Is the end of crypto regulation near? The CLARITY Act faces a "hasty" vote next week

Author: Azuma

Original Title: The Biggest Uncertainty in the Crypto Market Ahead: Will the CLARITY Act Pass the Senate?

Overseas cryptocurrency media Decrypt reported this morning that sources revealed to them that several representatives from Wall Street and the cryptocurrency industry held an offline closed-door meeting yesterday to address disagreements over the upcoming Senate review of the cryptocurrency market structure bill (known as CLARITY).

This closed-door meeting had not previously been publicly disclosed, but according to Decrypt, the main trade organization on Wall Street, the “Securities Industry and Financial Markets Association (SIFMA),” participated in the talks. SIFMA had previously opposed the core provisions of the CLARITY bill, including explicit opposition to the regulatory exemptions for DeFi and other decentralized financial services and their developers. Sources said that the discussions yesterday on issues like DeFi regulation were “constructive” and “productive.”

Breakdown of the Core Content of CLARITY

The full name of CLARITY is the “Digital Asset Market Clarity Act of 2025.” The bill was initially jointly introduced on May 29, 2025, by French Hill, Chair of the House Financial Services Committee, and G.T. Thompson, Chair of the Agriculture Committee. The bill aims to establish a regulatory framework for digital assets, clearly define categories of digital assets, and delineate the regulatory responsibilities of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

Top law firm Arnold & Porter has provided a detailed interpretation of the bill’s provisions. Specifically, CLARITY seeks to categorize digital assets into three clear types — digital commodities, investment contract assets, and compliant payment stablecoins.

“Digital commodities” are digital assets inherently linked to blockchain systems, with their value directly dependent on the functionality or operation of the blockchain, or on activities or functions served when the blockchain is created or used. In other words, the value of such digital assets must rely on the blockchain network’s core functions, such as payments, governance, on-chain service access, or incentives. Notably, the bill explicitly excludes securities, derivatives, stablecoins, and other financial instruments from the definition of “digital commodities.”

“Investment contract assets” are digital commodities that meet all of the following conditions: (1) can be exclusively held and transferred peer-to-peer without intermediaries; (2) are recorded on the blockchain; (3) have been or are planned to be sold or transferred under an investment contract (i.e., for financing purposes). This means that if a digital asset is sold in a financing scenario (such as an ICO), it will be classified as an investment contract asset and considered a security, falling under SEC regulation. Additionally, CLARITY separates these types of investment contract assets from the traditional “investment contract” definition under U.S. securities law.

However, the security nature of investment contract assets is “temporary.” Once the digital asset is resold or transferred by the issuer or its agents to a third party, it will no longer be considered a security, even if initially issued as an investment contract asset. In other words, when such assets are traded on the secondary market, they no longer meet the definition of an investment contract asset and are regarded as pure digital commodities.

“Compliant payment stablecoins” refer to digital assets that meet the following conditions: (1) designed for payments or settlement; (2) denominated in a fiat currency; (3) issued by entities regulated and supervised by state or federal authorities; (4) obligated to be redeemed at a fixed monetary value.

Odaily note: Compared to the classification of commodities and securities, the stablecoin-related content is not the core focus of the CLARITY bill, but it is one of the current points of contention. Previously, the GENIUS Act, which passed both chambers and was signed by Trump, tacitly permitted yield-bearing stablecoins pegged to the dollar, while SIFMA and banking lobbyists aim to eliminate such stablecoins through CLARITY.

Based on this classification, CLARITY also clarifies the regulatory responsibilities of the two major agencies: the SEC and the CFTC.

• Specifically, CLARITY grants the CFTC exclusive jurisdiction over fraud and manipulation enforcement for digital commodities (including cash or spot trading), and requires intermediaries handling digital commodities — including currently dominant cryptocurrency exchanges and other brokers and dealers — to register with the CFTC.
• For the SEC, CLARITY grants exclusive jurisdiction over the issuance of investment contract assets, including registration, disclosure, and ongoing reporting obligations. The SEC will also maintain anti-fraud and anti-manipulation authority over digital commodity transactions conducted on SEC-registered brokers, dealers, or national securities exchanges.
• Regarding compliant payment stablecoins, their issuers will primarily be regulated by banking authorities, but the CFTC and SEC will respectively maintain anti-fraud and anti-manipulation jurisdiction over transactions on their registered platforms.

What is the significance of CLARITY?

Overall, CLARITY aims to establish a clear, functional federal regulatory framework for the U.S. digital asset market, addressing long-standing issues of regulatory ambiguity and inconsistent enforcement.

Over the past five years, the regulatory landscape in the U.S. has been shaped by the ongoing power struggle between the SEC and CFTC over digital asset oversight.

Under former SEC Chair Gary Gensler, the agency’s stance was that “the vast majority of digital assets are securities,” primarily based on the Howey Test established by the U.S. Supreme Court in 1946. The SEC argued that most token sales constitute investment contracts and should be regulated under federal securities laws. This interpretation laid the groundwork for aggressive enforcement, with the SEC launching dozens of high-profile actions against token issuers, crypto exchanges, and related service providers.

In contrast, the CFTC prefers to view some digital assets as commodities, especially those with higher decentralization and no direct profit generation. While the CFTC has sought to expand its regulatory role in the crypto market and repeatedly warned that the current regulatory vacuum could threaten market integrity, existing Commodity Exchange Act restrictions limit its authority mainly to fraud and manipulation enforcement in spot markets.

The ongoing jurisdictional competition between the SEC and CFTC has left market participants and developers in a gray area — unsure whether their products or services fall under securities or commodities regulation. CLARITY is a legislative response to this deadlock, aiming to establish a stable, clear, and long-lasting division of responsibilities between the two agencies.

For the crypto industry, the implementation of CLARITY would mean a substantial shift in the regulatory environment, providing more predictable compliance pathways. Market participants would be able to clearly identify which activities, products, and transactions are regulated, reducing long-term regulatory uncertainty, litigation risks, and friction, thereby attracting more innovators and traditional financial institutions.

In terms of market impact, while breakthroughs in CLARITY at key moments (such as recent Senate hearings) could trigger short-term positive news, its longer-term effect lies in making cryptocurrencies a “more easily allocable asset class” for traditional capital. By resolving institutional uncertainties, it would enable long-term capital that was previously unable to enter to do so in a compliant manner, raising the overall market valuation floor.

What is the current progress and obstacles for CLARITY?

On July 17 last year, CLARITY was passed in the U.S. House of Representatives with an overwhelming majority (about 294–134). Unlike the smoothly progressing GENIUS Act, which was also passed at the same time, CLARITY faced resistance when transferred to the Senate due to disagreements among various factions.

Overall, the main disagreements around CLARITY focus on how to regulate DeFi, issues related to yield-bearing stablecoins, and ethical standards concerning the Trump family.

Among these, regulation of DeFi is the most sensitive point of contention. Crypto advocates want to protect developers and open-source software, arguing that code should not be considered a regulated financial intermediary. Wall Street, however, is concerned about money laundering, sanctions evasion, and national security risks, insisting that overly broad protections could pose risks, and strongly pushing to bring DeFi under traditional financial regulation.

Another major disagreement concerns yield-bearing stablecoins. As mentioned earlier, the GENIUS Act tacitly permitted such stablecoins, but major U.S. banks have lobbied to ban stablecoin issuers from transferring reserve assets (like government bonds) to holders, fearing this could drain deposits from traditional banks. The crypto industry clearly opposes restrictions, criticizing bank protectionism and emphasizing that GENIUS has already addressed regulatory and licensing issues related to stablecoins, making further debate unnecessary.

Due to these persistent disagreements, the bill was initially scheduled for review in mid-2022 but was postponed to October, then pushed to the end of the year, and subsequently delayed until 2026… Until this Tuesday, Senate Banking Committee Chair Tim Scott officially announced that the committee will vote on the bill on January 15.

Tim Scott is a Republican senator from South Carolina. Although the crypto industry generally considers the January 15 schedule too rushed to resolve disagreements and possibly jeopardize the bill’s approval this year, Scott insists on this timetable. In an interview with Breitbart, he said: “I believe we must make a public statement and vote. So, next Thursday, we will vote on CLARITY. Over the past six months, through relentless effort, we have ensured every member of the committee has seen multiple drafts.”

The current situation is that the vote next week will determine whether CLARITY can pass the Senate Banking Committee — a crucial step before it is submitted to the full Senate for debate. Only if it gains bipartisan support in the committee can it have a chance to pass the Senate. However, based on multiple reports, it remains unclear whether the bill has enough votes to pass the committee.

While the initial positive news from the closed-door meeting mentioned at the beginning of this article provides some optimism, it is not enough to guarantee a smooth passage next week. Decrypt reports that even representatives from the crypto industry have expressed skepticism: “I can’t believe it — we’re finally seeing Democrats and Republicans actively working together on something, and we might still kill it because of a loose schedule.”

Wintermute OTC head Jake Ostrovskis also pointed to the longer-term deadline for CLARITY to clear the Senate: “The market generally believes that April is the last realistic deadline for the Senate to hold a full vote (before the midterm election turbulence). To achieve this, the SEC and CFTC need to reach an agreement on the amendments by the end of January. This process is likely to become more politicized, so as developments unfold, there will probably be related news reports throughout January.”

In summary, next week’s Senate Banking Committee vote will kick off CLARITY’s journey through the legislative process. While the current situation remains uncertain, a clear directional expectation will emerge next week.