On Jan. 13, the US Senate Banking Committee released the full text of the highly anticipated Digital Asset Market Clarity Act (CLARITY) ahead of its expected markup this week.
The 278-page draft abandons the strategy of picking winners on a token-by-token basis. Instead, it constructs a comprehensive “lane system” that assigns jurisdiction based on the functional lifecycle of a digital asset.
Speaking on the legislation, Senate Banking Committee Chairman Tim Scott said:
“[This legislation] gives everyday Americans the protections and certainty they deserve. Investors and innovators can’t wait forever while Washington stands still, and bad actors exploit the system. This legislation puts Main Street first, cracks down on criminals and foreign adversaries, and keeps the future of finance here in the United States.”
The proposal arrives at a pivotal moment for the industry.
Matt Hougan, Chief Investment Officer at Bitwise, described the legislation as the “Punxsutawney Phil of this crypto winter,” noting that if the bill passes and is signed into law, the market could be “heading to new all-time highs.”
Notably, crypto bettors on prediction markets appear optimistic, with Polymarket users currently assigning the CLARITY Act an 80% chance of being signed into law this year.
However, the clock is ticking, as Senators have a tight 48-hour window to propose amendments to the text.
SEC vs CFTC
The core of the draft creates a legislative bridge between the two primary US market regulators, including the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
The Clarity Act revives and codifies a policy distinction often debated in legal circles: that tokens sold with a promoter’s promise may begin their life looking like securities but can evolve into commodity-like network assets as control disperses.
To operationalize this, the bill defines an “ancillary asset.” This category covers network tokens whose value relies on the “entrepreneurial or managerial efforts” of an originator or a “related person.”
The legislation directs the SEC to specify exactly how to apply those concepts through rulemaking, effectively giving the agency the front-end oversight of crypto projects.
Once a token falls into this lane, the draft leans heavily into an SEC-led disclosure regime that mirrors public equity standards.
The required disclosure list is extensive and intentionally “public-company-ish.” It mandates that issuers provide financial statements that must be reviewed or audited, depending on the size of the raise.
It also requires ownership details, records of related-party transactions, token distributions, code audits, and tokenomics. Additionally, issuers must provide market data such as average prices and highs/lows.
However, the bill provides a clear handoff by repeatedly anchoring the definition of a “digital commodity” to the Commodity Exchange Act.
It treats the CFTC as the relevant counterpart regulator for the market plumbing, requiring the SEC to notify its sister agency of certain certifications.
Put simply, the SEC regulates the “promoter” questions (disclosure, anti-fraud, and fundraising). On the other hand, the CFTC oversees trading venues and intermediaries that handle the assets once they are traded as commodities.
This framework also imposes strict investor protection rules on intermediaries themselves.
The draft states that Regulation Best Interest applies to broker-dealer recommendations involving digital commodities and that investment advisers’ fiduciary duty extends to advice on these assets.
This ensures that even if Bitcoin and Ethereum are commodities, the brokers selling them to retail investors do not get a regulatory free pass regarding suitability and conflicts of interest.
The ETF’s fast pass and staking clarity
For market participants holding major assets, the most immediate impact comes from a specific carve-out tied to exchange-traded products (ETPs).
The text states that a network token is not an ancillary asset if its unit has been the principal asset of an exchange-traded product listed on a registered national securities exchange as of January 1, 2026.
This provision serves as a functional on-ramp to commodity status, bypassing years of litigation and SEC debate over decentralization. In practice, this “ETF gatekeeping” clause captures Bitcoin and Ethereum, given their established footprint.
This means that digital assets like XRP, Solana, Litecoin, Hedera, Dogecoin, and Chainlink that have achieved this status would be treated the same as BTC and ETH.
Beyond asset classification, the draft offers significant relief for the Ethereum ecosystem regarding staking.
The draft addresses the lingering fear that staking rewards could be classified as securities income by defining them as “gratuitous distributions.”
The bill explicitly includes multiple staking pathways in this definition, covering self-staking, self-custodial staking with a third party, and even liquid staking structures.
This is particularly noteworthy, given that the SEC previously filed legal actions against firms like Kraken for their staking activity.
Crucially, the text establishes a presumption that a gratuitous distribution is not, by itself, an offer or sale of a security.
The language regarding “self-custodial with a third party” is precise, noting that it applies where the third-party operator does not maintain custody or control of the staked token.
This creates a tailored safe lane for non-custodial and liquid staking designs, though it leaves custodial exchange staking open to continued regulatory scrutiny.
Stablecoin yield
The legislation also incorporates the “stablecoin rewards fight” directly into the market-structure package.
Section 404 of the Clarity Act appears to hand the banking sector a victory regarding yield-bearing instruments. The latest text prohibits companies from paying interest or yield solely for holding a payment stablecoin.
However, legal experts note a critical distinction in how the bill constructs the yield economy.
Bill Hughes, a lawyer at Consensys, noted that CLARITY deliberately allows stablecoins to be used to earn yield, but it draws a bright legal line between “the stablecoin” and “the yield product.”
The bill adopts the definition of a “payment stablecoin” from the GENIUS Act, requiring such coins to be fully backed, redeemable at par, and used for settlement, without giving holders any entitlement to interest or profits from the issuer.
This ensures that a token like USDC cannot pay yield just for holding it, which would classify it as an illegal security or shadow banking product.
Yet, Title IV includes a section on “preserving rewards for stablecoin holders.”
This allows users to earn yield by utilizing stablecoins in other systems, such as DeFi lending protocols, on-chain money markets, or custodial interest accounts.
Under this framework, the stablecoin remains a payment instrument, while the “wrapper” or the yield-generating product becomes the regulated financial entity (whether as a security, commodity pool, or banking product).
This architecture effectively prevents regulators from classifying a stablecoin as a security simply because it can be used to earn interest. Thus, it preserves the viability of the DeFi yield economy atop “boring” payment tokens.
DeFi safe harbors
The new draft also addresses the contentious issue of decentralized finance (DeFi) interfaces.
Hughes pointed out that the bill moves away from a simplistic “wallets vs. websites” debate and instead establishes a “control test” to determine regulatory obligations.
According to the text, a web interface is legally treated as mere software (and thus not subject to broker-dealer registration) if it does not hold user funds, control private keys, or have the authority to block or reorder transactions.
This creates a statutory safe harbor for non-custodial platforms like Uniswap, 1inch, and MetaMask’s swap UI. It classifies them as software publishers rather than financial intermediaries.
Conversely, the bill strictly regulates any operator that possesses control.
If a website can move funds without a user signature, batch trades, or route orders through proprietary liquidity, it is classified as a broker or exchange.
This captures centralized entities like Coinbase and Binance, as well as custodial bridges and CeFi yield platforms.
Pending issues remain
Despite the optimism from some quarters, the bill’s release has triggered a “mad scramble” among legal experts to identify critical flaws before the 48-hour amendment window closes.
Jake Chervinsky, the Chief Legal Officer at Variant Fund, pointed out that lobbyists and policy experts are racing to address what he described as “many” critical issues before the markup deadline.
According to him:
“A lot has changed since the draft that came out in September, and the devil is in the details. Amendments are due by 5 pm ET, so it’s a mad scramble today identifying critical issues to fix in markup. Sadly there are many.”
Meanwhile, some critics also argue that the bill introduces existential threats to privacy and decentralization.
Aaron Day, an independent Senate candidate, described the mandatory trade surveillance requirements as taking a page from the “NSA playbook.”
Day highlighted provisions for “universal registration” that would require exchanges, brokers, and even “associated persons” to register, effectively burying the concept of anonymous participation. He also pointed to mandates for “government custodians,” arguing that self-custody for regulated activity effectively becomes illegal.
He said:
“BlackRock and Wall Street get clear on-ramps while DeFi gets strangled in the crib. The SEC and CFTC get expanded empires and fresh revenue streams. You get watched. Tracked. Controlled.”
Beyond privacy concerns, reports indicate the industry faces two specific policy hurdles in the latest draft.
Crypto journalist Sander Lutz reported that the language around stablecoin yield has left both banks and crypto advocates dissatisfied.
While banks appear to have secured a ban on interest for holding stablecoins, loopholes regarding “activity rewards” and loyalty programs remain murky.
Lutz also noted that the Senate Banking Committee’s addition of an “unexpected section on DeFi caught industry lobbyists off guard.
According to him, the section’s new definitions could rope decentralized protocols into strict regulatory frameworks.
CLARITY Act vote ahead
As the Senate Banking Committee moves toward the Clarity Act markup, the political landscape remains fluid.
While the bill cleared the House last year, the inclusion of banking-sector priorities, such as restrictions on self-hosted wallets or prohibitions on CBDCs, remains a point of interest for negotiators.
With the Senate substitute text now effectively resetting the terms of engagement, the industry is watching to see if this bill will finally signal an early spring for US crypto regulation.
However, Lutz noted that the current frictions have led to a darkening outlook among some insiders.
He reported that an unnamed industry source described the bill’s current chances as “NGMI” (not gonna make it).
According to him, the source cited not only structural disagreements but also enduring conflicts between Senate Democrats and the White House regarding ethics and conflict-of-interest language.
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