August 4, 2025

Update on Crypto Market Structure Legislation: Senate Banking Draft and CLARITY Act

Josh Boehm, Chris Daniel, Meagan Griffin, Kristofer Readling, Dina Ellis Rochkind, Lisa Rubin, Eric Sibbitt, Dana Syracuse

Paul Hastings LLP

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The Senate Banking Committee, which has jurisdiction over the SEC, released its long-anticipated digital asset market structure legislation, titled the “Responsible Financial Innovation Act of 2025.” The Committee’s draft marks the first detailed market structure proposal to emerge from the Senate this congressional session. The bill includes key differences from the House’s CLARITY Act, which passed the House last month, including provisions that would create a new category of digital tokens called “ancillary assets.” The Senate Agriculture Committee, which has jurisdiction over the CFTC, is also expected to introduce draft language focused on digital commodities. That text has not yet been released publicly. The two committees will need to reconcile jurisdictional questions between the SEC and CFTC before any unified legislative package can advance on the Senate floor.

Recent Updates on Market Structure Legislation

A timeline of recent market structure developments is as follows:

On May 5, the House Financial Services and Agriculture Committees released a discussion draft of their digital asset market structure bill. Building on the structure laid out in the FIT21 bill passed by the House last Congress, the new market structure proposal sought to clarify how digital assets are regulated under federal law, providing expansive authority to the CFTC.
On May 29, the CLARITY Act (H.R.3633) was introduced in the House and was referred to the Financial Services and Agriculture Committees for consideration of the provisions that fell within the jurisdiction of each committee.
On July 17, the House passed the CLARITY Act by a vote of 294-134, with support from 78 Democrats.
On July 22, Senate Banking 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 digital asset market structure legislation covering issues under the Banking Committee’s jurisdiction, along with a request for information.

The Senate Agriculture Committee, which has jurisdiction over the CFTC, is expected to release their draft of the bill in early September. Senate Banking Committee Chairman Tim Scott has said his goal is to get the SEC portion of the legislation voted out of the Committee by September 30.

Defining Digital Assets

While Congress continues to develop the shape of market structure legislation, the Senate Banking Committee draft and the House-passed CLARITY Act each introduce definitions to classify digital assets. The Senate draft introduces a new category called “ancillary assets,” while the CLARITY Act relies on the concept of “digital commodities.”

Senate Banking Draft

CLARITY Act

Definitions

Ancillary Asset. The term “ancillary asset” means 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. Sec. 101, adding new Section 4B (hereinafter Sec. 4B) to the Securities Act at (a)(1)(A), p. 3.

Digital Commodity. The term “digital commodity” means 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.

A digital asset is considered “intrinsically linked” if it is generated by the blockchain, used to transfer value between participants, used to access services on a blockchain, used to participate in governance, used to pay fees, or used as incentive for participants to engage in activities or to validate transactions. Sec. 103, pp. 22-24.

Exclusions

Excludes. A digital asset cannot qualify as an ancillary asset if it qualifies as a debt or equity interest, liquidation rights, dividends or other financial claims. Sec. 4B(a)(1)(B), p. 3.

Excludes. The term “digital commodity” excludes traditional securities, such as stocks and bonds. Even if a token falls into a category commonly associated with digital assets, such as a note, investment contract or profit-sharing agreement, it is still excluded from “digital commodity” treatment if it gives the holder an interest in the revenues, profits, assets or debts of an issuer or affiliated person. Sec. 103, pp. 24-26.

The definition also excludes several types of assets, including security derivatives, permitted payment stablecoins, bank deposits, certain commodities, commodity derivatives, pooled investment vehicles and collectibles. Sec. 103, pp. 24-31.

Approaches to ‘Investment Contracts’

Both the Senate Banking Committee draft and the CLARITY Act address the term “investment contract,” a category of security under the federal securities laws. Under the Senate draft, the SEC would be required to conduct a rulemaking to define the term “investment contract” within two years of enactment. The rule must incorporate a five-part test specified in the statute. The test draws on elements found in the Supreme Court’s Howey test. Sec. 105(b), pp. 18-19. The CLARITY Act creates a separate category called an “investment contract asset,” which is distinct from the investment contract itself. Sec. 201, pp. 61-62.

Senate Banking Draft

CLARITY Act

Investment Contract

Investment Contract. The SEC shall adopt a final rule specifying clear criteria and definitions governing the term “investment contract,” which shall include the following elements:

An investment of money by an investor, which shall include more than a de minimis amount of cash (or its equivalent) or services.
The investment is made in a business entity.
An express or implied agreement is required whereby the issuer makes, directly or indirectly, certain promises to perform essential managerial efforts on behalf of the enterprise.
The investor reasonably expects profits based on the terms of the agreement itself and statements by the counterparty and its agents.
Profits are derived from the entrepreneurial or managerial efforts of the counterparty or its agents on behalf of the enterprise, where such efforts (i) are post-sale and essential to the operation or success of the enterprise and (ii) do not include ministerial, technical or administrative activities. Sec. 105(b), pp. 18-19.

Investment Contract Asset. An “investment contract asset” means a digital commodity that (i) can be “exclusively possessed and transferred, person to person, without necessary reliance on an intermediary, and is recorded on a blockchain” and (ii) is “sold or otherwise transferred, or intended to be sold or transferred, pursuant to an investment contract.” Sec. 201, pp. 61-62.

Offering Exemptions

Both the Senate Banking Committee draft and the CLARITY Act include provisions that would exempt certain digital asset offerings from registration under the securities laws. The Senate draft creates a new exemption from registration for offerings of ancillary assets, referred to as Regulation DA. The CLARITY Act creates a new exemption from registration for offerings of digital commodities under Section 4(a)(8) of the Securities Act. Each bill establishes separate exemption criteria, including offering limits, issuer qualifications and network-related requirements.

	Senate Banking Draft	CLARITY Act
Offering Exemption	Regulation DA. To rely on this exemption, the offer or sale of an ancillary asset cannot exceed the greater of $75 million in gross proceeds per calendar year over four years, or 10% of the total dollar value of ancillary assets that are outstanding at the time of offer or sale. Sec. 102(b), p. 12.	Section 4(a)(8) Exemption. To rely on this exemption, the sum of all cash and other consideration to be received by the issuer in reliance on this exemption must not exceed $50 million over a 12-month period, and no purchaser may acquire more than 10% of the total outstanding units of the digital commodity. Sec. 202, pp. 63-65.

Network Control

Both the Senate Banking Committee draft and the CLARITY Act include provisions addressing the degree of control or influence that an issuer or related persons have over a blockchain network. The Senate draft uses the term “common control,” while the CLARITY Act relies on the “mature blockchain system” test.

Senate Banking Draft

CLARITY Act

Network Control

Common Control. The SEC shall promulgate rules to define “common control.” The factors considered would include:

The ability of a person or group of persons to unilaterally alter, restrict or direct the operation or governance of the digital network.
The distribution of voting power and governance rights among participants in the digital network.
The presence or absence of open-source code and permission-less access on the digital network.
The degree of economic or technical influence that any person or group of persons may exercise over the digital network.
Any other factor that the Commission determines relevant to assessing control and independence with respect to the digital network.

Sec. 103(b), pp. 15-16.

Test for “Mature Blockchain System.” The term “mature blockchain system” means “a blockchain system, together with its related digital commodity, that is not controlled by any person or group of persons under common control.” Sec. 101(31), p. 13.

To assess whether a blockchain system is mature, the Commission may consider the following factors: whether the digital commodity’s value is substantially derived from the use and functioning of the blockchain system; whether the blockchain system allows network participants to engage in its intended activities, such as transacting, storing value or validating transactions; the governance structure; and whether any person or group under common control has the unilateral authority to materially alter the system, possesses 20% or more of voting power or has unique privileges or permissions regarding system functionality. Sec. 205, Sec. 42(c)(2), pp. 101-104.

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