What is the CLARITY Act?

The CLARITY Act could give US crypto its clearest rulebook yet. The bill aims to define and categorize digital assets, who oversees digital assets, how crypto businesses must operate and what protections consumers should expect.

For years, US crypto regulation has revolved around one unresolved question: is a digital asset a security, a commodity or something else entirely?

The CLARITY Act is an attempt to finally draw that line.

Officially called the Digital Asset Market Clarity Act of 2025, the bill would split oversight among the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), U.S. Treasury with respect to AML/CFT requirements, set clearer rules for crypto trading platforms and strengthen consumer protection standards. The House passed it in July 2025. Now, the bill needs Senate approval before it can become law.

What the CLARITY Act is trying to fix

The US crypto market has grown faster than its rulebook.

Prior to the CLARITY Act, crypto and blockchain projects, exchanges and DeFi builders have operated under an unclear legal regime. There was no specific law that governed the industry; regulatory agencies such as the SEC and the CFTC have attempted to create guidelines often via enforcement action against industry players. These actions have led to some court decisions which have added some detail around when and how digital assets and those who build, trade, distribute or otherwise transact in them should be regulated, but without laws, there was no cohesive and comprehensive framework.

The CLARITY Act is the first comprehensive legislative attempt to turn that patchwork into a clearer framework for the industry to operate under.

In simple terms, the bill tries to define:

• when a digital asset should be regulated by the SEC;
• when a digital asset should fall under the CFTC;
• how crypto trading platforms should register;
• how customer assets should be protected;
• what disclosures crypto businesses should provide;
• what anti-money launder (AML) and counter-terrorim financing (CFT) checks, record-retention, suspicious activities monitoring and reporting and customer identification requirements intermediaries (brokers, dealers, and exchanges) need to follow;
• when decentralized / non-custodial activity is excluded from regulation.

That matters because uncertainty stifles innovation and creation. Builders need to know which rules apply. Traders need to know what protections exist. Traditional and digital native institutions need a legal framework before they can move deeper into digital assets.

Why consumer protection is central

The CLARITY Act is not only about agency turf.

A major part of the bill is about making crypto businesses operate with clearer standards around custody, disclosures and the handling of customer assets. According to Axios, the legislation would require crypto dealers and brokers to segregate customer funds and disclose conflicts of interest — the very failures that brought down FTX.

Orest Gavryliak, chief legal officer at 1inch, sees this as one of the bill’s key strengths.

“The Act, through its many sections, establishes more detailed laws with regard to custody, segregation of customer assets, disclosure and operations, providing a solid foundation for consumer protection in the digital asset industry,” he said.

Consumer protection in crypto should not only mean warning people about risk. It should also mean building systems where risk is easier to understand, customer assets are handled properly and platforms operate under clearer rules.

What changes for DeFi?

The CLARITY Act is mainly a market structure bill. That means it focuses on how digital asset markets are classified, regulated and supervised.

The latest draft contains DeFi carve-out exempting non-custodial software, UI providers, and blockchain developers from regulation, but the impact on DeFi would depend on the final text and how regulators implement it via rulemaking. 

But the broad direction is clear: the US is moving from regulation by enforcement toward written laws that provide a clearer roadmap for the industry. That could make it easier for serious DeFi infrastructure to integrate with institutions, wallets, trading systems and future user interfaces.

This does not mean DeFi becomes risk-free. Smart contract risk, self-custody risk and market risk remain.

But clear rules can help weed out bad actors from serious infrastructure. That is good for users. It is also good for builders who want to operate transparently with high security standards.

Why the CLARITY Act matters beyond today’s crypto apps

The next wave of crypto use may not look like today’s DeFi.

More interactions could happen through AI agents. You may ask an agent to rebalance a portfolio, execute a swap, move assets across chains or interact with a protocol on your behalf.

That future needs rules before it becomes mainstream.

Orest says the CLARITY Act could help prepare the market for this shift: “Consumers will also benefit from non-traditional, crypto-related businesses. If passed, the CLARITY Act will also lay the groundwork for the next wave of interactions between users and AI agents.”

According to Orest, blockchain rails could become the backend for AI-driven finance.

“Blockchain rails will provide the seamless backend for AI to execute trades, handle investments and engage with networks and other AIs on users’ behalf,” he said. “Having a regulated, structured environment in place before that wave arrives is exactly the kind of forward-thinking consumer protection that matters most.”

The CLARITY Act is not only about today’s exchanges. It is about creating the foundation for digital asset infrastructure to support the next phase of automated, on-chain finance.

Where is the CLARITY Act now?

As of now, the CLARITY Act is not yet law. The House passed the bill in July 2025 by a 294-134 vote. After that, the bill moved to the Senate, where it finally cleared the Senate Banking Committee on 14 May 2026 with a bipartisan 15–9 vote.

What happens next?

The CLARITY Act still needs several steps before enactment.

First, the Senate Banking Committee and Senate Agriculture Committee are currently merging and reconciling their two draft versions of the CLARITY Act into a single version. The committees are aiming to finish this by June 2026.

Second, this version must pass the full Senate floor, which requires a minimum of 60 votes (out of 100 total votes). The target is to finish this in July.

Third, the version that passes the full Senate, must be reconciled with the House version passed last year. Both chambers must then pass the final, identical text. Again, the target is to finish this in July, before the August summer recess.

Finally, the bill goes to the president. It becomes law only after presidential signature.

If the bill misses the July window, it faces the risk that Congress will not advance controversial, structural bills right before Congressional elections, also known as mid-terms, as the Congressional elections are designed to occur midway through a President’s 4 year term. This could push negotiations into a post-election session which means it may be delayed to 2027 or beyond.

What to watch next

The next important signals are practical.

Watch for:

• agreement on stablecoin rewards 
• clarity on what decentralization means, i.e. when and to whom does the DeFi exemption apply;
• Update on ethics provision related to President Trump's crypto holdings .

Until then, the CLARITY Act remains a major legislative proposal, not binding law.

The bottom line

The CLARITY Act is the most important crypto bill to watch.

If enacted, it could give digital asset markets a clearer legal foundation. It could also help prepare the industry for a future where DeFi, wallets, trading platforms and AI agents interact more directly.

For users, the key promise is simple: clearer rules, stronger protections and a more structured and secure environment for on-chain finance.

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