All You Need to Know About the CLARITY Act of 2025

The Digital Asset Market CLARITY Act of 2025, widely referred to as the CLARITY Act, stands as one of the most consequential pieces of cryptocurrency legislation ever proposed in the United States. Designed to resolve long-standing regulatory uncertainty about how digital assets should be treated under U.S. law, the CLARITY Act aims to create a clear, functional framework for regulating cryptocurrencies, digital commodities, and intermediaries such as exchanges and brokers. If enacted, it could significantly influence the development, adoption, and global competitive position of the U.S. crypto market.

This article explores every important angle of the CLARITY Act — from its origins and provisions to the potential market and legal impacts that may unfold as it moves through Congress and into implementation.

1. The Need for Regulatory Clarity

Historical Background

For nearly a decade, digital assets like Bitcoin, Ethereum, stablecoins, and DeFi tokens have operated in a regulatory gray zone in the United States. The primary federal regulators involved in crypto oversight are the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC):

• The SEC has maintained that many digital assets are securities under federal law, applying the century-old Howey Test to determine what qualifies as an investment contract.
• The CFTC regards cryptocurrencies with commodity-like characteristics (such as Bitcoin) as commodities and seeks authority over their trading markets.

This lack of clear division has led to overlapping enforcement actions, litigation, uncertainty for institutional investors, and caution among regulated financial institutions. Partly as a result, U.S. crypto firms have complained of stunted innovation and capital flight to jurisdictions with clearer rules.

2. What Is the CLARITY Act?

The CLARITY Act is a federal legislative bill introduced in the U.S. House of Representatives on May 29, 2025 by Rep. French Hill (R-AR) and co-sponsors across the political spectrum. Its purpose is to provide a durable legal framework for digital asset markets, to clearly categorize different classes of digital assets, and to allocate regulatory authority between the SEC and the CFTC.

The Act achieved bipartisan approval in the House on July 17, 2025, with a vote of 294–134, and as of late 2025 it is being reviewed and advanced through the U.S. Senate with markup sessions underway.

The legislation is not yet law but is a central component of a broader push in Congress to modernize regulatory frameworks for the digital economy.

3. Core Concept: Functional Asset Classification

One of the CLARITY Act’s key innovations is how it classifies digital assets based on real-world attributes, including the degree of decentralization and how the asset functions in practice. Instead of relying on the Howey Test alone, the Act introduces new statutory definitions that align more closely with the technical and economic realities of blockchain systems.

Primary Categories

Under the CLARITY Act, digital assets are divided into three main buckets:

1. Digital Commodities

• Assets whose value derives from or is reasonably expected to derive from use of a decentralized blockchain.

2. Restricted Digital Assets

• Assets similar to investment contracts or not sufficiently decentralized; these remain within the SEC’s authority under securities laws.

3. Stablecoins

• Pegged assets like USD-backed tokens; while covered under the independent GENIUS Act of 2025, stablecoins still intersect with the CLARITY Act’s objectives in legal certainty and oversight.

These new, technology-informed definitions aim to simplify legal determinations and reduce litigation risks for issuers, exchanges, and institutional participants.

4. Dividing Regulatory Authority: SEC vs. CFTC

Perhaps the most impactful element of the CLARITY Act is how it proposes to allocate regulatory jurisdiction between the SEC and CFTC based on clear asset categories.

CFTC’s Expanded Role

Under the Act, the CFTC would assume exclusive jurisdiction over digital commodities, giving it authority over:

• Spot markets and exchanges trading digital commodities
• Digital commodity brokers and dealers
• Custody and trading infrastructure for digital commodities

This applies even to cash-market trading activities — something the CFTC has historically lacked clear statutory authority to regulate.

This expanded role is intended to consolidate regulatory responsibility for assets like Bitcoin and Ethereum, reducing regulatory ambiguity and encouraging robust, regulated market infrastructure.

SEC’s Continued Oversight

The SEC would maintain authority over:

• Restricted Digital Assets (assets that function as securities)
• Activities tied to primary-market issuance and capital formation
• Broker-dealers, alternative trading systems, and clearing agencies dealing with security-like assets

Under this split, regulated entities must comply with registration, disclosure, and compliance obligations that correspond with the classification of the assets they handle.

5. Key Provisions and Mechanics of the Act

Digital Commodity Definition and Certification

The CLARITY Act defines a Digital Commodity as an asset whose value is intrinsically linked to a blockchain system, provided the blockchain is sufficiently decentralized. Issuers may self-certify or seek formal determination from regulators about their classification.

To qualify as a digital commodity and fall under CFTC jurisdiction, an asset must operate on a decentralized system where no person or group can unilaterally control protocol governance.

Mature Blockchain System Pathway

The Act introduces a concept called Mature Blockchain System, defined as a blockchain not controlled by any person or group. Assets tied to such systems may enjoy certain regulatory benefits and exemptions, including a tailored registration regime with the CFTC for offerings of up to $75 million per year without triggering full securities registration requirements.

Registration and Compliance Rules

Entities operating digital commodity markets, including exchanges, brokers, and dealers, must register with the CFTC and implement:

• Segregation of customer assets
• Record-keeping and reporting systems
• Anti-fraud and anti-manipulation safeguards
• AML/KYC (anti-money laundering / know-your-customer) compliance

For restricted digital assets, similar compliance and registration requirements apply to entities operating under SEC oversight.

6. How the CLARITY Act Interacts With Other Legislation

The digital asset regulatory framework of 2025 encompasses multiple pieces of legislation — each targeting different segments of the market:

GENIUS Act

The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) was signed into law in July 2025. It focuses on stablecoin issuance standards, requiring backing with high-quality collateral such as U.S. dollars or treasuries.

The CLARITY Act complements the GENIUS Act by addressing all non-stablecoin digital assets, including how they should be classified and regulated.

Anti-CBDC and Other Bills

Other legislative efforts like the Anti-CBDC Act run parallel to the CLARITY Act and GENIUS Act, shaping a broader architecture for digital innovation.

7. Potential Market and Economic Impact

Regulatory Certainty

One of the most consistent criticisms of the current U.S. regulatory environment for crypto has been uncertainty — whether an asset is a security, who has jurisdiction, and which rules apply. The CLARITY Act aims to remove these ambiguities and provide a clearly defined framework for market participants and investors.

Institutional Participation

By clarifying legal treatment and regulatory boundaries, proponents argue the Act could unlock broader participation from banks, asset managers, and institutional liquidity providers who have avoided the space due to legal risk.

Innovation and Global Competitiveness

Supporters believe the Act will help the U.S. retain global leadership in digital asset innovation, particularly compared to regions like the EU (with MiCA — Markets in Crypto-Assets Regulation) and other forward-looking jurisdictions.

Market Pricing and Adoption Trends

Industry voices, including analysts like Bitwise CIO Matt Hougan, suggest that the existence and progress of the CLARITY Act could trigger improved market sentiment and confidence, potentially ending long crypto “bear markets” by reducing regulatory drag and increasing institutional inflows.

8. Challenges, Criticisms, and Risks

While many in the industry applaud the CLARITY Act, it has also garnered criticism on several fronts:

Regulatory Gaps and AML Concerns

Security and transparency organizations have warned that without robust AML enforcement — particularly for decentralized finance and peer-to-peer platforms — there may be loopholes that bad actors could exploit for illicit finance, sanctions evasion, or money laundering.

Implementation Complexity

Crafting clear technical standards for decentralization, maturity, and governance — and then translating those into enforceable regulatory requirements — presents real challenges for regulators and industry alike.

Potential for Double-Registration Burdens

Entities operating across asset categories may face complex dual registration and compliance obligations with both the SEC and CFTC, though the Act attempts to coordinate these requirements to avoid duplicative regulation.

9. Global Implications

Although the CLARITY Act is a U.S. law, its impact will extend beyond national borders. As the United States is one of the largest financial markets in the world, a clear and stable regulatory framework for digital assets would influence:

• International regulatory harmonization
• Global capital flows into crypto markets
• Cross-border compliance standards
• Competitive positions of other jurisdictions seeking innovation leadership

10. Where It Stands Now and What’s Next

As of early 2026:

• The CLARITY Act has passed the U.S. House with bipartisan support.
• It is undergoing Senate review and markup sessions in key committees.
• Key regulatory players like the SEC and CFTC are collaborating under broader crypto policy initiatives to operationalize frameworks that could align with CLARITY Act goals.

The final text may be amended before becoming law, and its ultimate scope will depend on legislative negotiations, regulator rulemaking, and industry engagement.

Conclusion

The CLARITY Act represents a defining moment for U.S. crypto policy and digital financial innovation. By moving beyond outdated legal tests and creating a functional, technology-aligned regulatory scheme, it marks a bold attempt to bring legal certainty to a market sorely in need of it. If enacted and efficiently implemented, it could unlock institutional capital, accelerate adoption, and position the United States as a global leader in the emerging digital economy.

At the same time, challenges remain — from AML enforcement to classification complexity and coordination between agencies. The Act’s ultimate legacy will depend not just on its passage, but on how regulators, lawmakers, and industry participants work together in the years ahead to translate legislative intent into workable, effective oversight.

All You Need to Know About the CLARITY Act of 2025 was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.