a16z: Does the "CLARITY Act" Open a "Golden Age" of Crypto Compliance Innovation?

2025-07-21 15:30:36

Collection

With the signing of the GENIUS Act into law, our need for the CLARITY Act has become increasingly urgent.

Author: Miles Jennings, Policy Director and General Counsel at a16z crypto

Compiled by: Luffy, Foresight News

Recently, the U.S. House of Representatives advanced an important new "market structure" bill with overwhelming bipartisan support (294 votes in favor, 134 against, with 78 Democrats supporting it). 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 has now entered the Senate for review, where the Senate is drafting its own version of market structure legislation, with the CLARITY Act serving as a reference.

If passed, this bill will establish clear "rules of the game" for blockchain systems, ending years of uncertainty that stifled innovation, harmed consumer interests, and favored opaque businesses over entrepreneurs pursuing transparency. Just as the Securities Act of 1933 established investor protection mechanisms and propelled a century of capital formation in the U.S., the CLARITY Act is expected to become a law of significant historical importance.

When our legal framework can both promote innovation and protect consumers, the U.S. can lead the way, and the whole world can benefit. The CLARITY Act brings such an opportunity. Although this legislation builds on the bipartisan cooperation of last year's Financial Innovation and Technology for the 21st Century Act (FIT21), it has improved in several key areas, which will be elaborated below: what entrepreneurs need to know and why this bill is crucial for coordinating innovation, consumer protection, and U.S. national security.

Combined with the recently signed GENIUS Act (which will be detailed below), the need for a broader market structure bill has become increasingly urgent.

Why It Matters: A Macro Perspective

Despite the crypto industry developing 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 many areas, including payment systems (including through stablecoins), cloud infrastructure, and digital markets.

But these protocols and applications have been built without clear rules. What has been the result? Legitimate entrepreneurs face regulatory unpredictability, while speculators profit from legal ambiguities. The CLARITY Act will reverse this situation.

By providing transparent compliance pathways for projects and ensuring that regulators have more effective tools to oversee actual risks, the CLARITY Act (along with the new stablecoin legislation called the GENIUS Act) will bring the already large crypto industry out of the shadows and into a regulated economic system. The new legislation will create a framework for responsible innovation, much like the foundational laws of the 20th century that helped public markets thrive and protected consumers.

In addition to providing a clear compliance pathway, the bill also establishes clearer rules, giving entrepreneurs legal certainty to innovate confidently and operate domestically. This will ultimately alleviate the pressure on legitimate entrepreneurs to move their businesses 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 ensure that global digital and financial infrastructures are not reliant on blockchain systems created and controlled by entities such as China, while also 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

The 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 uncertainty.

Implementing 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:

Register with the Commodity Futures Trading Commission (CFTC);
Comply with compliance standards similar to those of traditional financial institutions.

These requirements enhance the transparency of core market infrastructure, help prevent fraud and abuse, and build consumer trust. They will also fill the current regulatory gaps—previously, companies like FTX could operate in the U.S. market without constraints.

Protecting Consumers with Strong Safeguards While Promoting Innovation

The CLARITY Act also includes direct consumer protection measures, including:

Requiring digital goods issuers to fulfill mandatory public disclosure obligations, ensuring retail participants can access essential and important information;
Restricting insider trading, limiting 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?

The 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 current laws and the CLARITY Act (if passed) address the unique attributes of blockchain systems:

How Does the "Control-Based" Maturity Framework for Blockchain Systems Work?

Unlike the traditional "efforts-based" decentralization test established by the SEC in 2019, the maturity framework of the CLARITY Act adopts clear, objective, and easily measurable standards.

These standards focus on who controls the underlying blockchain systems and their associated digital goods. This aligns more closely with other regulatory regimes (such as money transmission) and eliminates improper incentives that might cause developers to stop development out of fear of being perceived as centralized. More importantly, this approach will support legitimate developers in growing and continuing to develop (rather than abandoning projects), while making it harder for bad actors to exploit legal ambiguities, including engaging in "performative decentralization" (as opposed to actual decentralization).

Specifically, the bill's framework incentivizes decentralization and protects consumers by:

Imposing more oversight and strict regulatory burdens during the formation phase of blockchain systems (when centralized control exists), as the risks of native digital assets are most similar to securities at this stage;
Reducing regulatory requirements as projects mature (with no centralized control, risks decrease, and they become more similar to commodities).

As with past legislative efforts to transition "from centralized to decentralized" (see below for differences with FIT21), the regulatory obligations for projects within the "maturity" range include:

Mandatory disclosures: which will enhance transparency;
Sales restrictions on insiders: to protect consumers in the early stages and prevent insiders (such as related entrepreneurs and investors) from profiting from asymmetric information unknown to other consumers.

However, unlike FIT21, the CLARITY Act lists seven objective, measurable standards for determining when a specific blockchain system is no longer controlled by individuals or a jointly managed group (such as a foundation), thus its native digital assets no longer pose risks similar to securities. By centering on the elimination of control, this approach protects consumer investors while unlocking the full potential of blockchain technology. Moreover, due to the use of measurable standards, the framework provided by the CLARITY Act is easier for regulators to apply and for developers to follow.

In short, this new framework is a significant improvement over traditional regulatory frameworks, as securities laws were not designed for assets like blockchain systems, whose risk characteristics may shift from resembling securities to resembling commodities. This new framework has also received broad support from the industry.

What Impact Will It Have on Specific Industries Like DeFi?

The CLARITY Act provides important protections for DeFi. Specifically, the bill:

Exempts DeFi protocols and applications from the regulatory requirements established for digital goods trading intermediaries (such as exchanges and brokers);

Establishes standards for DeFi. To qualify, DeFi systems must not act as intermediaries, ensuring that specific DeFi systems do not reintroduce risks that regulation aims to mitigate.

Additionally, the bill will provide the necessary legal clarity for DeFi projects, enabling them to:

Launch and sell their native tokens, which previously involved high risks and uncertainties;
Adopt decentralized governance without fear of being classified as centralized;
Offer self-custody services, which many projects have already done, and now, through this bill, individuals will have "self-custody rights."

CLARITY creates a level playing field 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 range of consumers.

However, the CLARITY Act is not without its flaws. Since it focuses solely on digital goods, it does not address other regulated digital assets such as tokenized securities and derivatives. Moreover, while the CLARITY Act exempts DeFi systems from federal intermediary rules, it does not take precedence over state regulation, meaning the DeFi industry remains vulnerable to inconsistent or excessive state-level policies. These gaps should be addressed in the Senate, future legislation, or through coordinated regulatory guidance (such as rulemaking by the SEC and CFTC).

Is the CLARITY Act Better Than the Existing System?

Yes; the CLARITY Act improves the status quo for the following reasons:

Current lack of regulation: Some may argue that no regulation is better than regulation, but the current lack of clarity allows bad actors and speculators to profit, exploiting uncertainty to the detriment of consumers (not to mention the unrestrained 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 promptly, we will open the door to more bad actors like the former CEO of FTX.
Lack of transparency in the industry: Without mandatory disclosure and listing standards, consumers often face scams and fraud. This lack of transparency breeds a "casino" culture, giving rise to purely speculative products like meme coins.
Lack of protections in the industry: The absence of clear constraints on the regulatory authority of various federal agencies leaves blockchain projects (especially DeFi projects) at risk of regulatory overreach, which has been common in previous administrations.
Lack of standards in the industry: The absence of standards around decentralization/control exposes consumers to unknown risks when using blockchain systems. For instance, they may believe their assets (including stablecoins) are safe. However, if these blockchain systems are controlled by a single entity (which could shut it down directly), the assets may not be secure. As all industries mature, the establishment of standards will become increasingly common.

How Does the CLARITY Act Compare to Previous Legislative Efforts (Such as FIT21)?

The CLARITY Act effectively incorporates lessons learned from FIT21 and improves upon it:

Enhanced transparency: Filling the gaps in FIT21 (which may have allowed certain traditional projects to evade disclosure requirements). The CLARITY Act provides a framework for disclosure obligations for still-active traditional projects.
Strengthened consumer protections: Making it harder for insiders to profit from information asymmetries. For example, the CLARITY Act strictly limits the sale of assets by project insiders before the project matures (i.e., while they still control the project).
More reasonable maturity framework: Adopting a control-based decentralization test significantly improves upon FIT21's vague approach. The framework is also more precise, as the CLARITY Act proposes seven objective, measurable standards for determining whether a blockchain system is mature.
Improved regulatory oversight: Providing regulators with greater flexibility helps ensure that the regulatory framework evolves and expands as the industry matures.

How Does the CLARITY Act Relate 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 it), creating history. However, this new legislation regarding stablecoins greatly increases the demand for broader market structure legislation like the CLARITY Act.

Why? Because the GENIUS Act will accelerate the adoption of stablecoins, thereby driving more financial activities onto the blockchain and increasing reliance on blockchain for widespread payments and business activities. This trend is already occurring, as ubiquitous payment processors, traditional financial institutions, and established payment networks increasingly embrace and adopt stablecoins.

However, the current stablecoin legislation does not regulate the blockchains 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.

With the signing of the GENIUS Act into law, the demand for the CLARITY Act has become even more urgent.

The CLARITY Act provides the necessary standards and oversight to ensure that 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 give entrepreneurs clearer guidance on how to meet these standards.

Without these complementary protections, the adoption of stablecoins could accelerate the use of unregulated, opaque, or even hostile infrastructures. Through the CLARITY Act, ensuring that stablecoins operate on secure networks further protects consumers, reduces financial risks, and solidifies the dollar's strong position and leadership in the next generation of financial systems.

What Happens Next?

With the passage of the CLARITY Act in 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,

modify it through their respective amendment processes, and then submit it to the full Senate for a vote.

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 be similar to the CLARITY Act in many respects. Subsequently, the Senate Banking and Agriculture Committees will review the bill through their own processes, and if approved, it will be sent to the full Senate for a vote.

If both chambers 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 send the market structure bill to the President for signature by the end of September.