Author: Miles Jennings, a16z crypto policy lead and general counsel
Compiled by: Luffy, Foresight News
The U.S. House of Representatives recently advanced an important new 'market structure' bill with overwhelming bipartisan support (294 votes in favor, 134 against, with 78 Democrats supporting). This bill, known as the (Digital Asset Market CLARITY Act) (House Bill 3633), will establish a clear regulatory framework for the digital asset market. The bill is now in the Senate review phase, where the Senate is drafting its own version of market structure legislation, with (CLARITY Act) serving as a reference.
If passed, the bill will establish clear 'rules of the game' for blockchain systems, ending years of uncertainty that stifles innovation, harms consumer interests, and favors opaque businesses over those seeking transparency. Just as the 1933 (Securities Act) established investor protection mechanisms that propelled a century of capital formation in the U.S., (CLARITY Act) is poised to become a landmark piece of legislation.
When our legal framework can both promote innovation and protect consumers, the U.S. can lead the way, benefiting the entire world. (CLARITY Act) brings such an opportunity. Although this legislation is built on the bipartisan foundation of last year's (Finance Innovation and Technology Act) (FIT21), it has been improved in several key areas, which will be elaborated below: what entrepreneurs need to know, and why this bill is crucial for reconciling innovation, consumer protection, and U.S. national security.
In conjunction with the recently signed (GENIUS Act) (which will be explained in detail below), the demand for a broader market structure bill is becoming increasingly urgent.
Why is it important: a macro perspective
Despite the cryptocurrency industry having developed for over a decade, the U.S. has yet to establish a comprehensive regulatory framework. However, cryptocurrency is no longer just a trend within the tech circle; it has become infrastructure: blockchain systems are now foundational in multiple areas, including payment systems (including through stablecoins), cloud infrastructure, digital markets, and more.
But these protocols and applications were built in the absence of clear rules. What was the outcome? Legitimate entrepreneurs faced erratic regulation while speculators profited from legal ambiguities. (CLARITY Act) will reverse this situation.
By providing projects with a transparent compliance path and ensuring that regulators have more effective tools to oversee actual risks, (CLARITY Act) (alongside the new stablecoin bill named (GENIUS Act)) will bring the already large cryptocurrency industry out of the shadows and into a regulated economic system. The new legislation will create a framework for responsible innovation, similar to the foundational laws of the 20th century that helped public markets thrive and protected consumers.
In addition to providing a clear compliance path, the bill establishes clearer rules, granting entrepreneurs legal certainty that allows them to innovate confidently and operate domestically. This will ultimately alleviate the pressure on legitimate entrepreneurs to move their operations overseas.
This legal clarity will open doors for the next generation of decentralized infrastructure, financial tools, and user-owned applications, all of which will be built in the U.S. Ensuring that blockchain systems are developed in the U.S. will also safeguard global digital and financial infrastructure from relying on blockchain systems created and controlled by entities such as China, while ensuring that U.S. regulatory standards apply to the core financial infrastructure now used by those outside the crypto circle.
What role will this new legislation play?
Creating a clear regulatory path for digital goods
(CLARITY Act) creates a regulatory framework for digital assets that grant users ownership within blockchain systems.
The bill's 'control-based' maturity framework allows blockchain projects to launch digital goods and enter public markets without bearing excessive regulatory burdens or facing uncertainties.
Achieve oversight of blockchain-based intermediaries
The bill ensures that centralized entities in the crypto space (such as exchanges, brokers, and dealers) are subject to strict oversight. These intermediaries must:
Registered with the Commodity Futures Trading Commission (CFTC);
Comply with compliance standards similar to traditional financial institutions.
These requirements enhance the transparency of core market infrastructure, help prevent fraud and abuse, and increase consumer trust. They will also fill the current regulatory gap — previously, companies like FTX could operate in the U.S. market unrestrained.
Strong protective measures for consumers while promoting innovation
(CLARITY Act) also includes direct consumer protection measures, including:
Require digital goods issuers to fulfill mandatory public disclosure obligations to ensure retail participants can access basic, important information;
Limit insider trading and constrain early stakeholders from exploiting information asymmetries to the detriment of users.
These measures also provide entrepreneurs with a clearer roadmap for building decentralized blockchain systems, helping to foster innovation.
Which government agency is responsible for regulation?
(CLARITY Act) will provide a clear, structured path for the transition of regulatory authority over digital assets from the U.S. Securities and Exchange Commission (SEC) to the Commodity Futures Trading Commission (CFTC).
Let's compare how existing laws and (CLARITY Act) (if passed) address the unique characteristics of blockchain systems:
How does the 'control-based' maturity framework of blockchain systems work?
Unlike the traditional effort-based decentralization test established by the SEC in 2019, the (CLARITY Act) maturity framework employs clear, objective, and easily measurable standards.
These standards focus on who controls the underlying blockchain systems and their associated digital assets. This aligns more closely with other regulatory regimes (such as money transmission) and eliminates improper incentives that would cause developers to stop development out of fear of being perceived as centralized. More importantly, this approach will assist legitimate developers in developing and continuing to develop (rather than abandoning projects), while making it more difficult for bad actors to exploit legal ambiguities, including engaging in 'performative decentralization' (rather than actual decentralization).
Specifically, the bill's framework incentivizes decentralization and protects consumers in the following ways:
Impose more oversight and a strict regulatory burden during the formation stage of blockchain systems (when centralized control exists), at which point the risk of native digital assets from blockchain systems is most similar to securities;
Reduce regulatory requirements as projects mature (without centralized control, risks decrease and resemble commodities the most).
Similar to past legislative efforts that aimed to transition 'from centralized to decentralized' (see the differences with FIT21 below), the regulatory obligations applicable to projects within the 'maturity' range include:
Mandatory disclosure: will enhance transparency;
Sales restrictions on insiders: protect consumers in the early stages, preventing insiders (such as relevant entrepreneurs and investors) from profiting at the expense of other consumers who are unaware.
However, unlike FIT21, (CLARITY Act) outlines seven objective, measurable standards to determine when a specific blockchain system is no longer controlled by individuals or a jointly managed group (such as a foundation), and thus its native digital assets no longer pose a risk similar to securities. This approach, centered on eliminating control, protects consumer investors while unlocking the full potential of blockchain technology. Moreover, by adopting measurable standards, the framework provided by (CLARITY Act) is easier for regulators to apply and for developers to follow.
In short, this new framework is a significant improvement over the traditional regulatory framework, as securities law was not designed for assets like blockchain systems, whose risk characteristics may shift from resembling securities to resembling commodities. This new framework has also received widespread support from the industry.
What impact does it have on specific industries like DeFi?
(CLARITY Act) provides important protections for DeFi. Specifically, the bill:
Exempt DeFi protocols and applications from the regulatory requirements established for digital goods trading intermediaries (such as exchanges, brokers);
Establish standards for DeFi. To qualify, DeFi systems must not act as intermediaries, ensuring that specific DeFi systems do not reintroduce the risks that regulation aims to mitigate.
Additionally, the Act will provide the necessary legal clarity for DeFi projects, enabling them to:
Launching and selling their native tokens, which were previously high-risk and unclear processes;
Adopting decentralized governance without the fear of being classified as centralized;
Providing self-custody services, which many projects have done before, now through this Act, individuals will have 'self-custody rights'.
CLARITY creates a fair competitive environment for DeFi projects. This also paves the way for integrating the advantages of DeFi into the broader financial system, unlocking its true potential for a wider array of consumers.
However, (CLARITY Act) is not perfect. It focuses solely on digital goods and does not address other regulated digital assets such as tokenized securities and derivatives. Furthermore, while (CLARITY Act) exempts DeFi systems from federal intermediary rules, it does not take precedence over state regulation, meaning the DeFi industry remains vulnerable to inconsistencies or excessive interventions at the state level. These gaps should be addressed in the Senate, future legislation, or through coordinated regulatory guidance (such as rulemaking by the SEC and CFTC).
(CLARITY Act) is better than the existing system?
Yes; (CLARITY Act) improves the current situation for the following reasons:
The industry currently lacks regulation: some may think that no regulation is better than regulation, but the current regulatory ambiguity benefits bad actors and speculators who exploit uncertainty to take advantage of consumers (not to mention the unchecked abuse of power by regulators). FTX is a prime example of these issues, harming not only the entire industry but also thousands of consumers. If we do not act in a timely manner, we will open the door to more bad actors like the former CEO of FTX.
The industry lacks transparency: without mandatory disclosure and listing standards, consumers frequently face scams and fraud. This lack of transparency breeds a 'casino' culture, giving rise to purely speculative products like meme coins.
The industry lacks protection: the absence of clear constraints on the regulatory authority of various federal agencies means that blockchain projects (especially DeFi projects) still face the risk of regulatory overreach, which has been prevalent in previous administrations.
The industry lacks standards: the lack of standards regarding decentralization/control means that consumers face unknown risks when using blockchain systems. For instance, they may believe their assets (including stablecoins) are secure. However, if these blockchain systems are controlled by a single entity (who could potentially shut it down), the assets may not be secure. As all industries mature, the establishment of standards will become increasingly common.
(CLARITY Act) compared to past legislative efforts (like FIT21)?
(CLARITY Act) has indeed absorbed the lessons learned from FIT21 and improved upon them:
Enhance transparency: fill in the gaps of FIT21 (which might allow certain traditional projects to evade disclosure requirements). (CLARITY Act) provides a framework for disclosure obligations for still-active traditional projects.
Strengthen consumer protection: make it more difficult for insiders to profit from information asymmetries. For example, (CLARITY Act) strictly limits project insiders from selling assets before the project matures (i.e., while still controlling the project).
The maturity framework is more rational: adopting a control-based decentralization test significantly improves the vague approach of FIT21. The framework is also more precise, as (CLARITY Act) proposes seven objective, measurable standards to determine whether a blockchain system is mature.
Improve regulatory oversight: provide regulators with greater flexibility to ensure that the regulatory framework evolves and expands as the industry matures.
How is (CLARITY Act) related to the recently passed (GENIUS Act)?
The newly passed (GENIUS Act) is a key step in modernizing the financial system. The House passed this significant legislation with overwhelming bipartisan support (308 votes in favor, 122 against, with 102 Democrats supporting), making history. However, this new legislation regarding stablecoins greatly increases the demand for broader market structure legislation like (CLARITY Act).
Why? Because (GENIUS Act) will accelerate the adoption of stablecoins, thereby driving more financial activities onto the blockchain, increasing reliance on blockchain for widespread payment and business activities. This trend is already happening, as ubiquitous payment processors, traditional financial institutions, and mature payment networks increasingly accept and adopt stablecoins.
However, the current stablecoin legislation does not regulate the blockchain on which all these assets operate, nor does it require these 'channels' to be secure, decentralized, or transparently governed. This gap exposes consumers and the broader economy to new systemic risks.
As the (GENIUS Act) is signed into law, the demand for (CLARITY Act) becomes increasingly urgent.
(CLARITY Act) provides the necessary standards and oversight to ensure the infrastructure supporting stablecoins (underlying blockchains, protocols, and other tools) meets safety, transparency, and control standards. Its objective, measurable requirements for defining mature blockchain systems also clarify for entrepreneurs how to meet these standards.
Without these complementary protections, the adoption of stablecoins may accelerate reliance on unregulated, opaque, and even hostile infrastructure. Through (CLARITY Act), ensuring that stablecoins operate on secure networks further protects consumers, reduces financial risks, and solidifies the U.S. dollar's strong position and leadership in the next generation of financial systems.
What will happen next?
As the (CLARITY Act) passes the U.S. House of Representatives, the bill will be sent to the Senate. The Senate Banking Committee and Agriculture Committee may review the bill.
Amended through their respective revision processes, then submitted for a vote in the full Senate.
However, it is more likely that a bipartisan group of senators will propose a separate Senate version of the cryptocurrency market structure bill, which may resemble the CLARITY Act in many ways. Subsequently, the Senate Banking and Agriculture Committees will review the bill through their own procedures, and if approved, it will be sent to a full Senate vote.
If both houses of Congress pass their respective bills, the House and Senate will need to reconcile any differences, whether through informal negotiation processes or more formal conference committees, and then each chamber will vote on the final compromise version.
When might all this happen? The main leaders of the House and Senate have set a goal to deliver the market structure bill to the president for signature by the end of September.
