CLARITY Act - Official Legislative Text The CLARITY Act establishes a comprehensive framework for digital asset market structure, defining SEC and CFTC jurisdiction over crypto-assets and creating clear rules for token classification.
Signed July 2025
Source: Congress.gov - H.R. 3633

What Is the CLARITY Act?

The CLARITY Act (Crypto Legal and Regulatory Investment Tomorrow) is companion legislation to the GENIUS Act, together forming the comprehensive US federal framework for digital assets. While the GENIUS Act addresses stablecoin issuance and payment systems, the CLARITY Act establishes market structure rules for digital assets more broadly.

The Act resolves the long-standing regulatory ambiguity around whether digital assets are securities (regulated by the SEC) or commodities (regulated by the CFTC), providing clear classification criteria and registration pathways.

What Problems Does the CLARITY Act Solve?

The legislation addresses several critical issues in the digital asset market:

Regulatory Uncertainty

  • Ends "regulation by enforcement" approach
  • Provides clear, prospective rules for market participants
  • Establishes predictable compliance pathways
  • Reduces legal risk for legitimate crypto businesses

Jurisdictional Clarity

  • Defines SEC authority over digital asset securities
  • Establishes CFTC authority over digital commodities
  • Creates coordination requirements between agencies
  • Prevents duplicative or conflicting regulation

Market Development

  • Enables institutional participation with regulatory certainty
  • Creates framework for compliant trading platforms
  • Establishes custody standards for digital assets
  • Supports innovation while protecting investors

How Does the CLARITY Act Classify Digital Assets?

The Act establishes a functional test for determining whether a digital asset is a security or commodity:

Digital Asset Securities

  • Tokens representing ownership or profit-sharing in an enterprise
  • Assets where value depends substantially on issuer's efforts
  • Tokens sold with investment expectations
  • Subject to SEC registration and disclosure requirements

Digital Commodities

  • Tokens with decentralized networks and governance
  • Assets where value derives from utility or network effects
  • Tokens with functional use cases beyond investment
  • Subject to CFTC jurisdiction for derivatives and spot markets

Transition Mechanism

  • Tokens may start as securities and become commodities
  • Decentralization pathway for project maturation
  • Clear criteria for determining when transition occurs
  • Certification process for commodity classification

How Are SEC and CFTC Jurisdictions Divided?

SEC Authority

  • Primary jurisdiction over digital asset securities
  • Oversight of token offerings and initial sales
  • Registration of digital asset securities exchanges
  • Enforcement of disclosure and anti-fraud provisions

CFTC Authority

  • Primary jurisdiction over digital commodities
  • Oversight of commodity spot markets
  • Regulation of digital asset derivatives
  • Market manipulation and fraud enforcement

Coordination Requirements

  • Joint rulemaking for overlapping areas
  • Information sharing protocols
  • Unified enforcement actions where appropriate
  • Regular coordination meetings and reports

What Are the Registration Requirements?

Digital Asset Trading Platforms

  • Registration with primary regulator (SEC or CFTC)
  • Customer protection and asset segregation rules
  • Cybersecurity and operational resilience standards
  • Surveillance and market manipulation prevention

Broker-Dealers and Intermediaries

  • Registration requirements for digital asset brokers
  • Custody standards and customer asset protection
  • Best execution and conflict of interest rules
  • Recordkeeping and reporting obligations

Token Issuers

  • Registration or exemption for token offerings
  • Disclosure requirements for securities tokens
  • Ongoing reporting for registered tokens
  • Decentralization pathway reporting

What Safe Harbors Does the CLARITY Act Provide?

Development Safe Harbor

  • 3-year safe harbor for token development
  • Allows projects to build without immediate registration
  • Conditions include good faith efforts toward decentralization
  • Regular progress reporting required

Existing Token Safe Harbor

  • Transition period for tokens launched before Act
  • Opportunity to come into compliance
  • Certification pathway for commodity classification
  • Good faith compliance efforts considered

Ancillary Activities

  • Safe harbor for certain development and support activities
  • Protection for wallet providers and infrastructure
  • DeFi protocol considerations
  • Limitations on safe harbor scope

What Should Financial Institutions Consider?

Strategic Implications

  • Clear framework enables product development
  • Registration pathways for trading and custody services
  • Institutional-grade compliance now achievable
  • Competitive landscape will evolve as compliance matures

Compliance Requirements

  • Determine regulatory classification of assets handled
  • Register with appropriate regulator(s)
  • Implement required customer protections
  • Establish surveillance and reporting systems

Integration with GENIUS Act

  • Stablecoins regulated under GENIUS Act, not CLARITY
  • Other digital assets subject to CLARITY classification
  • Coordinated compliance approach needed
  • Consider both frameworks for comprehensive digital asset strategy

The Coinbax Perspective

The CLARITY Act resolves the fundamental question that has plagued the US crypto industry: is this a security or a commodity? By establishing clear classification criteria and a transition mechanism for decentralizing projects, the Act enables rational business planning.

For financial institutions, the combination of CLARITY and GENIUS Acts creates a comprehensive framework for digital asset services. Stablecoins fall under GENIUS; other digital assets fall under CLARITY. Both require robust compliance infrastructure, but both now have clear rules to follow.

The safe harbor provisions are particularly significant for the industry's development. Projects can build and decentralize over a three-year period without the threat of retroactive securities enforcement—a meaningful change from the previous regulatory environment.

Frequently Asked Questions

How does CLARITY differ from the GENIUS Act?

The GENIUS Act regulates stablecoins specifically—payment tokens designed to maintain stable value. The CLARITY Act addresses all other digital assets, establishing whether they're securities or commodities and which regulator oversees them.

Can a token be both a security and a commodity?

Under CLARITY, tokens start with one classification but can transition. A token that begins as a security (issued by a centralized project) can become a commodity if the project sufficiently decentralizes over time.

What happens to existing tokens?

The Act provides transition provisions for tokens launched before its effective date. Existing projects can apply for commodity certification or register as securities, with safe harbor protection during the transition period.

How are DeFi protocols treated?

The Act addresses DeFi protocols cautiously. Truly decentralized protocols may fall outside traditional registration requirements, but any centralized control points (governance tokens, development teams, foundations) may trigger obligations.