《CLARITY Act》Released: Ethereum the Biggest Winner?

Original Author: Adriano Feria

Original Translation: Jiahuan, ChainCatcher

On May 12, the Senate Banking Committee released the full 309-page revised text of the Digital Asset Market Clarity Act.

Most reporting will focus on which tokens failed the new decentralization test, which issuers face new disclosure burdens, and which projects need to restructure during the four-year transitional certification window. These reports are not wrong, but they are incomplete.

The bigger story lies in how the bill affects the one asset that passed every single criterion of the test and happens to be the only one with a functioning programmable smart contract platform.

Once the framework becomes law, Ethereum will occupy a unique regulatory category in the U.S. legal system, one with only itself as a member. The two major bearish theses on ETH that have dominated the market for the past five years will simultaneously collapse, and the market has yet to price this in.

Two Bills, One Framework

Before diving into the substance, it's necessary to briefly review the broader regulatory architecture, as public discussion often conflates two distinct pieces of legislation.

The GENIUS Act (the Guiding and Establishing National Innovation for U.S. Stablecoins Act) was signed into law by the President on July 18, 2025.

It establishes the first federal regulatory framework for payment stablecoins: requiring 1:1 reserves in liquid assets, monthly reserve disclosures, federal or state licensure for issuers, a ban on algorithmic stablecoins, and a key restriction that stablecoin issuers cannot directly pay interest or yield to holders.

The GENIUS Act covers USDC, USDT, and bank-issued stablecoins. It covers nothing else.

The CLARITY Act covers everything else. It addresses the SEC and CFTC jurisdictional division, the decentralization test for non-stablecoin tokens, exchange registration, DeFi rules, custody rules, and the ancillary asset framework.

These two acts are complementary parts of a broader regulatory structure.

Most financial media coverage of the CLARITY Act has focused on the stablecoin yield issue, because Title IV, concerning the "Preservation of Stablecoin Holder Rewards," was the political flashpoint that nearly killed the bill.

Banks pushed to prohibit indirect yield generation through exchanges and DeFi protocols, because yield-bearing stablecoins compete with bank deposits. Crypto exchanges strongly advocated for retaining the provision. The bipartisan compromise reached on May 1, 2026, cleared the bill's path, but after several delays in deliberations, the legislation remains precarious.

This debate is important, but it is just one part of a nine-title bill. For anyone actually holding and trading non-stablecoin tokens, the more far-reaching provisions are hidden in Section 104, and almost no one is discussing its second-order effects on asset valuation.

The Five Tests

Section 104(b)(2) of the Act directs the SEC to weigh five criteria when determining whether a network and its token are under coordinated control:

Open digital system. Is the protocol publicly available open-source code?

Permissionless and credibly neutral. Can any coordinating group censor users or grant itself hardcoded priority access?

Distributed digital network. Does any coordinating group beneficially own 49% or more of the circulating tokens or voting power?

Self-governing distributed ledger system. Has the network achieved self-governance, or does someone retain unilateral upgrade authority?

Economic independence. Is the primary value capture mechanism actually functioning?

Networks that fail the test will produce a "network token" presumed to be an "ancillary asset," meaning its value depends on the entrepreneurial or managerial efforts of a specific promoter.

This classification triggers semi-annual disclosure obligations, insider resale restrictions modeled on Rule 144, and initial issuance registration requirements. Secondary market trading on exchanges may continue uninterrupted.

The 49% threshold is the core data point; it is far more lenient than the 20% red line in the House version of the CLARITY Act. Networks that fail under the 49% threshold do so for genuinely structural reasons, not technicalities.

Bitcoin and Ethereum pass all criteria uncontroversially. Solana hovers on the edge, with the foundation's influence on upgrades, heavy early insider allocations, and a history of coordinated network halts working against standards of self-governance and credible neutrality.

Almost all other major smart contract platforms fail for structural reasons that cannot be easily remedied. This list includes XRP, BNB Chain, Sui, Hedera, and Tron, and by extension, most L1 competitors.

Among the assets that do pass the tests, precisely one has a functioning native smart contract economy.

The Shift in Valuation Regime

Tokens trade based on two fundamentally different valuation frameworks.

The first is the commodity/monetary premium system, where value derives from scarcity, network effects, store-of-value properties, and reflexive demand, with no fundamental-based valuation ceiling.

The second is the cash flow/equity system, where value derives from revenue capitalized through standard multiples, subject to strict upper limits imposed by realistic revenue projections.

Most non-Bitcoin tokens have existed in a strategic ambiguity between these two systems, marketing themselves using whichever framework yields the higher valuation. The CLARITY Act ends this ambiguity through three mechanisms.

First, disclosure requirements impose a cognitive framework. Section 4B(d) mandates semi-annual disclosures including audited financial statements (for those over $25 million), a CFO's going-concern statement, a summary of related-party transactions, and forward-looking development costs.

Once a token has SEC filings resembling a 10-Q, institutional analysts will evaluate it as they would an entity filing a 10-Q. The filing format determines the valuation framework.

Second, the legal definition itself is a qualification. An ancillary asset is defined as a token "whose value is dependent on the entrepreneurial or managerial efforts of the ancillary asset promoter." This definition is conceptually incompatible with a monetary premium, which requires that value be independent of any issuer's efforts.

A token cannot plausibly claim a monetary premium pricing power while simultaneously conforming to the legal definition of an ancillary asset.

Third, visible scarcity is fragile scarcity. Monetary premium is reflexive, and reflexivity requires a scarcity narrative that the market can collectively believe in.

When a token discloses its treasury information, named insider unlock schedules, and quarterly reports on related-party transactions to the SEC, its scarcity story becomes visible; once visible, reflexivity collapses. Investors can see exactly how much insiders hold and when those tokens will be sold. This visibility kills buying pressure.

The result is a two-tier market. Tier 1 assets trade on monetary premium with no fundamental-based valuation ceiling. Tier 2 assets trade on revenue multiples with a reasonable valuation ceiling.

Tokens currently priced on Tier 1 logic but relegated to Tier 2 will face a structural re-rating. For tokens with weak fundamentals but valuations driven primarily by narrative, LINK and SUI being the most typical examples, this re-rating could be severe.

The End of Two Bearish Theses on ETH

For five years, the bearish case for ETH has rested on two main pillars.

The first logic posited that ETH could ultimately not be classified as a commodity but would be deemed a security. The pre-mine, the foundation's ongoing influence, Vitalik's public role, and post-merge validator economics all gave the SEC ample grounds to act if needed.

Every bullish case for ETH had to discount the tail risk that institutional capital channels might be restricted.

The second logic argued that ETH would be replaced by faster, cheaper smart contract platforms. Each cycle births new "Ethereum killers," such as Solana, Sui, Aptos, Avalanche, Sei, and BNB Chain, each touting better user experience and lower fees.

This argument held that ETH's technical limitations would force an economic migration, diluting its value capture capability.

The CLARITY Act does not merely weaken these bearish theses; it structurally overturns them from the ground up.

The first logic collapses because ETH cleanly passes all five criteria of Section 104. No coordinated control, ownership concentration far below 49%, no unilateral upgrade authority post-merge, fully open source, and a functioning value capture mechanism.

The regulatory tail risk that has long justified a discount on ETH has dissipated.

The second logic collapses in a more interesting way. "Ethereum killers" only compete with ETH if they adopt the same valuation framework.

If SOL is certified as a decentralized asset, the competition continues. If it fails the test (as do all other major smart contract contenders currently), they are forced into the Tier 2 valuation system, while ETH remains in Tier 1.

The competitive landscape thus changes. Tier 2 assets cannot compete with Tier 1 assets on monetary premium, because the core meaning of Tier 1 is freedom from fundamental-based valuation caps.

Those faster, cheaper blockchains can still win in specific verticals on transaction throughput and developer attention. But they cannot win on the asset valuation framework that determines L1 market capitalization the most.

The Only Entry Pass

Among assets passing Section 104's test, Ethereum is the only one with a functioning native smart contract economy. Bitcoin passes the test, but its base layer does not support programmable finance.

Every smart contract platform with meaningful TVL has one or more substantive failures in the test. This includes Solana, BNB Chain, Sui, Tron, Avalanche, Near, Aptos, and Cardano.

Thus, the bill creates a new regulatory category: decentralized digital commodities with a native smart contract economy, and currently, it has only one member.

Every traditional financial institution exploring tokenization, settlement, custody, or on-chain finance needs two things: programmability and regulatory clarity.

Before CLARITY, these attributes were strictly separated. Bitcoin had clarity but was not programmable. Smart contract platforms were programmable but legally ambiguous. After CLARITY, Ethereum becomes the only asset offering both attributes within a single legal category.

Once the framework takes effect, anyone building tokenized Treasuries, tokenized funds, on-chain settlement infrastructure, or institutional-grade DeFi on-ramps will have a clear, preferred underlying carrier.

This preference is not aesthetic or technical. It is driven by compliance. Asset managers, custodians, and bank-affiliated funds operate within legal frameworks that favor commodity-class assets and disfavor securities-like assets.

Institutional capital flows follow asset classifications, and the classification has now narrowed to a single programmable asset.

The Sound Money Question

Once BTC and ETH share the Tier 1 classification, it is necessary to scrutinize their comparison on monetary properties, because conventional wisdom has the causation backwards.

The preference for Bitcoin has always rested on its nominally fixed supply schedule of 21 million and predicable halving every four years. As a scarcity narrative, this is indeed very valuable, and the simplicity of this story is one reason BTC was first to achieve monetary premium.

But BTC's supply model also carries three structural burdens rarely mentioned when discussing scarcity.

First, mining creates continuous structural selling pressure. Network security depends on miners covering real-world operating costs: electricity, hardware, hosting, and financing.

These costs are denominated in fiat, meaning miners must persistently sell a significant portion of newly issued BTC into the market, regardless of price.

This selling is permanent, price-insensitive, and embedded in the consensus mechanism itself. It is the cost of maintaining the Proof-of-Work security model.

Second, BTC offers no native yield. Holders seeking yield must either lend BTC to counterparties (introducing credit risk) or move it to non-BTC platforms (introducing custody and cross-chain bridge risk).

The opportunity cost of holding non-yield-bearing BTC compounds over time relative to assets that generate native yield. For institutional holders measured against yield-inclusive benchmarks, this is a real and persistent drag.

Third, the cliff-like decline in mining subsidies is a long-tail risk to the very decentralization that qualifies BTC for Tier 1 classification.

Block rewards halve every four years and approach zero in 2140, but the actual pressure begins much sooner. By the 2030s, subsidy income will be a fraction of today's, and the network must rely on fee income to make up the shortfall to maintain security.

If the fee market does not develop sufficiently, the lowest-cost mining enterprises will consolidate, miner concentration will increase, and the credible-neutral decentralization valued by Section 104 will begin to erode. This is not an imminent risk, but a structural risk that the BTC model has not yet addressed.

Ethereum reverses each of these properties.

ETH has a variable issuance with no fixed cap, the core argument sound money purists use against it. This argument is superficial.

What actually matters to holders is the rate of change in their share of the total supply, not whether the supply plan has a fixed terminal value.

Under Ethereum's post-merge design, all issued tokens are distributed as staking rewards to validators. Validators have historically earned yields higher than the inflation rate, meaning anyone participating in staking can maintain or increase their share of total supply over time.

For anyone running a validator node or holding a liquid staking derivative, the "infinite supply" argument is rhetorically forceful but mathematically unsound.

The structural selling pressure that burdens BTC does not exist at the same scale on ETH. Validator operating costs are negligible relative to their returns. Solo staking requires a one-time hardware purchase and minimal ongoing electricity. Liquid staking and pooled staking abstract away even these costs.

Newly issued tokens accrue to validators and are largely retained, rather than sold into the market to cover costs. The same security model that distributes yield to holders also avoids the price-insensitive selling required by Proof-of-Work.

The subsidy cliff problem is also absent. Ethereum's security budget scales with the value of staked ETH and is funded through ongoing issuance and fee revenue. There is no predetermined date when security funding suddenly dries up.

This model is self-sustaining, while BTC's model increasingly depends on fee market development, the achievement of which remains uncertain.

None of this is to argue that ETH will replace BTC. They play different roles in institutional portfolios.

BTC is a simpler, clearer, more politically defensible scarce asset. ETH is productive monetary collateral, deriving value by paying its holders for participating in its security.

The key point is that the conventional view — that BTC is "harder money" than ETH because of its fixed supply cap — collapses under scrutiny.

ETH's variable issuance combined with native yield offers holders better actual economic properties than BTC's fixed supply combined with zero yield, and it does so without structural selling pressure or