On January 13, the US Senate Banking Committee released the full text of the long-awaited Digital Asset Market Transparency Act (CLARITY) ahead of expected price increases this week.
The 278-page draft abandons the strategy of picking winners on a token-by-token basis. Instead, build a comprehensive “lane system” that assigns jurisdiction based on the functional lifecycle of a digital asset.
Senate Banking Committee Chairman Tim Scott said of the bill:
“(This bill) gives ordinary Americans the protections and certainty they deserve. Investors and innovators cannot wait forever while Washington stands still and bad actors exploit the system. This legislation will put Main Street first, crack down on criminals and foreign adversaries, and protect our financial future here in the United States.”
The proposal comes at a critical time for the industry.
Matt Hogan, chief investment officer at Bitwise, described the bill as “the Punxsutawney Phil of this crypto winter,” noting that if passed and signed into law, the market could “hit new all-time highs.”
Prediction market crypto bettors in particular appear to be optimistic, with Polymarket users currently expecting an 80% chance of the CLARITY Act being signed into law this year.
But senators have only 48 hours to propose amendments, and the clock is ticking.
SEC vs CFTC
The core of the draft law is to create a legal bridge between the two major 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 that is often debated in legal circles. That is, tokens sold on promoter promises may initially look like securities, but as control is decentralized they can evolve into commodity-like network assets.
To operationalize this, the bill defines “ancillary assets.” This category includes network tokens whose value depends on the “entrepreneurial or managerial efforts” of the originator or “parties.”
The law directs the SEC to specify exactly how to apply these concepts through rulemaking, effectively giving it front-end oversight of crypto projects.
If a token falls into this lane, the draft would lean heavily toward an SEC-driven disclosure regime that mirrors equity standards.
The list of required disclosures is extensive and intentionally “public company-like.” The law requires issuers to provide financial statements that must be reviewed and audited depending on the amount raised.
It also requires ownership details, records of related party transactions, token distribution, code audits, and tokenomics. Additionally, issuers must provide market data such as average price and high/low price.
However, the bill provides a clear handover by repeatedly anchoring the definition of “digital goods” in the Commodity Exchange Act.
Treats the CFTC as the relevant regulatory authority for market plumbing and requires the SEC to notify sister agencies of certain certifications.
Simply put, the SEC regulates “promoter” questions (disclosure, fraud protection, financing). The CFTC, on the other hand, oversees trading venues and intermediaries that handle assets traded as commodities.
The framework also imposes strict investor protection rules on intermediaries themselves.
The draft law states that the best interest regulation would apply to broker-dealer recommendations related to digital products, and that the fiduciary duties of investment advisers would extend to advice regarding these assets.
This ensures that even though Bitcoin and Ethereum are commodities, brokers selling them to retail investors do not get a regulatory free pass regarding suitability or conflicts of interest.
ETF Fastpass and Staking Clarity
For market participants holding major assets, the most immediate impact will arise from certain carve-outs related to exchange traded products (ETPs).
The text states that a network token is not ancillary asset if, as of January 1, 2026, a unit of the network token is the principal asset of a publicly traded product listed on a registered national securities exchange.
This provision avoids years of litigation and SEC debate over decentralization and serves as a functional gateway to commodity status. In practice, this “ETF gatekeeping” clause captures Bitcoin and Ethereum given their established footprint.
This means that digital assets such as XRP, Solana, Litecoin, Hedera, Dogecoin, and Chainlink that have achieved this status will be treated the same as BTC and ETH.
Beyond asset classification, this draft provides significant relief to the Ethereum ecosystem regarding staking.
The draft law addresses persistent concerns that staking rewards could be classified as securities income by defining them as “free distributions.”
The bill explicitly includes multiple staking pathways in this definition, covering self-staking, third-party self-custodial staking, and even liquid staking structures.
This is especially noteworthy given that the SEC has previously sued companies like Kraken for their staking activities.
Importantly, this text establishes the presumption that a gratuitous distribution is not itself an offer or sale of securities.
Please note that the language regarding “self-custody by a third party” is accurate and applies when a third-party operator does not maintain custody or control of the staked tokens.
This creates a safe lane for non-custodial exchange staking and liquid staking designs, although custodial exchange staking is subject to continued regulatory oversight.
stablecoin yield
The bill also incorporates “stablecoin reward competition” directly into the market structure package.
Section 404 of the Transparency Act appears to have been a victory for the banking sector when it comes to yield-bearing products. The latest document prohibits companies from paying interest or yield solely for holding payment stablecoins.
But legal experts note key differences in how the bill creates a yield economy.
ConsenSys attorney Bill Hughes pointed out that while CLARITY intentionally allows stablecoins to be used to generate yield, it draws a clear legal line between “stablecoins” and “yield products.”
The bill adopts the GENIUS Act’s definition of a “payment stablecoin” and requires such coins to be fully backed, redeemable at par, and used for payments without entitlement to the holder to receive interest or profits from the issuer.
This would mean that tokens like USDC would no longer pay yield just by holding them, and would be classified as illegal securities or shadow banking products.
However, Title IV includes a section on “maintaining rewards for stablecoin holders.”
This allows users to earn money by leveraging their stablecoins in other systems such as DeFi lending protocols, on-chain money markets, and custodial interest accounts.
Under this framework, stablecoins will still be payment instruments, and the “wrapper” or yield-producing product (as a security, commodity pool, or banking product) will be a regulated financial entity.
This architecture effectively prevents regulators from classifying stablecoins as securities simply because they can be used to earn interest. Thus, the viability of the DeFi yield economy is maintained on top of “boring” payment tokens.
DeFi safe harbor
The new draft also addresses controversial issues regarding decentralized finance (DeFi) interfaces.
Hughes noted that the bill moves away from a simple “wallet vs. website” debate and instead establishes a “controls test” to determine regulatory obligations.
According to the text, a web interface is legally treated as just software (and therefore not subject to broker-dealer registration) if it does not hold users’ funds, manage private keys, or have the authority to block or reorder trades.
This creates a statutory safe harbor for non-custodial platforms such as Uniswap, 1inch, and MetaMask’s Swap UI. It classifies them as a software publisher rather than a financial intermediary.
On the contrary, this bill will strictly regulate businesses that have a controlling interest.
A website is classified as a broker or exchange if it can move funds, perform batch trades, or route orders through its own liquidity without a user’s signature.
This captures centralized entities such as Coinbase and Binance, as well as custodial bridges and CeFi revenue platforms.
There are still pending issues
Despite some optimism, the bill’s announcement sparked a “mad scramble” among legal experts to identify critical flaws before the 48-hour deadline for amendments closes.
Jake Cherbinski, chief legal officer at Valiant Funds, said lobbyists and policy experts are racing to address “many” important issues before the price increase deadline.
According to him:
“A lot has changed since the draft released in September, and the devil is in the details. Amendments are due by 5pm ET, so today we’re busy identifying key issues to fix in the markup. Sadly, there are a lot of issues.”
Some critics, however, argue that the bill poses an existential threat to privacy and decentralization.
Independent Senate candidate Aaron Day said the trade surveillance mandate was a page out of “NSA playbook.”
Day emphasized the provision of “universal registration,” which would require exchanges, brokers, and even “parties” to register, effectively eliminating the concept of anonymous participation. He also referred to the duties of a “government custodian,” arguing that self-custody for regulated activities would effectively become illegal.
he said:
“DeFi will be strangled in its crib while BlackRock and Wall Street will get a clear doorway. The SEC and CFTC will get expanded empires and new revenue streams. Be watched, tracked, and controlled.”
Beyond privacy concerns, reports indicate that the industry faces two specific policy hurdles in the latest draft.
Crypto journalist Sander Lutz reported that stablecoin yield language has left both banks and crypto proponents dissatisfied.
Banks appear to have secured a ban on interest on stablecoin holdings, but loopholes around “activity rewards” and loyalty programs remain unclear.
Lutz also noted that the Senate Banking Committee’s “unanticipated addition of a section on DeFi caught industry lobbyists by surprise.”
He said the section’s new definition could bring decentralized protocols into a strict regulatory framework.
Move forward with voting on the CLARITY Act
The political situation remains fluid as the Senate Banking Committee moves toward raising the Transparency Act.
The bill passed the House of Representatives last year, but negotiators are interested in incorporating banking sector priorities, such as limiting self-hosted wallets and banning CBDCs.
With the Senate superseding document effectively resetting the terms of engagement, the industry is watching to see whether the bill ultimately signals an early spring in U.S. crypto regulation.
However, Lutz noted that current frictions are dimming the outlook for some insiders.
He reported that an anonymous industry source described the bill’s current potential as “NGMI” (not going to happen).
He said the source cited not only structural disagreements, but also persistent conflicts between Senate Democrats and the White House over language regarding ethics and conflicts of interest.