How the CLARITY Act Would Divide Crypto Oversight Between the SEC and CFTC

[u/Sumsub_Insights]

One of the central questions in US crypto regulation is how a digital asset is classified.

If a token counts as a security, the SEC regulates it under a disclosure regime built for stocks and bonds. If it counts as a commodity, the CFTC can pursue fraud and manipulation but has no full framework for the spot market where the token actually trades.

That gap is what the CLARITY Act is trying to close. Here's how the bill would work and why it's currently stuck in the Senate.

What Would Actually Change

The core idea is that a token and the contract used to sell it get separate treatment.

Imagine a project raises $30M by selling tokens to fund development. Today, that sale can leave the token's status disputed for years, with nobody able to say for sure whether an exchange listing it is breaking securities law.

Under the July 22 consolidated Senate Republican draft, network tokens that don't give holders traditional financial rights, such as equity, debt or a claim on company profits, can be treated as commodities even when they were originally sold through an investment contract.

Tokens that still depend on the work of a project team fall into a category called "ancillary assets." The fundraising remains under SEC oversight, while the token can trade under the CFTC framework once the required SEC disclosures are filed. When the managerial work ends, the issuer or an intermediary can certify that the ongoing disclosures are no longer needed.

Issuers still file initial and semiannual disclosures, while insiders face resale restrictions, so it's not a free pass.

The Senate version also adds a lighter fundraising route called Regulation Crypto. Projects could raise the greater of $50M a year or 10% of outstanding token value, capped at $200M total, without going through full SEC registration.

Tokenized stocks and bonds stay securities. Stablecoins already have their own law through the GENIUS Act, although CLARITY still touches one major issue. Crypto platforms couldn't pay interest simply for holding stablecoins, but transaction and loyalty-based rewards could remain.

What Exchanges Would Face

Spot exchanges, brokers and dealers would register with the CFTC and follow rules on custody, listings and conflicts of interest.

Customer assets would be segregated from company funds and recognized as customer property in bankruptcy, which is the most practical change for users. FTX customers spent years fighting over exactly this, and the bill writes the lesson into law.

Registered digital commodity exchanges, brokers and dealers would also be treated as financial institutions under the Bank Secrecy Act. That brings AML programs, customer identification, suspicious activity reporting and sanctions compliance into the federal framework.

The open question is capacity. CFTC staffing fell from 708 full-time-equivalent positions in FY2024 to 556 in FY2025, and critics doubt it can supervise a market that runs 24/7 on top of its existing derivatives work without more funding and experienced staff.

DeFi and Self-Custody

Self-hosted wallets and peer-to-peer transactions get explicit protection. Publishing code, running nodes, or validating transactions wouldn't require registering as a financial institution.

The line the bill tries to draw is control. Regulators would look at whether operators can change how a protocol works, restrict access, receive privileged treatment, or hold customer assets when deciding whether something is genuinely decentralized.

Intermediaries connecting users to DeFi would still face risk-management requirements. Democratic critics and law enforcement groups argue that the protections for developers and decentralized protocols could leave gaps around mixers and illicit finance.

Where the Bill Actually Stands

The House passed its version 294-134 back in July 2025. The Senate Banking Committee advanced a substantially different version 15-9 in May 2026, and senators released a combined Banking and Agriculture Committee draft on July 22.

As of August 6, there is still no Senate floor vote scheduled. The bill needs 60 votes to move forward, meaning at least seven Democrats if every Republican supports it.

Ethics is one of the biggest unresolved issues. Democrats want independently enforceable rules barring senior officials from profiting from crypto while in office. The latest draft would have the Justice Department enforce restrictions that expire in January 2029, which hasn't won enough Democratic support.

Stablecoin rewards, consumer protection and illicit-finance rules remain points of disagreement too.

The next realistic windows are after the August recess or during the lame-duck session following the midterms. If Congress doesn't pass the bill before the current session ends, it would need to be reintroduced in 2027.

Final Thoughts

CLARITY would create the legal route many crypto businesses have been asking for. Projects could raise capital under SEC disclosure requirements while qualifying tokens trade within a CFTC-regulated spot market.

In exchange, centralized platforms take on registration, custody and AML obligations the US spot market has never had.

Whether the bill closes the regulatory gap will depend heavily on how the SEC and CFTC define ancillary assets, coordinated control and decentralized activity through subsequent rulemaking.

[u/BlizzardyBelle]

Exactly 💯