The "CLARITY Act" will bring the already vast cryptocurrency industry out of the shadows and into a regulated economic system.
Written by: Miles Jennings, Policy Director and General Counsel at a16z crypto
Translated by: Luffy, Foresight News
Recently, the U.S. House of Representatives advanced an important new "market structure" bill with overwhelming bipartisan support (294 votes in favor, 134 votes against, with 78 Democrats in support). This bill, known as the Digital Asset Market Clarity Act (House Bill 3633), will establish a clear regulatory framework for the digital asset market. The bill has now entered the Senate review stage, where the Senate is drafting its own version of market structure legislation, and the CLARITY Act will serve as a reference.
If passed, the bill will establish clear "rules of the game" for blockchain systems, ending years of uncertainty that stifled innovation, harmed consumer interests, and favored opaque businesses over entrepreneurs pursuing transparency. Just as the Securities Act of 1933 established investor protection mechanisms and propelled a century of capital formation in the U.S., the CLARITY Act is expected to become a law of significant historical importance.
When our legal framework can both promote innovation and protect consumers, the U.S. can lead the way, and the whole world can benefit. The CLARITY Act brings such an opportunity. Although this legislation builds on the bipartisan cooperation of last year's Financial Innovation and Technology Act (FIT21), it has been improved in several key areas, which will be elaborated below: what entrepreneurs need to know and why this bill is crucial for coordinating innovation, consumer protection, and U.S. national security.
Combined with the recently signed GENIUS Act (which will be detailed below), the need for a broader market structure bill is becoming increasingly urgent.
Why It Matters: A Macro Perspective
Despite the cryptocurrency industry having developed for over a decade, the U.S. has yet to establish a comprehensive regulatory framework. However, cryptocurrency is no longer just a trend within the tech circle; it has become infrastructure: blockchain systems are now foundational in various fields, including payment systems (including through stablecoins), cloud infrastructure, and digital markets.
But these protocols and applications have been built without clear rules. What has been the result? Legitimate entrepreneurs face regulatory unpredictability, while speculators profit from legal ambiguities. The CLARITY Act will reverse this situation.
By providing projects with a transparent compliance path and ensuring that regulators have more effective tools to oversee actual risks, the CLARITY Act (along with the new stablecoin legislation called the GENIUS Act) will bring the already vast cryptocurrency industry out of the shadows and into a regulated economic system. The new legislation will create a framework for responsible innovation, much like the foundational laws of the 20th century that helped public markets thrive and protected consumers.
In addition to providing a clear compliance path, the bill also establishes clearer rules, giving entrepreneurs legal certainty so they can confidently innovate and operate domestically. This will ultimately alleviate the pressure on legitimate entrepreneurs to move their operations overseas.
This legal clarity will open doors for the next generation of decentralized infrastructure, financial tools, and user-owned applications, all of which will be built in the U.S. Ensuring that blockchain systems are developed in the U.S. will also ensure that global digital and financial infrastructure is not reliant on blockchain systems created and controlled by entities such as China, while also ensuring that U.S. regulatory standards apply to the core financial infrastructure now used by those outside the crypto circle.
What Will This New Legislation Do?
Create a Clear Regulatory Path for Digital Goods
The CLARITY Act creates a regulatory framework for digital assets that grant users ownership within blockchain systems.
The bill's "control-based" maturity framework allows blockchain projects to launch digital goods and enter public markets without bearing excessive regulatory burdens or facing uncertainty.
Implement Oversight of Blockchain-Based Intermediaries
The bill ensures that centralized entities in the crypto space (such as exchanges, brokers, and dealers) are subject to strict oversight. These intermediaries must:
Register with the Commodity Futures Trading Commission (CFTC);
Comply with compliance standards similar to those of traditional financial institutions.
These requirements enhance the transparency of core market infrastructure, help prevent fraud and abuse, and bolster consumer trust. They will also fill the current regulatory gaps—previously, companies like FTX could operate in the U.S. market without constraints.
Protect Consumers with Strong Safeguards While Promoting Innovation
The CLARITY Act also includes direct consumer protection measures, including:
Requiring digital goods issuers to fulfill mandatory public disclosure obligations, ensuring retail participants can access essential, important information;
Restricting insider trading, curbing early stakeholders from exploiting information asymmetries to the detriment of users.
These measures also provide entrepreneurs with a clearer roadmap for building decentralized blockchain systems, helping to foster innovation.
Which Government Agency Will Oversee Regulation?
The CLARITY Act will provide a clear, structured path for the transition of regulatory authority over digital assets from the U.S. Securities and Exchange Commission (SEC) to the Commodity Futures Trading Commission (CFTC).
Let’s compare how current laws and the CLARITY Act (if passed) address the unique attributes of blockchain systems:
How Does the "Control-Based" Maturity Framework of Blockchain Systems Work?
Unlike the traditional "efforts-based" decentralization test established by the SEC in 2019, the maturity framework of the CLARITY Act employs clear, objective, and easily measurable standards.
These standards focus on who controls the underlying blockchain system and its associated digital goods. This is more consistent with other regulatory regimes (such as money transmission), eliminating improper incentives that might cause developers to halt development for fear of being perceived as centralized. More importantly, this approach will support legitimate developers in growing and continuing to develop (rather than abandoning projects), while making it harder for bad actors to exploit legal ambiguities, including engaging in "performative decentralization" (rather than actual decentralization).
Specifically, the bill's framework incentivizes decentralization and protects consumers in the following ways:
Imposing more oversight and strict regulatory burdens during the formation phase of the blockchain system (when centralized control exists), as the risks of the blockchain system's native digital assets are most similar to securities;
Reducing regulatory requirements as projects mature (with no centralized control, reduced risks, and more similarity to commodities).
As with past legislative efforts to transition "from centralized to decentralized" (contrasting with the differences with FIT21 below), the regulatory obligations applicable to projects within the "maturity" range include:
Mandatory disclosures: which will enhance transparency;
Sales restrictions on insiders: protecting consumers in the early stages and preventing insiders (such as relevant entrepreneurs and investors) from profiting from asymmetric information unknown to other consumers.
However, unlike FIT21, the CLARITY Act lists seven objective, measurable standards for determining when a specific blockchain system is no longer controlled by individuals or a jointly managed group (such as a foundation), and thus its native digital assets no longer pose risks similar to securities. Because this approach centers on eliminating control, it protects consumer investors while unlocking the full potential of blockchain technology. Moreover, due to the use of measurable standards, the framework provided by the CLARITY Act is easier for regulators to apply and for developers to follow.
In short, this new framework is a significant improvement over traditional regulatory frameworks, as securities laws were not designed for assets like blockchain systems, whose risk characteristics may shift from resembling securities to resembling commodities. This new framework has also received broad support from the industry.
What Impact Will It Have on Specific Industries Like DeFi?
The CLARITY Act provides important safeguards for DeFi. Specifically, the bill:
Exempts DeFi protocols and applications from the regulatory requirements established for digital goods trading intermediaries (such as exchanges and brokers);
Establishes standards for DeFi. To qualify, DeFi systems must not act as intermediaries, ensuring that specific DeFi systems do not reintroduce risks that regulation aims to mitigate.
Additionally, the bill will provide the necessary legal clarity for DeFi projects, enabling them to:
Launch and sell their native tokens, which previously involved high risks and uncertainties;
Adopt decentralized governance without fear of being classified as centralized;
Offer self-custody services, which many projects have already done, and now, through this bill, individuals will have "self-custody rights."
CLARITY creates a fair competitive environment for DeFi projects. This also paves the way for integrating the advantages of DeFi into the broader financial system, unlocking its true potential for a wider range of consumers.
However, the CLARITY Act is not without its flaws. It focuses solely on digital goods and does not address other regulated digital assets such as tokenized securities and derivatives. Moreover, while the CLARITY Act exempts DeFi systems from federal intermediary rules, it does not take precedence over state regulations, meaning the DeFi industry remains vulnerable to inconsistent or excessive state-level policies. These gaps should be addressed in the Senate, future legislation, or through coordinated regulatory guidance (such as rule-making by the SEC and CFTC).
Is the CLARITY Act Better Than the Existing System?
Yes; the CLARITY Act improves the status quo for the following reasons:
The industry currently lacks regulation: Some may argue that no regulation is better than regulation, but the current lack of clarity in regulation allows bad actors and speculators to profit, exploiting consumers through uncertainty (not to mention the unchecked abuse of power by regulatory agencies). FTX is a typical example of these issues, which not only harmed the entire industry but also hurt thousands of consumers. If we do not act promptly, we will open the door to more bad actors like the former CEO of FTX.
The industry lacks transparency: Without mandatory disclosure and listing standards, consumers often face scams and fraud. This lack of transparency fosters a "casino" culture, giving rise to purely speculative products like meme coins.
The industry lacks protection: The absence of clear constraints on the regulatory authority of various federal agencies means that blockchain projects (especially DeFi projects) still face the risk of regulatory overreach, which has been common in previous administrations.
The industry lacks standards: The absence of standards around decentralization/control means that consumers face unknown risks when using blockchain systems. For example, they may believe their assets (including stablecoins) are safe. However, if these blockchain systems are controlled by a single entity (which could shut it down directly), the assets may not be secure. As all industries mature, the establishment of standards will become increasingly common.
How Does the CLARITY Act Compare to Previous Legislative Efforts (like FIT21)?
The CLARITY Act effectively incorporates the lessons learned from FIT21 and improves upon it:
Enhanced transparency: It fills the gaps in FIT21 (which may have allowed certain traditional projects to evade disclosure requirements). The CLARITY Act provides a framework for disclosure obligations for still-active traditional projects.
Strengthened consumer protection: It makes it more difficult for insiders to profit from information asymmetries. For example, the CLARITY Act strictly limits the sale of assets by project insiders before the project matures (i.e., while they still control the project).
More reasonable maturity framework: It adopts a control-based decentralization test, significantly improving upon the vague approach of FIT21. This framework is also more precise, as the CLARITY Act proposes seven objective, measurable standards for determining whether a blockchain system is mature.
Improved regulatory oversight: It provides regulators with greater flexibility, helping to ensure that the regulatory framework evolves and expands as the industry matures.
How Is the CLARITY Act Related to the Recently Passed GENIUS Act?
The newly passed GENIUS Act is a key step in modernizing the financial system. The House passed this significant legislation with overwhelming bipartisan support (308 votes in favor, 122 votes against, with 102 Democrats in support), creating history. However, this new legislation regarding stablecoins greatly increases the demand for broader market structure legislation like the CLARITY Act.
Why? Because the GENIUS Act will accelerate the adoption of stablecoins, thereby driving more financial activities onto the blockchain and increasing reliance on blockchain for widespread payments and commercial activities. This trend is already occurring, as ubiquitous payment processors, traditional financial institutions, and established payment networks increasingly embrace and adopt stablecoins.
However, the current stablecoin legislation does not regulate the blockchains on which all these assets operate, nor does it require these "channels" to be secure, decentralized, or transparently governed. This gap exposes consumers and the broader economy to new systemic risks.
With the signing of the GENIUS Act into law, the demand for the CLARITY Act becomes even more urgent.
The CLARITY Act provides the necessary standards and oversight to ensure that the infrastructure supporting stablecoins (underlying blockchains, protocols, and other tools) meets safety, transparency, and control standards. Its objective, measurable requirements for defining mature blockchain systems also give entrepreneurs clearer guidance on how to meet these standards.
Without these complementary protections, the adoption of stablecoins could accelerate the use of unregulated, opaque, or even hostile infrastructure. Through the CLARITY Act, ensuring that stablecoins operate on secure networks further protects consumers, reduces financial risks, and solidifies the dollar's strong position and leadership in the next generation of financial systems.
What Happens Next?
With the passage of the CLARITY Act in the U.S. House of Representatives, the bill will be sent to the Senate. The Senate Banking Committee and Agriculture Committee may review the bill, making modifications through their respective amendment processes before submitting it to the full Senate for a vote.
However, it is more likely that a bipartisan group of senators will propose a separate Senate version of the cryptocurrency market structure bill, which may be similar to the CLARITY Act in many respects. Subsequently, the Senate Banking and Agriculture Committees will review the bill through their own processes, and if approved, it will be sent to the full Senate for a vote.
If both chambers of Congress pass their respective bills, the House and Senate will need to reconcile any differences, either through informal negotiation processes or more formal conference committees, after which each chamber will vote on the final compromise version.
When might all this happen? The main leaders of the House and Senate have set a goal to send the market structure bill to the President for signature by the end of September.
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