CLARITY Act: Unlocking the Future of US Crypto Regulation in 2025

The crypto world has long awaited a definitive answer to its regulatory challenges. Now, with ‘Crypto Week’ in full swing, a landmark piece of legislation, the CLARITY Act, is poised to bring that much-needed definition, potentially reshaping the future of digital assets in the United States. This pivotal moment could redefine how digital assets are classified, traded, and regulated, offering a path forward from years of uncertainty.

Understanding the CLARITY Act’s Core Mission

At the heart of Washington’s legislative spotlight lies the CLARITY Act, officially known as the Digital Asset Market Structure Clarity Act. This bill represents a decisive step by Congress into the crypto conversation, building upon the foundations of the 21st Century Financial Innovation and Technology Act. Its primary goal is to resolve a long-standing question: Who regulates crypto in the United States — the Securities and Exchange Commission (SEC) or the Commodities Futures and Trading Commission (CFTC)?

Introduced on May 29, 2025, by Representative French Hill, a Republican from Arkansas and chair of the House Financial Services Committee, the CLARITY Act aims to establish a predictable compliance environment for crypto businesses and investors. Its key provisions include:

• Clear Digital Asset Definitions: Establishes consistent legal definitions for terms like blockchain, digital asset, and digital commodity, reducing ambiguity.
• Split Oversight (SEC & CFTC): Assigns regulatory roles based on how a digital asset is used. The SEC handles investment offerings (e.g., tokens initially offered as part of investment contracts), while the CFTC oversees commodities and trading (e.g., if a token is decentralized and used primarily for utility or exchange).
• “Investment Contract Assets” Creation: Allows certain tokens that began as securities to transition and be treated as commodities once they achieve decentralization.
• Mandatory Registration for Crypto Businesses: Exchanges, brokers, and dealers dealing with digital commodities must register with the CFTC to avoid penalties.
• Limited Fundraising Without SEC Registration: Projects can raise up to $75 million annually under specific disclosure requirements, provided their blockchain aims for decentralization.
• Defining Mature Blockchain Systems: A blockchain is deemed mature if no single person or group controls it, enabling lighter regulation.
• Protection of Self-Custody Rights: Individuals are guaranteed the right to hold and use digital assets in their own wallets without needing a bank or intermediary.
• Ongoing Project Disclosures: Issuers must provide regular updates about blockchain development, token supply, financials, and project risks.
• Delisting Rules for Unsafe Tokens: The SEC and CFTC will create a joint process to remove non-compliant or risky digital assets from trading platforms.
• Preservation of Existing Financial Laws: Clarifies that the Act does not alter how traditional financial products like futures, swaps, and securities are regulated.
• International Coordination & AML Compliance: Encourages cooperation with global regulators and expands anti-money laundering rules to include crypto entities.

Did you know? Under the CLARITY Act, projects can use a streamlined path to raise capital through token sales, but only if they meet strict conditions like using a functional blockchain within 12 months and showing decentralization progress.

Revolutionizing Digital Assets Oversight

The CLARITY Act’s goal is to replace ambiguity with structure and finally unlock regulatory harmony in the US. For years, the crypto industry has been caught in a regulatory gray zone. Token projects, exchanges, and investors have struggled with inconsistent enforcement actions, unclear rules, and lawsuits that span federal courts. The SEC’s enforcement-first approach, including high-profile lawsuits against major exchanges, has drawn criticism for stifling innovation and offering little proactive guidance. At the same time, the CFTC has shown interest in overseeing crypto derivatives and commodities but lacked authority over spot markets.

The CLARITY Act addresses this head-on by defining jurisdiction boundaries, allowing digital asset companies to register under appropriate frameworks, and promoting legal certainty in secondary market trading. This legislative clarity promises significant benefits for various stakeholders:

• Crypto Companies: Startups and large platforms alike benefit from predictable oversight. With fewer regulatory surprises, projects can focus on innovation, product development, and expansion.
• Institutional Investors: Clarity encourages greater institutional participation. Funds, banks, and asset managers are more likely to engage with digital assets when compliance frameworks are clear and stable.
• Retail Investors: Individual users gain stronger protections, better disclosure standards, and more confidence in the legitimacy of token projects and exchanges.
• US Innovation: The act helps position the United States as a global leader in digital finance, countering the regulatory advancements made by jurisdictions like the EU, Singapore, and the UAE.

The act also aligns with growing public support for digital financial services, especially as decentralized finance (DeFi), non-custodial wallets, and blockchain applications gain traction among everyday users.

Did you know? While often crypto-friendly, SEC Commissioner Hester Peirce warns that token classification shouldn’t exempt digital assets from securities law. She argues that many projects still involve investor funding and central control, meaning they should remain under SEC scrutiny, even if tokens later become tradable or decentralized.

Navigating the Complexities of Crypto Regulation

Despite its potential benefits, the CLARITY Act faces significant criticism from various corners. Critics, including Americans for Financial Reform (AFR), former CFTC chair Timothy Massad, Senator Elizabeth Warren, and top Democrats, argue that the Act risks weakening SEC oversight, creating regulatory confusion, and potentially enabling large tech companies to sidestep investor protections. Here’s why critics believe the CLARITY Act puts investors at risk:

• Weakened SEC Oversight: Consumer advocacy group AFR argues the CLARITY Act would reduce the SEC’s power to protect retail investors. AFR slammed the Act as even more deregulatory than FIT 21, introduced in 2024. By classifying many tokens as commodities, the bill could allow high-risk crypto products to avoid strict securities regulations, potentially increasing scams and losses in the broader crypto market.
• Increased Regulatory Confusion: Timothy Massad, former chair of the CFTC, has criticized the Act for complicating rather than simplifying regulation. He says the bill’s dual-oversight approach might deepen confusion about which agency enforces what, especially in fast-evolving crypto markets, and urges stronger coordination between the SEC and CFTC.
• Risk of Big Tech Exploitation: Senator Elizabeth Warren has warned that the CLARITY Act could allow large companies, such as Meta or Tesla, to sidestep the SEC entirely by issuing crypto tokens classified as commodities. She argues this opens the door to unregulated corporate fundraising, diminishing transparency and investor accountability.
• Democratic Opposition to Oversight Shift: Top Democrats like Representatives Maxine Waters and Angie Craig have voiced opposition to the bill, arguing it shifts too much power away from the SEC. They believe the current proposal favors crypto industry interests over retail investor safety and could reduce regulatory accountability across financial markets.

Did you know? A new classification called “restricted digital assets” is introduced by the CLARITY Act, limiting their resale unless specific criteria are met, aiming to prevent unregulated secondary market trading.

The Crucial Role of SEC and CFTC in Crypto’s Future

The fundamental challenge in US crypto regulation has been the lack of clear jurisdictional boundaries between the SEC and the CFTC. The CLARITY Act directly confronts this by providing a framework that delineates the responsibilities of each agency based on the nature and use of digital assets. This distinction is crucial for market participants, as it aims to reduce regulatory arbitrage and ensure that businesses can comply with a specific set of rules rather than facing arbitrary enforcement actions.

By defining when a digital asset is an investment contract (under SEC purview) versus a commodity (under CFTC purview), the Act seeks to bring predictability. The provision for a joint process between the SEC and CFTC to delist non-compliant or risky digital assets further emphasizes the intent for coordinated oversight, moving towards a more harmonious regulatory environment.

What Crypto Week Means for the Future of Crypto

The CLARITY Act is being debated during Washington’s ‘Crypto Week,’ a period focused on digital asset policy with several bills under review. This synchronized legislative push shows that lawmakers are increasingly viewing digital assets as a strategic sector that requires thoughtful rules rather than reactive enforcement. Officially introduced as H.R. 3633, the CLARITY Act has already been approved by both the House Agriculture Committee and the House Financial Services Committee.

If the CLARITY Act passes in the House, it faces scrutiny in the Senate, where support is growing but not guaranteed. Notably, cryptocurrency-related bills backed by US President Donald Trump, including the GENIUS Act regulating stablecoins, failed to pass a key procedural vote in the House of Representatives, despite Trump urging Republicans to support the measures. The GENIUS Act had earlier passed the Senate with bipartisan backing.

In response to Republican-backed crypto legislation, Democratic leaders launched an “anti-crypto corruption week,” calling for amendments to include consumer protections and ethical safeguards. They aim to prevent the president, vice president, and members of Congress from holding or promoting cryptocurrencies, citing potential conflicts of interest. The push follows scrutiny of Trump’s ties to a family-backed crypto firm, raising concerns about foreign influence and ethical violations related to stablecoin legislation.

Meanwhile, the White House has maintained a cautiously optimistic stance but is expected to push for revisions through executive agencies should the bills move forward. However, even in its current form, the bill marks a major milestone:

• It codifies key definitions in federal law.
• It outlines actionable paths for compliance.
• It reduces legal risk for innovators and investors.

Whether signed into law in 2025 or adjusted over the coming months, the CLARITY Act’s impact will be felt long after Crypto Week ends. In a sector that thrives on trust and technology, regulatory clarity is the foundation upon which the next generation of digital finance will be built.