What the CLARITY Act actually says: A reader’s guide
The Digital Asset Market Clarity Act of 2025 is 257 pages of statutory text divided into six titles, each tackling a different piece of U.S. digital asset regulation. Most coverage describes the bill in vague terms like “establishes clear rules for crypto.” The actual legislation is more specific and more consequential than that.
- The CLARITY Act would move qualifying crypto tokens from SEC oversight to CFTC regulation through a 20% blockchain control threshold for “mature” networks.
- A secondary market provision in the bill would classify exchange-traded crypto tokens as commodities instead of securities, extending the legal framework established in the Ripple ruling.
- Sections 309 and 409 would exempt DeFi software developers, wallet providers, and validator operators from SEC and CFTC registration requirements under certain conditions.
It defines digital commodities through a 20 percent control threshold for “mature blockchain systems,” reclassifies tokens from securities to commodities once they hit secondary markets, carves out DeFi software development from registration requirements under Sections 309 and 409, and prohibits the Federal Reserve from issuing a central bank digital currency to individuals. The bill that exists is what readers need to understand. This is what it actually says.
The structure: six titles, 257 pages, three regulatory regimes
Before walking through what the CLARITY Act does, it helps to understand how the bill is organized. The legislation is divided into six titles, each of which addresses a discrete piece of the regulatory puzzle.
Title I establishes the definitions and rulemaking framework. This is the part of the bill that does the most consequential work, because it defines the terms (digital commodity, digital asset, mature blockchain system, permitted payment stablecoin) that determine which assets fall under which regulatory regime. Get the definitions right, and the rest of the bill follows. Get them wrong, and the entire framework collapses into ambiguity.
Title II covers offers and sales of digital commodities. This title sets the rules for primary market transactions (when a token is first issued) and secondary market transactions (when an existing token is bought and sold on exchanges). The treatment of these two categories is different, and the difference is one of the most important provisions in the bill.
Title III establishes registration requirements for intermediaries at the SEC. Exchanges, brokers, dealers, and alternative trading systems handling digital assets must register under the specific rules this title sets out. Title III is also where the DeFi exclusion under Section 309 sits.
Title IV establishes registration requirements for intermediaries at the CFTC. This is the parallel framework for entities trading digital commodities rather than digital securities. The CFTC gets expanded jurisdiction over spot markets for digital commodities, which is a significant shift from the current regulatory structure.
Title V covers innovation and technology provisions, including studies, pilot programs, and provisions related to the Federal Reserve’s role in digital asset markets.
Title VI contains the Anti-CBDC Surveillance State Act, which prohibits the Federal Reserve from issuing a central bank digital currency directly to individuals. This is the part of the bill that has drawn opposition from some progressive Democrats but support from libertarians and crypto advocates.
The full text runs 257 pages in the version that passed the House on July 17, 2025, by a vote of 294-134, and was amended through Senate Banking Committee markup on May 14, 2026. The Senate version is approximately 309 pages, reflecting the additional provisions negotiated during committee deliberations.
Two hundred and fifty-seven pages is a lot of statutory text. Most coverage simply does not engage with it. The rest of this guide walks through what the text actually says, section by section.
The definitions that change everything (Title I)
The single most important provision in the CLARITY Act is the definition of “digital commodity.” This term, defined in Sections 101 through 104 of Title I, determines which tokens fall under CFTC jurisdiction (with lower regulatory burden) and which fall under SEC jurisdiction (with full securities law applies).
A digital commodity, under the bill, is a digital asset whose value is “substantially derived from the use and functioning of the blockchain” to which it relates. The term explicitly excludes securities, derivatives, and stablecoins. Stablecoins are handled separately under the GENIUS Act framework, with additional provisions in the CLARITY Act for how they interact with exchanges and intermediaries.
The harder question is when a token actually qualifies as a digital commodity rather than as a security. The bill addresses this through the concept of a “mature blockchain system.”
Section 205 sets out the criteria for blockchain maturity. A blockchain system, together with its related digital commodity, qualifies as mature when it “is not controlled by any person or group of persons under common control.” The bill defines this through a specific threshold: no single entity can control 20 percent or more of voting power, token supply, or governance authority over the blockchain system.
If a project meets the mature blockchain test, the token migrates from SEC oversight to CFTC oversight. If the project fails the test (meaning it is still substantially controlled by a single entity or group), the token stays under securities law as an investment contract asset.
This is the 20 percent control threshold that has shaped how every major crypto project should think about its long-term tokenomics. Projects that want their token to qualify as a digital commodity need to make sure no single entity (the founding team, the foundation, a major investor, the issuing company) holds more than 20 percent of governance power. Projects that exceed this threshold stay subject to securities law in perpetuity, regardless of how distributed the underlying technology becomes.
The 20 percent threshold has practical implications for specific tokens. XRP, given Ripple’s escrow holdings, may face questions about whether Ripple’s effective control over the XRP supply exceeds the threshold. Solana, Avalanche, and Cardano have varying degrees of foundation and investor concentration that may or may not clear the test. Bitcoin and Ethereum clearly satisfy the threshold given their distributed validator and holder bases.
The bill also defines “blockchain control person” as any individual or group with unilateral control over the system’s rules or significant voting power. Blockchain control persons face additional disclosure requirements and sales restrictions even after a blockchain system is certified as mature. This provision is designed to keep founders or early investors from using their influence to manipulate the market or extract value at retail buyers’ expense.
The definitional architecture is the bill’s foundation. Everything that follows depends on whether a specific token qualifies as a digital commodity, an investment contract asset, or a permitted payment stablecoin. Get the classification right, and the regulatory treatment follows automatically. Get it wrong, and the project faces years of regulatory uncertainty.
The secondary market reclassification (Section 203)
The provision that most directly addresses the situation XRP faced during its lawsuit is buried in Section 203 of Title II, and it is one of the most consequential pieces of the bill.
Section 203 governs “treatment of secondary transactions in digital commodities that originally involved investment contracts.” In plain English, the section deals with what happens to a token that was initially sold through a structure resembling a securities offering but is later traded on public exchanges.
The provision is unambiguous. Once a digital asset is resold or transferred by a person other than the original issuer or its agent, the asset “no longer bears status as a security, even if it was first distributed as an investment contract asset.” The secondary market transaction breaks the chain of investment contract treatment. The token, in secondary trading, becomes a digital commodity subject to CFTC oversight rather than a security subject to SEC oversight.
This is the codification of the Torres framework from the SEC vs Ripple ruling. Judge Torres established in 2023 that XRP sold on public exchanges did not qualify as securities transactions, while direct institutional sales did. Section 203 takes that judicial framework and converts it into a federal statute applicable to every digital commodity, not just XRP.
The implications are substantial. Under the current Howey Test framework, the SEC could theoretically argue that any token initially sold through an investment contract keeps that classification even in secondary markets, depending on the specific facts of each case. Section 203 eliminates that argument for digital commodities. Once a token hits the secondary market, the investment contract status is broken, and the SEC loses jurisdiction over those transactions.
For exchanges, this provision is significant because it provides clear legal cover for listing tokens that may have started life as securities. Coinbase, Kraken, and other major exchanges have faced legal exposure for years over the possibility that some of their listed tokens could be reclassified as securities through enforcement action. Section 203 removes that exposure for secondary market transactions specifically.
For investors, the provision means buying a token through an exchange does not create the same legal relationship as buying a token directly from the issuer. The secondary market purchase is, by statute, a commodity transaction rather than a securities transaction. This is the legal foundation XRP holders have relied on for years through the Torres ruling, now potentially extended to every digital commodity under federal law.
What Section 203 does not do is eliminate the SEC’s jurisdiction over primary market transactions. Direct sales by issuers to investors still trigger securities law if they meet the Howey Test criteria. The exemption only applies to secondary trading. The framework is the same one that the Ripple lawsuit established: primary direct sales are potentially securities, secondary market trading is not.
The DeFi exclusion (Sections 309 and 409)
Section 309 of Title III, and the parallel Section 409 of Title IV, contain the bill’s DeFi exclusion. This is the provision that determines whether software developers, validators, wallet providers, and front-end interface operators in the decentralized finance ecosystem can operate without registering as regulated intermediaries.
The exclusion is significant because, under current law, the legal status of DeFi participants is highly ambiguous. The SEC has argued in various cases that DeFi protocols, including their developers and front-end operators, may qualify as unregistered securities exchanges or unregistered broker-dealers. The legal exposure has chilled DeFi development in the United States and pushed many projects offshore.
Section 309 changes this by explicitly excluding certain decentralized finance activities from SEC regulation. The excluded activities include:
- Validating or providing incidental services to a blockchain network
- Publishing and updating software
- Developing wallets for blockchain networks
- Providing user interfaces for blockchain networks
- Developing and publishing a blockchain system
These activities, under Section 309, do not trigger registration requirements with the SEC. The exclusion is not unlimited. The SEC keeps anti-fraud and anti-manipulation enforcement authority over DeFi participants who engage in fraudulent or manipulative conduct. The exclusion only covers the legitimate operation and maintenance of decentralized networks, not predatory or deceptive behavior.
The parallel Section 409 provides similar treatment under CFTC jurisdiction for digital commodity intermediaries. Together, the two sections create the legal cover DeFi developers have been seeking for years. Under CLARITY, simply taking part in the operation or development of a decentralized blockchain network does not require SEC or CFTC registration, as long as the participant is not performing traditional intermediary functions like custody of customer assets or operation of a centralized exchange.
The legislation also incorporates provisions from the Blockchain Regulatory Certainty Act (BRCA), which protects software developers who do not control user funds from being treated as money transmitters. The BRCA provisions address a specific regulatory question (whether developers face FinCEN money transmission requirements) that has been a persistent source of legal exposure for DeFi participants. The DeFi Education Fund publicly supported the inclusion of BRCA provisions in the CLARITY Act, calling them “the most important provisions for developers and infrastructure providers.”
What Section 309 does not do is eliminate AML and KYC obligations for centralized DeFi front-ends. Projects that run a centralized front-end or application layer may still face anti-money-laundering compliance questions even if their underlying smart contracts qualify for the exclusion. The bill draws a distinction between truly decentralized protocol-level activity and centralized application-level activity, and only the former is fully excluded.
For DeFi developers, the practical effect is that working on open-source protocols, contributing to validator infrastructure, or building wallets and interfaces is legally protected from SEC and CFTC registration requirements. Building a centralized exchange that uses DeFi infrastructure as a back-end is not protected and still requires registration.
This is a structural shift in how U.S. law treats decentralized finance. The previous framework, by default, treated DeFi participants as potentially regulated entities subject to enforcement risk. The CLARITY framework, by default, treats DeFi participants as unregulated software developers unless they engage in specific regulated intermediary activities.
The stablecoin yield provisions (Sections 301, 302, and the Tillis-Alsobrooks compromise)
The stablecoin yield question, which I covered in detail in a previous article, is addressed across several sections of the bill.
Section 301 excludes digital commodities and permitted payment stablecoins from the definition of securities, ensuring ordinary stablecoin transactions do not trigger securities law. Section 302 grants the SEC anti-fraud authority over permitted payment stablecoins and certain digital commodity transactions, preserving consumer protection oversight even outside the registration framework.
The Tillis-Alsobrooks compromise language, added during Senate Banking Committee deliberations, refines how stablecoin-related rewards can be paid. The compromise prohibits rewards offered “in a manner that is economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit.” But it preserves the ability of exchanges to pay activity-based rewards calculated by reference to balance, duration, and tenure of stablecoin holdings.
This is the loophole the American Bankers Association is actively trying to close before the Senate floor vote. The crypto industry views the compromise as the final settlement. The banking industry views it as an opening for further restrictions. The fight is still active as of late May 2026.
The bill also directs regulators to propose additional stablecoin regulations within a specified timeframe after enactment. The rulemaking process, which the SEC and CFTC would conduct jointly with input from federal banking regulators, would establish the specific permitted reward activities and the precise definitional boundaries of “economically equivalent” rewards. The administrative implementation of the stablecoin provisions, therefore, matters as much as the statutory text itself.
The Anti-CBDC provisions (Title VI)
The Anti-CBDC Surveillance State Act, incorporated as Title VI of the CLARITY Act, prohibits the Federal Reserve from issuing a central bank digital currency directly to individuals or using a CBDC for monetary policy purposes.
The provision is controversial in different ways than the rest of the bill. Libertarian and crypto-aligned groups have pushed for CBDC restrictions for years, arguing that direct central bank issuance to individuals would give the federal government surveillance capabilities and monetary control over individual transactions that traditional banking does not allow. Progressive Democrats have generally opposed the restrictions, arguing that CBDCs could provide financial inclusion benefits and improved payment infrastructure.
The CLARITY Act takes the libertarian/crypto-aligned side of this debate. The bill explicitly amends the Federal Reserve Act to prohibit the Federal Reserve banks from offering certain products or services directly to individuals. The Federal Reserve can still run CBDC-like infrastructure at the wholesale level (between commercial banks, for example) but cannot offer accounts or services directly to retail customers.
The practical effect is to preserve commercial banks’ role as the intermediary between the Federal Reserve and individual depositors. This is, not coincidentally, also a structural protection for the banking industry against direct competition from a Federal Reserve-issued digital currency. The banking industry has been broadly supportive of the Anti-CBDC provisions, which are one of the few areas where banks and crypto advocates have aligned interests in the CLARITY Act.
For U.S. consumers, the provision means a digital dollar issued directly by the Federal Reserve is off the table for the foreseeable future. Stablecoins, issued by private companies under federal regulatory frameworks, stay the dominant model for digital dollar infrastructure. The CLARITY Act preserves this structure rather than disrupting it.
The registration frameworks (Titles III and IV)
The bulk of the bill’s procedural complexity sits in Titles III and IV, which establish parallel registration frameworks for digital asset intermediaries at the SEC and CFTC.
Under Title III, the SEC has jurisdiction over intermediaries that handle digital securities (investment contract assets that have not yet qualified as mature blockchain systems). Intermediaries must register, comply with disclosure requirements, follow anti-fraud rules, and meet operational standards similar to traditional securities broker-dealers. Section 304 establishes rulemaking authority for dual-registered entities (firms that work as both securities intermediaries and digital commodity intermediaries).
Under Title IV, the CFTC has jurisdiction over intermediaries handling digital commodities. Digital commodity exchanges, brokers, and dealers must register with the CFTC under Section 404. Qualified digital asset custodians, under Section 405, must meet specific custody standards. Section 402 requires futures commission merchants to use qualified digital asset custodians for customer assets.
The two frameworks are designed to work in parallel without overlap. Each token is classified as either a digital security or a digital commodity, and the corresponding registration framework applies. Intermediaries handling both categories of assets register with both agencies under the dual-registration provisions of Section 304.
The expedited registration provisions under Section 106 let existing digital asset firms get provisional registration status while the full registration process plays out. This is an important practical provision because the alternative would be that every existing crypto exchange and broker would technically be operating in violation of the law until full registration was completed. Provisional status lets the industry keep running while the regulatory framework is being implemented.
The effective date provisions are also worth noting. Section 206 specifies the Title II provisions (offers and sales) take effect 360 days after enactment, or in the case of rulemakings, the later of 360 days after enactment or 60 days after publication of the final rule. The 360-day delay is designed to give the industry time to come into compliance. The agency rulemaking process, which is itself subject to public comment periods and finalization steps, will stretch into 2027 and 2028 for most provisions.
This is why the CLARITY passage does not produce immediate market effects. Even if the bill becomes law in mid-2026, the substantive regulatory regime will not be fully operational until late 2027 at the earliest, and many implementation details will keep evolving through 2028.
What the bill does not address
A reader’s guide to the CLARITY Act has to be honest about what the bill does not do, because the gaps matter as much as the provisions.
The bill does not establish a federal framework for non-payment stablecoins. The GENIUS Act covers payment stablecoins (USDC, USDT, RLUSD, PYUSD). Other categories of stablecoins (algorithmic stablecoins, partially-collateralized stablecoins, decentralized stablecoins like DAI) are not directly addressed in CLARITY. Their regulatory treatment remains uncertain.
The bill does not provide retroactive treatment for past enforcement actions. The CLARITY framework is prospective. Existing judgments against firms like Ripple, the SEC’s prior settlements with other crypto companies, and the existing legal exposure of historical token offerings are not affected. Section 107 includes savings provisions to preserve the existing legal framework for transactions that occurred before enactment.
The bill does not eliminate state-level regulatory authority over crypto. Section 308 exempts digital commodities from state securities laws, which is significant. But state banking regulators, state money transmission regulators, and other state-level authorities keep their existing jurisdictions over crypto activities that fall within their respective scopes. The bill does not preempt the full universe of state regulation.
The bill does not address tax treatment of digital assets. Tax provisions for crypto are handled by the IRS and Treasury under separate authority. The CLARITY Act does not change how crypto transactions are taxed, how staking rewards are characterized for tax purposes, or how token unlocks are treated. This is a separate regulatory question still in flux.
The bill does not establish federal consumer protection rules specific to crypto retail users. The bill covers intermediaries and issuers, but does not address questions like crypto advertising standards, disclosure requirements for retail-facing products, or fraud protection beyond the existing securities and commodities frameworks. Consumer protection in crypto is left to existing authorities and to state-level rules.
The bill does not resolve the legal status of crypto staking. While Section 312 addresses “digital commodity activities that are financial in nature,” and custodial and ancillary staking services receive specific treatment in Title IV, the broader question of whether staking rewards constitute securities transactions, taxable income, or some other category is partially unresolved. The bill provides some clarity for custodial staking but leaves direct user staking in a less defined regulatory space.
What the bill actually accomplishes
After 257 pages of statutory text, six titles, and dozens of sections, what does the CLARITY Act actually accomplish?
The bill establishes a definitional framework that separates digital commodities (CFTC jurisdiction) from digital securities (SEC jurisdiction) based on the 20 percent control threshold and the mature blockchain system test. Tokens that pass these tests fall under the lighter CFTC regulatory regime. Tokens that fail stay under the heavier SEC regime.
The bill codifies the secondary market reclassification principle, ensuring tokens traded on exchanges are treated as commodities regardless of their original issuance status. This is the Torres framework converted into federal statute.
The bill creates a DeFi exclusion that protects open-source software development, validator participation, wallet creation, and front-end interface operation from registration requirements at both the SEC and CFTC. The exclusion is limited (it does not cover centralized intermediary activities), but it provides legal protection for the core activities of decentralized finance.
The bill establishes parallel registration frameworks for digital asset intermediaries at the SEC and CFTC, with expedited and provisional status provisions to let existing firms keep running during the transition.
The bill prohibits the Federal Reserve from issuing a central bank digital currency directly to individuals, preserving the existing structure where commercial banks intermediate between the central bank and retail customers.
The bill restricts stablecoin-related yield payments through the Tillis-Alsobrooks compromise, while preserving exchanges’ ability to offer activity-based rewards on stablecoin balances.
The bill grants the SEC and CFTC joint rulemaking authority over the implementation details, which means the substantive regulatory framework will keep evolving through agency rulemaking even after the bill becomes law.
What CLARITY accomplishes, in the most concise framing possible, is the conversion of a decade of judicial precedent, enforcement actions, and regulatory ambiguity into a single statutory framework that defines what crypto firms can do, where they can do it, and which agency oversees each activity. The framework is not perfect. The implementation will take years. But the bill, if it becomes law, would represent the most consequential single piece of U.S. crypto legislation in the industry’s history.
How to read the bill yourself
For readers who want to engage with the actual statutory text, the bill is publicly available at Congress.gov under HR 3633. The full text runs 257 pages in the House-passed version and approximately 309 pages in the Senate Banking Committee version.
The most useful entry points for a reader’s first pass are:
Section 104 (Definitions under this Act), which establishes the bill’s specific terminology. Section 205 (Mature blockchain system requirements), which sets the 20 percent control threshold. Section 203 (Secondary transactions), which codifies the Torres framework. Section 309 (DeFi exclusion), which establishes the protections for decentralized finance. Title VI (Anti-CBDC provisions), which addresses the Federal Reserve restrictions.
For readers focused on specific token implications, the question to ask is whether the token in question would qualify as a digital commodity under the mature blockchain system test. The 20 percent control threshold is the key variable. Tokens that clearly satisfy the threshold (Bitcoin, Ethereum) are unambiguously digital commodities. Tokens that may or may not satisfy it (XRP, Solana, Avalanche, Cardano) face a project-specific analysis that depends on the actual distribution of governance power.
For DeFi participants, the question is whether the activity in question falls within the Section 309 exclusion. Pure software development, validator operation, and protocol-level participation are protected. Centralized intermediary activities are not. The line is drawn around control of customer assets and operation of trading venues, not around the underlying technology.
For stablecoin users and issuers, the question is how the Tillis-Alsobrooks compromise language will be interpreted in agency rulemaking. The statutory text prohibits “economically equivalent” yield payments while permitting activity-based rewards. The specific boundary between these two categories will be determined by SEC and CFTC rules that have not yet been written.
The bottom line
The CLARITY Act is the most consequential piece of U.S. crypto legislation that has ever been seriously considered by Congress. The bill has cleared the House and the Senate Banking Committee. It still needs Senate floor passage, conference reconciliation, and a presidential signature to become law. The path is narrower than the headlines suggest, but the political momentum is genuine.
What the bill actually says is more specific and more consequential than most coverage acknowledges. The 20 percent control threshold for mature blockchain systems will determine which tokens migrate from SEC to CFTC oversight. The secondary market reclassification codifies the Torres framework into federal statute. The DeFi exclusion provides legal protection for open-source development. The Anti-CBDC provisions preserve commercial banks as the intermediary layer in the U.S. monetary infrastructure. The stablecoin yield restrictions reflect months of negotiation between crypto and banking interests.
The 257 pages of statutory text matter because they will define U.S. crypto regulation for the next decade or more. Reading the bill, rather than relying on summaries, is the only way to understand what is actually at stake.
For the crypto industry, the CLARITY Act represents the conversion of a decade of regulatory uncertainty into a defined statutory framework. The framework is not everything the industry wanted. It is, by the standards of major financial legislation, a reasonable balance among competing interests.
For readers tracking the bill’s progress, the next critical milestones are the Senate floor vote (expected June or July 2026), the conference reconciliation with the House version, and the joint SEC-CFTC rulemaking process that will follow passage. Each step will shape the final framework. Each step is worth watching.
The bill is not perfect. The bill is not certain to pass in its current form. The bill, if it becomes law, will take years to fully implement.
But the bill is real. The text is publicly available. The provisions are specific. The implications are substantial. And for anyone who wants to understand what U.S. crypto regulation will actually look like over the next decade, reading the bill is the work that has to be done.
This guide is a starting point. The 257 pages of statutory text are the destination.
This article is for informational purposes and does not constitute legal, financial, or investment advice. Legislative outcomes evolve quickly; the analysis described reflects the bill text as of the Senate Banking Committee version passed May 14, 2026. Always do your own research and consult appropriate counsel for specific legal matters.
