CLARITY Act: Full breakdown—can crypto regulation deliver a “1996 Telecommunications Act moment”?

On July 17, 2026, the Digital Assets Subcommittee of the U.S. House Committee on Financial Services held an on-site hearing in New York on Wall Street. The hearing’s theme was “Building the Financial Future: How the CLARITY Act Unleashes Innovation.” The hearing was held at Federal Hall—just a few steps from the New York Stock Exchange. Instead of meeting on Capitol Hill in Washington, the committee moved the venue to Wall Street. This choice in itself was a statement: lawmakers want to deliver their message directly to exchanges, banks, asset management firms, and custodians.

The CLARITY Act—full name the “Lummis-Gillibrand Responsible Financial Innovation Act of 2026”—is widely regarded by many in the industry as the U.S. crypto sector’s “Telecommunications Act moment of 1996.” The 1996 Telecommunications Act broke AT&T’s monopoly and laid the foundation for the competitive landscape in the internet era; meanwhile, the CLARITY Act is expected to put an end to years of regulatory “tug-of-war” between the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), for the first time drawing clear jurisdictional boundaries for digital assets in the form of federal law.

However, from an 82% probability of passage in the prediction markets in February 2026 to a drop to 35% as of July 16, the CLARITY Act’s legislative path is now undergoing a dramatic reassessment of odds. What exactly does this 309-page draft say? Why did it shift from “a sure thing” to “uncertain”? What does it mean for exchanges, developers, and investors? This article will systematically break down the CLARITY Act across three dimensions: the bill text, the legislative process, and industry impact.

Bill Text: Three Underlying Logics Behind the 309-Page Draft

“Ancillary assets”: carve a hole next to the Howey Test

To understand the CLARITY Act, first you need to understand the fundamental regulatory dilemma at the root of U.S. crypto oversight. The 1946 Howey Test is an unshakable cornerstone of case law—it sweeps nearly all tokens into the category of securities by applying the standard of “a reasonable expectation of profits derived from the efforts of others.” The SEC’s lawsuits against Ripple, Coinbase, and Binance all derive their legal arguments from this.

The CLARITY Act does not aim to overturn the Howey Test. It does something more precise: it creates an entirely new legal category called “ancillary asset.” If a token’s value depends on the “entrepreneurial or managerial efforts” of the issuer or the core team, then it is an ancillary asset. The bill acknowledges the relationship of “reliance on the efforts of others” described in Howey, and then sets a separate rule for this situation: the act of issuance itself is legally recognized as “involving securities,” but once the token is issued, it is no longer a security—it becomes an ancillary asset, governed by disclosure rules rather than registration rules.

In plain terms, the CLARITY Act creates an intermediate layer where the “density of disclosure obligations” is lower than that of securities, but higher than that of commodities—specifically designed to accommodate things that are neither like stocks nor like corn. This means that the legal routes for token distributions within the U.S. will become clearer for projects, without needing to endlessly maneuver around exemptions such as SAFT, Reg D, and Reg S. More importantly, the U.S. would finally give tokens a clear legal identity—not the Schrödinger-like state of “if the SEC sues you today, then you’re a security; and if you settle tomorrow, then you’re not.”

Cutting up SEC vs. CFTC jurisdiction

Another core mechanism of the bill is building a regulatory bridge between the SEC and the CFTC. According to the latest draft, the CFTC would have exclusive jurisdiction over “digital commodities”—namely, native network tokens whose value primarily comes from the mature functions of decentralized blockchain networks. The SEC would retain jurisdiction over “investment contracts” and assets during the initial issuance stage. The bill introduces a “mature blockchain test,” requiring the blockchain system to meet conditions such as no single-entity control, distributed ownership, open source, and so on—examples include Bitcoin and Ethereum. Once certified, the relevant tokens would automatically become non-securities. Issuers could be exempt from some SEC registration requirements, but would need to continue providing ongoing initial and semiannual disclosures.

In addition, the bill includes a noteworthy provision: any token that, before January 1, 2026, has already been listed and traded on a national securities exchange as the underlying asset of a spot ETF will automatically be deemed a non-security. This means not only that Bitcoin and Ethereum are clearly treated as non-securities, but that other tokens approved for ETFs will also receive the same level of legal certainty.

Anti-money laundering, consumer protection, and DeFi exemptions

On the front of illicit finance, the bill brings digital assets under the regulatory scope of the Bank Secrecy Act (BSA) and sanctions laws. Digital asset brokers, dealers, and trading platforms must register with the CFTC and comply with requirements such as segregating customer assets, risk disclosures, and anti-money laundering obligations. The bill also requires registration for digital asset self-service terminals (Bitcoin ATMs), including requirements such as customer warnings, receipt rules, anti-fraud policies, risk monitoring, a compliance officer, fraud detection, holding-period and withdrawal limit requirements.

Regarding decentralized finance (DeFi), the bill specifically incorporates provisions from the “Blockchain Regulatory Certainty Act,” providing clear exemptions for non-custodial DeFi protocols, node operators, and open-source developers. They do not need to register as money service businesses or brokers, as long as the protocol is truly decentralized. In July, the Blockchain Association publicly characterized the CLARITY Act as “a bill to combat crimes involving cryptocurrencies and strengthen enforcement cooperation,” arguing that clear federal rules will enable investigators to trace illegal financial activity.

For stablecoins, the bill restricts interest or yield payments, allowing them only in ways that are “related to holding payment-type stablecoins,” or “economically or functionally equivalent to interest or yield payments on bank deposits.” This provision has continued to spark controversy between the crypto industry and the banking industry’s lobbying efforts.

Legislative Process: From High-Vote House Passage to a 60-Vote Threshold in the Senate

Timeline recap

The CLARITY Act was formally introduced by French Hill, chair of the House Financial Services Committee (a Republican from Arkansas), on May 29, 2025. On July 17, 2025, the bill passed the House with cross-party support by a vote of 294 in favor and 134 against.

Entering 2026, the legislative process moved into the Senate. On January 12, the Senate Banking Committee chair Tim Scott released the latest revised text following bipartisan negotiations. On May 12, the Senate Banking Committee published the 309-page latest draft text. On May 14, the Senate Banking Committee passed the bill by a vote of 15 in favor and 9 against. Notably, only two Democrats—Ruben Gallego and Angela Alsobrooks—crossed party lines to vote in favor.

On July 13, the U.S. Senate ended its July 4 recess and formally reconvened. The new draft merged versions produced by the Senate Banking Committee and the Agriculture Committee into a single text, adding more than 70 pages of new language, described as placing greater emphasis on consumer protection than the earlier drafts. Senate Majority Leader John Thune controlled the legislative agenda and ultimately determined when the bill would be sent to the full Senate for a vote. Lummis was expected to schedule consideration during the week of July 20.

Why 60 votes are needed

In the U.S. Senate, passing a majority bill requires overcoming the filibuster. To end debate and move forward to a vote, at least 60 votes are needed—this is known as the “cloture” threshold. Currently, Republicans hold 53 seats in the Senate. This means that even if all Republican senators vote in favor, the bill would still require at least 7 Democratic senators to support it across party lines in order to reach the 60-vote threshold.

Three major obstacles: ethical controversy, time pressure, and partisan division

Ethical controversy. The biggest unresolved issue is a restriction requested by Democrats: it would prohibit senior government officials (including the president) from maintaining business relationships with the crypto industry. On July 15, three Democratic senators—Chris Murphy, Jeff Merkley, and Chris Van Hollen—publicly opposed the bill, arguing that it had not addressed “Trump’s crypto corruption”—referring to Trump’s links of interests with the crypto industry through companies such as meme coins and World Liberty Financial. Previously, two Democratic senators who voted in favor at the Banking Committee also warned that if the ethics provision is not handled, they may not approve the final bill.

Time pressure. The Senate’s disclosed 2026 agenda shows the August work period runs from August 10 to September 11, and August 7 is the last scheduled meeting day before the recess. From July 13 reconvening to the start of the recess on August 7, there is only about a three-week working window. If the August recess is missed, legislative efforts could be delayed until 2027.

Severe swings in probability. In February 2026, prediction markets put the odds of the CLARITY Act passing within the year as high as 82%. After that, the probability kept trending downward: in mid-May, Polymarket’s probability was about 74%-75%; Galaxy Research first lowered its estimate from 75% in May to 60%, and then to 50%; on July 13, Polymarket’s probability briefly reached a low of 24%. As of July 16, Gate prediction market data shows the probability of passage is only 35%. The steep downward trajectory of the probability curve reflects the market’s ongoing pessimistic adjustments to three variables: the stalemate over the ethical controversy, the depletion of legislative time, and the uncontrollable uncertainty of cross-party votes.

July 17 New York Hearing: Wall Street’s “Closing Arguments”

At 10:00 a.m. on July 17, the Digital Assets Subcommittee of the House Committee on Financial Services held an on-site hearing in New York on Wall Street. The witnesses included four organizations: Sarah Aberg, Chief Legal Officer of Helium network developer Nova Labs; Randi Abernethy, Chief Legal and Group Risk Officer of the crypto exchange Bullish; Ryan Louvar, Chief Legal Officer of the asset manager WisdomTree; and Jason Somensatto, Policy Director of the crypto policy research organization Coin Center.

This was an on-site hearing. It was different from hearings generally conducted in committee rooms. By choosing New York, lawmakers wanted to direct the discussion of the CLARITY Act straight at the institutions that would truly operate under this framework. The key focus for industry witnesses was expected to be: once the rules are clear, the digital asset products they have been reluctant to launch due to regulatory uncertainty will finally have the chance to reach the market. The central thread of the hearing was to package the CLARITY Act as a story about U.S. innovation, jobs, and competitiveness—not just as a technical regulatory debate.

The hearing also approved the discussion of two documents together: H.Res. 111, a resolution supporting blockchain technology and digital assets, calling on the United States to set a framework for digital assets early; and H.R. 8957, the American Reserve Modernization Act.

Industry Impact: Who Will Benefit, and Who Will Face Pressure?

For exchanges and intermediaries. The bill brings digital asset brokers, dealers, and trading platforms into the CFTC registration framework and applies the Bank Secrecy Act’s anti-money laundering, customer identity verification, suspicious activity reporting, and sanctions compliance requirements. This means compliance costs will rise significantly, but it also means legal certainty will arrive. Coinbase’s vice president of public policy has already pointed out that relevant provisions allow platforms to pause suspicious transfers when law enforcement requests action.

For DeFi developers and the open-source community. The bill provides clear exemptions for non-custodial DeFi protocols, node operators, and open-source developers—so long as the protocol is truly decentralized, developers do not need to register as money service businesses or brokers. This provision is seen as an important foundation for protecting the U.S. blockchain development ecosystem.

For investors and consumers. On July 15, Lauren Belive, co-head of global public policy and government affairs at Ripple, urged the Senate to pass the bill, warning that if the bill is rejected, people holding cryptocurrencies would face the risk of malicious actors exploiting regulatory loopholes. She said: “Voting against the CLARITY Act is not about opposing the crypto industry—it’s about opposing consumers. It’s a vote that exposes crypto holders to the risk that bad actors can exploit regulatory arbitrage.”

For the stablecoin market. The bill’s ban on interest payments for payment-type stablecoins could change stablecoin business models. At the same time, the bill allows stablecoins to be integrated into lending, payments, and DeFi protocols without having to enter the regulated banking domain. The lobbying battle between the crypto industry and the banking industry continues.

For the overall market. If the legislation moves forward, exchanges, blockchain developers, and crypto companies may benefit from more predictable compliance requirements. Clear rules could encourage innovation, attract long-term investment, and reduce legal uncertainty that has impacted the market for years. In the long run, the cryptocurrency market may see stronger institutional participation, higher investor confidence, and more blockchain investments.

Conclusion: A 1996 Telecommunications Act moment—or another legislative collapse?

Supporters of the CLARITY Act compare it to the 1996 Telecommunications Act—the bill that broke monopolies and defined the competitive rules for the internet era. Opponents argue that the bill does not resolve ethical conflicts, could ease regulation over existing markets, and opens the door to corruption and misuse.

From the data perspective, the 35% probability of passage reflected in the prediction markets (as of July 16) indicates the market’s cautious judgment. The August 7 recess deadline is approaching. Even if the Senate passes the bill, the House would still need to approve the Senate version before it can be sent to the President for signature. And the White House has not yet completed endorsement of the combined text.

Whether or not the CLARITY Act ultimately becomes law in 2026, it has already accomplished something important: it has advanced the discussion of U.S. crypto regulation from “whether regulation is needed” to “how regulation should be done.” As Senator Lummis put it: “We want to meet the needs of the industry… It’s definitely very tough, but we’re ready to take the stage.”

FAQ

Q: What is the full name of the CLARITY Act?

The full name of the CLARITY Act is the Lummis-Gillibrand Responsible Financial Innovation Act of 2026. It was introduced by French Hill, chair of the House Committee on Financial Services, on May 2025.

Q: What stage is the CLARITY Act at in Congress right now?

The bill passed the House on July 2025 by a vote of 294 to 134, and passed the Senate Banking Committee on May 14, 2026 by a vote of 15 to 9. It is currently awaiting a full Senate vote; it can only proceed after reaching the 60-vote cloture threshold.

Q: What is the New York hearing on July 17?

On July 17, the Digital Assets Subcommittee of the House Committee on Financial Services held an on-site hearing in New York on Wall Street, titled “Building the Financial Future: How the CLARITY Act Unleashes Innovation.” Representatives from Nova Labs, Bullish, WisdomTree, and Coin Center attended to testify.

Q: How does the CLARITY Act define SEC vs. CFTC jurisdiction?

The bill assigns “ancillary assets,” whose classification depends on the efforts of the initiator, to SEC oversight; once token control is distributed and the “mature blockchain test” is passed, they become “digital commodities,” which are regulated by the CFTC for trading venues and intermediaries.

Q: What impact does the bill have on DeFi developers?

The bill provides clear exemptions for non-custodial DeFi protocols, node operators, and open-source developers—so long as the protocol is truly decentralized, developers do not need to register as money service businesses or brokers.