Following an initial focus on the development of a regulatory framework for stablecoins—culminating in Senate approval of the GENIUS Act, which is expected to be considered on the House floor next week—Congress is shifting its attention to the more complex issue of crypto market structure. On June 10, 2025, both the House Committee on Agriculture (House Ag) and the House Committee on Financial Services (HCFS) approved H.R. 3633—a nearly 250-page bill proposing the CLARITY Act. The Senate Banking Committee is anticipated to release its own market structure discussion draft this week, which will likely align closely with the CLARITY Act while also incorporating certain aspects of the 2023 Lummis-Gillibrand Responsible Financial Innovation Act (Lummis-Gillibrand).
These initiatives expand upon earlier legislative efforts to regulate market structure, most notably H.R. 4763, the “Financial Innovation and Technology for the 21st Century Act” (FIT21), which passed in the full House last May with support from 71 Democrats. The political landscape has shifted significantly since that time; with Republicans now controlling both chambers of Congress as well as the White House, the cryptocurrency industry is leveraging this environment to advance its longstanding objective of regulatory “clarity”—a framework which would largely allow existing business models to continue operating with minimal additional regulatory obligations.
A primary objective of market structure legislation is to establish clear, definitive criteria for distinguishing among securities, commodities, and assets that fall outside either category. Such legislation should resolve the ongoing debate over how to classify crypto-assets. Nonetheless, as Congress has discovered, achieving this objective presents significant challenges.
Regardless of where a boundary is established, some level of ambiguity will inevitably exist on either side. Legislators may refer to established business models and technological standards to minimize this “grey zone,” though doing so risks technological lock-in and increased uncertainty as blockchain technology and its commercial applications continue to evolve. Alternatively, legislation can adopt a technology-agnostic approach, but such flexibility may enable legal practitioners to structure assets and transactions to circumvent SEC registration requirements, even when the underlying assets were not originally intended to be outside the SEC’s jurisdiction.
After establishing clear categorizations, legislation must then define disclosure requirements for assets assigned to each category. For certain assets, such as meme coins, disclosure obligations may not be imposed. In scenarios where there is no identifiable issuer, responsibility for disclosure may shift to cryptocurrency exchanges. Alternatively, when crypto-assets are offered by a discernible issuer under an investment contract, the issuer may be accountable for both initial disclosures related to the fundraising and ongoing disclosures regarding the distributed crypto-asset. Clarifying which parties bear these disclosure responsibilities and the specific information required remains a complex issue that is likely to generate divergent views among stakeholders within the crypto-asset industry.
This post explores the challenges of categorizing and regulating crypto-assets, with a particular focus on disclosure requirements—both in terms of content and the entities responsible for providing them. It examines key provisions of the CLARITY Act and, where relevant, compares them to those in earlier market structure bills. Where appropriate, the analysis offers constructive recommendations alongside critique. Despite its title, “CLARITY” is a comprehensive bill that addresses a wide range of crypto-related issues, including new issuances, secondary trading, and decentralized finance. The goal of this post is not to provide an exhaustive analysis, but to highlight selected provisions of CLARITY and related legislation. In doing so, it outlines the key challenges and considerations involved in developing regulatory categories and disclosure frameworks that both meet investor needs and remain workable for issuers.
Categorizing Crypto-Assets
The CLARITY Act essentially classifies crypto-assets into three categories: commodities, securities, and a residual “neither” category. For the commodity category, the bill introduces the term “digital commodity” to encompass assets commonly associated with crypto—such as Bitcoin, Ether, and Solana—which would fall under CFTC oversight. For the security category, the bill does not create a new type of security but reaffirms that instruments already considered securities under existing law will continue to be treated as such and cannot be reclassified as commodities. The “neither” category – referenced as an exclusion from the term “digital commodity” – captures assets that do not fit neatly into either bucket, such as meme coins and NFTs.
While these categories offer some regulatory clarity, they do not address the status of transactions in which a crypto asset is sold by its issuer to raise funds. The crypto industry has long argued that the object of an investment contract is distinct from the investment contract itself—citing Howey, where orange groves were not securities, but became part of a securities offering when bundled with a management contract. By analogy, the industry claims that tokens sold to fund a project or protocol are not themselves securities. I disagree with this legal reasoning and addressed it in my statement to the SEC’s Crypto Task Force. I emphasized the distinction between the “subject” of an investment scheme and the security itself, which is merely the mechanism for investor participation. In Howey, no one received the promised earnings simply by purchasing orange groves; it was the issuer’s efforts that generated returns. In cryptocurrency offerings, issuers often “promise profits” by taking actions that affect the token price—making the profit expectation inseparable from the token. In this context, the token embodies the promise, and the issuer’s ongoing efforts fulfill it. Thus, I argue that tokens sold in such fundraising transactions are themselves securities.
If crypto-assets sold pursuant to an investment contract are deemed securities, issuers would be subject to ongoing disclosure requirements—obligations the industry has long criticized as overly burdensome and stifling to innovation. To address this, Title II of CLARITY, like FIT21, proposes amending the Securities Act of 1933 to clarify that “the term ‘investment contract’ does not include an investment contract asset.” FIT21 raised concerns that such a provision could be exploited by non-crypto issuers and potentially weaken the Howey test—the legal framework used to determine whether a transaction constitutes an investment contract. CLARITY attempts to mitigate these concerns by more tightly defining an “investment contract asset” as a digital commodity that: ‘‘(A) that can be exclusively possessed and transferred, person to person, without necessary reliance on an intermediary, and is recorded on a blockchain; and ‘‘(B) sold or otherwise transferred, or intended to be sold or otherwise transferred, pursuant to an investment contract.”
The Lummis-Gillibrand bill reaches a similar outcome by introducing the term “ancillary asset,” which is functionally equivalent to the “investment contract asset” defined in CLARITY. Under Lummis-Gillibrand, an ancillary asset is defined as an “intangible, fungible asset that is offered, sold, or otherwise provided to a person in connection with the purchase and sale of a security through an arrangement or scheme that constitutes an investment contract, as that term is used in section 2(a)(1) of the Securities Act of 1933.” Unlike CLARITY’s definition, which is limited to assets recorded on a blockchain, the ancillary asset definition is technology-agnostic. As a result, it potentially covers a broader range of instruments and may open the door for non-crypto assets to sidestep SEC registration—though it remains unclear to what extent “intangible, fungible” assets exist outside of blockchain-based systems.
Both CLARITY and the Lummis-Gillibrand bill implicitly acknowledge that most crypto-assets are initially issued through fundraising transactions that qualify as investment contracts under federal securities laws. As such, these transactions must either be registered with the SEC or qualify for an exemption from registration. Like FIT21 before it, CLARITY permits digital commodity issuers to raise initial capital through a newly created exemption that is significantly more generous than existing SEC exemptions—and even more permissive than the framework proposed in FIT21. Specifically, Section 202 of CLARITY establishes a new Section 4(a)(8) exemption under the Securities Act of 1933. This exemption would apply to “the offer or sale of an investment contract involving units of a digital commodity by a digital commodity issuer” provided:
- the blockchain system to which the digital commodity relates, together with the digital commodity, is certified as a mature blockchain system or the issuer intends for the blockchain system to which the digital commodity relates to be a mature blockchain system within four years after the first sale of the investment contract;
- the sum of all cash and other consideration to be received by the digital commodity issuer in reliance on the exemption during the 12-month period preceding the date of such offering, including the amount received in such offering, is not more than $75,000,000 (meaning the maximum amount that could be raised is $300,000,000);
- after the completion of the transaction, a purchaser does not own more than 10 percent of the total amount of the outstanding units of the digital commodity; and
- the transaction does not involve the offer or sale of an investment contract involving units of a digital commodity by its digital commodity issuer that is not organized under the laws of a State, a territory of the United States, or the District of Columbia.
Lummis-Gillibrand does not establish a new registration exemption. Instead, it implicitly assumes that ancillary assets would be sold under existing exemptions, most likely Regulation A. This raises the question of why the drafters of CLARITY deemed it necessary to create a new, significantly more generous exemption—specifically tailored to crypto issuers—than those currently available. The most plausible explanation is that this provision was included to accommodate the interests of venture capital firms that invest in crypto projects.
A general principle of securities law is that securities acquired through exempt transactions are considered “restricted securities,” meaning they cannot be freely resold without registration or a separate exemption. This limitation is why traditional venture capital investing often relies on initial public offerings to achieve liquidity and generate returns. In contrast, because many crypto asset issuers have thus far avoided SEC registration, venture capital firms investing in crypto-assets have largely been free to sell their tokens whenever, wherever, and to whomever they choose. Unsurprisingly, these firms are eager to preserve as much of this flexibility as possible. Accordingly, CLARITY permits limited sales of digital commodities by related and affiliated persons even before the associated blockchain is certified as “mature,” and allows for even broader sales once maturity certification is obtained.
In addition to its more lenient lock-up requirements, the new exemption in CLARITY is not limited to accredited investors, and it imposes no cap on the amount that non-accredited investors can purchase. By contrast, FIT21 restricted non-accredited investor purchases to no more than 10% of their income or net worth over a 12-month period. CLARITY also does not prohibit general solicitation, further broadening the exemption’s reach.
If crypto-assets—or what CLARITY terms “digital commodities”—are not considered securities, even when sold pursuant to an investment contract, then under current law, issuers are not required to provide ongoing public disclosures, even while continuing to perform essential managerial functions. Once again, CLARITY acknowledges the economic realities of crypto markets by imposing disclosure requirements on digital commodity issuers and exchanges—a subject to which I now turn.
Disclosure
The core purpose of securities registration is to address information asymmetries. Issuers inherently possess more knowledge about their offerings and prospects than potential investors, and disclosure requirements are intended to bridge that gap, enabling informed decision-making. I have long argued that the type of information a crypto investor needs to make an informed decision differs from what traditional equity investors typically seek. Former SEC Chair Gary Gensler acknowledged this distinction in a 2022 speech, stating: “Given the nature of crypto investments, I recognize that it may be appropriate to be flexible in applying existing disclosure requirements.” While the SEC did not adopt tailored disclosure requirements for crypto-assets during Gensler’s tenure, in April, the SEC’s Division of Corporation Finance released a statement outlining its views on how existing disclosure rules apply to offerings and registrations in the crypto asset markets. The statement addressed both traditional equity and debt securities of issuers “whose operations relate to networks, applications, and/or crypto assets,” as well as crypto-assets “offered as part of or subject to an investment contract”—referred to in the statement as “subject crypto assets.”
The Division of Corporation Finance’s statement applies only to crypto-assets that are securities or are sold pursuant to an investment contract—situations in which there is a clearly identifiable issuer. A more challenging issue arises when a crypto project transitions from centralized to decentralized control (a term that remains ill-defined), and no legal person or entity is providing the essential managerial efforts that support the asset’s value. The crypto industry has long contended that once a project achieves decentralization, securities laws no longer apply because the asymmetry of information has dissipated—that is, all participants purportedly have equal access to information, and the original issuer no longer holds a unique informational advantage requiring regulatory correction through disclosure. If Congress intends to codify this view, it must define “decentralization” in statutory text—an inherently difficult task that would replace the flexibility of Howey with a subjective and confusing “decentralization test.” This was a central flaw of FIT21, which defined decentralization and used it to delineate when a crypto-asset would fall under SEC oversight (centralized) versus CFTC oversight (decentralized). The drafters of CLARITY appear to have recognized this problem, as their definition of “digital commodity” is not tied to decentralization. Instead, it is grounded in the asset’s relationship to a blockchain. Here is the relevant text:
DIGITAL COMMODITY.—
“(i) IN GENERAL.—The term ‘digital commodity’ means a digital asset that is intrinsically linked to a blockchain system, and the value of which is derived from or is reasonably expected to be derived from the use of the blockchain system.
“(ii) RELATIONSHIP TO A BLOCKCHAIN SYSTEM.—For purposes of this subparagraph, a digital asset is intrinsically linked to a blockchain system if the digital asset is directly related to the functionality or operation of the blockchain system or to the activities or services for which the blockchain system is created or utilized, including where the digital asset is—
“(I) issued or generated by the programmatic functioning of the blockchain system;
“(II) used to transfer value between participants in the blockchain system;
“(III) used to access the activities or services of the blockchain system;
“(IV) used to participate in the decentralized governance system of the blockchain system;
“(V) used or removed from circulation in whole or in part to pay fees or otherwise verify or validate transactions on the blockchain system;
“(VI) used as payment or incentive to participants in the blockchain system to engage in the activities of the blockchain system, provide services to other participants in the blockchain system, or otherwise participate in the functionality of the blockchain system; or
“(VII) used as payment or incentive to participants in the blockchain system to validate transactions, secure the blockchain system, provide computational services, maintain or distribute information, or otherwise participate in the operations of the blockchain system.
Notably, this definition allows an asset to be classified as a “digital commodity” even if a centralized entity continues to perform essential managerial functions. For example, XRP could likely qualify as a digital commodity under this framework, despite the fact that Ripple plays a central role in maintaining XRP’s value and functionality.
Market structure legislation cannot entirely sidestep the concept of decentralization if Congress intends for crypto investors to receive standardized disclosures—even when the original issuer no longer performs essential managerial functions. To address this, CLARITY introduces the term “mature blockchain system,” defined as a “blockchain system, together with its related digital commodity, that is not controlled by any person or group of persons under common control.” Importantly, this definition applies solely in the context of the new Section 4(a)(8) exemption from public registration. In other words, a digital commodity can still exist and function on a blockchain system – and trade in secondary markets – even if it does not meet the criteria for maturity (more on those criteria below).
The CLARITY Act’s new registration exemption is intended to create a pathway for centralized crypto issuers to raise funds from the public to develop a mature blockchain system. Issuers may rely on this exemption if their blockchain system has already been certified as mature, or if they intend for the system to achieve maturity within four years of the first sale of an investment contract involving the digital commodity. Until the blockchain system is certified as mature, the issuer is responsible for providing comprehensive disclosures to the public.
In Section 202, CLARITY incorporates many of the disclosure items identified by the SEC’s Division of Corporation Finance for subject crypto assets, applying them to digital commodity issuers utilizing the new Section 4(a)(8) exemption. Required disclosures include the blockchain’s maturity status, source code, transaction history, digital commodity economics, development roadmap, and ownership information.
Once a blockchain is certified as mature by the SEC, the issuer is relieved of ongoing disclosure obligations—so long as previously disclosed information remains publicly available. However, the bill does impose post-maturity reporting requirements on issuers that are “engaged in material ongoing efforts related to the mature blockchain system.” This raises a fundamental question: how can a blockchain be considered mature if the issuer of its associated digital commodity is still materially involved in its development? Here again, CLARITY acknowledges the realities of the crypto market. Very few crypto-assets are truly decentralized by any conventional definition, and developers frequently make updates and improvements to their protocols. The more than 200 employees at Uniswap Labs, for example, are clearly not idle. CLARITY’s drafters sought to avoid discouraging continued development by imposing overly burdensome disclosure obligations, while also recognizing that investors have a right to understand the extent to which issuers or developers remain actively involved in the project.
What about disclosure requirements for digital commodities that were not issued under the Section 4(a)(8) exemption or that exist on a certified mature blockchain—i.e., who bears responsibility for disclosure when the original issuer is no longer providing essential managerial efforts? CLARITY shifts this obligation to digital commodity exchanges, though the extent of that responsibility is somewhat ambiguous. The bill states that exchanges must “establish policies and procedures to determine that the information” required to be disclosed “is correct, current, and available to the public.” It is unclear whether this means exchanges must themselves publish the information or merely verify that it is publicly accessible elsewhere. However, given that the bill directs the CFTC to promulgate rules for the standardization and simplification of disclosures, it is likely that exchanges will ultimately be responsible for collecting, verifying, and disseminating the required information. These disclosures include the blockchain’s source code, transaction history, digital commodity economics, trading volume and volatility, and any additional information the CFTC may require through rulemaking.
My Recommendations
I have long argued—including in written testimony to Congress—that the SEC should be granted exclusive oversight of crypto markets. This is hardly a radical position; even SEC Commissioner Hester Peirce has acknowledged that the CFTC is not well-equipped to regulate crypto spot markets. In a 2023 speech at the Digital Assets at Duke conference, Commissioner Peirce stated:
“Some people within crypto would prefer to see regulatory authority over token disclosures and spot markets given to the Commodity Futures Trading Commission (“CFTC”). The CFTC’s retail experience is more limited than the SEC’s. Moreover, if the CFTC were given regulatory authority over crypto spot markets, would there soon be calls for the CFTC to regulate other spot markets, such as wheat, oil, and corn markets? Adding crypto to the CFTC’s remit also would stretch the small agency’s resources.”
My approach would streamline the classification of crypto-assets into just two categories: securities and non-securities. Rather than reinvent the wheel in determining which crypto-assets qualify as securities, I would retain CLARITY’s definition of “digital commodity” but relabel it as “crypto-asset security.” Notably, CLARITY’s definition already includes appropriate exclusions for assets like meme coins and NFTs, which I believe should remain outside the SEC’s jurisdiction.
When it comes to the substance of required disclosures, this is one area where I believe CLARITY is particularly strong. I would preserve CLARITY’s core disclosure items while also granting the SEC—or a designated self-regulatory organization (SRO)—rulemaking authority to modify or expand those requirements as needed.
Legislation should avoid incorporating decentralization tests or “mature blockchain” standards, as these concepts are overly complex and easily manipulated by skilled legal counsel. I would also caution against creating a new exemption from SEC registration. Instead, market structure legislation should reflect the broader principle that crypto investors are entitled to standardized disclosures, even in the absence of a clearly identifiable issuer. That said, this raises a critical question: who should be responsible for providing those disclosures, and should the locus of that responsibility shift depending on whether an identifiable party is performing essential managerial efforts?
Below are a few high-level options for addressing crypto-asset disclosure requirements:
- Delegate to the SEC
Legislation could grant the SEC explicit rulemaking authority or rely on the agency’s existing exemptive powers under federal securities laws. This approach leverages the SEC’s considerable expertise in crypto markets while preserving flexibility to adapt disclosure requirements as the market evolves.
- Adapt CLARITY’s Framework Without Creating a New Exemption
While CLARITY acknowledges that fundraising via token issuance constitutes an investment contract and creates a new exemption to facilitate it, market structure legislation need not establish a new exemption. Instead, token issuers could continue to rely on existing exemptions, which already require certain disclosures to be filed with the SEC.
Under this model, if tokens issued under an existing exemption are later traded on secondary markets, exchanges could be required to make publicly available both the information previously filed with the SEC and any additional token-specific disclosures relevant to investors. Notably, CLARITY permits secondary trading of “digital commodities” originally issued through investment contracts and explicitly states that such tokens are not securities. This alternative approach would instead affirm that both the fundraising transaction and the token itself constitute securities under existing law.
Legislation could thus require that all information disclosed in connection with the exempt offering—along with supplemental token-specific disclosures—be made publicly available by any exchange seeking to list the token.
One potential challenge with imposing disclosure obligations on exchanges—particularly if they must register with the SEC as brokers or national securities exchanges—is how to handle decentralized exchanges (DEXs). This concern may be overstated, however, as most tokens are not exclusively listed on DEXs, meaning disclosures will generally be accessible through centralized platforms. Legislation should also clarify that front-end interfaces and web applications providing user access to DeFi services must register with the SEC and FINRA as brokers.
- Empower FINRA or a New Crypto-Focused SRO
An alternative approach would be to assign disclosure oversight to FINRA or a newly created crypto-specific self-regulatory organization (SRO). The SRO would assess the level of centralization of each project or protocol and determine the appropriate disclosure obligations. If a crypto-asset is deemed sufficiently decentralized, the SRO itself could provide summary disclosures, which could then be referenced by exchanges.
Given the volume of new token launches, the SRO would need a formal process for petitioning reviews of new tokens. While this model creates a flexible and scalable disclosure regime, it would still face persistent challenges in defining and applying a meaningful standard of “decentralization.”
Conclusion
While the CLARITY Act represents a serious and comprehensive attempt to rationalize crypto market regulation, its definitional and structural innovations raise as many questions as they answer. The bill makes commendable progress in outlining disclosure requirements and acknowledging the unique characteristics of blockchain-based assets. However, its introduction of a novel exemption, reliance on ambiguous decentralization concepts, and devolution of disclosure responsibilities to exchanges risk creating gaps in investor protection and regulatory consistency. A more effective approach would be to simplify asset classification, avoid unworkable decentralization thresholds, and ensure robust disclosures through the SEC or a well-structured self-regulatory framework. As Congress considers how best to regulate crypto markets, it should prioritize regulatory clarity not only in name but in practice—anchored in long-standing investor protection principles that remain relevant, even in the face of technological change.
Lee Reiners is a lecturing fellow at Duke University. This post reflects his views and his views alone.
