Crypto, the CLARITY Act, and the Missing Use Case

The honest question is not what crypto is designed to do but what people in fact use it to do. By dollar volume the answer is mostly circular: trading crypto for other crypto, or buying crypto in order to trade it. The links to anything outside the ecosystem (payments, lending, anything you could not already do faster and cheaper through a bank) have stayed narrow for fifteen years.

In 2022, inside an eight-week window, three of the field's most credible figures were asked on friendly podcasts to name the use case. The venture investor Packy McCormick proposed putting a house on the blockchain so it could be borrowed against from a global pool of lenders; the entrepreneur Zach Weinberg walked the scenario to its end: the borrower defaults, the lender holds a cryptographic record, takes it to the sheriff, and then what?

Six weeks earlier the economist Tyler Cowen asked Marc Andreessen, whose firm has put more institutional capital into crypto than any other, what it would do for podcasts. The answer kept retreating:

And on Bloomberg's Odd Lots, Sam Bankman-Fried (then the industry's most legitimized operator, soon its most famous felon) was asked how DeFi yield farming actually makes money:

Six months later FTX collapsed, taking roughly $8 billion of customer money; Bankman-Fried is serving twenty-five years. None of these moments settles whether the technology has real uses. They are the floor: asked on friendly ground, by sympathetic interviewers, to make the case, the field's best advocates could not.

Fifteen years is long enough to stop arguing and count. Take the best-funded, most-hyped project in every real-world use case crypto has claimed (supply chains, carbon offsets, identity, voting, music, gaming, storage, payments) and put one plain question to each: is it used by anyone outside the crypto bubble, legally, in a way that genuinely needs a blockchain?

Of fifty-five flagships, none pass. Three have real users but work by routing around the law (the subject of the next section). Six have real users and no need of a blockchain; a normal database would do the same job. Twelve genuinely work, but only for crypto itself: .eth names that resolve inside crypto wallets, a stablecoin that collateralizes crypto loans, insurance that covers crypto hacks. The remaining thirty-four are speculation, abandoned pilots, or dead. The interviews were not anomalies. They were the floor of a building with no upper storeys.

There is real use outside the bubble, and the honest list is short, and shares an awkward feature. Reserve-backed stablecoins move dollars across borders cheaply; where local currencies are collapsing, people use them to hold value. But the wire-transfer system is slow and expensive precisely because banks must run Know-Your-Customer checks, file suspicious-activity reports, and screen sanctions lists, and the Venezuelan saver using USDT is doing, mechanically, the exact same thing as a Russian oligarch evading sanctions, North Korea's Lazarus Group laundering stolen funds, a ransomware crew collecting payment, or a fentanyl-precursor supplier in Wuhan billing a US distributor. The blockchain does not tell them apart. It just removes the intermediary that was supposed to.

Chainalysis puts the illicit share of crypto volume in the low single digits, still tens of billions of dollars a year, and the part with the clearest product-market fit. Fiat banking has illicit flows too; the difference is that it has a working enforcement apparatus pointed at them, and crypto is pitched as preferable partly because it does not. This is why, on the scorecard, the uses closest to legitimate are the ones that route around the law. It is the real answer to what this is for, in dollar terms. And, as Part Two shows, it is the answer the bill is least able to touch.

If the use case never arrived, why did the capital? Not enthusiasm: structure. A traditional venture bet locks up for five to ten years and pays out only when a company with real revenue goes public. A token launch breaks that. The firm buys tokens at a steep discount; the token trades publicly within months; retail pays full price; the early lockup expires; the firm sells; the exit is done: no revenue, profit, or working product required. The company underneath only needs a token retail will buy.

So the use case never had to exist. It only had to be plausibly described while the launch was marketed. Andreessen Horowitz raised crypto funds of $300M (2018), $515M (2020), $2.2B (2021), and $4.5B (2022); across that arc the operative question was never whether the technology worked, only whether retail would buy the next token. The people publicly evangelizing crypto's promise were, in their own models, indifferent to whether it came true. McCormick the explainer wrote the optimistic essays; McCormick the investor, on tape, conceded he had never thought the mortgage case through. The proselytizing was the wrapper. And the firms that profited from the mechanism are now the largest donors to the political vehicle in Part Two.

If the use cases are narrow, the failure record is not. Since 2021 the writer Molly White has logged crypto's disasters; by May 2026 the running total of money lost to hacks, scams, and collapses is about eighty-one billion dollars. It falls into a handful of recurring shapes, and each is worth holding in mind, because Part Two should be judged on how many of them it would actually have stopped.

Centralized exchanges and lenders that simply lost customer money, including FTX (~$8.7B), Genesis (~$5.1B), Celsius, Voyager, BlockFi, are the largest category: a company shows your balance on a website while quietly spending the actual coins. The TerraUSD de-peg erased $40 billion of market value in days (the cash actually paid in was a few billion) and cascaded through the lenders holding it. Bridge hacks (Axie's $625M, stolen by Lazarus and laundered through DeFi) proved smart-contract pools the most exploitable structure in the field. Rug pulls and foreign exit scams (Africrypt ~$3.6B, Thodex ~$2B) took much of the rest, with a recovery rate near zero.

One failure is structural rather than episodic, and it is the one that matters most for the bill. Tether's USDT (roughly $190 billion outstanding, and the dominant settlement medium for the sanctions-evading flows above) has never had a full audit. For its entire history it has published quarterly attestations: a point-in-time snapshot, not the going-concern examination an audit performs. Mazars quit the work in 2022; a Big Four engagement announced in 2026 has produced no report.

US law sorts investments into securities (regulated by the SEC) and commodities (the smaller, less-funded CFTC). For a decade the SEC argued, case by case, that most token sales are unregistered securities under the 1946 Howey test: money in, a common enterprise, profit expected from the efforts of others. The Digital Asset Market Clarity Act (H.R. 3633), passed by the House in July 2025 and voted out of Senate Banking 15-9 in May 2026, ends that fight by inventing a new category, the digital commodity, and handing most tokens to the CFTC once a chain is deemed sufficiently decentralized.

Where it bites, it bites on real problems. Registered exchanges must segregate customer assets and use qualified custodians: the single provision that would have made FTX's raid on customer funds illegal on day one. Insider lockups bar founders from dumping their allocation for a year and cap sales after, aimed squarely at the rug pull. Failed exchanges must return customer property ahead of other creditors. For centralized US operators, this is real, and better than no bill.

The trouble is what sits outside the perimeter, by design. DeFi developers, liquidity pools, and wallet software get an explicit carve-out, so the bridge hacks and the laundering rails are untouched. Foreign exit scams remain foreign. Tether, incorporated in El Salvador, need do nothing. And because the bill regulates structure rather than price, a Terra-style de-peg is out of scope. Read against the eighty-one-billion-dollar record, the coverage is partial:

It is a market-structure bill, not a comprehensive law, and most of its operative detail is deferred to two or three years of SEC and CFTC rulemaking. What it conspicuously does not address is the cross-border, sanctions-evading, AML-evading volume that (per Part One) is the field's clearest real-world use. It regulates the slice of crypto that overlaps with ordinary finance, which is the smaller and shrinking slice.

A bill for an industry that never made its case on the merits is advancing on a bipartisan vote because the industry stopped arguing the merits and bought the room. Crypto was a negligible political spender before 2018. In the 2024 cycle it put roughly $119 million of corporate money directly into federal elections (about 44% of all corporate election spending that year), channeled through a few super PACs (Fairshake and its affiliates), which spent some $133 million across 58 races. Since Citizens United, only fossil fuels has spent more.

The strategy was not persuasion but consequence. The network's candidates won 53 of 58 targeted races, about 91%. It spent over $40 million to retire Senator Sherrod Brown, the Banking Committee's most consistent skeptic, and $10 million against Katie Porter, who was not notably anti-crypto: the point was the message to everyone else. Once in office the administration delivered: dropping the SEC's case against Coinbase, disbanding the Justice Department's crypto-enforcement team, and signing the GENIUS Act stablecoin law in 2025. Fairshake is already sitting on a roughly $193 million war chest for 2026.

Layered on the institutional capture is a personal one. The President's family launched World Liberty Financial (a governance token and a stablecoin) and the $TRUMP memecoin, whose own paperwork put the majority of supply with Trump entities and which sold an exclusive dinner to its top holders: a sitting president selling access through a token he controls, the anti-use-case in pure form. The Commerce Secretary's firm, Cantor Fitzgerald, holds a stake in Tether and custodies part of its reserves, even as Treasury and Justice are the agencies meant to police the sanctions evasion that USDT settles. The bill carries no new ethics provisions on any of this, which is the central Democratic objection.

Enforcement is the last gap. A framework is only as good as the agencies running it, and the people who will administer this one are the same ones who spent the prior year withdrawing from the rules that already existed. A law on paper is not a law in practice.

The CLARITY Act does something worth doing. It writes down rules for centralized US operators, tells exchanges what they may not do with customer money, and gives the bankruptcy courts a clean answer when the next FTX fails. For the quarter-to-a-third of the wreckage that fell on ordinary users of US-facing platforms, it is better than no bill.

But the rest is outside it by construction: the de-pegs, the DeFi exploits, the foreign scams, and above all the continuous outflow of sanctions-evading, ransomware-funding, fentanyl-paying volume through USDT and DeFi, which is structured to avoid the very registered intermediaries the bill regulates. That last category is what Part One was leading to: if the field's clearest real-world use is routing around the laws this country has against laundering, sanctions evasion, and corruption, then a market-structure bill that leaves those flows alone is not addressing what crypto is actually for.

What gets a federal framework is the part of crypto that looks like ordinary finance. What does not is the part that, in dollar terms, is the real answer to the question the field was asked in 2022 and never managed to answer. Congress is answering a question the industry never asked it to. The one the industry was asked remains open.

H.R. 3633, Digital Asset Market Clarity Act of 2025, full text as reported by the House Financial Services and Agriculture Committees: govinfo.gov/content/pkg/BILLS-119hr3633rh/html/BILLS-119hr3633rh.htm. Congress.gov bill page with status: congress.gov/bill/119th-congress/house-bill/3633. House Rules Committee package: rules.house.gov/bill/119/hr-3633.

DeFi Rate CLARITY Act fact sheet, the timeline source used here: defirate.com/clarity-act-fact-sheet. Latham & Watkins US Crypto Policy Tracker: lw.com/en/us-crypto-policy-tracker/legislative-developments. Congressional Research Service overview: congress.gov/crs-product/IN12583. Senate Banking Committee fact sheets: banking.senate.gov/newsroom/majority/the-facts-the-clarity-act.

CoinDesk on the 15-9 vote: coindesk.com/policy/2026/05/14/clarity-act-clears-u-s-senate-committee-on-its-way-to-a-final-test-in-congress. CoinDesk on the DeFi tweak risk: coindesk.com/news-analysis/2026/05/18/amid-the-clarity-act-fanfare-is-some-worry-how-a-last-minute-deal-may-punch-defi. CoinDesk on the Tillis-Alsobrooks text: coindesk.com/policy/2026/05/01/clarity-act-text-lets-crypto-firms-offer-stablecoin-rewards-while-shielding-bank-yield.

Original Zach Weinberg summary tweet, June 20, 2022: twitter.com/zachweinberg/status/1538705680118472705. The mortgage exchange is from Cartoon Avatars EP 15 with Packy McCormick and Ben Thompson, June 2022, at roughly the 8:40 mark; the most-circulated clip is Liron Shapira's repost: x.com/liron/status/1533214640460574720. Packy McCormick's response essay following the debate: notboring.co/p/web3-use-cases-today. The Andreessen exchange is from Tyler Cowen's Conversations with Tyler interview, May 2022; clip circulated by Liron Shapira: x.com/liron/status/1537186589486460928. The SBF/Levine "magic box" exchange is from Odd Lots, Bloomberg, April 25, 2022; full transcript at bloomberg.com/news/articles/2022-04-25/odd-lots-full-transcript-sam-bankman-fried-and-matt-levine-on-crypto.

Chainalysis annual Crypto Crime Reports, the primary public source on illicit on-chain volume: chainalysis.com/crypto-crime-report. US Treasury Office of Foreign Assets Control on Tornado Cash and the Lazarus Group: treasury.gov/recent-actions. TRM Labs reporting on USDT-denominated sanctions evasion, ransomware, and fentanyl-precursor flows: trmlabs.com/insights. United Nations Office on Drugs and Crime on crypto in cross-border money laundering: unodc.org/unodc/en/money-laundering.

Andreessen Horowitz crypto fund sizes over time: Blockworks on the $4.5 billion fund, May 2022: blockworks.co/news/andreessen-horowitz-launches-largest-crypto-fund-ever; brief history at medium.com/web3-surfers/a-brief-history-of-a16z-crypto-9471d6355b69; CB Insights research breakdown: cbinsights.com/research/a16z-andreessen-horowitz-crypto-blockchain-investments. Token unlock and post-unlock decline analytics: tokenomist.ai and DeFiLlama unlocks: defillama.com/unlocks. On crypto-vs-IPO time-to-liquidity: lopetaku.medium.com/crypto-venture-capital-3-lies-token-unlocks-37e15c658c03.

Sludge on first-half 2025 lobbying spending: readsludge.com/2025/07/23/crypto-industry-is-spending-more-on-lobbying-than-ever. OpenSecrets on the 2024 election cycle: opensecrets.org/news/2024/11/the-crypto-trio-how-the-cryptocurrency-industry-has-made-its-mark-on-2024-elections. CNBC on Fairshake's 2026 war chest: cnbc.com/2025/01/30/crypto-pac-fairshake-has-116-million-on-hand-for-2026-elections.html. Public Citizen on Fairshake spending and the 44%-of-corporate-money figure: citizen.org/article/big-crypto-big-spending-2024. CNBC on the $245M operation and the ads-not-about-crypto strategy: cnbc.com/2024/11/05/cryptos-245-million-campaign-finance-operation-funded-non-crypto-ads.html. CoinDesk on the 53-member Congress count: coindesk.com/news-analysis/2024/12/02/crypto-cash-fueled-53-members-of-the-next-u-s-congress. House FIT21 passage: decrypt.co/231930/crypto-lobby-wins-house-passes-fit21. Coinbase Stand With Crypto and the Nashville Bitcoin Conference: TIME, time.com/7049001/crypto-election-2024; Decrypt on Trump's campaign strategist crediting Bitcoin for the 2024 win: decrypt.co/325187/trump-strategist-how-bitcoin-helped-republicans-win-2024-election. SAB 121 rescission and Trump executive order: Jones Day, jonesday.com/en/insights/2025/02/digital-asset-executive-order-and-sab-121-rescission; CNBC, cnbc.com/2025/05/01/trump-rewrites-crypto-rules-first-100-days-industry-sees-180-pivot-.html. Big Tech lobbying comparison (Issue One): issueone.org/articles/big-tech-spent-record-sums-on-lobbying-last-year.

Web3 is Going Just Great, the database of crypto disasters that is the source for the $80B figure and the failure-mode categories in Part One: web3isgoinggreat.com. Leaderboard with running total and per-event detail: web3isgoinggreat.com/charts/top. Citation Needed newsletter: citationneeded.news. TRUMP memecoin dinner research: citationneeded.news/trump-memecoin-dinner-guests. Issue 104 on World Liberty Financial: citationneeded.news/issue-104. Citation Needed on the Cantor Fitzgerald and Tether super PAC relationships referenced in section 22: citationneeded.news.

BeInCrypto on the attestation-versus-audit distinction and the Mazars departure: beincrypto.com/tether-q2-avoids-full-audit. John Reed Stark (former SEC) on why attestations are not audits: x.com/JohnReedStark/status/1849924874950922744. Tether's March 2026 announcement of a Big Four audit engagement (firm undisclosed at time of writing): coverage at mexc.com/news/979263.