What Is the CLARITY Act? The Crypto Market Structure Bill Explained

The CLARITY Act, formally the Digital Asset Market Clarity Act, is a proposed U.S. cryptocurrency market structure bill that would establish a federal framework for how digital assets are issued, traded and regulated in the United States. The bill focuses on digital asset regulation, including how crypto firms should comply with federal law and which regulators they need to register with.

The CLARITY Act has been moving through Congress since mid-2025, yet even now analysts are divided on whether or not it will be signed into law before the end of 2026.

In this article, we’ll cover the history, contents and controversies of this landmark piece of crypto legislation. 

Why Was the CLARITY Act Created?

In simple terms, the CLARITY Act is designed to create a clearer rulebook for crypto. It does not regulate one product, such as stablecoins. Instead, it addresses the broader structure of the crypto market. The U.S. crypto industry has operated for years without comprehensive federal market structure legislation, resulting in disagreements over whether certain digital assets should be treated as securities, commodities or something else. 

During Gary Gensler’s tenure as SEC Chair (2021-2025), the agency launched many enforcement actions against crypto companies under existing securities laws. Meanwhile, the CFTC generally oversaw commodity derivatives. This left many market participants unsure which rules applied when launching a token, listing an asset, or offering crypto trading services.

The central problem is that U.S. financial laws were not originally written for blockchain-based assets. The CLARITY Act attempts to replace case-by-case uncertainty with a statutory framework.

💡 Key takeaway: The CLARITY Act is intended to make U.S. crypto regulation clearer by defining how different digital assets and crypto businesses should be regulated.

What Problems Is the CLARITY Act Trying to Solve?

The CLARITY Act is trying to solve four main problems: 

• Regulatory overlap: Both the SEC and CFTC have touched crypto markets, but their mandates are different. Companies may not know whether they need to register one, both, or neither.
• Unclear token classifications: A crypto asset may look like a commodity in some contexts and a security in others. To solve this, the CLARITY Act separates the asset from the way it is offered or sold.
• Compliance uncertainty: If a crypto exchange wants to list a token, it needs to understand what type of asset it is. Without clear rules, companies face legal risk even when trying to comply.
• Investor protection gaps: Supporters argue that clear rules would make markets safer and more transparent. Critics argue that the bill could weaken existing securities protections.

SEC vs CFTC: The Core Issue Behind the Bill

The SEC regulates securities markets, including stocks and ETFs. Its mission is to protect investors, maintain orderly markets and facilitate capital formation. In crypto, the SEC’s role has focused largely on whether certain token offerings, trading platforms, or other arrangements involve securities.

The CFTC regulates U.S. derivatives markets, including futures, swaps and certain options. It also treats certain digital assets, including bitcoin, as commodities for enforcement and derivatives-market purposes.

Why Has Crypto Created Regulatory Confusion?

Crypto has created regulatory confusion because digital assets do not always fit neatly into existing categories, which were made for traditional assets.

	SEC	CFTC
Main focus	Securities markets	Commodity derivatives and digital commodity markets
Core mission	Investor protection, fair markets, capital formation	Integrity and resilience of derivatives markets
Crypto relevance	Token offerings, securities, investment contracts, tokenized securities	Digital commodities, commodity derivatives, some spot-market oversight if expanded
Example concern	Was a token sold as an investment contract?	Is a digital commodity market vulnerable to fraud or manipulation?
Why it matters	Determines disclosure and registration duties	Determines trading-market and intermediary rules

How the CLARITY Act Classifies Digital Assets

The CLARITY Act classifies digital assets into four main categories:

• Digital commodities: Bitcoin, Ethereum and XRP fall in this category. These blockchain-based assets are not treated as securities, as they function more like commodities than company shares or debt instruments.
• Stablecoins: Stablecoins are digital assets designed to maintain a stable value, usually pegged to the U.S. dollar. Stablecoin regulation is also addressed by the GENIUS Act, which became law in 2025.
• Tokenized securities: These are traditional securities, such as stocks or bonds, represented on a blockchain. These generally remain under securities-law frameworks because the underlying instrument is still a security.

According to existing SEC guidelines, tokens may also be designated as investment contracts. These are a type of security that investors put money into with the expectation of making a profit. This doesn't necessarily mean the underlying asset is a security; the designation hinges on the method of investment and has often been applied to early-stage token sales.

Therefore, a token designated as an investment contract at the seed fundraising stage could later be treated as a commodity, if certain conditions are met. The CLARITY Act seeks to set out clear benchmarks for when a network becomes sufficiently decentralized that its token should no longer be treated as a security. These thresholds have been very loosely defined in the past.

💡 Key takeaway: The CLARITY Act attempts to classify digital assets based on how they function, how they are sold and which regulatory framework best fits the market activity.

What Will the CLARITY Act Change for Companies and Investors?

• Exchanges: Clearer requirements for listing and trading digital commodities.
• Brokers: More clearly defined obligations when handling customer assets or facilitating transactions.
• Custodians: Clearer rules around safeguarding customer assets, segregation, conflicts of interest and operational risk.
• Stablecoin Issuers: Restrictions on offering yield on idle stablecoin balances.
• Crypto Projects: Transparent rules on their tokens’ legal designations, greater fundraising flexibility and clear benchmarks for when a token is no longer treated as a security.
• TradFi Institutions: A clear SEC-CFTC framework could reduce uncertainty for firms that want to participate in digital asset markets, leading to wider adoption.

For investors, the CLARITY Act could mean clearer disclosures, more transparent markets and broader investment opportunities. Critics argue that moving too much crypto activity outside SEC oversight could reduce protections for retail investors.

In addition, initial coin offerings (ICOs) — the public fundraising rounds for new crypto projects — have typically been blocked for U.S. investors because of regulatory uncertainty. The CLARITY Act could open these investment opportunities.

A CLARITY Act Timeline: When Will the Bill Pass?

• May 2025 – The Digital Asset Market CLARITY Act of 2025 is formally introduced, with bipartisan co-sponsors.
• June 2025 – The bill advances through both the House Financial Services Committee and House Agriculture Committee, reflecting its shared SEC/CFTC jurisdictional approach.
• July 2025 – The House passes the CLARITY Act by a 294–134 vote, making it the most significant crypto market structure bill ever passed by a chamber of Congress.
• Late 2025 – Attention shifts to the Senate, where lawmakers begin developing their own version and signaling potential changes to the House framework.
• January 2026 – Momentum stalls as banking and crypto industry stakeholders clash over stablecoin yield.
• May 2026 – The Senate Banking Committee publishes an amended bill then votes 15–9 to advance it, sending it toward potential full Senate consideration.

At present time, the bill is marked on the Senate Legislative Calendar, but no official vote date has been set. If successful, it will then need to be combined with the House version of the bill before being signed into law. As such, the precise terms of the final legislation are still very much up in the air, and no completion date is currently in sight.

CLARITY Act vs GENIUS Act

The GENIUS Act focuses on stablecoin regulation. When signed into law in 2025, it formalized a federal framework for payment stablecoins, including rules around issuance, reserves and consumer protection.

The CLARITY Act is broader. It addresses crypto market structure more generally, including digital commodities, trading platforms, brokers, custodians and the SEC-CFTC division of authority. Although it does touch on stablecoins, these are not its main focus.

	Main focus	Scope
CLARITY Act	Crypto market structure	Digital assets, exchanges, brokers, custodians, SEC vs CFTC roles
GENIUS Act	Stablecoin regulation	Payment stablecoin issuers, reserve requirements, consumer protections

CLARITY Act Criticism and Controversies

In early 2025, several core points of contention threatened to derail CLARITY Act progress altogether. Republican lawmakers have broadly backed the bill while Democrats have held out for amendments. The main points of contention include:

Stablecoin Yield

Banking industry lobbyists have argued that allowing stablecoin issuers to pay interest on idle balances could lead to a drain on U.S. bank deposits as consumers chase better rates. Crypto industry leaders have argued these fears are overblown. Ultimately, lawmakers amended the bill to prohibit passive yield payouts by stablecoin issuers (like Tether and Circle) and third-party platforms. However, platforms such as exchanges and DeFi protocols can still offer activity based incentives. 

Conflict-of-Interest Rules

Democrats pushed for amendments prohibiting federal officials profiting from crypto ventures. This has been interpreted as a response to President Trump’s many crypto investments, which critics claim have netted his family millions and softened the government’s approach to crypto regulation. This amendment was ultimately voted against by the Senate Banking Committee.

Other Points of Contention

Beyond these core issues, critics have also argued that if too many digital assets are classified outside the existing securities framework, retail investors may receive fewer disclosures than they would under traditional securities laws. 

DeFi oversight is another major debate. In its current state, the CLARITY Act preserves these protocols’ status as infrastructure, rather than designating them as intermediaries and forcing registration requirements upon them.

Frequently Asked Questions

1. What is the CLARITY Act?

The CLARITY Act is a proposed U.S. crypto market structure bill that aims to define digital assets are categorized and clarify the regulatory roles of the SEC and CFTC.

2. What does the CLARITY Act do?

The CLARITY Act creates a framework for digital asset regulation, including rules for digital commodities, trading platforms, brokers, custodians and the division of authority between the SEC and CFTC.

3. Will the CLARITY Act pass in 2026?

There is no guaranteed timeline. The bill must pass the remaining steps in Congress and be signed by the president before becoming law.

4. Do the Republicans support the CLARITY Act?

The bill is primarily being backed by Republican lawmakers, although it has garnered some bipartisan support. The legislation was introduced and advanced by Republican committee leaders, and all House Republicans voted in favor when it passed the House in July 2025. 

5. Do the Democrats support the CLARITY Act? 

Dozens of House Democrats voted in favor of the bill, and two Democrat senators provided the decisive yea votes to advance it out of the Senate Banking Committee. However, other Democrats are among the bill’s biggest critics, citing ethics and investor protection issues.

6. How does the CLARITY Act affect crypto investors?

The bill could give investors clearer disclosures, more transparent markets and a better understanding of which regulator oversees certain crypto assets and platforms. It does not remove the risks of crypto investing.

7. Does the CLARITY Act regulate Bitcoin?

The CLARITY Act could affect Bitcoin market structure by clarifying rules for digital commodity trading platforms and intermediaries. Bitcoin itself is generally treated as a commodity-like digital asset.

8. Does the CLARITY Act affect XRP?

The CLARITY Act could affect how assets like XRP are analyzed under U.S. law by creating clearer distinctions between investment contract transactions and secondary-market digital asset trading.

9. What happens if the CLARITY Act passes?

If the CLARITY Act passes, crypto companies would likely face clearer federal registration, disclosure, custody and trading rules. The SEC and CFTC would also have more defined roles in digital asset regulation.

Disclaimer: This article was produced with the assistance of OpenAI’s ChatGPT/xAI’s Grok and reviewed and edited by our editorial team.

© 2026 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.