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| 1 minute read

The CLARITY Act: Key Developments for Digital Assets

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

Tags

blockchain, financial technology fintech