $45 million settlement with Jack Dorsey’s payments firm Block (NASDAQ: XYZ) for “misleading its users and failing to protect them from scams and fraud.”
Prosecutors say Block misled customers of its Cash App money transfer service regarding the product’s safety. Block “failed to provide the fraud protection and resolution that it promised and was required to provide by law.”
Block’s marketing “falsely implied the app worked like a bank with the same protections for customers’ funds that banks have.” Block’s terms of service claimed the app featured “cutting edge… fraud detection technology” despite Cash App’s lack of a “consistent fraud detection system.”
Some of Block’s policies “actively enabled” fraud, including its lack of “a functioning fraud hotline” for scammed users to report being victimized. These customers would search online for a number to call, only to find bogus numbers that connected them to scammers posing as customer service representatives. These scammers would take customers’ account data and then drain the accounts.
The NYAG release contains many other forehead-smacking failures, but the settlement requires Block to take several remedial steps, such as maintaining adequate customer service, including 24-hour live support. Block also has to rein in its marketing claims and discontinue practices “known to increase fraud.”
Detailed reports of Block’s apparent disinterest in policing Cash App fraud have been around for years. In February 2025, Block was fined $55 million and ordered to pay up to $120 million in restitution for shoddy handling of Cash App customer complaints. Around the same time, “various state money transmission license regulators” collected $80 million from Block due to shortcomings in “aspects of its Bank Secrecy Act/anti-money laundering program.”
BTC plays a prominent role in Cash App, whose users can buy and transfer tokens to other users. But Block’s ‘Bitcoin Ecosystem’ revenue (in reality, BTC sales volume, but whatever) was just under $1.8 billion in the first quarter of 2026, marking the fifth consecutive quarter that this figure has declined and 26% below Q125’s $2.33 billion ‘revenue’ tally.
Circle lives down to its reputation
A potentially far more serious legal situation is currently facing Circle (NASDAQ: CRCL), which has been hit with criminal charges by Wisconsin state prosecutors who accuse the USDC stablecoin issuer of failing to cooperate with their efforts to assist victims of ‘pig butchering’ fraud.
Wisconsin filed contempt of court charges against Circle in April, but the matter wasn’t brought to public attention until a report this week by the International Consortium of Investigative Journalists (ICIJ).
The April filing details the sad sack case of Victim #1, a Wisconsin male who, in May 2025, met a woman online identifying herself as ‘Lenora.’ The woman followed the usual script of building rapport with her victim before regaling him with tales of her crypto profits and encouraging him to dive deep into the pool.
The man ultimately sent over $400,000 to an account on the Crypto.com exchange, where he purchased an equivalent amount of USDC, after which Lenora instructed him to wire the tokens to a private digital wallet. Lenora strung him along for a while, telling him his ‘investment’ was now worth over $1.5 million.
The illusion evaporated when the victim tried to withdraw his winnings, leading him to contact Wisconsin authorities in August 2025. A Wisconsin detective then contacted Circle and provided the address of the digital wallet that still held the USDC in question. Circle froze the wallet’s contents the same day, and the tokens reportedly remain frozen.
In December, a Wisconsin circuit court issued a warrant ordering Circle to ‘burn’ the USDC in the wallet and issue $381,000 in new USDC to the victim. Circle responded that it lacked the wallet’s private key required to transfer the existing USDC to the victim. Circle also complained that the burning/reissuing would require it to hold an additional $381,000 in U.S. dollars as reserve assets, a burden Circle’s attorneys called ‘unfair.’
On June 30, Circle filed a motion to dismiss the charges, arguing that it “lacked the ability to comply” with the warrant, denied it had “deliberately refused” to comply, but also claimed that the court lacked jurisdiction to bring the charges.
Circle further claimed it had “repeatedly advised” Wisconsin officials of its alleged lack of capability and “offered to work with them to try to find a technically and legally viable alternative solution to compensating” the victim. But “instead of pursuing that discussion,” Wisconsin filed its “meritless” complaint.
The ICIJ quoted Joshua Cooper-Duckett of Cryptoforensic Investigators, saying all Circle needs to do to comply with Wisconsin’s warrant is tweak its code. Cooper-Duckett, who’s worked on civil cases where victims tried to recover their USDC, said Circle leans pretty hard on “the excuse of not being able to burn and reissue.”
In February, New York state prosecutors complained to Democratic senators that neither Circle nor USDT-issuer Tether was doing enough to help fraud victims, and issuers “currently decide on a case-by-case basis when they will assist law enforcement.”
In April, blockchain sleuth ZachXBT publicly tore a strip off Circle for failing to act in a sufficiently timely manner to freeze USDC linked to the $285 million exploit of the Drift Protocol decentralized exchange (reportedly conducted by North Korea’s state-sponsored hackers). ZachXBT went on to cite numerous other instances in which Circle failed to act, resulting in “$420M+ in alleged compliance failures since 2022.”
The ICIJ report quoted Wisconsin prosecutor Thomas Binger saying, “the tools that are at our disposal are not keeping up with the tools the criminals are using. It’s made it very difficult to identify the perpetrator behind these transactions and bring them to justice.”
Just a thought, but maybe CLARITY’s ‘illicit finance’ language could be amended beyond DeFi developers to explicitly bring stablecoin issuers into compliance?
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