Inside the CLARITY Act: What the Senate Banking Committee's Market Structure Bill Means for Crypto

The Digital Asset Market Clarity Act, the bill that would, for the first time, give the U.S. crypto industry a comprehensive federal market-structure regime, has cleared its most consequential procedural hurdle. On May 14, 2026, the Senate Banking Committee advanced the bill in a bipartisan 15-9 vote, sending it toward the Senate floor for what could be its final test in Congress.

For digital-asset issuers, exchanges, stablecoin platforms, and DeFi developers, the released text answers questions that have long shaped enforcement risk and compliance posture. It also leaves several critical issues open, including a still-pending conflict-of-interest provision and a yet-to-occur reconciliation with the Senate Agriculture Committee’s parallel legislation.

This post breaks down what the bill does, what statutory provisions it amends, and what each section means in practice.

Where the Bill Stands Procedurally

The Senate Banking Committee released the latest version of the Clarity Act text just after midnight on May 12, 2026, in advance of a Thursday markup hearing. The 309-page draft reflected months of negotiation across the committee on the most contentious questions in crypto policy, chief among them, the treatment of stablecoin yield and the scope of legal protections for decentralized finance.

Two days later, on May 14, the committee advanced the bill in a 15-9 vote, including two Democratic crossovers (Sens. Ruben Gallego of Arizona and Angela Alsobrooks of Maryland). The vote secured passage out of committee but left meaningful work for the full Senate, where 60 votes were required, and where the bill must still be reconciled with the Digital Commodity Intermediaries Act. The parallel legislation advanced earlier this year by the Senate Agriculture Committee under Chairman John Boozman.

The Bill’s Origin

The legislation began as H.R. 3633, the House version of the Digital Asset Market Clarity Act of 2025, which passed the House on July 17, 2025. The Senate Banking Committee’s substitute text builds on that framework while incorporating additional provisions on stablecoin rewards, insider trading, bankruptcy protections, and implementation timing.

Futuristic illustration of SEC and CFTC jurisdictional division over digital assets under the CLARITY Act

The Core Framework: Dividing SEC and CFTC Jurisdiction

The animating purpose of the Clarity Act is to end the jurisdictional ambiguity that has defined the SEC and CFTC’s relationship to digital assets for nearly a decade. The bill draws a statutory line between the two agencies by amending the foundational securities and commodities statutes.

Amendments to the Securities Laws

Title I of the bill amends three foundational statutes:

Section 101 amends the Securities Act of 1933 (15 U.S.C. § 77b) to revise the statutory definition of a security as applied to digital assets.
Section 102 amends the Securities Exchange Act of 1934 (15 U.S.C. § 78c) to align the Exchange Act’s definitional and registration provisions with the new framework.
Section 103 amends the Commodity Exchange Act (7 U.S.C. § 1 et seq.) to define digital commodities and assign trading-venue oversight to the CFTC.

“Network Tokens” and the Non-Security Treatment

The draft introduces the statutory concept of a “network token” and provides that, subject to specified conditions, a network token “shall be treated as a non-security” for purposes of Section 2(a)(1) of the Securities Act, Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. § 78c(a)), Section 2(a) of the Investment Company Act of 1940 (15 U.S.C. § 80a-2(a)), and the Investment Advisers Act of 1940.

This is the statutory mechanism by which Congress would override, or at least supplement, the SEC’s longstanding application of the Howey investment-contract test (SEC v. W.J. Howey Co., 328 U.S. 293 (1946)) to digital assets that function primarily as utility or governance instruments on a sufficiently functional blockchain network.

Regulation Crypto

The bill establishes a tailored disclosure regime, referred to in the committee’s section-by-section summary as “Regulation Crypto”, that allows digital-asset projects to raise capital under a calibrated set of rules.

Under the framework, an ancillary asset originator can raise the greater of (1) $50 million per calendar year for a period of four years, or (2) 10 percent of the total dollar value of ancillary assets outstanding, subject to a $200 million aggregate cap on gross proceeds. The structure parallels, but is distinct from, the exempt-offering pathways in Regulation D (17 C.F.R. § 230.501 et seq.) and Regulation A.

Stablecoin Yield: The Compromise That Nearly Sank the Bill

No issue generated more lobbying activity than the treatment of stablecoin yield. The banking industry, through groups including the Bank Policy Institute and the American Bankers Association, argued that allowing payment stablecoins to pay yield would trigger large-scale deposit migration out of the regulated banking system. The crypto industry, led by Coinbase, argued that stablecoin rewards programs are a competitive necessity and not functionally equivalent to deposit interest.

The Statutory Restriction

The committee’s compromise, the so-called Tillis-Alsobrooks language, is reflected in the bill text. The released draft restricts the payment of interest or yield “solely in connection with the holding of … payment stablecoins” or on a stablecoin balance “in a manner that is economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit.”

The language operates against the backdrop of the Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 (the GENIUS Act, Pub. L. 119-27, signed July 18, 2025), which already establishes the federal framework for the issuance of “payment stablecoins” and the licensing of permitted payment stablecoin issuers. The Clarity Act layers a yield restriction on top of that issuance regime.

What Counts as “Functionally Equivalent”

The practical question for platforms is how the “economically or functionally equivalent” language will be construed. The draft preserves room for transaction-based rewards programs under tighter oversight, while restricting passive, deposit-like yield on the stablecoin balance itself.

Whether a tiered rewards structure, a referral incentive, or a discount on transaction fees crosses the line will turn on the implementation of rulemaking and, in time, enforcement guidance. Platforms with existing reward mechanics should expect that the boundary will be tested.

Protections for DeFi Developers and Non-Custodial Software

Futuristic illustration of DeFi developer safe harbor protections under the Blockchain Regulatory Certainty Act incorporated into the CLARITY Act

The Clarity Act incorporates the substance of the Blockchain Regulatory Certainty Act (BRCA), a long-pending bipartisan bill that has been reintroduced across several congresses.

In its standalone form, the BRCA was introduced in the House by Rep. Tom Emmer (H.R. 1747) and in the Senate by Sens. Cynthia Lummis and Ron Wyden (S. 3611, the Blockchain Regulatory Certainty Act of 2026).

The Money Transmitter Carve-Out

The BRCA’s central operative provision excludes non-custodial blockchain developers and service providers from the definitions of money transmitting business under 31 U.S.C. § 5330 and money transmitting under 18 U.S.C. § 1960, on the basis that the developer or provider does not exercise “unilateral and independent” control over user assets.

The bill also provides that such persons shall not be treated as financial institutions for purposes of the Bank Secrecy Act.

Specifically, the safe harbor protects persons engaged in:

Creating or publishing software to facilitate the creation of, or providing maintenance services to, a distributed ledger or a service associated with a distributed ledger;
Providing hardware or software to facilitate a customer’s own custody or safekeeping of the customer’s digital assets; or
Validating transactions on a distributed ledger (including operating a node or providing staking services).

Why This Matters After Tornado Cash

The BRCA’s inclusion in the Clarity Act is a direct legislative response to the wave of money-transmitter prosecutions of non-custodial software developers under 18 U.S.C. § 1960, most notably the prosecution of the Tornado Cash developers.

The statutory clarification, if enacted, would preclude liability for developers of non-custodial, peer-to-peer software protocols used by unlicensed money-transmitting businesses.

It would not, however, alter sanctions liability under the International Emergency Economic Powers Act (50 U.S.C. § 1701 et seq.) or the Office of Foreign Assets Control’s regulations.

Self-Custody and Peer-to-Peer Activity

Beyond the BRCA’s developer protections, the Clarity Act preserves what the Senate Banking Committee’s fact sheet describes as protections for “software developers and peer-to-peer activity” while ensuring that “centralized intermediaries interacting with DeFi are subject to tailored risk-management, cybersecurity, and compliance standards.”

The bifurcation, non-custodial software protected, custodial intermediaries regulated, is the central organizing principle of the DeFi sections.

The Open Questions: Ethics, Law Enforcement, and Reconciliation

The Pending Conflict-of-Interest Provision

The bill released by the Banking Committee does not include a comprehensive conflict-of-interest provision that would restrict government officials from profiting from the digital-asset industry. That topic falls outside the Banking Committee’s jurisdiction and has been the subject of months of public dispute. The current text preserves the application of existing federal ethics statutes, including 18 U.S.C. § 208 (acts affecting a personal financial interest) and the Standards of Ethical Conduct for Employees of the Executive Branch at 5 C.F.R. § 2635.702 and § 2635.802.

Senate Democrats, led by ranking committee member Sen. Elizabeth Warren, have made clear that a stronger conflict-of-interest provision will be required to secure the 60 votes needed for floor passage. The White House has indicated it will not support a provision that singles out any particular officeholder. The shape of any final provision, and whether it can satisfy both constituencies, remains the bill’s most significant open political question.

Law-Enforcement Provisions

Senate negotiators have separately reached an accord on law-enforcement provisions, with reports indicating that the final text will include measures allowing prosecutors to pursue crypto-related misconduct in money-laundering cases. Practitioners should expect the bill to preserve, and likely sharpen, the application of existing anti-money-laundering frameworks, including the Bank Secrecy Act (31 U.S.C. § 5311 et seq.) and the money-laundering and money-transmitting offenses at 18 U.S.C. §§ 1956, 1957, and 1960, to centralized intermediaries and custodial actors, even as it carves out non-custodial software.

Reconciliation with the Senate Agriculture Bill

Assuming the Clarity Act survives the Senate floor, it will still need to be merged with the Digital Commodity Intermediaries Act, the parallel legislation advanced by the Senate Agriculture Committee. The Agriculture Committee’s bill focuses more squarely on digital-asset intermediaries and is, by design, somewhat narrower on the treatment of decentralized protocols. Reconciliation will be the final structural negotiation before any unified text moves to the President’s desk.

What This Means in Practice

For clients across the digital-asset industry, the released text provides meaningful directional clarity on several questions that have driven enforcement risk and compliance posture.

For Token Issuers

Projects that have been operating under the conservative assumption that their tokens are securities should begin to model the Regulation Crypto pathway as a compliance alternative. The $50 million annual cap (or 10 percent of outstanding ancillary asset value) with a $200 million aggregate ceiling is meaningfully more permissive than Regulation D’s accredited-investor framework, but it carries its own disclosure burden. Capital-raising planning over the next 12-18 months should account for both pathways.

For Exchanges and Brokers

Centralized intermediaries should anticipate an expedited registration and provisional status pathway with the CFTC for digital-commodity activity, alongside continued SEC oversight of any securities-classified activity. The dual-registration model will require careful product-by-product analysis. Compliance programs should now be inventoried to assess readiness against the bill’s risk-management, cybersecurity, and customer-protection requirements.

For Stablecoin Platforms

Platforms offering rewards on stablecoin holdings should carefully review whether their structures fall within the prohibited “functionally equivalent to deposit interest” category. Transaction-based reward programs appear to be preserved, but the implementing rules will define their contours. The combination of GENIUS Act issuance requirements and the Clarity Act yield restriction creates a comprehensive statutory regime that will displace the patchwork of state money-transmitter and trust-charter approaches that have governed stablecoins to date.

For DeFi Developers and Infrastructure Providers

The BRCA’s inclusion is a significant protective development for non-custodial software developers. The clarification that writing code, publishing software, validating transactions, and providing self-custody tools do not constitute money transmission under 31 U.S.C. § 5330 or 18 U.S.C. § 1960 should foreclose a class of enforcement theory that has chilled development in the United States. Developers should nevertheless continue to evaluate sanctions exposure, fraud exposure, and any custodial elements of their architecture that could fall outside the safe harbor.

The Path Forward

Futuristic illustration of the CLARITY Act path to Senate passage and reconciliation with the Digital Commodity Intermediaries Act

The White House crypto adviser has publicly stated that the administration is targeting a July 4, 2026, finish for the Clarity Act. Sen. Kirsten Gillibrand, speaking at Consensus Miami 2026, has predicted completion by the first week of August. Either timeline assumes successful resolution of the ethics provision, the law-enforcement provisions, and the reconciliation with the Senate Agriculture Committee’s bill.

The relevant precedent for the bill’s prospects is the GENIUS Act, which passed the Senate by a 68-30 vote, clearing the 60-vote threshold with significant bipartisan support. Whether the Clarity Act can replicate that coalition will depend on the unresolved issues that the Banking Committee deliberately left for later stages.

Hodder Law will continue to track the bill’s progress and will publish detailed implementation guidance as the final text comes into view.

Legal References

Federal Statutes

Securities Act of 1933, 15 U.S.C. §§ 77a et seq.
Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et seq.
Investment Company Act of 1940, 15 U.S.C. §§ 80a-1 et seq.
Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-1 et seq.
Commodity Exchange Act, 7 U.S.C. §§ 1 et seq.
Bank Secrecy Act, 31 U.S.C. §§ 5311 et seq.
Money transmitting business registration, 31 U.S.C. § 5330.
Prohibition of unlicensed money transmitting businesses, 18 U.S.C. § 1960.
Laundering of monetary instruments, 18 U.S.C. § 1956.
Engaging in monetary transactions in property derived from specified unlawful activity, 18 U.S.C. § 1957.
Acts affecting a personal financial interest, 18 U.S.C. § 208.
International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq.

Enacted Legislation

Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 (GENIUS Act), Pub. L. No. 119-27, 139 Stat. 419 (July 18, 2025).

Pending Legislation

Digital Asset Market Clarity Act of 2025, H.R. 3633, 119th Cong. (passed House July 17, 2025; Senate Banking Committee substitute advanced May 14, 2026).
Blockchain Regulatory Certainty Act, H.R. 1747, 119th Cong. (reintroduced May 21, 2025) and Blockchain Regulatory Certainty Act of 2026, S. 3611, 119th Cong.
Digital Commodity Intermediaries Act (Senate Agriculture Committee, released January 21, 2026).

Regulations

Standards of Ethical Conduct for Employees of the Executive Branch, 5 C.F.R. § 2635.702 (use of public office for private gain).
Standards of Ethical Conduct for Employees of the Executive Branch, 5 C.F.R. § 2635.802 (outside employment and activities).
Regulation D, 17 C.F.R. §§ 230.501-230.508 (exemptions from registration).

Case Law

SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (four-factor investment-contract test).

Committee Materials

U.S. Senate Committee on Banking, Housing, and Urban Affairs, Digital Asset Market Clarity Act: Section-by-Section Summary (May 2026).
U.S. Senate Committee on Banking, Housing, and Urban Affairs, The Facts: The CLARITY Act (May 2026).

Disclaimer: This post is for informational purposes only and does not constitute legal advice. The content reflects developments as of its publication date and may not reflect subsequent changes in law, regulation, or regulatory guidance. Legislation discussed in this post is pending, and the final enacted text, if any, may differ materially from the versions discussed here. Readers should not act or refrain from acting on the basis of any information in this post without seeking advice from qualified counsel. Transmission of, or receipt of, this information does not create an attorney-client relationship between the reader and Hodder Law.