The Biggest Variable for the Crypto Market Outlook: Can the CLARITY Act Pass the Senate?

Original | Odaily (@OdailyChina)

Author｜Azuma (@azuma_eth)

This morning, the overseas cryptocurrency media Decrypt reported that, according to informed sources, representatives from Wall Street and the cryptocurrency industry held an offline closed-door meeting yesterday to resolve their differences regarding the upcoming cryptocurrency market structure bill (the CLARITY Act) set for review by the Senate.

No public information had previously leaked about this closed-door meeting. However, according to Decrypt's report, the Wall Street major trade group "Securities Industry and Financial Markets Association (SIFMA)" participated in the discussions. This organization had previously opposed core aspects of the CLARITY Act, including explicitly opposing the regulatory exemptions for decentralized financial services like DeFi and their developers outlined in the bill. Informed sources revealed that yesterday's talks between the two sides were "constructive" and "productive" on divisive issues such as DeFi regulation.

Deconstructing the Core Content of CLARITY

The full name of CLARITY is the "Digital Asset Market Clarity Act of 2025." The bill was initially jointly proposed on May 29, 2025, by House Financial Services Committee Chairman French Hill and Agriculture Committee Chairman G.T. Thompson. The bill aims to establish a regulatory framework for digital assets, clearly distinguish their classifications, and delineate the regulatory responsibilities of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

The top-tier law firm Arnold & Porter has provided a detailed analysis of the bill's specifics. In essence, CLARITY seeks to categorize digital assets into three distinct classes: digital commodities, investment contract assets, and compliant payment stablecoins.

"Digital commodity" refers to a digital asset intrinsically linked to a blockchain system, whose value is directly derived from the functionality or operation of that blockchain system, or from the activities or functions served when the blockchain was created or is used. In other words, the value of such digital assets must depend on the functional utility of the blockchain network itself, such as payments, governance, access to on-chain services, incentive structures, etc. It is noteworthy that the bill explicitly excludes financial instruments like securities, derivatives, and stablecoins from the definition of "digital commodity."

"Investment contract asset" refers to a digital commodity that simultaneously meets the following conditions: first, it can be exclusively held and transferred peer-to-peer without an intermediary; second, it is recorded on a blockchain; third, it has been or is intended to be sold or transferred under an investment contract (i.e., for fundraising purposes). This means that if a digital commodity is sold in a fundraising context (e.g., an ICO), it would be classified as an investment contract asset and treated as a security, falling under SEC jurisdiction. Simultaneously, the CLARITY Act also carves out this category of investment contract assets from the traditional definition of "investment contract" under U.S. securities law.

However, the security status of an investment contract asset is "temporary." Once the digital asset is resold or transferred by a third party other than the issuer or its agents, the asset will no longer be considered a security, even if it was initially issued as an investment contract asset. That is to say, when the asset enters the secondary market for trading, it no longer meets the definition of an investment contract asset and would be regarded as a pure digital commodity.

"Compliant payment stablecoin" refers to a digital asset that meets the following conditions: first, its designed purpose is as a means of payment or settlement; second, it is denominated in a specific fiat currency; third, its issuer is subject to supervision and examination by state or federal regulators; fourth, the issuer has an obligation to redeem it at a fixed monetary value.

• Odaily Note: Compared to the classification of commodity vs. security attributes, stablecoin-related content is not the core of the CLARITY Act, but it is one of the current focal points of disagreement regarding the bill. The previously passed GENIUS Act, which cleared both houses and was signed by Trump, implicitly allowed for yield-bearing stablecoins pegged to the U.S. dollar. However, SIFMA and banking industry lobbying groups hope to ban such provisions through CLARITY.

Based on this classification, CLARITY also clarifies the regulatory responsibilities of the two major agencies: the SEC and the CFTC.

• Specifically, CLARITY would grant the CFTC exclusive anti-fraud and anti-manipulation enforcement jurisdiction over digital commodities (including cash or spot transactions). It would also require intermediaries handling digital commodities — including currently dominant cryptocurrency exchanges or other brokers and dealers — to register with the CFTC.
• Regarding the SEC, CLARITY would grant it exclusive jurisdiction over the issuers and issuance activities of investment contract assets, including related registration, disclosure, and ongoing reporting obligations. The SEC would also retain anti-fraud and anti-manipulation jurisdiction over digital commodity trading conducted through SEC-registered brokers, dealers, or national securities exchanges.
• For compliant payment stablecoins, their issuers would primarily be regulated by banking regulators, but the CFTC and SEC would retain anti-fraud and anti-manipulation jurisdiction over trading on their respective registered platforms.

What is the Significance of CLARITY?

In summary, CLARITY aims to establish a clear, functional federal regulatory framework for the U.S. digital asset market, addressing long-standing issues of regulatory ambiguity and inconsistent enforcement.

Over the past five years, the jurisdictional tug-of-war between the SEC and CFTC has shaped the overall landscape of cryptocurrency regulation in the United States.

During the tenure of former SEC Chairman Gary Gensler, the agency's stance was that "the vast majority of digital assets are securities," primarily based on the Howey Test established by the U.S. Supreme Court in 1946. The SEC argued that most token sales constituted investment contracts and should therefore be subject to federal securities laws. This interpretation laid the groundwork for the SEC's aggressive enforcement, during which it initiated dozens of high-profile enforcement actions against token issuers, crypto exchanges, and related service providers.

In contrast, the CFTC has been more inclined to view certain digital assets as commodities, especially those with a higher degree of decentralization and that do not directly generate profits. While the CFTC has consistently sought to expand its regulatory role in the crypto market and has repeatedly warned that the current unclear jurisdictional boundaries create a "regulatory vacuum" that could endanger market integrity, the existing Commodity Exchange Act limits the CFTC's authority in the spot commodity market, primarily confining its power to anti-fraud and anti-manipulation enforcement.

The ongoing jurisdictional competition between the SEC and CFTC has left market participants and crypto developers in a gray area for a long time — unable to determine whether their products or services should be regulated under securities law or commodity law. CLARITY is a legislative response born from this regulatory stalemate, aiming to establish a stable, clear, and enduring framework for dividing responsibilities between the SEC and CFTC through legislation.

For the cryptocurrency industry, the enactment of CLARITY would signify a substantive shift in the regulatory environment, meaning a more predictable compliance path in the future. Market participants would be able to clearly understand which activities, products, and transactions fall under regulatory scope, thereby reducing long-term regulatory uncertainty, lowering litigation risks and regulatory friction, and consequently attracting more innovators and traditional financial institutions to enter the space.

Regarding more direct market impact, while a breakthrough at key junctures (such as the recent Senate review) could trigger short-term positive sentiment, its longer-term effect lies in making cryptocurrency a "more easily allocable asset class for traditional capital." By resolving institutional uncertainty, it provides a compliant entry path for long-term capital that was previously unable to enter, thereby raising the valuation floor for the entire market.

What is CLARITY's Progress? What are the Obstacles?

On July 17 last year, CLARITY passed review in the U.S. House of Representatives with an overwhelming majority (vote count approximately 294–134). However, unlike the smoothly progressing GENIUS Act at the time, CLARITY encountered resistance when subsequently transferred to the Senate due to disagreements among various factions.

Overall, disagreements surrounding CLARITY primarily focus on the regulatory approach to DeFi, the issue of yield-bearing stablecoins, and ethical standards related to the Trump family.

Among these, regulation of DeFi is the most sensitive point of contention. Advocates in the cryptocurrency field hope to protect developers and open-source software, arguing that code should not be treated as a regulated financial intermediary. However, Wall Street expresses concerns citing money laundering, sanctions evasion, and national security risks, arguing that overly broad safeguards could pose dangers and strongly demanding that DeFi be brought under the umbrella of traditional financial regulation.

Another major point of disagreement concerns yield-bearing stablecoins. As mentioned earlier, the GENIUS Act implicitly allowed for such stablecoins, but major U.S. banks have been actively lobbying to prohibit stablecoin issuers from passing on earnings from reserve assets (like Treasury bonds) to holders, to prevent this avenue from causing deposits to flow out of the traditional banking system. The cryptocurrency industry is obviously unwilling to be shackled. Industry representatives have been criticizing banking protectionism while emphasizing that GENIUS already addressed regulatory and licensing issues related to stablecoins, making further discussion unnecessary.

Due to persistent disagreements, the bill, originally scheduled for review mid-last year, was postponed to October, then to the end of last year, and further to 2026... Until this Tuesday, Senate Banking Committee Chairman Tim Scott officially announced that the committee will vote on the bill on January 15.

Tim Scott is a Republican Senator from South Carolina. Although the cryptocurrency industry generally believes the January 15 schedule is too rushed,不利于解决分歧, and could even jeopardize the bill's chances of approval this year, Tim Scott has insisted on this arrangement. In an interview with Breitbart, Tim Scott stated: "I think we have to go on the record and vote. So, next Thursday we will vote on CLARITY. Over the last six-plus months, we have worked tirelessly to ensure that every member of the committee has seen multiple drafts."

So the current situation is that next week's vote will determine whether CLARITY can pass the Senate Banking Committee — a crucial step before the bill can be submitted to the full Senate for consideration. Furthermore, only with bipartisan support in the committee review would it have a chance to ultimately pass in the Senate. However, based on multiple reports, it remains unclear whether the bill currently has sufficient votes to pass the committee's review.

Although the closed-door meeting mentioned at the beginning of this article brought some positive news, it is still insufficient to guarantee a smooth passage in next week's vote. In Decrypt's report, a cryptocurrency industry representative even bluntly stated: "I can't believe we're finally seeing Democrats and Republicans proactively working together on something, and we might kill it because of an arbitrary timeline."

Jake Ostrovskis, Head of OTC at Wintermute, mentioned a longer-term timeline for CLARITY's passage through the Senate: "The market generally believes April is the last realistic deadline for a full Senate vote (before the political storm of the midterm elections erupts), and to achieve that, the SEC and CFTC need to reach an agreement on amendments by the end of January. This issue is likely to become further politicized, so expect related news coverage throughout January as things develop."

In conclusion, next week's Senate Banking Committee vote will kick off CLARITY's legislative journey. While the current situation remains unclear, a clearer directional expectation will emerge next week.