Non-native digital tokens could remain classified as securities under proposed U.S. legislation on digital assets, potentially altering their status and regulatory treatment.
In a significant move towards clarity and certainty in the digital asset industry, the Digital Asset Market Clarity (CLARITY) Act of 2025 was introduced by House Financial Services Committee Chair French Hill. This bipartisan bill aims to establish a clear, functional framework for regulating digital assets in the U.S., ending years of ambiguity.
The CLARITY Act introduces a novel classification system for digital assets, replacing the traditional Howey Test used to determine securities status. The new system classifies digital assets based on their degree of decentralization, with native blockchain tokens treated as digital commodities if sufficiently decentralized.
One of the key regulatory impacts of the CLARITY Act is the clear division of jurisdiction. The Act assigns the Securities and Exchange Commission (SEC) authority over digital securities and the Commodity Futures Trading Commission (CFTC) over digital commodities, reducing confusion about which agency oversees which assets.
The Act also introduces new intermediary categories under the CFTC, such as Digital Commodity Exchanges (DCEs), Brokers (DCBs), and Dealers (DCDs), for smoother regulatory transitions.
Non-native tokens that operate as investment contracts—i.e., investments depending on third-party efforts—are classified as securities under SEC jurisdiction. In contrast, fully decentralized native tokens are considered digital commodities regulated by the CFTC.
The CLARITY Act allows initial token sales (ICOs/IDOs) to avoid securities registration if issuers commit to decentralization within a set timeline, supporting compliant capital formation.
The Act also enables banks to custody native digital assets more efficiently by overriding previous accounting rules and clarifying the regulatory treatment of decentralized finance functions.
It is worth noting that the CLARITY Act does not address stablecoins, bank deposits, securities derivatives, pooled investments, collectibles, goods, or other non-commodities. Additionally, the exemption for primary sales of digital commodities applies only to mature blockchain systems, where four years have passed since the first sale and certain issuance and ownership conditions are met.
The CLARITY Act has garnered support from five Republican co-sponsors and three Democrats, indicating a broad bipartisan consensus on the need for clear regulation in the digital asset space. The Act prioritizes consumer protection and American innovation.
However, some argue that the CLARITY Act may inadvertently encourage blockchain proliferation as projects seek the lighter regulatory treatment afforded to digital commodities, potentially leading to the classification of non-native tokens as securities.
The CLARITY Act covers blockchain-linked digital assets and includes provisions for the registration of digital commodity brokers, dealers, and exchanges with the CFTC. The SEC will also play a role in implementing certain parts of the rulemaking for the CLARITY Act.
Overall, the CLARITY Act's functional approach shifts regulation from a one-size-fits-all securities test to a nuanced classification tied to a token's decentralization and blockchain integration. This clarifies that non-native tokens which operate as investment contracts remain securities, while decentralized native tokens are classified as commodities, fostering innovation and regulatory certainty. This framework also aligns U.S. rules with international crypto regulations, maintaining global competitiveness.
- The CLARITY Act introduces a novel classification system for digital assets, categorizing them based on their degree of decentralization, with native blockchain tokens treated as digital commodities if sufficiently decentralized.
- The Act allows initial token sales (ICOs/IDOs) to avoid securities registration if issuers commit to decentralization within a set timeline, supporting compliant capital formation.
- The CLARITY Act has garnered support from five Republican co-sponsors and three Democrats, indicating a broad bipartisan consensus on the need for clear regulation in the digital asset space.
- The Act covers blockchain-linked digital assets and includes provisions for the registration of digital commodity brokers, dealers, and exchanges with the CFTC.
- The CLARITY Act's functional approach shifts regulation from a one-size-fits-all securities test to a nuanced classification tied to a token's decentralization and blockchain integration, fostering innovation and regulatory certainty in the retail business sector, finance, and technology industries while prioritizing consumer protection.
