U.S. "Cryptocurrency Market Structure Legislation" Hearing Soon: An In-Depth Explanation of the Core Points of the CLARITY Act and Its Potential Market Impact

Article by: Glendon, Techub News

The highly anticipated “Cryptocurrency Market Structure Legislation” hearing is set to commence tomorrow. As a milestone bill in the US digital asset regulation process, the legislative progress of the “Digital Asset Market Clarity Act” (CLARITY) has been closely watched by the market.

Currently, Senate Banking Committee Chairman Tim Scott has publicly released a bipartisan negotiated amendment to the CLARITY bill, which spans 278 pages. Tim Scott stated that the bill is the result of months of diligent work, brainstorming, and balancing various concerns within the committee. It is an important negotiation outcome that will provide Americans with the protections and certainty they deserve.

It is worth noting that a detailed document obtained by CoinDesk listing the provisions shows that US senators have submitted over 75 amendments. These provisions were proposed jointly by Republican and Democratic senators and cover multiple areas, including a comprehensive ban on stablecoin yields, preventing “public officials from profiting from cryptocurrency interests,” and amending the definitions of digital asset mixers and tumblers. During the hearing, lawmakers will discuss each amendment, vote on whether to adopt any of them, and ultimately decide whether to advance the bill.

Before the hearing begins, let’s review the core content and potential impact of the latest draft of the CLARITY bill.

Overall Framework of the CLARITY Bill

To understand the CLARITY bill deeply, it’s essential to clarify its positioning. It is a legislative proposal aimed at establishing a comprehensive federal regulatory framework for the US digital asset market. The overall structure of the bill can be divided into six main areas: regulatory responsibilities, asset classification clarification, consumer protection, fostering innovation, regulation of decentralized finance (DeFi), and combating illegal financial activities, specifically:

• Establishing clear regulatory classifications: Differentiating digital assets as “securities” or “commodities,” providing legal certainty for specific digital assets like “Network Tokens” and “Ancillary Assets” to be treated as non-securities, and delineating regulatory responsibilities between the SEC and CFTC.

• Regulating digital asset issuance and secondary markets: Setting specific disclosure, registration exemptions, and compliance requirements for securities offerings involving digital assets.

• Preventing financial crimes: Incorporating digital asset businesses into anti-money laundering (AML) and counter-terrorist financing (CTF) frameworks under laws like the Bank Secrecy Act, and establishing dedicated fraud prevention and law enforcement cooperation mechanisms.

• Encouraging responsible financial innovation: Allowing regulated banks, credit unions, and other financial institutions to participate legally in digital asset activities, and establishing “regulatory sandboxes” for small innovative firms.

• Regulating DeFi: Providing compliance guidance and risk management requirements for non-fully decentralized financial protocols and distributed ledger applications.

• Protecting consumers and investors: Offering specific consumer protection provisions and disclosure requirements for stablecoin holders, digital asset ATM users, and others.

Core Asset Definitions and Classification Framework

The core of the bill is the creation of a new digital asset definition system, which forms the foundation of the entire regulatory framework. Network Tokens are essentially digital commodities associated with distributed ledger systems, with their value primarily derived from or expected to derive from the use of the system. Under certain conditions, the bill classifies them as “non-securities,” granting them specific treatment under federal securities law.

Ancillary Assets also fall under the category of Network Tokens but have a unique valuation logic, relying on the issuer or related parties’ entrepreneurial efforts to determine value. Their value is largely influenced by ongoing activities of the issuer or affiliates. Although these assets may involve securities issuance (such as investment contracts), the bill sets up a dedicated, simplified disclosure regime and allows registration exemptions within certain scales. Therefore, Ancillary Assets are not directly defined as securities.

For “Digital Assets” and “Digital Commodities,” the bill adopts the definitions from the current Commodity Exchange Act, referring to assets created, recorded, or transferred using distributed ledger technology or similar methods, with transactions primarily regulated by the CFTC. Notably, Network Tokens are explicitly categorized as a subclass of Digital Commodities.

This key innovation provides a clear exit path for Network Tokens to transition from “Ancillary Assets” (partially regulated by the SEC) to “Non-Security Commodities” (regulated by the CFTC) through “classification certification” and “ongoing effort” testing. Simply put, a Network Token initially issued relying on the efforts of the issuer may be considered an Ancillary Asset, subject to SEC disclosure rules. However, once the issuer or related parties cease substantial management efforts, information is publicly available, and the network is sufficiently decentralized, the asset can apply for certification to shed its Ancillary Asset status, allowing it to be traded in the secondary market solely as a Network Token (a pure digital commodity) under CFTC regulation.

SEC-Regulated Ancillary Asset Issuance and Disclosure System

Building on the clear asset definitions and classifications, the CLARITY bill establishes a registration exemption pathway and standardized ongoing disclosure regime for the issuance of “investment contracts” involving Ancillary Assets. The core provisions are mainly in Articles 101-105, adding “Section 4B” to the Securities Act of 1933.

• Disclosure regime: Digital asset offerings that qualify as “Ancillary Assets” and raise more than $5 million from the public or have an average daily trading volume exceeding $5 million must periodically (every six months) submit disclosure reports to the SEC covering basic company information, economic activities, technical details, and risk factors.

• Registration exemption: The bill creates a registration exemption pathway for the issuance of investment contracts involving Ancillary Assets. If issuers meet certain conditions (such as issuance limits, issuer qualifications, and disclosure obligations), they can exempt themselves from full securities registration for offerings up to $50 million per issuance (with a total cap of $200 million).

• Special restrictions: For tokens held by related parties (founders, executives, large holders), restrictions such as lock-up periods (e.g., 12 months before “non-controlled” certification) and sale limits are imposed to prevent insider trading and market manipulation.

In addition, Articles 106-109 include updates on other rules, such as exercise of delegated exemptions, modernization of recordkeeping rules, limited exemptions under state securities laws, and clarifications that digital commodities are not within the scope of investor protection agencies. These updates further refine the digital asset regulatory system.

Preventing Illegal Financial Activities

Under the existing framework of the Bank Secrecy Act, the CLARITY bill enhances the regulation of financial crimes related to digital assets and introduces new risk control measures.

• In Article 201, it amends the Bank Secrecy Act to explicitly include digital commodity brokers, digital commodity trading platforms, and digital commodity exchanges accessible directly by customers as “financial institutions,” imposing AML/CTF obligations such as establishing AML programs, recordkeeping, suspicious activity reporting, and customer identification procedures, in compliance with BSA and OFAC sanctions.

• Articles 203-204 establish the “Prevention of Illegal Financial Partnerships Act” and “Financial Technology Protection Act” frameworks, creating public-private information sharing pilot programs and dedicated working groups to study illegal activities like terrorism and drug trafficking using digital assets, and proposing targeted responses.

• Article 205 proposes the “Digital Asset ATM Fraud Prevention Act,” requiring operators of self-service digital asset kiosks to fulfill strict consumer notification obligations, transaction limits, waiting periods (for new users), and risk screening (using on-chain analysis tools) to prevent scams.

Additionally, the bill emphasizes the importance of the Treasury Department and other agencies researching and reporting on illegal uses of digital assets, stablecoin risks, mixer risks, and foreign adversary activities.

Responsible Innovation in DeFi

As digital asset markets evolve, emerging sectors like DeFi have become focal points. The bill establishes a “DeFi Safe Harbor,” clarifying that non-custodial, private key-controlled, non-interventionist applications are considered pure software, subject to strict regulation of centralized entities but exempt from broker registration, providing space for DeFi innovation. It also addresses compliance management for Ethereum staking, stablecoin yields, ETF listings, and includes risk management and compliance guidance:

• Article 301: Requires the SEC and Treasury to develop rules clarifying how operators of non-decentralized financial protocols (controlled by a single or related party) should register and comply with securities laws and the BSA.

• Article 302: Calls for Treasury guidance on the responsibilities of US-based distributed ledger application layers (such as front-end web apps) to comply with sanctions and AML/CTF obligations.

• Article 305: Provides legal protections for stablecoin issuers and digital asset service providers, allowing them to temporarily freeze transactions suspected of illegal activity upon reasonable suspicion or written law enforcement requests.

• Article 308: Mandates digital asset intermediaries to conduct and disclose risk assessments before using DeFi protocols, establishing monitoring and risk control procedures for fraud, market manipulation, and money laundering.

Promoting Responsible Banking and Regulatory Innovation

The CLARITY bill also opens the door for traditional financial institutions to participate in digital asset activities, explicitly granting statutory authority to regulated depository institutions and financial holding companies. Article 401 authorizes financial holding companies, banks (including national and state-chartered banks), and federal credit unions to engage in a range of digital asset activities, including custody, trading, lending, payments, node operation, wallet software provision, and market making. As long as they comply with existing laws like the National Bank Act and Federal Reserve Act, these activities can be conducted without additional prior approval, greatly simplifying entry into the digital asset space for traditional banks.

Furthermore, Articles 402-403 require the SEC and CFTC to develop joint rules to facilitate cross-securities, futures, swaps, and digital commodity margining, and to push for corresponding capital requirements by banking regulators.

Of particular note, the bill’s measures to prevent “regulatory arbitrage” concerning stablecoins have sparked intense industry debate. Article 404 explicitly bans digital asset service providers from paying interest solely for holding stablecoins to prevent misclassification as deposits. However, it allows rewards linked to specific activities (such as payments, governance, liquidity provision) provided there is clear disclosure and customers are informed that stablecoins are not “deposits” and are not covered by deposit insurance. The goal is to prevent stablecoins from eroding the deposit base of banks (especially community banks), maintaining financial stability.

Beyond the regulations for traditional financial institutions and stablecoins, the bill demonstrates innovative ideas across multiple dimensions, including inter-agency cooperation, research and pilot programs, and enhanced international regulatory collaboration. Article 501 proposes establishing a “CFTC-SEC Micro-Innovation Sandbox,” allowing eligible small US startups (with 25 or fewer employees and annual revenue under $10 million) to test innovative financial products within limited scope and time, with temporary regulatory exemptions or guidance, provided core regulatory objectives and investor protections are maintained.

Misconceptions and Facts about the Bill

As the CLARITY bill approaches review, the Senate Committee’s official website clarified seven major misconceptions and summarized its significance as follows:

Misconception 1: The bill deviates from securities law, weakening investor protections and compliance obligations for digital asset securities. Fact: This is false. The bill is rooted in long-standing securities law principles, clearly defining which digital assets are securities and which are commodities. Entities under the bill’s scope must disclose to the SEC, adhere to resale restrictions, and are protected against evasion. Under this framework, securities remain securities, fraud remains illegal, and SEC enforcement over digital asset securities is fully preserved.

Misconception 2: It puts banks, taxpayers, and the financial system at risk. Fact: The bill is fundamentally an investor protection law. It brings digital assets into a clear regulatory framework, holding bad actors accountable for fraud, market manipulation, and abuse. It aims to prevent future collapses like FTX by establishing oversight that informs investors of risks, prevents insider manipulation, and punishes misconduct. Clear regulation protects investors, not uncertainty.

Misconception 3: It creates loopholes for regulatory evasion. Fact: The bill closes regulatory gaps. It clarifies jurisdiction between SEC and CFTC, establishes a joint SEC-CFTC advisory committee to coordinate digital asset regulation, and includes protections against evasion.

Misconception 4: It fails to address illegal finance and national security risks. Fact: The bill contains the strongest illegal financing regulation framework proposed by Congress to date. It ensures key digital asset intermediaries comply with the BSA and AML/CTF obligations, enhances sanctions enforcement, and authorizes the Treasury to address high-risk foreign activities.

Misconception 5: It permits illegal financial activities via DeFi protocols. Fact: On the contrary. The bill aims to combat illegal activities while protecting legitimate software development and innovation. It clarifies sanctions obligations applicable to DeFi protocols, requires centralized intermediaries interacting with these protocols to implement risk management standards, and sets rules for non-fully decentralized intermediaries. Code is protected, but illegal acts are not.

Misconception 6: It criminalizes or bans software developers or self-custody. Fact: The bill explicitly protects developers and safeguards individual self-custody rights. Developers who only publish or maintain code without controlling customer funds are not considered financial intermediaries. Agencies retain targeted authority to address actual threats.

Misconception 7: The bill was drafted by the crypto industry to serve its interests. Fact: It is the result of bipartisan cooperation over many years, with extensive engagement with regulators and law enforcement, always oriented toward the public interest. It aims to strengthen national security, protect investors, and ensure innovation under clear, enforceable rules.

In summary, the CLARITY bill replaces uncertainty with clarity, significantly enhances enforcement against wrongdoers, and provides modern protections for consumers, investors, and the financial system.

Summary

From the detailed and comprehensive provisions above, it’s clear that the CLARITY bill is an ambitious piece of legislation. Its success will depend on the final text, subsequent regulatory rules, and its adaptability to the evolving digital asset ecosystem.

Whether the bill can be passed at this week’s hearing remains uncertain. However, SEC Chair Paul Atkins is confident. In an interview with Fox Business, he stated that the CLARITY bill will be delivered to President Trump’s desk for signing within this year. He further explained, “This bill aligns with the President’s goal of making the US a global crypto hub. Clear legislation and rules will bring certainty to the market. We fully support the bill and are optimistic it will be signed into law this year. It will have a huge impact on the cryptocurrency market.”

Meanwhile, Standard Chartered Bank, based on market trends and policy outlooks, publicly predicts that the CLARITY bill will pass in Q1 2026. These views indicate strong industry confidence in the bill’s prospects. If enacted, it will effectively resolve long-standing market pressures and, more importantly, mark a historic step toward ending the US digital asset market’s long-standing regulatory ambiguity.