CLARITY Act: America’s Path to Breaking the Digital Asset Regulatory Deadlock

Abstract

The CLARITY Act (fully known as the Clarity for Digital Asset Markets Act of 2025, H.R. 3633) is the first comprehensive regulatory framework legislation in the United States covering all types of cryptocurrencies. It aims to establish a regulatory system for the issuance and trading of digital commodities, clarify the regulatory boundaries between the SEC and the CFTC, and restrict the Federal Reserve from issuing a central bank digital currency (CBDC). Based on five core articles from the Web3 Knowledge Base, this report systematically outlines the act from three dimensions: its core framework, the legislative process and controversies, and its market impact.

1. The Core Regulatory Framework of the CLARITY Act

1.1 Legislative Purpose and Asset Classification

The core philosophy of the CLARITY Act is “clarity” — completely resolving the long-standing jurisdictional disputes over regulatory authority that have plagued the U.S. crypto industry. The act divides digital assets into three major categories:

Asset CategoryRegulatory AgencyTypical ExamplesDigital Commodity

Governed by the CFTC

Highly decentralized assets like Bitcoin and Ethereum

Investment Contract Asset

Governed by the SEC

Assets with an identifiable issuer where holders rely on the efforts of others to profit

Compliant Payment Stablecoin

Placed separately under the GENIUS Act framework

US Dollar-backed payment stablecoins

The act proposes a “Mature Blockchain System” certification mechanism: blockchain systems that meet conditions such as value derived from their own functionality, full operational capacity, open-source interoperability, rules executed entirely by automated code, and no single entity controlling more than 20% can apply simplified regulatory requirements to their corresponding digital commodities.

1.2 The Division of Labor Between SEC and CFTC

The act establishes a dual-agency regulatory landscape:

• CFTC: Holds exclusive federal jurisdiction over digital commodity spot markets and is responsible for the registration and conduct regulation of digital commodity exchanges, brokers, and dealers.
• SEC: Retains jurisdiction over investment contract assets and retains regulatory power over digital commodities traded through securities intermediaries.
• DeFi Activities Excluded: Decentralized financial activities such as transaction validation, node operations, and liquidity provision do not require registration as SEC or CFTC intermediaries.

1.3 Key Provisions

• Self-Custody Protection: U.S. individuals have the right to hold hardware/software wallets, maintain self-custody of digital assets, and engage in lawful P2P transactions.
• Federal Reserve CBDC Ban: Prohibits Federal Reserve Banks from issuing central bank digital currencies directly to individuals or indirectly through financial institutions.
• Issuance Exemption Conditions: Qualified digital commodity issuances are exempt from the registration requirements of the Securities Act of 1933, but issuers must file an issuance statement and fulfill continuous disclosure obligations.

2. Legislative Process: A Hard-Fought Journey

2.1 Key Milestones from the House to the Senate

The legislative journey of the CLARITY Act can be described as a rollercoaster:

• May 29, 2025: House Financial Services Committee Chairman J. French Hill introduces the bill for the first time.
• July 17, 2025: The House passes the CLARITY Act and the Anti-CBDC Surveillance State Act, sending them to the Senate. On the same day, Trump signs the GENIUS Act into law.
• September 18, 2025: The Senate receives the bill and refers it to the Committee on Banking, Housing, and Urban Affairs.
• January 12, 2026: The Senate Banking Committee releases a 278-page draft, introducing a controversial “prohibition on stablecoin interest” clause.
• April–June 2026: Intense multi-party bargaining stalls the bill’s progress in the Senate.
• June 27, 2026: Congress heads to recess without setting a schedule for a full floor vote, leaving the bill hanging by a thread.

2.2 Two Core Controversies

Controversy 1: Whether to allow yield payments to stablecoin holders

This is the fiercest point of contention between the banking and cryptocurrency industries.

• Banking Industry Stance: Stablecoin rewards are functionally identical to traditional interest payments. Unrestricted, they could trigger a massive flight of capital from traditional savings accounts, crippling community banks.
• Crypto Industry Stance: Banning yield stifles innovation and reinforces the monopoly of traditional banks.
• Compromise Solution: Allow rewards for peer-to-peer payment activities while restricting passive yield on stablecoin balances.

On April 8, 2026, the White House Council of Economic Advisers released a report refuting the banking industry’s arguments, showing that even under extreme assumptions, the impact of stablecoin interest on bank lending would amount to a mere 0.02% of the total volume.

Controversy 2: Platform Developer Protection (Section 604)

Section 604 (also known as the Blockchain Regulatory Certainty Act) stipulates that software developers who create blockchain protocols or smart contracts, and who cannot exercise unilateral control over user funds, are not considered money transmitters.

This provision sparked strong pushback from law enforcement agencies:

• Four Major Law Enforcement Associations(including the National District Attorneys Association, National Association of Assistant United States Attorneys, International Association of Chiefs of Police, and Major County Sheriffs’ Association) sent a joint letter claiming the clause could create regulatory loopholes and hinder enforcement actions against mixers and cross-chain bridges.
• Anti-human trafficking organizationsand 80 Catholic leaders also urged lawmakers to reconsider the wording.
• The Crypto Industry, however, views Section 604 as a non-negotiable bottom line for supporting the legislation. More than 60 prominent crypto founders signed a joint letter to apply pressure.

2.3 An Unresolved Fate

As of July 2026, the CLARITY Act faces a triple dilemma:

1. Narrow Legislative Window: Less than three weeks remain before Congress’s August summer recess.
2. Shift in Trump’s Focus: The mid-term election-related Save America Acthas taken priority for the White House.
3. Intense Internal Squabbling: Ethics clauses (restricting business ties between government officials and the crypto industry, which involve the Trump family) remain unresolved.

Galaxy Research has downgraded the probability of the bill passing this year to 50%.

3. Deep Impact on Token Pricing and Market Structure

3.1 “Killing 90% of Tokens” — The Collapse of Valuation Logic

The impact of the CLARITY Act on token valuation logic may be the most profound and underestimated aspect of the bill.

Most tokens issued in the last cycle (such as UNI, AAVE, MORPHO, PENDLE, OP, ARB, etc.) find themselves in an awkward position: they do not fully meet the rigorous decentralization standards of a “digital commodity,” nor can they be clearly categorized as “investment contract” securities. The act forces projects to pick a side; ambiguity is no longer an option.

Once a token is locked in as a “digital commodity,” holders cannot legally share in protocol revenues through token ownership. Because the CFTC regulates commodities like oil and gold, no one expects quarterly dividends just for holding them.

This effectively shakes the three pillars of token valuation:

Valuation PillarLevel of ImpactReasonSpeculative PremiumSeverely WeakenedTaking away the expectation of legal revenue sharing removes the valuation’s foundation.Governance PremiumSignificantly DroppedFor protocols that cannot return value, voting rights lose practical meaning.Utility DemandPartially RetainedOnly remains effective for a few token designs (e.g., fee discounts).

3.2 Protocol Adaptation Strategies

Strategy 1: Buyback & Burn

This is currently the most mainstream and legally safe approach. Uniswap (late 2025) directed 17% of swap fees toward buying back UNI; Aave (2026) directed 100% of protocol revenue toward buying back AAVE.

The legal logic is that capital appreciation is not revenue distribution. It is much harder for the SEC to attack a buyback than a direct dividend.

However, the problem remains — even though GMX and Metaplex’s buyback programs burned 6.5% to 12.9% of their total supply, their token prices still dropped by over 70%. Buybacks are a “safe option,” not a cure-all.

Strategy 2: Dual-Layer Compliance Structure

Building a permissioned access layer on top of a base permissionless layer:

• Original Layer: Remains permissionless and KYC-free, with tokens continuing to execute Buyback & Burn.
• Compliant Access Layer: Verified holders enjoy the legal right to share in protocol revenue.

This approach introduces a new issue: the same token carries different legal meanings on different layers. This inconsistency could prove more legally troublesome than direct revenue distribution.

3.3 Synergy of Three Acts: The Digital Extension of Dollar Hegemony

The CLARITY Act, the GENIUS Act (Stablecoin Act), and the Anti-CBDC Surveillance State Actcomplement each other:

1. The GENIUS Act sets rules for stablecoin issuance $\rightarrow$Extending the US Dollar’s reach into the crypto world.
2. The CLARITY Act clarifies the overall regulatory framework $\rightarrow$Clearing compliance hurdles for institutional entry.
3. The Anti-CBDC Actkills off a digital dollar $\rightarrow$Solidifying the dominant position of private stablecoins (which are backed by US Dollar assets).

The ultimate winner is the US Dollar system.Through layers of nested legislation, the long-arm mechanism of the US Dollar, anchored by stablecoins, is reinforced. Stablecoins are pegged to US assets, acting as the unit of account and medium of exchange in the crypto market. This effectively reshapes US Dollar hegemony in the digital realm while boosting demand for US Treasuries and alleviating domestic debt pressures.

3.4 Market Reaction and the Arrival of the Institutional Era

During the “Crypto Legislation Week” in July 2025:

• Bitcoin broke past 123,000 USD.
• ETH surged to 3,790 USD.
• SOL climbed to 189 USD.
• Coinbase stock soared above 400 USD.

The more profound implication is the formal arrival of the institutional era. The CLARITY Act opens an institutional track for large centralized exchanges. DeFi projects must either integrate into the system to enjoy compliance dividends or face marginalization. The stablecoin sector will see an influx of traditional financial institutions (such as Bank of America, JPMorgan Chase, etc.), while offshore issuers like Tether face the dual challenges of compliance and fierce competition.

4. Summary and Outlook

The CLARITY Act represents a paradigm shift in the US from “regulation by enforcement” to “clear rules,” but its legislative journey remains mired in political jockeying. In July 2026, the bill stands at a critical crossroads — if it fails to clear the Senate before August, it will likely die as the mid-term election cycle takes over.

For industry participants, regardless of whether the bill ultimately passes, the regulatory logic it introduces has permanently altered token pricing and compliance expectations. Future alpha may no longer reside in finding the fastest-growing protocol, but rather in identifying those that have figured out how to link token value to business performance while withstanding strict legal scrutiny.