What Is the CLARITY Act?

The CLARITY Act (formally the Digital Asset Market Clarity Act of 2025, with bill number H.R. 3633) is the most comprehensive legislative proposal to date for regulating the cryptocurrency market in the United States. The bill passed the U.S. House of Representatives on July 17, 2025 with a bipartisan 294-134 vote and was referred to the Senate for consideration. It is currently progressing through versions being shaped by the Senate Banking Committee and the Senate Agriculture Committee.

The central purpose of the bill is to resolve what has been the crypto industry's biggest regulatory problem in the United States over the past decade: the jurisdictional uncertainty between the SEC (Securities and Exchange Commission) and the CFTC (Commodity Futures Trading Commission). Both agencies have historically claimed authority over crypto assets. Under former Chair Gary Gensler, the SEC argued that the vast majority of tokens are securities under the Howey test and pursued an aggressive enforcement strategy, which the industry came to call "regulation by enforcement". The CLARITY Act seeks to replace this ambiguity with a statutory framework that clearly defines which agency has authority over which type of digital asset.

Together with the GENIUS Act, which was passed in July 2025 and regulates stablecoin issuance, the CLARITY Act forms the second pillar of a U.S. crypto regulatory framework expected to make it easier for institutional investors and traditional financial institutions to participate in the sector.

Summary of the Current Version

1. Classification of Crypto Assets Into Three Categories

The bill divides digital assets into three main classes:

a) Digital Commodity: A digital asset whose value is "intrinsically linked" to a blockchain system — relying on the network's functionality, such as use for payments, governance, or access to services. Securities, derivatives, and stablecoins are explicitly excluded from this definition. These assets fall under CFTC jurisdiction.

b) Investment Contract Asset: The classification applied when a digital commodity is sold in a capital-raising context (e.g., an ICO). At the issuance stage, it falls under SEC jurisdiction. However, this status is temporary: once the token is resold or transferred by anyone other than the issuer in a secondary market transaction, it loses its security status and becomes purely a digital commodity.

c) Permitted Payment Stablecoin: A digital asset designed for payment or settlement, denominated in a national currency, whose issuer is subject to state or federal regulatory and supervisory authority and is obligated to repurchase the token for a fixed monetary value. These fall under banking regulators' jurisdiction.

2. The "Mature Blockchain" Concept

The bill introduces a new legal concept called mature blockchain. For a blockchain to be considered mature, it must be: functional for executing transactions or governance, built on open-source code, operate on pre-established and transparent rules, and not be controlled by a single person or group (including no holder owning more than 20% of outstanding tokens). The issuer can certify the blockchain's maturity status to the SEC.

3. SEC vs. CFTC Jurisdiction Split

• The CFTC would have exclusive anti-fraud and anti-manipulation authority over digital commodity spot markets; crypto exchanges, brokers, and dealers must register with the CFTC.
• The SEC would have authority over the issuance and reporting of investment contract assets; it would also retain anti-fraud authority over digital commodity transactions executed through an SEC-registered intermediary.

4. Obligations for Exchanges and Intermediaries

Crypto exchanges (Digital Commodity Exchanges – DCEs), brokers, and dealers must register with the CFTC and comply with capital adequacy, risk management, recordkeeping, and customer protection standards. Key rules include:

• Segregation of customer assets from the exchange's own assets
• Assets must be held with a Qualified Digital Asset Custodian
• Risk-appropriate disclosures must be provided to retail customers
• Blockchain services such as staking must be offered on a voluntary basis (cannot be a condition of access)
• Conflict-of-interest restrictions on transactions with affiliated parties
• Listed tokens must comply with disclosure requirements covering source code, transaction history, and token economics

5. Exemption for Small Capital Raises

U.S.-organized issuers receive an exemption from registration under the Securities Act of 1933 for token sales not exceeding $75 million in aggregate over a 12-month period. Conditions include: no single purchaser may acquire more than 10% of the supply, extensive pre-offering disclosures must be made covering blockchain maturity status, source code, transaction history, launch plan, and affiliate ownership, and semi-annual updates must be filed until the blockchain is certified as mature.

6. DeFi (Decentralized Finance) Exclusion

The bill exempts certain DeFi activities from both SEC and CFTC oversight. The exemption covers:

• Validating transactions (validator activity)
• Providing computational work
• Providing user interfaces
• Developing wallets or trading protocol software

However, this exemption does not eliminate regulatory authority against fraud, manipulation, or false reporting.

7. Custody and Balance Sheet Provisions

The bill prohibits federal regulators from requiring banks and intermediaries to include customer digital assets as liabilities on their balance sheets or to hold additional capital against these assets (with exceptions for operational risk). This provision aligns digital asset custody with the accounting principles applied to traditional custody services and removes accounting barriers that have prevented banks from offering crypto custody.

8. Preemption of State Laws

Digital commodities are classified as "covered securities," exempting them from state-level securities laws (blue sky laws). This eliminates conflicts between federal and state regulation.

9. Anti-CBDC Provisions

One of the bill's official short titles is the "Anti-CBDC Surveillance State Act". It prohibits Federal Reserve banks from offering products or services directly to individuals (i.e., a central bank digital currency – CBDC) and bars the use of a CBDC as a tool of monetary policy.

10. Criticisms and Risks

The bill has drawn criticism on several fronts:

• Regulatory arbitrage risk: Issuers may recharacterize post-ICO assets as "sufficiently decentralized" to shift oversight from the SEC to the CFTC
• The CFTC has limited experience supervising retail-facing platforms and may lack sufficient funding for an expanded mandate
• Retail investor protections are perceived as relatively weak
• The definition of "decentralization" remains vague

The Current Process

The House-passed version of H.R. 3633 is 257 pages long and has been in the Senate since July 17, 2025. The Senate Banking Committee has prepared its own alternative text (Responsible Financial Innovation Act / RFIA), which passed committee on May 14, 2026 by a 15-9 vote and was sent to the Senate floor. The Senate version differs from the House version in that it uses the concept of "ancillary asset" instead of digital commodity and preserves a broader role for the SEC. The final form of the law will be determined through a reconciliation process between the two versions.