What is the CLARITY Act?
In a long-awaited move, Congress is stepping decisively into the crypto conversation with Crypto Week, a landmark moment that could reshape the future of digital assets in the United States. At the heart of the legislative spotlight lies the CLARITY Act, short for the Digital Asset Market Structure Clarity Act, designed to bring much-needed definition to a fragmented and often contentious regulatory landscape.
The CLARITY Act, which is based on the 21st Century Financial Innovation and Technology Act and is a market structure bill, aims to answer a long-debated question: Who regulates crypto in the United States — the Securities and Exchange Commission (SEC), or the Commodities Futures and Trading Commission (CFTC)?
It was introduced on May 29, 2025, by Representative French Hill, a Republican from Arkansas who serves as chair of the House Financial Services Committee. The key provisions of the act include:
- Defines digital assets clearly: Establishes consistent legal definitions for terms such as blockchain, digital asset and digital commodity, in order to avoid confusion.
- Splits oversight between SEC and CFTC: Assigns regulatory roles based on how a digital asset is used. For instance, SEC handles investment offerings (e.g., tokens initially offered as part of investment contracts), CFTC handles commodities and trading (e.g., if a token is decentralized and used primarily for utility or exchange).
- Creates “investment contract assets”: Allows certain tokens that started as securities to later be treated as commodities if they become decentralized.
- Requires crypto businesses to register: Exchanges, brokers and dealers dealing with digital commodities must register with the CFTC or risk penalties.
- Allows limited fundraising without SEC registration: Projects can raise up to $75 million annually under disclosure requirements if their blockchain aims to become decentralized.
- Defines mature blockchain systems: A blockchain is considered mature if no single person or group controls it, enabling lighter regulation.
- Protects self-custody rights: Individuals are guaranteed the right to hold and use digital assets in their own wallets without needing a bank or intermediary.
- Requires ongoing project disclosures: Issuers must share regular updates about blockchain development, token supply, financials, and project risks.
- Establishes delisting rules for unsafe tokens: The SEC and CFTC will create a joint process to remove noncompliant or risky digital assets from trading platforms.
- Preserves existing financial laws: Clarifies that the Act doesn’t change how traditional financial products like futures, swaps, and securities are regulated.
- Includes international coordination and AML compliance: Encourages cooperation with global regulators and expands anti-money laundering rules to include crypto entities.
These provisions are meant to eliminate confusion around digital asset classification and create a more predictable compliance environment for crypto businesses and investors.
Did you know? Under the CLARITY ACT, projects can use a streamlined path to raise capital through token sales, but only if they meet strict conditions like using a functional blockchain within 12 months and showing decentralization progress.
Why does the CLARITY Act matter?
The CLARITY Act’s goal is to replace ambiguity with structure and finally unlock regulatory harmony in the US.
For years, the crypto industry has been caught in a regulatory gray zone. Token projects, exchanges and investors have struggled with inconsistent enforcement actions, unclear rules and lawsuits that span federal courts.
The SEC’s enforcement-first approach, including high-profile lawsuits against major exchanges, has drawn criticism for stifling innovation and offering little proactive guidance. At the same time, the CFTC has shown interest in overseeing crypto derivatives and commodities but lacked authority over spot markets.
The CLARITY Act addresses this head-on by:
- Defining jurisdiction boundaries.
- Allowing digital asset companies to register under appropriate frameworks.
- Promoting legal certainty in secondary market trading.
Who benefits from the CLARITY act?
- Crypto companies: Startups and large platforms alike benefit from predictable oversight. With fewer regulatory surprises, projects can focus on innovation, product development, and expansion.
- Institutional investors: Clarity encourages greater institutional participation. Funds, banks and asset managers are more likely to engage with digital assets when compliance frameworks are clear and stable.
- Retail investors: Individual users gain stronger protections, better disclosure standards, and more confidence in the legitimacy of token projects and exchanges.
- US innovation: The act helps position the United States as a global leader in digital finance, countering the regulatory advancements made by jurisdictions like the EU, Singapore, and the UAE.
The act also aligns with growing public support for digital financial services, especially as decentralized finance (DeFi), non-custodial wallets, and blockchain applications gain traction among everyday users.
Did you know? While often crypto-friendly, SEC Commissioner Hester Peirce warns that token classification shouldn’t exempt digital assets from securities law. She argues that many projects still involve investor funding and central control, meaning they should remain under SEC scrutiny, even if tokens later become tradable or decentralized.
Criticisms faced by the CLARITY Act
AFR, Hester Peirce, Timothy Massad, Elizabeth Warren and top Democrats all criticize the CLARITY Act for weakening SEC oversight, creating regulatory confusion, and enabling Big Tech to sidestep investor protections.
Here’s why critics say the CLARITY Act puts investors at risk:
- Consumer groups say it weakens SEC oversight: Consumer advocacy group Americans for Financial Reform (AFR) argues the CLARITY Act would reduce the SEC’s power to protect retail investors. AFR slammed the Act as even more deregulatory than FIT 21, introduced in 2024. By classifying many tokens as commodities, the bill could allow high-risk crypto products to avoid strict securities regulations, potentially increasing scams and losses in the broader crypto market.
- Former CFTC chair says bill adds confusion: Timothy Massad, former chair of the CFTC, has criticized the Act for complicating rather than simplifying regulation. He says the bill’s dual-oversight approach might deepen confusion about which agency enforces what, especially in fast-evolving crypto markets, and urges stronger coordination between the SEC and CFTC.
- Elizabeth Warren fears big tech exploitation: Senator Elizabeth Warren has warned that the CLARITY Act could allow large companies, such as Meta or Tesla, to sidestep the SEC entirely by issuing crypto tokens classified as commodities. She argues this opens the door to unregulated corporate fundraising, diminishing transparency and investor accountability.
- Democratic lawmakers oppose oversight shift: Top Democrats like Representatives Maxine Waters and Angie Craig have voiced opposition to the bill, arguing it shifts too much power away from the SEC. They believe the current proposal favors crypto industry interests over retail investor safety and could reduce regulatory accountability across financial markets.
Did you know? A new classification called “restricted digital assets” is introduced by the CLARITY ACT, limiting their resale unless specific criteria are met, aiming to prevent unregulated secondary market trading.
Congress Crypto Week July 2025 and what’s next?
The CLARITY Act is being debated during Washington’s ‘Crypto Week,’ a period focused on digital asset policy with several bills under review.
This synchronized legislative push shows that lawmakers are increasingly viewing digital assets as a strategic sector that requires thoughtful rules rather than reactive enforcement.
Officially introduced as H.R. 3633, the CLARITY Act has already been approved by both the House Agriculture Committee and the House Financial Services Committee. If the CLARITY Act passes in the House, it faces scrutiny in the Senate, where support is growing but not guaranteed.
However, cryptocurrency-related bills backed by US President Donald Trump, including the GENIUS Act regulating stablecoins, failed to pass a key procedural vote in the House of Representatives. Despite Trump urging Republicans to support the measures, at least 13 opposed the resolution. The GENIUS Act had earlier passed the Senate with bipartisan backing.
In response to Republican-backed crypto legislation, Democratic leaders launched an “anti-crypto corruption week” calling for amendments to include consumer protections and ethical safeguards. They aim to prevent the president, vice president, and members of Congress from holding or promoting cryptocurrencies, citing potential conflicts of interest. The push follows scrutiny of Trump’s ties to a family-backed crypto firm, raising concerns about foreign influence and ethical violations related to stablecoin legislation.
Meanwhile, the White House has maintained a cautiously optimistic stance but is expected to push for revisions through executive agencies should the bills move forward.
However, even in its current form, the bill marks a major milestone:
- It codifies key definitions in federal law.
- It outlines actionable paths for compliance.
- It reduces legal risk for innovators and investors.
Whether signed into law in 2025 or adjusted over the coming months, the CLARITY Act’s impact will be felt long after Crypto Week ends.
In a sector that thrives on trust and technology, regulatory clarity is the foundation upon which the next generation of digital finance will be built.
