The biggest uncertainty in the future of encryption: Can the CLARITY Act pass through the Senate?

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Original | Odaily Planet Daily (@OdailyChina)

Author | Azuma (@azuma_eth)

Overseas cryptocurrency media Decrypt reported this morning that sources revealed to them that several representatives from Wall Street and the cryptocurrency industry held an offline closed-door meeting yesterday to address disagreements over the upcoming Senate review of the cryptocurrency market structure bill (known as CLARITY).

This closed-door meeting had not previously been publicly disclosed, but according to Decrypt, the main trade organization on Wall Street, the Securities Industry and Financial Markets Association (SIFMA), participated in the talks. SIFMA had previously opposed the core provisions of the CLARITY bill, including explicitly opposing regulatory exemptions for DeFi and other decentralized financial services and their developers. Sources said that the discussions yesterday on issues like DeFi regulation were “constructive” and “highly effective.”

Breakdown of the core content of CLARITY

CLARITY stands for “Digital Asset Market Clarity Act of 2025.” The bill was initially jointly introduced on May 29, 2025, by French Hill, Chair of the House Financial Services Committee, and G.T. Thompson, Chair of the Agriculture Committee. The bill aims to establish a regulatory framework for digital assets, clearly define categories of digital assets, and delineate the regulatory responsibilities of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

Top law firm Arnold & Porter provided a detailed interpretation of the bill’s provisions. Specifically, CLARITY seeks to categorize digital assets into three clear types — digital commodities, investment contract assets, and compliant payment stablecoins.

“Digital commodities” are digital assets inherently linked to blockchain systems, with their value directly dependent on the functionality or operation of the blockchain, or on activities or functions served when the blockchain is created or used. In other words, the value of such digital assets must rely on the blockchain network’s core functions, such as payments, governance, on-chain service access, incentives, etc. Notably, the bill explicitly excludes securities, derivatives, stablecoins, and other financial instruments from the definition of “digital commodities.”

“Investment contract assets” are digital commodities that meet all of the following conditions: one, they can be exclusively held and transferred peer-to-peer without intermediaries; two, they are recorded on the blockchain; three, they have been or are planned to be sold or transferred under an investment contract (i.e., for financing purposes). This means that if a digital asset is sold in a financing scenario (such as an ICO), it will be classified as an investment contract asset and regarded as a security, falling under SEC regulation. At the same time, CLARITY also separates these investment contract assets from the traditional “investment contract” definition under U.S. securities law.

However, the security attribute of investment contract assets is “temporary.” Once the digital asset is resold or transferred by the issuer or an agent outside of the original sale, it will no longer be considered a security, even if initially issued as an investment contract asset. In other words, when such assets are traded on the secondary market, they no longer meet the definition of investment contract assets and are regarded as pure digital commodities.

“Compliant payment stablecoins” refer to digital assets that meet the following conditions: one, designed for payments or settlement; two, denominated in a fiat currency; three, issued by entities regulated and supervised by state or federal authorities; four, obligated to be redeemed at a fixed monetary value.

Odaily note: Compared to the classification based on commodity and security attributes, stablecoin-related content is not the core focus of the CLARITY bill, but it is one of the current points of contention. Previously, the GENIUS Act, which passed both chambers and was signed by Trump, tacitly permitted yield-bearing stablecoins pegged to the dollar, while SIFMA and banking lobbying groups hope to eliminate such stablecoins through CLARITY.

Based on this classification, CLARITY also clarifies the regulatory responsibilities of the SEC and CFTC.

Specifically, CLARITY grants CFTC exclusive jurisdiction over fraud and manipulation enforcement for digital commodities (including cash or spot trading), and requires intermediaries handling digital commodities — including the currently dominant cryptocurrency exchanges and other brokers and dealers — to register with the CFTC.

For the SEC, CLARITY grants it exclusive jurisdiction over issuers and issuance activities of investment contract assets, including registration, disclosure, and ongoing reporting obligations. The SEC will also maintain anti-fraud and anti-manipulation authority over digital commodity transactions conducted on SEC-registered brokers, dealers, or national securities exchanges.

Regarding compliant payment stablecoins, their issuers will primarily be regulated by banking authorities, but both the CFTC and SEC will retain anti-fraud and anti-manipulation jurisdiction over transactions on their registered platforms.

What is the significance of CLARITY?

Overall, CLARITY aims to establish a clear, functional federal regulatory framework for the U.S. digital asset market, addressing long-standing issues of regulatory ambiguity and inconsistent enforcement.

Over the past five years, the regulatory landscape of U.S. cryptocurrency has been shaped by the ongoing power struggle between the SEC and CFTC.

During Gary Gensler’s tenure as SEC Chair, the agency’s stance was that “the vast majority of digital assets are securities,” primarily based on the Howey Test established by the U.S. Supreme Court in 1946. The SEC argued that most token sales constitute investment contracts and should be regulated under federal securities laws. This interpretation laid the groundwork for aggressive enforcement, with the SEC launching dozens of high-profile actions against token issuers, exchanges, and related service providers.

In contrast, the CFTC prefers to view some digital assets as commodities, especially those with higher decentralization and no direct profit generation. Although the CFTC has sought to expand its regulatory role in the crypto market and repeatedly warned that the current regulatory vacuum could threaten market integrity, existing Commodity Exchange Act restrictions limit its authority mainly to anti-fraud and anti-manipulation enforcement in spot markets.

The ongoing jurisdictional competition between the SEC and CFTC has left market participants and developers in a gray area — unsure whether their products or services fall under securities or commodities regulation. CLARITY is a legislative response to this deadlock, aiming to establish a stable, clear, and long-lasting division of responsibilities between the two agencies.

For the crypto industry, the implementation of CLARITY will mean a substantial shift in the regulatory environment, providing more predictable compliance pathways. Market participants will be able to clearly identify which activities, products, and transactions are regulated, reducing long-term regulatory uncertainty, litigation risks, and friction, thereby attracting more innovators and traditional financial institutions.

In terms of market impact, while breakthroughs in CLARITY at key moments (such as recent Senate hearings) could trigger short-term positive news, its longer-term effect lies in making cryptocurrencies a “more easily allocable asset class” for traditional capital. By resolving institutional uncertainties, it will enable long-term capital that was previously unable to enter to do so compliantly, raising the overall market valuation floor.

What is the progress of CLARITY? What are the obstacles?

On July 17 last year, CLARITY was passed in the U.S. House of Representatives with an overwhelming majority (about 294–134 votes). Unlike the similarly progressing GENIUS Act, CLARITY faced resistance during the subsequent transfer to the Senate due to disagreements among various factions.

Overall, the main disagreements around CLARITY focus on DeFi regulation, yield-bearing stablecoins, and ethical standards related to the Trump family.

Among these, the regulation of DeFi is the most sensitive point of contention. Advocates in the crypto space want to protect developers and open-source software, arguing that code should not be considered a regulated financial intermediary. Wall Street, however, is concerned about money laundering, sanctions evasion, and national security risks, insisting that such protections are too broad and could pose risks, thus demanding DeFi be brought under traditional financial regulation.

Another major disagreement concerns yield-bearing stablecoins. As mentioned earlier, the GENIUS Act tacitly permitted such stablecoins, but major U.S. banks have actively lobbied to ban stablecoin issuers from transferring reserve assets (like government bonds) to holders, to prevent this window from draining deposits from traditional banks. The crypto industry clearly opposes such restrictions, criticizing bank protectionism and emphasizing that GENIUS already addressed regulatory and licensing issues related to stablecoins, making further discussion unnecessary.

Due to these ongoing disagreements, the bill was initially scheduled for review in mid-2022 but was postponed to October, then pushed to the end of the year, and subsequently delayed until 2026… Until this Tuesday, Senate Banking Committee Chair Tim Scott officially announced that the committee will vote on the bill on January 15.

Tim Scott is a Republican senator from South Carolina. Although the crypto industry generally considers the schedule too rushed and believes it may jeopardize the bill’s approval this year, Scott insists on this timetable. In an interview with Breitbart, he said: “I think we need to make a public statement and vote. So, next Thursday, we will vote on CLARITY. Over the past six months, through relentless efforts, we have ensured every member of the committee has seen multiple drafts.”

The current situation is that the vote next week will determine whether CLARITY can pass the Senate Banking Committee — a crucial step before it is submitted to the full Senate for debate. Only if it gains bipartisan support in the committee can it have a chance to pass the Senate. However, based on multiple reports, it remains unclear whether the bill has enough votes to pass the committee.

While the closed-door meeting mentioned at the beginning of this article brought some positive news, it is not enough to guarantee smooth passage in next week’s vote. A representative from the crypto industry even bluntly said: “I can’t believe we’re finally seeing Democrats and Republicans actively working together on something, and we might still kill it because of a loose schedule.”

Wintermute OTC head Jake Ostrovskis also looked at the longer-term timeline for CLARITY’s passage into the Senate: “The market generally believes that April is the last realistic deadline for a full Senate vote (before the midterm election turbulence erupts), and for that to happen, the SEC and CFTC need to reach an agreement on the amendments by the end of January. This process is likely to become more politicized, so as developments unfold, there will probably be related news reports throughout January.”

In summary, next week’s Senate Banking Committee vote will mark the start of CLARITY’s journey through the legislative process. While the current situation remains uncertain, a clear directional expectation will emerge soon.