Crypto CLARITY: The Politics, Policy and Implications of Digital Assets Regulatory Framework Legislation in the 119th Congress

Introduction

• The second half of July has seen a flurry of legislative activity across the federal government in Washington, D.C., with Congress inching closer to completing a long-awaited effort to pass legislation to establish a framework for the lawful operation of digital asset businesses in the United States.
• On July 17, 2025, the House of Representatives passed the Digital Asset Market Clarity Act (CLARITY Act; H.R. 3633) by a vote of 294 to 134. The bill would establish a comprehensive market structure framework for digital assets. 216 Republicans voted for the bill along with 78 Democrats.
• On July 22, 2025, Senate Banking Committee Chairman Tim Scott (R-SC) and Senators Cynthia Lummis (R-WY), Bill Hagerty (R-TN) and Bernie Moreno (R-OH) released a discussion draft of the Responsible Financial Innovation Act of 2025 (RFIA), which would create an alternative approach to classifying digital assets. The RFIA would establish a larger role for the U.S. Securities and Exchange Commission (SEC), over which the Senate Banking Committee has jurisdiction. The Senators also issued a Request for Information (RFI) to solicit stakeholder feedback.
• Unlike the CLARITY Act, the RFIA is not comprehensive legislation, as it does not cover market structure tied to the federal commodities laws and U.S. Commodity Futures Trading Commission (CFTC), over which the Senate Agriculture Committee has jurisdiction.
• The CLARITY Act and RFIA overlap in some areas but also differ in several important areas, including notably with respect to the role of the SEC in determining an asset’s classification as falling within the federal securities laws or federal commodities laws.

Politics: All Eyes on Senate Negotiations

The strong vote in the House for the CLARITY Act sends a clear message to the Senate that there is bipartisan momentum and support for digital asset market structure legislation. However, several obstacles remain. Given the requirement for 60 votes in the Senate to overcome a filibuster, Republicans would need to win over at least seven Senate Democrats. Senate Banking Committee Ranking Member Elizabeth Warren (D-MA), who has consistently been critical of the digital asset industry, will almost certainly not be one of the seven, and in fact could be an impediment to moving a bill forward. For other Democrats, sticking points will include the strength of consumer protections in the actual bill and the historical skepticism associated with the use of digital assets in drug trafficking, human trafficking, money laundering and fraud. Some Democrats have also expressed concerns with the current Administration’s stance on digital assets and the associated financial benefits that President Trump has received in connection with the issuance of digital assets.

Despite general opposition from Ranking Member Warren and some of her colleagues, there is interest within the Senate Democratic Caucus to work with Republicans on legislation in this space, which was demonstrated by the recent passage of the GENIUS Act, which established a framework for the issuance of stablecoins in the U.S. Senator Kirsten Gillibrand (D-NY) has long been a proponent for legislation in the digital assets space, having previously introduced a version of the RFIA alongside Sen. Lummis in 2022 and again in 2023. Sen. Gillibrand, along with Sens. Mark Warner (D-VA) and Ruben Gallego (D-AZ), will be heavily involved in negotiations with her Republican colleagues. If enough Democrats come to the table in a meaningful way and Republicans address some of their key concerns, it is possible that Congress could pass a market structure bill this year. This would constitute a watershed moment for the industry not just in the U.S., but globally.

Policy: CLARITY Act vs. Responsible Financial Innovation Act

The CLARITY Act and the Senate RFIA draft both establish a regulatory framework for digital assets, with regulatory responsibility divided between the SEC and the CFTC. The regulatory regime applied to an asset depends on its classification as either a security or a digital commodity, with the SEC regulating the former and the CFTC regulating the latter. The definitions of these two asset classes and the mechanisms for determining the appropriate regulatory apparatus for a given digital asset are essential to the legislation. Broadly speaking, the CLARITY Act would seem to push more digital assets to the digital commodity classification, a structure that the industry has preferred given the general perception that the federal securities laws are a more burdensome framework. On the other hand, the RFIA delegates more power to the SEC to determine the number of so-called “ancillary assets” that are not securities, thereby allowing the SEC to potentially retain more oversight of the digital assets space.

The CLARITY Act

The CLARITY Act defines a digital commodity as “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.” Securities are distinguished from digital commodities for their role in an investment contract through which the holder of the digital asset becomes the creditor of the issuer or otherwise gains ownership of or interest in the profits and assets of the issuer. In other words, digital commodities must be sufficiently decentralized from the issuer to qualify as a commodity. The CLARITY Act refers to these sufficiently decentralized digital assets as “mature blockchain systems.”

A digital asset is defined as a security by default until it is determined to be part of a mature blockchain system and therefore, a commodity. To qualify as a digital commodity, the bill places the burden on the issuer to file a notice with the SEC and demonstrate that the digital asset in question meets these decentralization requirements. This process serves as the SEC’s key gatekeeping authority to ensure securities posing as commodities remain under its regulatory jurisdiction. Importantly, while the bill gives the SEC latitude to craft rules to determine whether an asset is part of a mature blockchain system, it also limits the criteria the SEC may use to make such a determination. After a submission is made to the SEC, the asset would become a digital commodity either: (a) when the SEC gives approval or (b) 60 days following the issuer’s submission, if the SEC fails to review it by that time. If the SEC rebuts a request to classify a digital asset as a commodity, the issuer may appeal the decision to the U.S. Court of Appeals for the District of Columbia within 60 days.

Under the CLARITY Act, the term “digital commodity” is included as a “commodity interest” in the definition of commodity pool in Section 1a(10) of the Commodity Exchange Act. In short, a vehicle that operates for the purpose of trading in commodity interests, including digital commodities, would be deemed to be a commodity pool. Any person who operates such a vehicle must register as a commodity pool operator with the CFTC unless an exemption from registration applies. In addition, a person who advises a client as to its commodity trading activities must, unless exempt, register with the CFTC as a commodity trading advisor.

The CLARITY Act also establishes a provisional regulatory framework for three new types of entities that would have to register with the CFTC: (1) digital commodity exchanges (covering a trading facility that offers a cash or spot market in at least one digital commodity); (2) digital commodity brokers (covering any person that regularly solicits or accepts orders for digital commodities and maintains control over customer funds and executions of transactions); and (3) and digital commodity dealers (covering any person that regularly serves a counterparty to digital asset transactions and maintains control over counterparty funds).

The Responsible Financial Innovation Act

While broadly similar in approach, the RFIA discussion draft includes a few key differences from the CLARITY Act that are worth noting. For one, the RFIA does not use the same terms, such as “digital commodities” and “mature blockchain systems.” Instead, the bill uses the term “ancillary asset” to refer to “an intangible, commercially fungible asset, including a digital commodity, that is offered, sold, or otherwise distributed to a person in connection with the purchase and sale of a security through an arrangement that constitutes an investment contract.” As with digital commodities in the House bill, an asset cannot be an ancillary asset if it entitles the owner to a debt, equity or other payment from the issuer. However, a broader group of assets could in theory qualify as ancillary assets.

The two bills diverge when it comes to the role of the SEC in determining an asset’s classification. Unlike the CLARITY Act, the RFIA allows the SEC to institute broader rulemakings under a “Regulation DA,” requires issuers to disclose far more information when self-certifying with the SEC and gives the SEC authority to make an affirmative determination as to the classification. If the SEC decides a digital asset qualifies as an ancillary asset, it would not be treated as a security. More information on the implications of this classification and whether “ancillary assets” would be treated as commodities or commodity interests, with similar implications for registration and regulation as those described above for the CLARITY Act, will likely become clearer when the Senate Agriculture Committee releases its bill text.

Implications for Businesses

There is broad momentum in Congress to pass comprehensive market structure legislation for the digital asset industry. Assuming the House and Senate can coalesce around an agreed-upon bill—a scenario that still remains open—and President Trump signs the bill into law, issuers, trading firms and other investors, exchanges, trading platforms, intermediaries and other market participants will face a brand new statutory and regulatory landscape, which may come with additional compliance burdens. For example, it is possible that companies which were previously regulated exclusively by the SEC (or were unregulated or unregistered) would have to register with the CFTC and familiarize themselves with new requirements, including additional recordkeeping. Moreover, legislation will almost certainly require the promulgation of agency-level regulations, which will further impact the industry.

In the meantime, there are opportunities for interested parties to advocate for changes to the RFIA discussion draft, including submitting responses to the Senate Banking Committee’s RFI, as well as direct engagement with key Senators on the Banking Committee. In particular, Senate Democrats will have outsized leverage in negotiations. The digital asset industry has long sought clarity under U.S. law, and Congress now seems poised to deliver just that, whether through the CLARITY Act, the RFIA framework or otherwise.