a16z: Could the CLARITY Act usher in a "golden age" of compliant crypto innovation?
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a16z: Could the CLARITY Act usher in a "golden age" of compliant crypto innovation?
The CLARITY Act will bring the already large cryptocurrency industry out of the shadows and into a regulated economic system.
Navigating Web3 tides with focused insightsAuthor: Miles Jennings, Head of Policy and General Counsel at a16z crypto
Translation: Luffy, Foresight News
The U.S. House of Representatives recently advanced an important new "market structure" bill with overwhelming bipartisan support (294 in favor, 134 opposed, including 78 Democrats). The bill, known as the Digital Asset Market Clarity Act (H.R. 3633), would establish a clear regulatory framework for digital asset markets. It now moves to the Senate, which is crafting its own version of market structure legislation, using the CLARITY Act as a reference point.
If passed, this bill would establish clear "rules of the game" for blockchain systems, ending years of uncertainty that have stifled innovation, harmed consumers, and favored shady operators who thrive on opacity over entrepreneurs committed to transparency. Just as the Securities Act of 1933 established investor protections and fueled a century of capital formation in the United States, the CLARITY Act has the potential to be a landmark law of its era.
When our legal frameworks foster both innovation and consumer protection, America leads—and the world benefits. The CLARITY Act presents such an opportunity. While building on last year’s bipartisan FIT21 legislation, this bill improves upon it in several key ways, outlined below: what founders need to know, and why this legislation is critical to aligning innovation, consumer protection, and U.S. national security.
In conjunction with the recently signed GENIUS Act (whose connection will be detailed below), the need for broader market structure legislation has become even more urgent.
Why It Matters: The Big Picture
Despite over a decade of development in the crypto industry, the United States still lacks a comprehensive regulatory framework. Yet cryptocurrency is no longer just a niche tech trend—it has become infrastructure: blockchain systems are now foundational to payments (including via stablecoins), cloud infrastructure, digital marketplaces, and more.
But these protocols and applications were built without clear rules. The result? Legitimate entrepreneurs face regulatory unpredictability, while speculators profit from legal ambiguity. The CLARITY Act would reverse this dynamic.
By providing projects with transparent compliance pathways and ensuring regulators have better tools to oversee real risks, the CLARITY Act—alongside the new stablecoin bill called the GENIUS Act—would bring the already massive crypto industry out of the shadows and into the regulated economy. This new legislation would create a framework for responsible innovation, much like foundational 20th-century laws that helped public markets flourish while protecting consumers.
Beyond offering clear compliance paths, the bill establishes clearer rules that give entrepreneurs legal certainty, enabling them to innovate confidently and operate domestically. This will ultimately reduce the pressure on legitimate innovators to move operations overseas.
This legal clarity would open the door to the next generation of decentralized infrastructure, financial tools, and user-owned applications—all built in the United States. Ensuring blockchain systems are developed here also ensures global digital and financial infrastructure won’t depend on blockchains created and controlled by, for example, China, while guaranteeing U.S. regulatory standards apply to core financial infrastructure increasingly used beyond crypto circles.
What Will This New Legislation Do?
Create a Clear Regulatory Pathway for Digital Commodities
The CLARITY Act creates a regulatory framework for digital assets that confer ownership rights within blockchain systems.
Using a “control-based” maturity framework, blockchain projects can launch digital commodities into public markets without facing excessive regulatory burdens or uncertainty.
Enable Oversight of Blockchain-Based Intermediaries
The bill ensures centralized entities in crypto—such as exchanges, brokers, and dealers—are subject to strong oversight. These intermediaries must:
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Register with the Commodity Futures Trading Commission (CFTC);
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Adhere to compliance standards similar to those for traditional financial institutions.
These requirements increase transparency in core market infrastructure, help prevent fraud and abuse, and strengthen consumer trust. They also close existing regulatory gaps—previously, companies like FTX could operate in U.S. markets with little constraint.
Protect Consumers with Strong Safeguards While Promoting Innovation
The CLARITY Act also includes direct consumer protections, such as:
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Mandatory public disclosure requirements for issuers of digital commodities, ensuring retail participants have access to essential information;
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Restrictions on insider trading, preventing early stakeholders from exploiting informational asymmetries to the detriment of users.
These measures also provide entrepreneurs building decentralized blockchain systems with a clearer roadmap, helping to drive innovation.
Which Government Agency Will Be in Charge?
The CLARITY Act provides a clear, structured pathway for shifting regulatory authority over digital assets from the Securities and Exchange Commission (SEC) to the Commodity Futures Trading Commission (CFTC).
Let’s compare how current law and the CLARITY Act (if passed) would address the unique attributes of blockchain systems:
How Does the “Control-Based” Maturity Framework for Blockchain Systems Work?
Unlike the SEC’s 2019 “effort-based” decentralization test, the CLARITY Act’s maturity framework uses clear, objective, and measurable criteria.
These criteria focus on who controls the underlying blockchain system and its associated digital commodity. This approach aligns better with other regulatory regimes (like money transmission) and eliminates perverse incentives for developers to stop building out their projects due to fears of being deemed centralized. More importantly, this method supports legitimate developers in growing and continuing development (rather than abandoning projects), while making it harder for bad actors to exploit legal gray areas—including through performative decentralization rather than genuine decentralization.
Specifically, the bill’s framework incentivizes decentralization and protects consumers by:
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Imposing greater oversight and stricter regulatory obligations during the formative phase of a blockchain system (when centralized control exists), when the risks of the system’s native digital asset most closely resemble those of securities;
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Reducing regulatory requirements as the project matures (when centralized control ends, risks decrease, and characteristics become more commodity-like).
Like previous legislative attempts to govern the “transition from centralized to decentralized,” regulatory obligations under this “maturity” framework include:
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Mandatory disclosures: increasing transparency;
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Sales restrictions on insiders: protecting consumers in early stages by preventing insiders (such as founding entrepreneurs and investors) from profiting using asymmetric information not available to others.
But unlike FIT21, the CLARITY Act lists seven objective, measurable criteria to determine when a specific blockchain system is no longer controlled by individuals or jointly managed groups (such as foundations), so its native digital asset no longer poses risks akin to securities. Because this approach centers on eliminating control, it both protects consumer-investors and unlocks the full potential of blockchain technology. And because it uses measurable standards, the CLARITY Act’s framework is easier for regulators to apply and developers to follow.
In short, this new framework is a significant improvement over traditional regulatory models, since securities laws were not designed for assets like blockchain systems whose risk profiles may evolve from security-like to commodity-like. This new framework also enjoys broad industry support.
Impact on Specific Sectors Like DeFi?
The CLARITY Act provides important safeguards for DeFi. Specifically, the bill:
Exempts DeFi protocols and applications from the regulatory requirements established for intermediaries in digital commodity trading (such as exchanges and brokers);
Establishes standards for DeFi: to qualify, a DeFi system must not act as an intermediary, ensuring that specific DeFi systems do not reintroduce the very risks that regulation aims to mitigate.
Additionally, the bill provides the legal clarity DeFi projects need to:
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Launch and sell their native tokens—processes previously high-risk and unclear;
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Adopt decentralized governance without fear of being classified as centralized;
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Offer self-custody services—something many projects already do—now codified through the bill, giving individuals a “right to self-custody.”
CLARITY levels the playing field for DeFi projects. It also paves the way for integrating the benefits of DeFi into the broader financial system, unlocking its true potential for a wider range of consumers.
However, the CLARITY Act is not perfect. Because it focuses only on digital commodities, 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 preempt state regulation, meaning the DeFi sector remains vulnerable to inconsistent or overly aggressive state-level policies. These gaps should be addressed in the Senate, future legislation, or through coordinated regulatory guidance (such as rulemakings by the SEC and CFTC).
Is the CLARITY Act Better Than the Status Quo?
Yes; the CLARITY Act improves upon the current state for the following reasons:
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Lack of regulation in the industry: Some might argue that no regulation is better than some, but the current lack of clarity benefits bad actors and speculators who exploit uncertainty to harm consumers (not to mention unchecked regulatory overreach). FTX is a prime example of these problems, damaging both the industry and thousands of consumers. Without timely action, we leave the door open to more bad actors like the former CEO of FTX.
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Lack of transparency in the industry: Without mandatory disclosures and listing standards, consumers often face scams and fraud. This lack of transparency fosters a “casino” culture, giving rise to purely speculative products like meme coins.
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Lack of protection in the industry: Without clear boundaries on federal agency jurisdiction, blockchain projects (especially DeFi projects) remain vulnerable to regulatory overreach—a recurring issue in prior administrations.
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Lack of standards in the industry: Without standards around decentralization/control, consumers face unknown risks when using blockchain systems. For example, they may believe their assets (including stablecoins) are secure. But if those blockchain systems are controlled by a single entity (who could shut it down at any time), the assets may not be safe. As all industries mature, establishing standards becomes increasingly common.
How Does the CLARITY Act Compare to Prior Legislative Efforts Like FIT21?
The CLARITY Act effectively incorporates lessons from FIT21 and builds upon it:
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Enhanced transparency: Closes loopholes in FIT21 that could allow certain legacy projects to avoid disclosure requirements. The CLARITY Act provides a framework for applying disclosure obligations to still-active legacy projects.
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Stronger consumer protections: Makes it harder for insiders to profit from information asymmetry. For example, the CLARITY Act strictly limits sales by project insiders before the project matures (i.e., while they still retain control).
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More reasonable maturity framework: Uses a control-based decentralization test, a major improvement over FIT21’s vague approach. The framework is also more precise, as the CLARITY Act proposes seven objective, measurable criteria to assess whether a blockchain system has matured.
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Improved regulatory oversight: Gives regulators greater flexibility, helping ensure the regulatory framework evolves and scales as the industry matures.
How Is the CLARITY Act Related to the Recently Passed GENIUS Act?
The newly passed GENIUS Act is a critical step toward modernizing the financial system. The House made history by passing this major legislation with overwhelming bipartisan support (308 in favor, 122 opposed, including 102 Democrats). However, this new stablecoin legislation significantly increases the need for broader market structure legislation like the CLARITY Act.
Why? Because the GENIUS Act will accelerate stablecoin adoption, driving more financial activity onto blockchains and increasing reliance on blockchain systems for widespread payments and commerce. This trend is already underway, as ubiquitous payment processors, traditional financial institutions, and established payment networks increasingly adopt stablecoins.
Yet current stablecoin legislation does not regulate the blockchains on which these assets operate, nor does it require that these “channels” be secure, decentralized, or transparently governed. This gap exposes consumers and the broader economy to new systemic risks.
With the GENIUS Act now signed into law, the urgency for the CLARITY Act has grown substantially.
The CLARITY Act provides the necessary standards and oversight to ensure the infrastructure underpinning stablecoins—the underlying blockchains, protocols, and other tools—meets requirements for security, transparency, and control. Its objective, measurable criteria for defining mature blockchain systems also give entrepreneurs clearer guidance on how to meet these standards.
Without these complementary safeguards, stablecoin adoption could accelerate the use of unregulated, opaque, or even adversarial infrastructure. The CLARITY Act ensures stablecoins operate on secure networks, further protecting consumers, reducing financial risk, and reinforcing the dollar’s strength and leadership in next-generation financial systems.
What Happens Next?
With the CLARITY Act passed by the U.S. House of Representatives, the bill now goes to the Senate. The Senate Banking Committee and the Agriculture Committee may review the bill,
amend it through their respective procedures, and then send it to the full Senate for a vote.
However, it is more likely that a bipartisan group of senators will introduce a separate Senate version of the cryptocurrency market structure bill, which may resemble the CLARITY Act in many respects. That bill would then be reviewed by the Senate Banking and Agriculture Committees through their own processes, and if approved, sent to the full Senate for a vote.
If both chambers pass their respective bills, the House and Senate will need to reconcile any differences—either through informal negotiations or a formal conference committee—after which each chamber will vote on the final compromise version.
When could this happen? Key leaders in both the House and Senate have set a goal of sending a market structure bill to the President for signature by the end of September.
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