Free Markets and Innovation, Sort Of

Summer Mersinger is CEO of the Blockchain Association and a former commissioner of the U.S. Commodity Futures Trading Commission.

Start with what the bill actually forbids. Payment for merely holding a stablecoin is prohibited. So is any program that ends up economically or functionally equivalent to interest on a bank deposit – and the text attaches penalties to the attempt. That test is the whole provision, and the editorial's warning about rewards paid to customers for holding stablecoins falls inside it.

What the text does permit is rewarding a customer for activity, so long as the reward isn't equivalent to a bank deposit. Credit card and loyalty programs have operated on that principle for decades without causing risk to the banking system. The argument against extending it to a new set of competitors argues that big banks should hold a monopoly on rewarding customers, which is an extreme form of protectionism.

Here, the provision points in the opposite direction from the editorial. Section 10301 is not an exemption. It orders the SEC, with Treasury, to write rules for people who control protocols that are decentralized in name only: where someone can materially alter the protocol's rules, where operation turns on discretion rather than transparent code, where a party can restrict or censor use.

Section 10201 separately pulls registered digital commodity brokers, dealers, and exchanges fully inside Bank Secrecy Act reporting obligations, and Title IX puts $3 billion behind state and local investigators to use over five years. We set this out at length this week answering [x.com] the National Sheriffs' Association, which made a version of the same misreading. To say the bill is weak on illicit finance is simply not true.

What Clarity declines to do is impose customer identification duties on software that has no customers. Software that takes no custody and controls no transactions is in no position to identify anyone. Requiring KYC on code does not create a compliance obligation on intermediaries; it creates a prohibition on publishing code.

The last worry is that stocks will migrate to decentralized shadow markets with few investor protections. As clearly stated in section 10505, a security does not cease to be a security simply because it settles on a blockchain. Securities remain under SEC authority, and Section 10301 is the provision that reaches whoever exercises control over the venue where that trading happens.

But notice what the editorial does with tokenization across four paragraphs. When banks issue and settle tokenized stocks and bonds, it removes friction, lowers costs, and merits support. When the same instruments trade somewhere else, it is a shadow market inviting regulatory evasion. The technology did not change between those two passages. The identity of the firm using it did.

That pattern runs through the piece: nobody needs to explain to the Journal's editorial page what it looks like when an established industry asks Washington to slow down a competitor. That is usually the argument it makes in the spirit of free and open markets, which is why this latest editorial is so disappointing. The editorial suggests Republicans are rushing this bill through before leaving town. It ignores that market structure legislation has been in the works for years. The House passed it a year ago with overwhelming bipartisan support. Senate Banking reported it in May. It has been on the Senate calendar since June and is not yet on the floor schedule this week. Haste is not the problem.

There is a live policy landmine in digital asset markets today. But it is not in this bill; the only thing standing between a lawful American business and an enforcement action is interpretive guidance a future administration can withdraw at will.

Free markets push new products to earn their place by competing under rules everyone can read, not by waiting for incumbents to bless it. That is the Journal’s normal point of view. Happily, that is what Clarity would achieve. It would ensure that intermediaries operate under real obligations, leave neutral software alone, and let the market decide the rest. The board should want the outcome it has argued for in nearly every other instance.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates .

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