Understanding the Clarity Bill: Key Insights for Crypto Stakeholders

For years, the U.S. crypto landscape felt like a high-stakes game of “Whack-a-Mole” played in a courtroom.

One day, a project was a breakthrough in decentralized tech; the next, it was an unregistered security facing an SEC lawsuit.

At LegalBison, we’ve watched our clients navigate this fog of uncertainty for too long.

Clarity Act: End of “Regulation by Enforcement”?

In the rapidly evolving digital asset landscape, the bill addresses the need for clear rules and oversight. By tackling regulatory uncertainty, it aims to provide stability and predictability for innovators and investors.

The act seeks to establish a clear regulatory framework, promote innovation, and protect investors.

Specifically, the CLARITY Act aims to establish a regulatory framework for digital assets by delineating the jurisdictions of the SEC and CFTC.

But what does it actually mean for your bags, your business, or your blockchain? Let’s dive into the guts of this bill and see how it reshapes the digital frontier.

The Big Picture: What Exactly is the Clarity Bill?

In simple terms, the Clarity Bill; formally known as the Clarity Act, serves as a legislative peacemaker.

The Clarity Act represents a pivotal development in U.S. digital asset regulation, aiming to resolve the long-standing “turf war” between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

Imagine two securities at an office building, both arguing over who gets to check your ID, while you’re just trying to get inside and do business. The Clarity Act finally gives them a rulebook.

As a market and crypto structure bill, it is designed to provide digital asset market clarity by establishing a clear regulatory framework and defining jurisdictional boundaries between the SEC and CFTC.

It establishes clear definitions for digital assets, creates registration pathways for exchanges, and most importantly: sets a legal path for a token to transition from a “security” to a “commodity.”

By clarifying market structure, the Clarity Act promotes legal certainty, offering predictability and compliance pathways for exchanges, brokers, and issuers.

The CLARITY Act was introduced in the House of Representatives on May 29, 2025, passed the House with bipartisan support on July 17, 2025, and is currently under review by the Senate Banking Committee.

The Senate was expected to finalize its version of the CLARITY Act by September 30, 2025.

Also read: What are the Differences Between VASP, CASP, and DASP?

Defining the Players: SEC vs. CFTC Jurisdiction

The core of the bill lies in how it categorizes assets, establishing a new regulatory regime for digital assets.

This isn’t just academic; it determines whether you’re filling out SEC forms (burdensome) or CFTC forms (traditionally more flexible).

The CLARITY Act aims to reduce regulatory uncertainty by clearly defining the roles and regulatory oversight of the SEC and CFTC.

Under the bill, the CFTC would have exclusive jurisdiction over digital commodities, as defined by the Commodity Exchange Act and federal law, while the SEC would retain authority over investment contract assets, relying on its existing sec authority under the Securities Act and other securities laws.

This division of oversight clarifies which agency is responsible for regulating different types of digital assets and activities, helping to address the ongoing jurisdictional dispute and providing a more predictable legal framework for market participants.

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Digital Commodities vs. Restricted Digital Assets

Under the bill, if an asset is “intrinsically linked” to a blockchain and isn’t a debt or equity interest in a company, it’s likely a Digital Commodity.

Digital commodities are defined as digital assets intrinsically linked to a blockchain system, with their value derived from the functionality or operation of that system.

This definition is central to the evolving digital asset landscape, which encompasses the classification, oversight, and regulatory challenges of various digital assets.

Digital commodities are traded in digital asset markets, where digital commodity transactions are subject to specific legal and compliance frameworks.

The Act places these assets under the CFTC’s wing, granting the CFTC exclusive jurisdiction over anti-fraud and anti-manipulation enforcement in digital commodities, including cash or spot transactions.

The CFTC regulates digital commodity dealers, digital commodity brokers, and digital commodity custodians, ensuring that these entities comply with registration, oversight, and custody standards. This includes requirements for the proper segregation and protection of customer assets, similar to traditional custody accounts, and the regulation of commodity interests related to digital commodities.

Conversely, Restricted Digital Assets are those that still behave like traditional securities, usually because the project is still highly centralized.

Also read: Best Countries to Establish Your GameFi Company

The Role of the “Investment Contract Asset”

Here’s a legal nuance we love: the bill clarifies that while a token might be sold pursuant to an investment contract, the token itself is an “Investment Contract Asset” and not necessarily a security in perpetuity.

Investment contract assets are digital commodities that can be exclusively held and transferred peer-to-peer without intermediaries and are sold or transferred pursuant to an investment contract.

The SEC will maintain jurisdiction over issuers and issuances of investment contract assets, including registration and reporting requirements.

Think of it like a concert ticket; the “contract” is your right to see the show, but the ticket itself is just a piece of paper (or code) that can be traded independently once the show starts.

Investment contract assets are distinguished from other financial instruments and financial instruments such as pooled investment vehicles, which may be regulated differently. Issuers relying on certain exemptions must adhere to specific disclosure and compliance requirements.

The “Maturity Test”: When Does a Token Change Its Skin?

This is the “Holy Grail” of the Clarity Bill. It introduces the concept of a Mature Blockchain, which refers to a blockchain system that meets specific criteria for decentralization, transparency, and security.

The underlying blockchain system is essential for supporting digital asset operations, providing the technological foundation for recordkeeping, capital raises, and stablecoin functions within a structured legal framework.

A key requirement for a blockchain to be considered mature is the presence of a decentralized governance system, characterized by open-source code, pre-established rules, and the absence of centralized control.

This ensures that no single entity can manipulate the network, and that the system is robust enough to support secondary market transactions.

Additionally, validating transactions within the blockchain system is crucial for ensuring compliance, preventing fraud, and establishing trust among participants, as these processes are subject to regulatory provisions for verification and audit.

The CLARITY Act also requires joint rulemaking by the SEC and CFTC to further define asset classes, ensure ongoing coordination, and establish criteria for delisting noncompliant digital assets.

This collaborative approach helps clarify the regulatory landscape and supports the transition of digital assets from securities to digital commodities once maturity and decentralization standards are met.

Also read: Top 5 Countries to Open a Crypto Business in 2026

The 20% Ownership Rule

To be considered “mature” and decentralized, a network must prove that no single person or affiliated group controls more than 20% of the token supply or voting power.

Why 20%? It’s a mathematical line in the sand meant to ensure that no “shadow CEO” is pulling the strings behind a supposedly decentralized project.

The Certification Process for Issuers

We often help clients prepare for these types of transitions. Under the bill, an issuer can file a certification with the SEC claiming their network is now mature.

If the SEC doesn’t challenge it within 60 days? Boom! you’re officially a digital commodity. It’s a “safe harbor” that rewards projects for actually decentralizing.

Impact on Crypto Exchanges: The New DCEX Category

If you run a trading platform, the Clarity Bill is a game-changer. It creates a new registration category: Digital Commodity Exchanges (DCEX).

Platforms can now register with the CFTC to trade spot digital commodities legally. Exchanges must adhere to core principles such as listing requirements, trade surveillance, capital adequacy, and conflict of interest policies, ensuring robust regulatory compliance.

The bill mandates things we’ve always advocated for at LegalBison: asset segregation (no more using customer funds for the CEO’s yacht) and requires that customer funds are held by a qualified digital asset custodian.

It also imposes ongoing reporting requirements, including disclosures, custody, recordkeeping, and compliance obligations to enhance transparency and investor protection.

The Act allows banks to operate alternative trading systems for digital assets, provided they meet registration requirements and comply with investor protection mandates. It brings crypto exchanges up to the same professional standard as the New York Stock Exchange.

Also read: 5 Common Mistakes Anyone Can Make with MiCA

Stablecoins and the GENIUS Act Integration

While the Clarity Bill handles the “what” of crypto, it leans on the GENIUS Act to handle the “how” of stablecoins.

• Permitted Payment Stablecoins are recognized as distinct from other tokens. A permitted payment stablecoin is a digital asset designed to be used as a means of payment or settlement, denominated in a national currency, and subject to regulatory authority. These stablecoins function as payment instruments within the digital asset ecosystem, facilitating value transfer and settlement in compliance with regulatory frameworks.
• They must be backed 1:1 by high-quality liquid assets (like U.S. Treasuries). The federal deposit insurance corporation, along with other federal banking regulators, provides oversight for stablecoin issuers to ensure safety and soundness.
• The bill ensures that stablecoin issuers have a clear federal pathway to operate without being treated like a high-risk “shadow bank.” Under the bill, federal reserve banks are restricted from directly offering products or services to individuals, and the Federal Reserve System is explicitly prohibited from developing, issuing, or testing a central bank digital currency. The regulatory framework for stablecoins also interacts with existing legislation such as the federal reserve act, ensuring that oversight and compliance are maintained within the broader scope of federal financial law.

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Decentralized Finance (DeFi) and the Safe Harbor Provisions

Does the Clarity Bill kill DeFi? Actually, it tries to protect it.

The bill explicitly excludes DeFi protocols and wallet providers from being regulated as “brokers” or “exchanges” as long as they don’t have a central intermediary.

For DeFi protocols, the bill considers whether they operate under a decentralized governance system; meaning open-source code, pre-established rules, and no centralized control, as a key criterion for regulatory treatment.

If you’re just writing code or providing a user interface, the bill treats you like a software developer, not a financial institution.

This “Innovation Sandbox” approach is exactly what the U.S. needs to keep developers from fleeing to Singapore or Dubai.

The Act provides a structured on-ramp for innovation while ensuring investor protection through defined regulatory obligations for each asset class.

However, some regulatory gaps remain, especially in areas where digital asset activities are not fully addressed by current laws, highlighting the need for continued legislative attention.

Why Institutional Investors are Happy: Banking and Custody Rules

We’ve seen a massive surge in institutional interest at LegalBison lately.

Why? Because the Clarity Bill removes the “reputational risk” for banks.

The bill allows banks to register as digital commodity brokers or dealers, offering trading, settlement, or custodial services for approved digital assets. This opens new opportunities for banks to participate in digital asset markets while managing inventory of digital assets in a secure and compliant manner.

The Act also clarifies the legal boundaries of asset classes, enabling banks to innovate responsibly in the digital asset space.

The Clarity Bill establishes Qualified Digital Asset Custodians, giving pension funds and insurance companies the legal “green light” to finally hold Bitcoin and Ether.

Additionally, the Act provides a compliance regime for digital asset intermediaries, requiring them to implement anti-money laundering and know-your-customer controls consistent with the Bank Secrecy Act.

This ensures that anti money laundering requirements are met, strengthening oversight and compliance obligations for all intermediaries involved.

Practical Compliance: A Checklist for Stakeholders in 2026

If you’re a stakeholder, here is your homework:

1. Audit Your Supply: Does any single entity hold more than 20%? If so, you’re still in “Security Land.”
2. Review Disclosures: Are your source code, governance mechanisms, and transaction history public and accessible? Detailed transaction history is required for compliance and disclosure obligations.
3. Check Your Custody: Are you using a Qualified Custodian that meets the new CFTC/SEC standards?
4. Registration Timeline: Keep an eye on the 270-day window after the bill’s final passage for new rule-making.
5. Defined Path for Compliance: The Act provides a defined path for digital asset firms to register, comply with regulations, and develop infrastructure within a clear legal framework.
6. Ongoing Reporting Requirements: Be prepared for ongoing reporting requirements, including continuous disclosures, recordkeeping, and compliance obligations as part of the SEC’s modernization efforts.
7. Compliance Regime for Intermediaries: The Act introduces a compliance regime for digital asset intermediaries, requiring registration with the appropriate federal agency and implementation of anti-money laundering and know-your-customer controls.
8. Investor Confidence: The CLARITY Act is expected to increase investor confidence by providing consistent and transparent oversight of digital assets.

Need help navigating crypto regulations? Understanding the digital finance tech is one thing; staying compliant is another. LegalBison’s experts are here to help you secure the right licenses in the best jurisdictions.

Also read: Top 8 ISO 20022 Coins

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Navigating the New Digital Frontier

The Clarity Bill isn’t just a set of rules; it’s a declaration that crypto is here to stay. As the Clarity Act of 2025, it aims to shape the future of the crypto market and the broader crypto industry by clarifying the regulatory landscape for digital assets.

The bill’s final form will be crucial in determining how legal clarity is established and how the regulatory environment evolves for all market participants.

By drawing lines between commodities and securities, and creating a path for decentralization, the U.S. is finally building a “highway” for digital assets.

The CLARITY Act is seen as a response to the regulatory uncertainty that has historically characterized the U.S. crypto market, and it stands alongside other clarity act attempts such as the Responsible Financial Innovation Act and the Asset Market Clarity Act, which all seek to address overlapping regulatory concerns.

These legislative efforts have significant implications for business strategy, requiring companies to adapt to new compliance requirements and market structures.

The Act also has broader societal impacts, including its potential to influence urban affairs by integrating digital assets into urban economic development and financial inclusion initiatives.

At LegalBison, we see this as the beginning of a more mature, stable, and institutional-grade market.

The era of “guessing” is over. The era of building is just beginning.

Are you ready to take the next step in this regulated world? Consult your crypto license today with LegalBison experts.

FAQ

Does the Clarity Bill make all crypto legal in the U.S.?

Not necessarily. It makes compliant crypto legal. Projects that refuse to disclose their code or remain under heavy centralized control will still face SEC scrutiny. It provides a map, but you still have to drive the car correctly.

How does this affect “memecoins”?

Most memecoins will likely be classified as Digital Commodities if they have no central “issuer” promising profits from their labor.

However, if a team is actively managing a memecoin and holding a huge supply, they might find themselves stuck in the “Restricted Asset” category.

Will my exchange fees go up because of these rules?

Compliance costs money. While we might see a slight increase in fees to cover the costs of audits and insurance, the trade-off is much higher security for your funds. Think of it as a “safety tax.”

What happens if the SEC disagrees with a “Maturity” certification?

The SEC has 60 days to push back. If they do, they must provide a detailed explanation of why the network is still centralized. This forces the SEC to be transparent rather than just issuing a vague “Wells Notice.”

Can I still use non-custodial wallets?

Yes! The bill is quite friendly to self-custody. It explicitly protects the right of individuals to control their own keys and excludes software-only providers from being regulated as financial intermediaries.