13 February 2026
On January 13, the U.S. Senate released the text of the much-discussed Digital Asset Market Clarity Act (CLARITY), just ahead of its expected passage this week. This 278-page bill abandons the strategy of selecting winners based on individual tokens and instead introduces a comprehensive "lane system." This system determines jurisdiction based on the functional lifecycle of a digital asset.
Senate Banking Committee Chairman Tim Scott put it this way: “This legislation provides everyday Americans with the protection and certainty they deserve. Investors and innovators can’t wait indefinitely while Washington stands still and bad actors game the system. This legislation puts Main Street first, fights criminals and foreign adversaries, and safeguards the future of finance here in the United States.” This statement underscores the urgency and relevance of the bill in the current market conditions.
Matt Hougan, Chief Investment Officer at Bitwise, described the legislation as the "Punxsutawney Phil of this crypto winter," adding that if it passes, the market could well soar to new all-time highs. Meanwhile, crypto investors on prediction markets estimate the chance of the CLARITY Act being signed this year at as high as 80%. However, time is running out, as senators have a strict 48-hour deadline to propose amendments to the text.
The core of the bill establishes a legal link between the two most important US market regulators: the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The Clarity Act restores and codifies a policy distinction often debated in legal circles: tokens sold with the promise of a promoter may initially be considered securities, but can evolve into commodities-like assets as oversight wanes.
To operationalize this, the bill defines an “ancillary asset.” This category includes network tokens whose value depends on the “entrepreneurial or managerial efforts” of the originator or a “related person.” The legislation tasks the SEC with precisely defining how these concepts should be applied through regulatory processes, effectively providing the agency with front-end oversight of crypto projects.
Once a token falls into this "lane," the bill invokes an SEC-driven disclosure regime similar to the standards in the public equity market. The disclosure requirements are extensive and vague, "as for public companies." This includes financial statements that must be audited, depending on the amount of capital raised, as well as detailed information on ownership structures, related transactions, token distributions, code audits, and tokenomics. Issuers must also provide market data, such as average prices and highs/lows.
However, the bill provides a clear transition by repeatedly linking the definition of a “digital commodity” to the Commodity Exchange Act. This means that the CFTC is the relevant regulator for the market infrastructure, with the SEC required to notify its sister agency of certain certifications. Simply put, the SEC oversees the issues surrounding the “promoter” (disclosure, anti-fraud, and fundraising), while the CFTC is responsible for the trading venues and intermediaries that handle the assets once they are traded as commodities.
For market participants holding large assets, the most immediate impact comes from a specific exception regarding exchange-traded products (ETPs). According to the text, a network token is not an ancillary asset if it is the principal asset of an exchange-traded product listed on a registered national securities exchange as of January 1, 2026. These provisions provide functional access to commodity status and circumvent years of legal disputes and the SEC's debate on decentralization. This "ETF gatekeeping" captures Bitcoin and Ethereum, given their established footprint.
This means that digital assets like XRP, SolanaLitecoin, Hedera, Dogecoin, and Chainlink, which have acquired this status, would be treated in the same way as BTC and ETH. Beyond the asset classification, the bill offers significant relief to the Ethereum ecosystem regarding staking.
The bill clarifies the persistent concern that staking fees could be classified as securities income by defining them as "gratuitous distributions." The bill explicitly includes several staking methods in this definition, including self-staking, self-managed staking with a third party, and even liquid staking structures. This is particularly noteworthy given that the SEC has previously taken legal action against companies such as Kraken because of their strike activities.
Crucially, the text establishes a presumption that a gratuitous distribution does not, in itself, constitute an offer or sale of a security. The language regarding “self-custody with a third party” is specific, with the caveat that this applies where the third party has no custody or control over the staked token. This creates a safe space for non-custodial and liquid staking designs, although the custody of exchange staking remains subject to ongoing regulatory scrutiny.
The legislation also integrates the "battle for stablecoin rewards" directly into the market structure package. It appears that Section 404 of the Clarity Act offers the banking sector a victory regarding yield-generating instruments. The final text prohibits companies from paying interest or yield solely for holding a payment stablecoin.
However, legal experts point to a crucial distinction in how the bill constructs the yield economy. Bill Hughes, an attorney at Consensys, noted that CLARITY intentionally allows stablecoins to be used to generate yield, but draws a clear legal distinction between "the stablecoin" and "the yield product."
The legislation amends the GENIUS Act's definition of a "payment tablecoin," meaning that such coins are fully collateralized, par-recoverable, and used for settlement, without holders being entitled to interest or profits from the issuer. This ensures that a token like USDC cannot pay a return simply for holding it, preventing it from being classified as an illegal security or shadow banking product.
However, Title IV does include a section on “maintaining rewards for stablecoin holders.” This allows users to generate yield by using stablecoins in other systems, such as DeFi lending protocols, on-chain money markets, or custodial interest accounts. This framework confirms that the stablecoin remains a payment instrument, while the “wrapper” or yield-generating product becomes the regulated financial entity (whether as a security, commodity pool, or banking product). This effectively prevents regulators from classifying a stablecoin as a security simply because it can be used to generate interest.
The new bill also addresses the controversial issue of decentralized finance (DeFi) interfaces. Hughes noted that the bill no longer limits itself to a simplistic "wallets versus websites" debate, but instead establishes a "control test" to determine regulatory obligations. According to the text, a web interface is legally considered simple software (and therefore not subject to broker-dealer registration) if it does not manage user funds, private keys, or have the authority to block or reorder transactions.
This creates a legal safe harbor for non-custodial platforms like Uniswap, 1inch, and MetaMask's swap UI, classifying them as software publishers rather than financial intermediaries. Conversely, the bill strictly regulates any operator that exercises control. If a website can move funds without a user signature, execute batch transactions, or route orders through proprietary liquidity, it is classified as a broker or an exchange. This includes centralized entities like Coinbase and Binance, as well as custodial bridges and CeFi yield platforms.
Despite the optimism of some, the bill's publication has sparked a "mad scramble" among legal experts to identify critical flaws before the 48-hour amendment period closes. Jake Chervinsky, Chief Legal Officer at Variant Fund, points out that lobbyists and policy experts are rushing to address what he describes as "many" critical issues before the markup deadline.
According to him: "A lot has changed since the preliminary bill came out last month, and the devil is in the details. Amendments must be filed by 17.00 p.m. ET, so today is a race to identify critical issues for the markup. Unfortunately, there are many." Meanwhile, critics also claim the bill introduces existential threats to privacy and decentralization. Aaron Day, an independent candidate for Senate, called the mandatory trade surveillance requirements a chapter from the "NSA playbook."
Day pointed to "universal registration" provisions that require exchanges, brokers, and even "related persons" to register, effectively undermining the concept of anonymous participation. He noted that mandates for "government custodians" effectively make self-custody for regulated activities illegal. According to him, "BlackRock and Wall Street get clear access while DeFi is killed in its cradle. The SEC and CFTC gain vast empires and new revenue streams. You are being watched. Tracked. Managed."
In addition to privacy concerns, reports indicate that the industry is currently facing two specific policy challenges in the latest bill. Crypto journalist Sander Lutz reported that the language surrounding stablecoin yield has left both banks and crypto advocates dissatisfied. While banks appear to have prevailed with a ban on interest for holding stablecoins, loopholes regarding "activity rewards" and loyalty programs remain unclear.
Lutz also pointed out that the Senate Banking Committee's addition of an "unexpected section on DeFi" caught industry lobbyists off-guard. He argued that the new definitions in that section could place decentralized protocols under strict regulatory frameworks.
As the Senate Banking Committee prepares to mark up the Clarity Act, the political landscape remains dynamic. Although the bill passed the House last year, banking industry priorities, such as restrictions on self-hosted wallets and bans on CBDCs, remain a key focus for negotiators. With the Senate's substitute text now effectively resetting the terms of engagement, the industry is watching to see if this bill will finally signal an early spring for crypto regulation in the US.
However, Lutz noted that the current frictions have led to a more gloomy outlook among some insiders. An anonymous industry source reportedly described the bill's current prospects as "NGMI" (not going to make it). This source is quoted as saying that not only structural disagreements but also ongoing conflicts between Senate Democrats and the White House over ethics and conflicts of interest play a role.
What does the Digital Asset Market Clarity Act mean for investors?
The CLARITY Act provides investors with greater transparency and legal foundations, enabling them to better navigate the ever-changing regulatory landscape of the crypto market.
How does the legislation affect the SEC and CFTC?
The law clearly separates the roles of the SEC and the CFTC, with the SEC overseeing promotion and disclosure requirements and the CFTC overseeing market infrastructure.
Are there risks associated with the CLARITY Act?
Yes, some experts point to potential threats to privacy and the risk that decentralized protocols will come under strict regulation, which could hinder innovation.
Bitcoin (BTC)
Ethereum (ETH)
XRP (XRP)
