Below is the CLARITY Act, or the Digital Asset Market Clarity Act, crypto market infrastructure legislation that aims to propel the US financial system into the future.
The House version of the legislation was approved last year. Meanwhile, the Senate version has struggled to gain sufficient traction to be approved by the Senate Banking Committee, which is now scheduled for a markup hearing this Thursday.
While there are multiple issues that are being negotiated, the biggest hurdle has been stablecoin yield, or the ability for stablecoin holders to earn interest similar to a savings deposit. Legacy banks have worked hard to stop this from happening, as they fear diminished profits and the need to compete with innovators.
As it stands today, the banks have won as the bill prohibits yield on stablecoins, but crypto innovators may offer “rewards” to stablecoin holders. Still, the banks are working feverishly behind the scenes to build a larger regulatory moat to protect their businesses.
Contrary to the previous Biden Administration, which opposed digital asset innovation and preferred a regulation-by-enforcement approach, the CLARITY Act aims to establish a predictable, consistent framework of rules that provides clear guidance for innovators and protections for participants.
Critically, it provides parameters for determining whether a digital asset is regulated by the SEC or is a digital commodity regulated by the CFTC.
Download the CLARITY Act here or below.
Senator Tim Scott, Chairman of the Senate Banking Committee, said the legislation reflects serious, good-faith bipartisan work that includes safeguards while allowing innovation to flourish.
“It puts consumers first, combats illicit finance, cracks down on criminals and foreign adversaries, and keeps the future of finance here in the United States. Now it is time to move forward,” stated Scott.
Senator Cynthia Lummis, a top crypto innovation advocate, added that America must lead the way on financial innovation, and this legislation brings the US one step closer to dementing the country as a global leader in digital asset advancement.
Meanwhile, anti-innovation/anti-digital asset Senator Elizabeth Warren has voiced her opposition to the bill.
The main goal of the legislation is to establish a regulatory framework that clarifies the responsibilities of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) for the issuance, management, and safety of the digital asset ecosystem. Anti-financial crime measures, including AML, as well as other consumer protections, are part of the bill.
The bill also bans the US Federal Reserve from issuing a consumer CBDC [central bank digital currency], or digital dollar, and halts usage for monetary policy.
There are safe harbors and liability protections for developers and non-custodial protocols.
The Bank Secrecy Act is extended to digital assets, including sanctions rules for them, to combat illicit use.
The legislation establishes a CFTC-SEC Micro-Innovation Sandbox to test new concepts and encourage international cooperation.
The bill also creates a Joint Advisory Committee on Digital Assets. The SEC and CFTC must jointly appoint members who represent a broad spectrum of interests. This committee may provide non-binding recommendations on digital asset regulations.
In brief, the policy goals of the bill include:
- Clarity & dual-track regulation: Effort-dependent assets stay under the SEC; other network/digital commodities shift to the CFTC.
- Innovation-friendly: Strong safe harbors for DeFi, staking (self-staking, liquid staking, custodial staking), developers, decentralized governance, and non-custodial protocols.
- Risk mitigation: Enhanced AML/sanctions, customer asset segregation in bankruptcy, stablecoin restrictions, illicit-finance studies, and cybersecurity standards.
- Consumer & market protection: Disclosures, education, modernized recordkeeping, and regulatory sandboxes.
- Limits on government overreach: Explicit CBDC and Federal Reserve restrictions.
The legislation could be the largest change to securities law since the ’33 Act.
While changes may be made, the hearing in the Senate Banking Committee this week is a precursor to a full Senate vote on the legislation which is necessary to push the bill to become law.