What is Congress really hiding in the CLARITY Act?

In a bipartisan race, the US CLARITY Act has just sailed through two influential House committees – Agriculture (47-6), and Financial Services (32-19) in an unprecedented sprint. The entire crypto industry is buzzing.

While headlines proclaim “clarity”, many wonder: What’s inside the bill and what might it mean for digital assets in America going forward?

What is the CLARITY act?

The CLARITY act is Congress’s most ambitious attempt to date at drawing clear boundaries between the SEC, CFTC and crypto projects. It ends years of confusion and regulatory uncertainty that has left investors and crypto projects in the dark. Bill:

• The CFTC is given primary responsibility for digital commodities, such as Bitcoin and Ethereum. Exchanges are required to be registered and adhere to anti-fraud and custody rules.

• The SEC will continue to be in charge of the tokens that are sold within investment contracts. However, a “Certification Of Decentralization” procedure is created, which allows tokens on a decentralized blockchain to become commodities.

• Establishes Digital Commodity Exchanges under CFTC supervision, with strict operational and registration standards.

• Stablecoins are excluded from the scope of this legislation. They will be dealt with in a separate law.

The latest markup was a surprise. The SEC has the power to review and possibly reclassify all tokens, even ones already in circulation. Insiders in the industry warn that this may reintroduce uncertainty regarding regulatory matters, echoing previous SEC actions taken on Ethereum and Ripple.

This section eliminates the exemptions from tokens previously issued, causing concern about retroactive enforcement.

There’s good news too: Developer protections and DeFi

The bill includes the Blockchain Regulatory Certainty Act, which protects non-custodial developers from being treated like financial intermediaries. Eight of the largest crypto companies, such as Uniswap have publicly supported this inclusion, calling it a victory for US innovation.

Before the House votes, both committees will have to merge their amended versions into one version. This could lead to more amendments.

The Senate, however, is working on its version. Senator Cynthia Lummis has promised a bipartisan and bicameral solution that will closely mirror the House Bill.

Senate also is nearing a vote for the GENIUS Act – a bill to create stablecoins that may pass sooner.

This bill is a direct comparison to the EU MiCA regime which has strict and unified regulations for stablecoins in Europe, crypto assets across Europe, as well as service providers.

The CLARITY act focuses on the clarity of the market and the jurisdictional structure, while the MiCA highlights transparency, consumer protection and stability. However, critics are concerned that it could leave too many tokens at the discretionary agency.

Lobbying Battle & Industry Reaction

The crypto lobbyists are collaborating with traditional financial groups to create the final legislation. Republicans claim that it is the best way to unleash innovation in America and maintain its competitiveness. Some Democrats are concerned about how vulnerable consumers could be with this draft. DeFi protections are seen as an improvement, however the SEC’s increased powers continue to be a hot topic.

Bottom line:

CLARITY’s bipartisan support is unquestionable. However, the specifics are in flux. The Senate is preparing their own version, and the industry has been demanding that changes be made. In the coming weeks it could determine whether or not the US gets the crypto regulations they need.

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