The CLARITY Act – Why it matters, what to know, and what to do

The House of Representatives recently advanced a major new “market structure” bill with overwhelming bipartisan support (294 to 134, with 78 Democrats supporting). This bill, the Digital Asset Market Clarity Act or “CLARITY Act” (HR 3633) would establish a clear regulatory framework for digital asset markets. The bill now progresses to the Senate, which is working on its own version of market structure legislation that will be informed by CLARITY.

If passed, this bill will establish clear rules of the road for blockchain systems — ending the years of uncertainty that have stifled innovation, exposed consumers to harm, and favored profiteers embracing opacity over the entrepreneurs pursuing transparency. Like the Securities Act of 1933, which established investor protections and powered a century of U.S. capital formation, the CLARITY Act could be a generational law.

When our legal frameworks are designed to both foster innovation and protect consumers, America leads — and the world benefits. CLARITY is that kind of opportunity. While this legislation builds on the bipartisan momentum of last year’s FIT21 bill, CLARITY improves upon it in several key ways, which we outline below: covering what the builders need to know, and why this bill is crucial to aligning innovation, consumer protection, and U.S. national security.

With the just-signed GENIUS Act (more on how that fits in below), the need for a broader market structure bill is even more urgent.

Why it matters: the big picture

Even though the crypto industry has been around for over a decade, there hasn’t yet been a comprehensive regulatory framework for it in the United States. But crypto is no longer just a movement among tech insiders — it’s become infrastructure: Blockchain systems now underpin payment systems (including via stablecoins), cloud infrastructure, digital markets, and much more.

But these protocols and applications are being built without clear rules. The result? The legitimate entrepreneurs face regulatory whiplash, while the profiteers exploit legal ambiguity. Passing CLARITY would flip this dynamic.

By giving projects a transparent path to compliance — and ensuring regulators have better tools to police real risks — CLARITY (alongside the new stablecoin bill known as the GENIUS Act) would bring the already massive crypto industry out of the shadows and into the regulated economy. The new legislation creates a framework for responsible innovation, much like the foundational laws that helped public markets flourish as well as protect consumers in the 20th century.

Besides providing a well-defined path to compliance, this bill provides more clear rules — giving entrepreneurs the legal certainty they need to innovate confidently and operate domestically. This would finally reduce the pressure on legitimate entrepreneurs to launch offshore (or to use inefficient and opaque structures to avoid regulation).

Such legal clarity would open the door to the next generation of decentralized infrastructure, financial tools, and user-owned applications — all built in the United States. Ensuring that blockchain systems are developed in the U.S. would also safeguard the world’s digital and financial infrastructure from becoming reliant on blockchain systems created and controlled by China, for instance, while also ensuring U.S. regulatory standards apply to core financial infrastructure that many more people beyond crypto are now using.

What would this new legislation do?

Create a clear regulatory pathway for digital commodities

The CLARITY Act creates a regulatory framework for digital assets — referred to as “digital commodities” — that give users ownership in blockchain systems.

The bill’s control-based maturity framework allows blockchain projects to launch digital commodities and access public markets without undue regulatory burdens or uncertainty.

Enable oversight of blockchain-based intermediaries

The bill ensures that centralized actors in crypto — such as exchanges, brokers, and dealers — are subject to robust oversight. These intermediaries would be:

• required to register with the CFTC; and
• adhere to compliance standards similar to those that govern traditional financial institutions.

These requirements bring more transparency to core market infrastructure, help prevent fraud and abuse, and reinforce consumer trust. They also close the current regulatory gap — which allowed firms like FTX to operate unchecked in the U.S. market.

Protect consumers with strong safeguards, while fostering innovation

The CLARITY Act has direct consumer protection measures as well, including:

• mandatory public disclosure obligations for digital commodity issuers — ensuring that retail participants have access to basic, material information; and also
• restrictions on insider trading — limiting the ability of early stakeholders to exploit information asymmetries at the expense of users.

These measures also help foster innovation by providing a clearer roadmap for entrepreneurs to build decentralized blockchain systems.

Which government agency would have regulatory oversight?

The CLARITY Act would provide a clear, structured pathway for digital assets to transition from the Securities and Exchange Commission (SEC) to oversight by the Commodity Futures Trading Commission (CFTC).

Let’s compare how current law, and the CLARITY Act, if passed, can address the unique properties of blockchain systems:

Current law	The CLARITY Act
When digital assets are first sold in fundraising transactions (like “token sales”), the transaction is subject to securities laws and SEC jurisdiction.	No change here — When digital assets are first sold in fundraising transactions (like “token sales”), the transaction is subject to securities laws and SEC jurisdiction.
The transition of jurisdiction over secondary market transactions from the SEC to the CFTC is unclear and subject to weaponization by overzealous regulators — the test is based on a subjective and ambiguous 40-factor decentralization framework created by the SEC in 2019.	The transition of jurisdiction over secondary market transactions from the SEC to the CFTC would be clearly defined and automatic (scalable to administer) — the test is based on objective and simple criteria for whether a digital asset is a “digital commodity” (that is, it does not pose security-like risks).
No disclosures are required, which doesn’t protect consumers.	Disclosures are required — and the SEC retains oversight of those disclosures.
Insiders have few restrictions on participating in secondary markets, only having to hold a digital asset for one year.	Insiders face more restrictions from participating in secondary markets — including being limited until a blockchain system becomes a “mature blockchain system” (the blockchain system must not be controlled by anyone). This would help prevent pump-and-dump behavior and incent ongoing innovation.

The above pathways are based on a finely calibrated, “control-based” risk framework; more on that below.

How does a ‘control-based’ maturity framework for blockchain systems work?

As compared to the legacy efforts-based decentralization test created by the SEC in 2019 — which led to an amorphous definition of decentralization that could be weaponized by regulators against good actors — CLARITY’s maturity framework uses definitive, objective, and easily measurable criteria.

These criteria are focused on who has control over the underlying blockchain system and its related digital commodity. This is more consistent with other regulatory regimes (like money transmission), and removes the perverse incentives that encourage builders to stop building to avoid the perception of centralization. More importantly, such an approach would help legitimate builders thrive — and continue building (as opposed to having to abandon projects) — while making it harder for bad actors to exploit legal ambiguity, including by engaging in performative “decentralization theater” (vs. actual decentralization).

Specifically, the bill’s framework incentivizes decentralization and protects consumers by:

• applying more oversight and stringent regulatory burdens during a blockchain system’s formative stages — when there’s centralized control, and so the risks associated with that blockchain system’s native digital asset most resemble those of securities; and
• reduced regulatory requirements as the projects mature — when there’s no centralized control, and the risks are reduced and most resemble those of commodities.

Like previous legislative efforts to codify this transition from centralized to decentralized (see the below comparison to FIT21), the regulatory obligations applicable to projects along the “maturity” spectrum include:

• mandatory disclosures — which will enhance transparency; and
• selling restrictions on insiders — which protects consumers at earlier stages from insiders (like involved entrepreneurs and investors) that may be privy to asymmetric information that other consumers aren’t aware of.

But unlike FIT21, CLARITY sets out seven objective, measurable criteria for determining when a particular blockchain system is no longer controlled by an individual or commonly managed group (like a foundation), and therefore its native digital asset no longer poses security-like risks. Because this approach centers on the elimination of control, it can protect consumer investors while realizing the full potential of blockchain technology. And since it makes use of measurable (vs. amorphous) criteria, CLARITY provides a framework that’s easier for regulators to apply and for builders to follow.

Put simply, this new framework is a big improvement on legacy regulatory frameworks, since securities laws are not designed for assets — like blockchain systems — whose risk profile can transition from resembling that of a security to that of a commodity.

This new framework also has broad industry support.

What are implications on specific industries like DeFi?

The CLARITY Act provides significant safeguards for decentralized finance (DeFi). In particular, the legislation:

• exempts DeFi protocols and applications from the regulatory requirements that the bill establishes for intermediaries (like exchanges and brokers) of digital commodity transactions; and
• establishes standards for DeFi — to be eligible, a DeFi system must not act as an intermediary — ensuring that that particular DeFi system does not reintroduce the very risks that regulation is designed to mitigate.

In addition, the bill would grant DeFi projects the legal clarity they need to:

• launch and sell their own native tokens — processes which were previously risky and unclear;
• utilize decentralized governance — without the risk of being classified as centralized
• offer self-custody — which many did before, but now individuals would have, through this bill, a “right to self-custody”.

CLARITY altogether establishes a level playing field upon which DeFi projects can compete. This also paves the way for the benefits of decentralized finance to be integrated into our broader financial system, unleashing its true potential for consumers more broadly.

However, the CLARITY Act isn’t perfect. Because it focuses solely on digital commodities, it doesn’t address other regulated digital assets like tokenized securities and derivatives. And while CLARITY exempts DeFi systems from federal intermediary rules, it does not preempt state regulation — which means the DeFi industry remains vulnerable to inconsistent or overreaching state-level policies. These gaps should be addressed in the Senate, future legislation, or through coordinated regulatory guidance (such as SEC and CFTC rulemaking).

Is CLARITY better than what we have right now?

Yes; the CLARITY Act improves on the status quo because…

…the industry currently lacks oversight. While some may argue no regulation is better than any regulation, the current lack of regulatory clarity favors bad actors and profiteers, who take advantage of the uncertainty to exploit consumers. (Not to mention creates abuse by regulators operating without constraints.) FTX is the prime example of these issues, hurting not just the industry overall, but thousands of consumers. If we don’t move now, we’re leaving the door open to more bad actors like the former CEO of FTX.

…the industry lacks transparency. Without mandated disclosures and listing standards, consumers are regularly exposed to scams and frauds. This lack of transparency has fostered a “casino” (as opposed to one more focused on innovation) culture, which has led to purely speculative products like memecoins.

…the industry lacks protections. Without clear constraints on the regulatory authority of various federal agencies, blockchain projects (and particularly DeFi projects) remain exposed to the kind of regulatory overreach that became commonplace during the previous administration.

…the industry lacks standards. Without standards around decentralization/ control, consumers are exposed to unknown risks when using blockchain systems. For instance, they may think their assets, including stablecoins, are safe — but if those blockchain systems are controlled by a single entity (someone could literally just shut it off), they may not be safe. As all industries mature, having standards becomes more commonplace.

How does the CLARITY Act compare to previous legislative efforts, like the Financial Innovation and Technology for the 21st Century Act (aka FIT21)? CLARITY actually incorporates lessons learned from FIT21 and improves on its foundation:

1. It provides greater transparency by closing loopholes in FIT21 that would have enabled certain legacy projects to avoid disclosures. CLARITY provides a framework for applying disclosure obligations for legacy projects that are still active.
2. It provides stronger consumer protections by making it harder for insiders to take advantage of informational asymmetries. For instance, CLARITY places strong restrictions on a project’s insiders from being able to sell before a project becomes mature (that is, while they still control the project).
3. Its maturity framework provides a more principled, control-based decentralization test that greatly improves upon FIT21’s ambiguous approach. This framework is also more precise, since CLARITY advances seven objectively measurable criteria for determining whether a blockchain system is mature or not.
4. It improves regulatory oversight and provides greater flexibility to regulators, which will help ensure the regulatory framework evolves — and can scale — as the industry matures.

How does the CLARITY act fit with the recently passed GENIUS act?

The new “Guiding and Establishing National Innovation for U.S. Stablecoins” (GENIUS) Act represents a critical step toward modernizing our financial system. The House made history by passing this major legislation in an overwhelmingly bipartisan way (308 to 122, with 102 Democrats supporting). However, this new legislation on stablecoins significantly increases the need for broader market structure legislation like CLARITY.

Why? Because GENIUS will accelerate the adoption of stablecoins — and therefore the migration of more financial activity onto blockchains — increasing reliance on blockchains for widespread payments and commerce. It’s already happening, as ubiquitous payment processors, traditional financial institutions, established payment networks, and several others increasingly embrace and adopt stablecoins.

But the current stablecoin legislation does not regulate the blockchains on which all those assets move — it includes no requirements that those rails be secure, decentralized, or transparently governed. This gap exposes consumers, and the broader economy, to new systemic risks.

With GENIUS now signed into law, the need for CLARITY is even more urgent.

CLARITY provides the standards and oversight necessary to ensure that the infrastructure supporting stablecoins — the underlying blockchains, protocols, and other tooling — meet safety, transparency, and control standards. Its objective, measurable requirements for defining mature blockchain system also better clarify for entrepreneurs how they can meet those standards.

Without these complementary protections — of the GENIUS act coupled with the CLARITY act — stablecoin adoption could accelerate the use of unregulated, opaque, or even adversarial infrastructure. Passing CLARITY ensures stablecoins operate on secure networks, further protecting consumers, reducing financial risk, and reinforcing U.S. dollar strength and leadership in the next generation of financial systems.

What comes next? 

With CLARITY passing the U.S. House of Representatives, the bill will now be sent to the Senate. There, the Senate’s Banking Committee and Agriculture Committees could choose to take it up, make changes through their own markup processes, and then advance it to the full Senate for a vote.

More likely, however, a bipartisan group of Senators will introduce a separate Senate version of a crypto market structure bill, which will likely be similar to CLARITY in many respects. The Senate Banking and Agriculture Committees would then consider that bill through their own processes and, if approved, send it to the Senate floor for a vote.

If both chambers of Congress pass their respective bills, the House and the Senate would need to reconcile any differences — either through an informal negotiation process or a more formalized conference committee — and then each chamber would vote to pass the final compromise version.

When is all this likely to happen? Key House and Senate leaders have set a goal of sending a market structure bill to the President’s desk for signing by the end of September.

What can you do?

With 216 Republican and 78 Democratic votes, CLARITY builds on the bipartisan momentum established by FIT21 (which passed the House with 71 Democratic votes). The bill has improved upon FIT21 across the board — with stronger consumer protections, clearer standards for decentralization, and better alignment with existing regulatory models.

Passing CLARITY will ensure the U.S. remains the global leader in blockchain infrastructure, benefitting builders and consumers. As a serious, well-considered, bipartisan attempt to build a functional regulatory system for crypto in the U.S., CLARITY balances innovation with oversight. It offers Congress a chance to protect consumers while supporting foundational infrastructure for the digital economy, creating jobs and opportunities with this next important milestone in computing innovation — as important as PCs, cloud computing, and mobile computing before it.

We’re at a pivotal moment. To help, please directly reach out to your Senator or via Stand with Crypto and urge them to support the CLARITY Act. This isn’t just about crypto — it’s about ensuring that the internet of the future is democratic, open, and secure for all.