During the recent “Crypto Week” on Capitol Hill, the U.S. House of Representatives passed the CLARITY Act as part of a suite of three bills for the benefit of the cryptocurrency industry. Officially known as the Digital Asset Market Structure Clarity Act of 2025, the CLARITY Act sets up a clear framework for federal agency oversight of digital assets. After some wrangling on the Republican side, the bill passed the House by a vote of 294-134, with 78 Democrats joining all Republicans to support it.
Here are some key aspects of the Clarity Act, which will bring much-needed clarity and structure to the digital asset space (if the Senate can get it passed).
Provides jurisdictional clarity (SEC vs. CFTC):
- The Securities and Exchange Commission (SEC) regulates digital assets that qualify as securities or are offered as part of an investment contract (using the Howey test).
- The Commodity Futures Trading Commission (CFTC) oversees digital commodities (e.g., Bitcoin, Ethereum, utility tokens) that are not tied to an investment program.
Establishes legal definitions:
- Terms including blockchain, digital asset and digital commodity, and market-related terms, are clearly defined.
Establishes Qualified Digital Asset Custodians (QDACs):
- Custodians must be federally or state-regulated (or foreign equivalent).
- Custodians require supervision comparable to traditional custodial standards under CEA §§ 5j(b) (financial, operational, and managerial standards) and 5j(c) (segregation and customer protection standards).
Requires asset segregation and prohibits commingling:
- Digital assets must be clearly separated from custodians' own assets and other customers' holdings unless commingling is explicitly authorized under clearly defined and disclosed conditions.
- Required disclosures enhance protection, especially in insolvency scenarios.
Establishes custody and control requirements:
- Mandates custodians to maintain exclusive customer asset control.
- Necessitates thorough recordkeeping, internal control mechanisms, and detailed audit trails.
Provides a trading and clearing framework:
- Allows trading of digital commodities on regulated platforms registered as CFTC-regulated trading facilities or designated contract markets.
- Provides defined registration processes for brokers, dealers and custodians.
Creates a decentralization safe harbor:
- Introduces a three-year safe harbor for digital commodity-related decentralized projects to reach regulatory compliance, supporting innovation and informed risk assessment.
Prohibits rehypothecation without consent:
- Custodians are prohibited from rehypothecating digital assets without explicit customer approval, enhancing lender and investor confidence.
The significance for legal and finance functions:
- Greater legal certainty surrounding digital asset custody, collateral, and transactions
- Improved enforceability of security interests
- Elevated custody standards aligning with traditional securities practices
- Facilitates secure integration of digital assets into structured products and lending frameworks
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