In the realm of digital assets, potential U.S. legislation could classify non-native tokens as securities, maintaining regulatory uncertainty.
The US Congress has taken a significant step towards clarifying the regulatory landscape for digital assets with the introduction of the Digital Asset Market Clarity (CLARITY) Act. This bipartisan bill, introduced by House Financial Services Committee Chair French Hill, is a collaborative effort between the House Committee on Agriculture [1].
At its core, the CLARITY Act aims to provide clarity on the definition of an "investment contract" for digital assets. Initially, digital assets are classified as securities, but they can be reclassified as digital commodities under certain conditions [1][4].
The Commodity Futures Trading Commission (CFTC) will take the bulk of the supervision responsibilities for digital commodities, while the Securities Exchange Commission (SEC) will also play a role in implementing important parts of the rulemaking [1][4].
The CFTC has historically been more involved with derivatives and has had enforcement authority over commodities. The CLARITY Act may inadvertently encourage blockchain proliferation as projects seek the lighter regulatory treatment afforded to digital commodities [1][4].
Digital commodities are transactions involving the primary sales of digital assets on a mature blockchain system, with specific criteria such as a 4-year existence, $75 million or less issuance in the previous 12 months, and no single coin holder owning more than 10% [1][4]. Transactions involving these digital commodities may be exempt from securities laws if the issuer is US-based [1][4].
However, the CLARITY Act does not apply to non-native tokens that are not closely tied to a blockchain network or digital assets linked to a trading or lending protocol, such as AAVE, which could be considered securities [1][4].
The legislation includes the registration of digital commodity brokers, dealers, and exchanges with the CFTC [1]. All secondary market sales of digital commodities are classified as not involving investment contracts [1][4].
The bill does not cover bank deposits, collectibles, goods, or other non-commodities [1]. It also does not cover securities or securities derivatives [1]. The CLARITY Act updates the definition of an "investment contract" to exclude "investment contract assets", which are digital commodities sold pursuant to an investment contract [1][4].
The CLARITY Act's framework creates a clearer jurisdictional boundary between the SEC’s oversight of securities and the CFTC’s regulation of commodities, aiming to reduce regulatory uncertainty for digital assets [1][4].
For non-native tokens considered securities, the CLARITY Act provides a defined pathway and criteria for potentially attaining the status of digital commodities if they are part of a mature, decentralized blockchain system [1][4]. This process places the burden on token issuers to file with the SEC and demonstrate that their token operates on a mature blockchain system [1][4].
The regulatory burden on issuers includes demonstrating compliance with decentralization and blockchain maturity metrics. If the SEC challenges the classification, issuers can appeal to the U.S. Court of Appeals [1][4].
This regulatory framework is designed to clarify and streamline the oversight landscape, potentially fostering innovation while maintaining investor protections within the digital asset ecosystem [2][3].
Notably, Acting Chair Pham has delayed her departure until the confirmation of Brian Quintenz, President Trump’s pick for CFTC Chair [1].
The CLARITY Act, if passed, will formalize a structured process for non-native tokens classified as securities to achieve commodity status, affecting their regulatory treatment and market conduct within the US digital asset ecosystem [1][4].
The CLARITY Act has garnered support from five Republican co-sponsors and three Democrats [1]. This bill represents a significant step towards regulatory clarity for digital assets in the US.
- The CLARITY Act, introduced by House Financial Services Committee Chair French Hill, aims to provide clarity on the definition of an "investment contract" for digital assets, which could potentially encourage blockchain proliferation as projects seek the lighter regulatory treatment afforded to digital commodities.
- The Commodity Futures Trading Commission (CFTC) will take the bulk of the supervision responsibilities for digital commodities, while the Securities Exchange Commission (SEC) will also play a role in implementing important parts of the rulemaking under the CLARITY Act.
- The bill includes the registration of digital commodity brokers, dealers, and exchanges with the CFTC and all secondary market sales of digital commodities are classified as not involving investment contracts.
- The CLARITY Act updates the definition of an "investment contract" to exclude "investment contract assets", which are digital commodities sold pursuant to an investment contract, and it creates a clearer jurisdictional boundary between the SEC’s oversight of securities and the CFTC’s regulation of commodities.
- For non-native tokens considered securities, the CLARITY Act provides a defined pathway and criteria for potentially attaining the status of digital commodities if they are part of a mature, decentralized blockchain system, affecting their regulatory treatment and market conduct within the US digital asset ecosystem.
