CLARITY Act Markup: The Start of a Long Regulatory Journey
The recent announcement by David Sacks that Senate Banking Chairman Tim Scott and Senate Agriculture Chairman John Boozman have approved a supplement to the January 2026 CLARITY Act has sparked excitement in the crypto community. However, as Sacks noted, “We look forward to completing the work in January!” it’s essential to understand that a January markup is just the beginning of a multi-year process.
The CLARITY Act, which was passed by the House of Representatives in July along with the GENIUS stablecoin bill, aims to provide clarity on the regulatory framework for cryptocurrencies. The bill is currently in the Senate Banking Committee, where two separate bills must be merged before a markup can occur. The drafts still contain bracketed definitions of what counts as “security” and how much DeFi infrastructure falls within the regulatory framework.
The Division of Crypto into Three Areas
The CLARITY Act divides crypto into three areas: “Digital goods,” “Investment Contract Assets,” and “Permitted Payment Stablecoins.” Digital goods are tokens tied to blockchain systems, excluding securities and stablecoins. Investment Contract Assets are digital goods sold to raise capital, which are initially considered securities under the jurisdiction of the SEC, then lose their security status in secondary trading and fall under the supervision of the CFTC. Permitted Payment Stablecoins are local currency tokens issued by regulated companies that are linked to the GENIUS framework.
This division will give the CFTC exclusive jurisdiction over digital commodity spot markets, beyond its current anti-fraud mandate. The SEC will retain authority over issuers and offerings of investment contract securities. Meanwhile, banking regulators will oversee stablecoin issuers. However, the lines on the field are drawn in ink, but some markings are still made in pencil, as the definition of “security” itself is in brackets in the Senate text.
Creating New Registered Units
The CLARITY Act creates a whole series of newly registered units, including digital commodity exchanges, digital commodity brokers, and traders. These units must meet core principles related to listing standards, monitoring, system security, capital, and reporting. Digital commodity exchanges must only list tokens whose issuers meet disclosure requirements, including source code. Digital commodity brokers and traders require CFTC registration, capital standards, record keeping, and retail customer protection.
Qualified digital asset custodians will hold customer digital assets for registered companies under the supervision of the banking regulator, the SEC, or the CFTC. DeFi carve-outs exclude non-custodial activities such as node operations, validation, and wallet construction from regulated intermediary status, although anti-fraud powers still apply. However, the Senate Agriculture Committee leaves these sections in parentheses because the compromise is unresolved.
Politicians Have Not Reached an Agreement
The legislative process is taking place against a controversial background, with Democrats concerned about Trump’s control over independent agencies, especially if the Supreme Court allows presidents to fire SEC and CFTC commissioners at will. A legal analysis found that carving out the investment contract could allow for regulatory arbitrage, shifting post-fundraising oversight away from the SEC and leaving a historically underfunded CFTC to oversee retail spot trading.
Before anything changes on a stock exchange screen, banks and agriculture bring their designs together. Both committees are getting through surcharges, with Democrats set to push for tougher retail protections and limits on presidential oversight. Leadership finds 60 votes in the Senate, but there is no glide path in a divided chamber. The House and Senate will reconcile their versions in conference or through direct adoption, and the president will sign it, and appropriators will fund a much larger CFTC footprint.
Regulators will write the rules over a period of 360 days to 18 months, and companies will move to interim status while the rules are finalized. The courts will also have a say, as the Supreme Court’s authority doctrine means that key regulations around token classification and DeFi treatment are subject to legal challenge. As David Sacks noted, January is just the start of a multi-year pipeline before anything becomes binding. The hard part hasn’t started yet.
For more information on the CLARITY Act and its implications for the crypto industry, visit https://cryptoslate.com/clarity-act-markup-is-just-the-start-of-a-18-month-rulemaking-gauntlet/
