What Is The CLARITY Act? The Most Comprehensive U.S. Crypto Market Structure Bill

The United States is on the verge of establishing its first comprehensive cryptocurrency regulatory framework.

The Digital Asset Market CLARITY Act of 2025, a.k.a. The CLARITY Act, represents the most significant attempt to answer a question that has been on everyone’s mind since Bitcoin's inception: Who's actually in charge here?

Here’s a timeline of all the key events that took place since the bill (H.R. 3633) was introduced.

Date	Event
May 29, 2025	The CLARITY Act was officially introduced in the U.S. House of Representatives.
June 10, 2025	Two House committees reviewed the bill, suggested changes, and approved it to move forward.
June 23, 2025	The committees published written explanations explaining what the bill does and why it matters.
June 23, 2025	The bill was scheduled for a full vote in the House.
July 15, 2025	House leadership set the rules for how the bill would be debated and voted on.
July 17, 2025	The full House debated the bill and passed it with a strong majority.
September 18, 2025	The bill was sent to the U.S. Senate for review.
January 9, 2026	A Senate committee scheduled its first formal discussion on the bill.
January 13, 2026	Senators introduced their own version and reopened negotiations on crypto market rules.
Mid-January 2026	Senate progress slowed as disagreements emerged, delaying the next steps.

What Problem Does The CLARITY Act Solve?

For over a decade, U.S. crypto regulation has operated in a state of productive chaos.

• The SEC has treated many tokens as securities
• The CFTC has argued some tokens are commodities, but has had limited authority over spot (cash) markets

Meanwhile, crypto companies have operated in a legal gray zone, where they’re never quite sure which regulator might come knocking or what rules actually apply.

Traditional financial institutions largely stayed away because the legal risk was too high. Crypto startups incorporated overseas. And when exchanges collapsed or tokens imploded, regulators scrambled to respond with tools designed for 1930s-era securities markets.

The CLARITY Act is an effort to provide coherent legal structure. It divides regulatory authority between agencies, creates clear definitions for different types of digital assets, and establishes comprehensive oversight for crypto trading platforms.

The cornerstone of the CLARITY Act is its taxonomy. The bill puts crypto into three buckets:

1. Digital commodities
2. Investment contract assets
3. Permitted payment stablecoins

Digital Commodities

“Digital Commodities” are blockchain-based tokens with inherent utility in operating a network.

A digital commodity must be "intrinsically linked to a blockchain system," where its value stems from the network's operation rather than from someone else's entrepreneurial efforts. This explicitly excludes stablecoins, securities, and derivatives from the commodity category.

Think of Bitcoin or Ethereum. These assets power decentralized systems, facilitate transactions, enable governance, or reward network participants. They're functional components of blockchain infrastructure. Under the bill, these fall under CFTC jurisdiction.

Investment Contract Assets

“Investment Contract Assets” cover tokens sold to raise capital, essentially, crypto tokens offered like traditional securities.

The bill acknowledges that many tokens start life as securities (when a project sells them to fund development) but can evolve into commodities over time.

During the initial offering phase, if you're selling tokens to finance your blockchain project, you're under SEC jurisdiction. Buyers are investing in your team's ability to build something valuable. So, that's security.

But the bill creates a pathway for these tokens to "morph" into commodities once the network becomes sufficiently decentralized.

The criteria for this transition are specific. The network must be functional, open-source, transparently governed, and not controlled by any single entity (no one can hold more than 20% of tokens). Once certified as "mature," the token sheds its security status and moves to CFTC oversight.

Permitted Payment Stablecoins

Stablecoins get their own category.

A “permitted payment stablecoin” is defined as a fiat-pegged token designed for payment/settlement, denominated in a national currency, issued by an approved regulated entity, and redeemable 1:1 on demand.

Stablecoins are pushed into a banking-style prudential perimeter (issuer supervision), while their trading on exchanges still faces market integrity oversight.

Crucially, stablecoins don't fall under SEC or CFTC commodity rules. Instead, their issuers are overseen by banking regulators like the OCC or state financial authorities.

Banking regulators ensure stablecoin issuers are safe and solvent, while the SEC and CFTC retain authority to police fraud and manipulation in stablecoin trading on exchanges.

The SEC-CFTC Division of Labor

You can better understand the impact of the bill when you understand how it splits authority between the SEC and CFTC.

SEC

The SEC retains jurisdiction over securities. Specifically, over investment contract assets during their capital-raising phase. If you're launching a token to fund your project, you're in SEC territory. You must either register your offering or qualify for an exemption, and you'll face disclosure obligations to protect investors.

Even after a token transitions to commodity status, the SEC maintains oversight in certain contexts. If a token trades on an SEC-registered platform, the SEC can still enforce against fraud or manipulation.

The agency also continues its traditional role overseeing digital asset securities and the interfaces between crypto and traditional securities markets.

CFTC

Currently, the CFTC primarily oversees derivatives and its spot market powers are limited. With The CLARITY Act, the CFTC gets comprehensive authority over digital commodity spot markets.

Under the bill, the CFTC becomes the chief regulator for Bitcoin, post-ICO tokens that have become commodities, and the trading venues where they change hands.

Crypto exchanges dealing in digital commodities must register with the CFTC and comply with requirements similar to traditional commodity exchanges. Brokers and dealers facilitating these transactions also come under CFTC supervision.

The bill's most immediate impact hits trading platforms, which currently operate with minimal federal oversight.

Exchanges must register with the CFTC and meet core principles:

• Listing standards and due diligence
• Market surveillance for fraud detection
• Adequate financial resources
• Cybersecurity safeguards
• Risk management systems

No more listing anonymous tokens or operating without proper oversight infrastructure.

Customer protection also gets an upgrade. Platforms must segregate customer crypto from company assets and use Qualified Digital Asset Custodians, which are regulated entities meeting specific safeguarding standards.

The bill prevents regulators from forcing custodians to count customer crypto as their own balance sheet liabilities. This accounting treatment has stopped banks from offering crypto custody and so, the clarification removes a major barrier to institutional participation.

The Compromise On Stablecoin Yield

A separate 2025 law, The GENIUS Act, prohibited stablecoin issuers from paying interest but didn't address whether crypto exchanges could offer yield on stablecoin holdings. Companies like Coinbase offered returns that generated hundreds of millions in revenue. Banks saw this as existential because consumers were earning 4% on crypto wallet stablecoins compared to the measly 0.5% in bank accounts.

So, now, the bill prohibits crypto companies from paying interest for simply holding stablecoins (no passive, deposit-like interest competing with bank savings) but allows rewards for active use, like payments, transactions, and loyalty programs.

Neither side is happy.

Banks get their passive interest ban but have to accept transactional rewards. Crypto firms retain some incentivization ability but lose lucrative deposit products.

DeFi is hard because regulators are used to regulating intermediaries, and DeFi tries to remove intermediaries. If there's no company running the platform, who do you regulate?

Unlike centralized companies, DeFi protocols often operate autonomously through smart contracts. There's no CEO, no headquarters, no customer service department. Just code running on a blockchain that anyone can access.

Also Read: What is Decentralized Finance (DeFi)?

The House version of the bill tried to accommodate this reality by exempting certain technical participants from regulation, like developers writing open-source code, validators processing transactions, and people providing user interface software (like wallet apps or websites that let you access DeFi protocols). The reasoning is that these people aren't operating financial businesses but merely providing infrastructure and tools.

This exemption is very important because, without it, someone who writes open-source code for a decentralized lending protocol could be treated as a bank. A developer creating a wallet app could be classified as a broker-dealer. This would effectively kill DeFi development in the U.S., pushing it entirely overseas or underground.

Naturally, there’s understable opposition.

Senate Democrats, led by Elizabeth Warren, argue these exemptions are dangerously broad. If DeFi platforms can operate without any entity being responsible for compliance, they become perfect vehicles for money laundering and sanctions evasion. Who ensures a DeFi protocol isn't being used to finance terrorism or evade sanctions if no one is accountable?

They want DeFi platforms above certain sizes to implement KYC checks and AML controls just like banks and exchanges. But in a truly decentralized system, there may be no one who can implement these controls.

Following the contention, the Senate has proposed over 100 amendments, many targeting DeFi. Some would require larger DEXs to register with regulators or at least report their activities. The crypto industry warns this could push all DeFi development out of the U.S.

That said, even with exemptions, anti-fraud laws still apply. Regulators can prosecute people who use DeFi for scams or illegal activity. The exemption just means you don't have to register as a financial institution simply for building decentralized software.

Also Read: What is Web3? The Ownership-Driven Decentralized Web

If enacted, this will become America's first comprehensive crypto regulatory framework.

• Institutional participation accelerates: With clear rules, banks can offer crypto custody, stock exchanges can list digital commodities, broker-dealers can trade tokens.
• Legal clarity resolves ongoing battles: Knowing what's a security versus commodity could resolve or moot many SEC-crypto company lawsuits.
• Compliance costs rise, but so does legitimacy: Exchanges face real regulatory burdens, but operating under federal oversight provides credibility that attracts institutional capital.
• Global influence expands: As the world's largest economy, U.S. regulatory choices shape international standards. Other jurisdictions may align their frameworks with America's approach.
• Innovation may migrate or concentrate: Heavy compliance costs might favor well-funded entities over scrappy startups. Whether this pushes innovation overseas or simply professionalizes the industry depends on final implementation.

Conclusion

Whether you own crypto or not, this bill shapes how digital assets integrate with mainstream finance and will eventually make its way into your finance invisible to you.

One of the main achievements of the bill is acknowledging crypto requires purpose-built regulation. And in the current system where SEC and CFTC battle over jurisdiction, companies can't determine applicable rules, and innovation migrates overseas is unsustainable. The CLARITY Act provides a foundation that can be refined.

The CLARITY Act is the most comprehensive effort yet by the United States. Its fate will shape crypto's trajectory in ways we're only beginning to understand.

Also Read: Myth vs. Fact: The CLARITY Act