Crypto regulation reaches a historic moment—what are the five core provisions included in the CLARITY Act revised draft?

On July 22, 2026, Republicans in the U.S. Senate officially released the latest revised version of the Digital Asset Market Structure Act (CLARITY Act). This draft spans 616 pages and is the most significant text update the bill has undergone since the House passed it in July 2025 by a vote of 294 to 134. For the first time at the federal legislative level, the draft clearly prohibits the President, Vice President, members of Congress, federal judges, and other senior public officials from issuing or sponsoring digital assets for profit during their terms in office. At the same time, the bill provides the most detailed institutional design to date on key issues including stablecoin reward mechanisms, the classification of DeFi protocols, token issuance exemptions, and anti-money laundering obligations.

As the U.S. Congress summer recess approaches (with a hard deadline of August 7), the legislative window is rapidly narrowing. The Senate needs 60 votes to advance the bill, meaning Republicans must secure support from at least 7 Democratic senators.

Why the token ban for public officials has become the core focus of the bill

The most closely watched provision in the new draft is the first time at the federal legislative level to draw a clear red line around public officials’ involvement in crypto-asset activities. The restricted “public officials or employees” include the President, Vice President, members of Congress, federal judges, and other senior government officials; their spouses are also covered by the restrictions.

During their term in office, covered individuals may not “issue or sponsor digital assets for compensation.” The bill’s definition of “issuing” covers the establishment, minting, launch, or control of digital assets, including initial sales or distributions; the definition of “sponsor” is broader—providing funding, organizing, or publicly endorsing a token falls under it, and it even includes using a person’s name, likeness, or official position in relevant creation or promotion. Notably, this is not an outright ban on holding cryptocurrencies. The bill explicitly allows regulated persons to continue holding digital assets as investments, as long as they comply with existing disclosure and conflicts-of-interest requirements. Sales of crypto assets worth more than $1,000 must be disclosed. Violators may be required to disgorge profits and pay civil penalties; if a digital-asset intermediary knowingly still lists the banned token, it faces a fine of up to $250k per day, per instance.

The timing of this provision is particularly striking. Just weeks earlier, U.S. President Trump’s 2025 financial disclosure documents showed that he earned approximately $1.2 billion to $1.4 billion in revenue from crypto-related businesses. Critics argue that while the President pushes policies favorable to the crypto industry on one hand, his family businesses obtain huge income from it on the other. The new draft is a structural response to this controversy.

One of the most controversial designs is the “sunset clause” attached to the moral prohibition: the relevant restrictions would automatically expire at 12:00 noon on January 20, 2029, a date that coincides with the end of Trump’s second term. This temporary design prompted joint opposition from seven Democratic senators. Democrats in particular object to concentrating enforcement authority in the Department of Justice; Maryland Democratic senator Angela Alsobrooks said plainly that this arrangement is “absurd, unserious, and downright crazy.”

How the stablecoin reward mechanism draws the line between incentives and regulation

Stablecoin yield provisions are one of the areas in the draft with the most direct commercial impact. The core principle of the bill is: it bans paying returns akin to bank deposit interest on idle stablecoin balances, but allows rewards related to trading activity.

Specifically, companies may not pay interest on stablecoins simply because users deposit idle funds into an account. However, businesses may still provide rewards tied to actual activity—such as using stablecoins for payments, staking services, or wallet usage. The condition is that the reward must not be equivalent to bank deposit interest rates. Regulators will set compliance standards, disclosure requirements, and permitted reward structures.

This distinction will have far-reaching implications for the business models of the crypto industry today. Earning interest by holding stablecoins such as USDC and USDT is one of the core sources of revenue in the DeFi ecosystem. Once the provisions take effect, profits for sectors built on a “hold-to-earn” model will face a significant contraction. The contest between the banking industry and crypto platforms over where tens of trillions of dollars in capital flow should go is thereby set in motion.

From a policy logic perspective, the purpose of this design is to maintain the regulatory boundary between stablecoins and bank deposits. If stablecoins can pay interest like bank deposits but are not subject to bank regulation to the same degree, it would create regulatory arbitrage. By banning passive interest while allowing activity-based rewards, the bill seeks a balance between innovation incentives and financial stability.

How DeFi protocols are classified and under what conditions they can receive regulatory exemptions

Regulatory classification for decentralized finance (DeFi) protocols has long been one of the most controversial topics in the legislative process. The new draft lays out the clearest framework to date for DeFi regulation.

The bill fully preserves the core spirit of the Blockchain Regulatory Certainty Act (BRCA). It explicitly states: non-custodial wallets, blockchain software developers, validators, or blockchain infrastructure providers should not be regarded as money transmission entities or money service businesses solely because they build or maintain a decentralized network. However, those who intentionally assist unlawful activity must still bear criminal liability.

At the same time, the Keep Your Coins Act is fully incorporated into the draft, protecting individuals’ right to self-custody crypto assets. Users may still keep their crypto assets without being required to deposit them into exchanges or custodial institutions.

For regulatory exemptions for DeFi protocols, the bill sets clear thresholds: the protocol must meet a standard of “sufficient decentralization,” meaning there is no single entity that can unilaterally alter the protocol’s operating rules. DeFi protocols that meet the criteria do not need to register with the SEC as securities exchanges. The bill also creates an SEC exemption pathway for digital commodity issuances.

The logic of this framework is to shift regulatory focus from technical form to functional substance. For protocols with a sufficiently high level of decentralization whose operation does not rely on the efforts or control of any specific party, the regulatory requirements targeting centralized intermediaries should not apply. This definition provides legal certainty for DeFi innovation while also preventing “pseudo-decentralized” projects from using exemption provisions to evade regulation.

How the token issuance exemption mechanism lowers compliance thresholds for U.S. projects

The compliance pathway for token issuance is one of the most structurally significant institutional innovations in the bill for the crypto industry. The new draft establishes a registration-exemption framework for token issuers called “Regulation Crypto.”

Under the draft, if a project offers tokens to U.S. users and meets certain conditions, it does not need full registration with the SEC. The key parameters of the exemption mechanism include: an annual token issuance cap of $50 million or 10% of total circulating supply (whichever is higher), and a cumulative total issuance cap of $200 million. Issuers must submit initial and semiannual information disclosures.

In addition, the bill includes an important grandfathering provision: any token that, before January 1, 2026, has already been listed and traded on a national securities exchange as an underlying spot ETF asset is automatically deemed a non-security. This means that not only BTC and ETH will be treated as non-securities; SOL and XRP that launched in the fourth quarter of 2025 will also be included in the non-security category. The bill also creates a 60-day self-certification window for token issuers; if the SEC does not raise objections within the period, the asset is not considered a security.

The significance of this exemption mechanism is that, in the past, when U.S. projects raised funds through token issuance, they faced long-term uncertainty over whether the token is a security, causing a large amount of innovation to flow overseas. By providing a clear compliance path and issuance caps, the new framework substantially reduces compliance costs and legal risk for domestic U.S. crypto projects.

How anti-money laundering obligations and strengthened enforcement balance compliance and innovation

Anti-money laundering (AML) and enforcement provisions are among the areas in the draft where regulatory intensity is increased most significantly. The bill contains nearly twenty different provisions regarding AML, sanctions, and enforcement authority.

Under the draft, digital-asset service providers (including exchanges, brokers, and dealers) are for the first time fully brought under the regulatory scope of the Bank Secrecy Act (BSA). These institutions must carry out comprehensive compliance obligations: risk assessments, internal controls, appointing compliance officers, training, audits, and suspicious activity reporting, among others. Digital-commodity exchanges, brokers, and dealers will be treated as financial institutions and will face compliance standards similar to those for traditional banks.

On the enforcement side, the bill adds budget for crypto-related investigations, provides training for law enforcement personnel, establishes cybercrime centers, and requires stablecoin issuers to comply with lawful orders to freeze, seize, destroy, or reissue tokens when necessary. The bill also adds a dedicated chapter to strengthen enforcement, including funding for blockchain analysis tools for state and local governments, establishing a “cyber center” specifically to combat nation-state hackers, and authorizing the Department of Justice to pursue civil enforcement against non-compliant exchanges.

Customer asset protection is also an important component of the draft. The bill explicitly provides that customers’ crypto assets will be recognized as customer assets rather than company assets in bankruptcy proceedings. This provision is intended to avoid repeating the problems experienced in FTX. When an exchange goes bankrupt, customer assets are forcibly segregated.

How SEC and CFTC regulatory authority is reallocated

The allocation of regulatory authority is one of the core institutional designs of the CLARITY Act. The bill’s core logic is to categorize digital assets according to their actual functions.

Under the draft, digital assets are divided into three major categories. The first category is “digital commodities”—tokens whose value primarily derives from the underlying blockchain system’s use, which falls under CFTC jurisdiction. The CFTC has exclusive jurisdiction over spot trading of digital commodities. The second category is “digital securities”—assets that depend on the efforts of the sponsor, with the SEC handling issuance, information disclosure, and investor protection in the primary market. The third category is stablecoins and other functional assets, which are subject to specific regulatory rules.

This classification ends the long-running dispute over whether something is a security or a commodity. The bill’s key mechanism is to build a regulatory bridge between the SEC and the CFTC: “ancillary assets” that depend on sponsor efforts are placed under SEC oversight, requiring issuers to disclose audited financial statements, ownership, token economics, and other information; once token control is sufficiently dispersed, it transitions to a “digital commodity,” traded on venues and mediated by entities regulated by the CFTC.

From an institutional-design perspective, the key innovation of this framework is providing a dynamic classification pathway—a token can transition from “security” to “commodity,” provided the network reaches a sufficiently decentralized level. This provides a complete regulatory adaptation solution across the lifecycle of crypto projects.

Summary

The release of the CLARITY Act revised draft marks a key transition in U.S. crypto regulation—from “enforcement-style regulation” to “rule-based regulation.” Across six core dimensions, this 616-page draft provides the most systematic institutional design to date: the public-official token ban establishes the highest moral standard at the federal level; stablecoin reward rules draw a boundary between innovative incentives and financial stability; DeFi classification standards provide a lawful regulatory exemption pathway for decentralized protocols; the token issuance exemption mechanism substantially lowers the compliance threshold for domestic U.S. projects; AML obligations fully incorporate the digital asset industry into traditional financial regulatory frameworks; and the division of power between the SEC and the CFTC ends the long-pending dispute over jurisdiction.

However, the legislative outlook remains significantly uncertain. The Senate needs 60 votes to pass it, and seven Democratic senators have already clearly stated their opposition. Prediction market data shows that the probability the CLARITY Act will be signed into law within 2026 is about 40% to 42%. As the August 7 congressional recess deadline approaches, whether the bill can secure sufficient support in the final window will become the biggest variable in the U.S. crypto regulatory landscape in the coming weeks.

Regardless of whether the bill ultimately becomes law in 2026, the text itself has already clearly revealed the future direction of U.S. crypto regulation: clearer rules, stricter moral standards, clearer boundaries of authority, and institutional room for compliance-driven innovation.

Frequently Asked Questions (FAQ)

Q1: What stage is the CLARITY Act currently in?

The bill passed the House on July 17, 2025, by a vote of 294 to 134. On May 14, 2026, the Senate Banking Committee passed it by a vote of 15 to 9. On July 22, 2026, Republicans in the Senate released the latest revised draft. The bill is currently waiting for a full Senate vote, and it needs 60 votes to advance.

Q2: What are the specific rules for the stablecoin reward mechanism?

The bill prohibits paying returns on idle stablecoin balances that are similar to bank deposit interest. But it allows rewards related to trading activity, such as using stablecoins for payments, staking, or wallet usage. Regulators will set specific compliance standards and reward structures.

Q3: Under what conditions can DeFi protocols be exempt from SEC regulation?

Eligible DeFi protocols must meet a standard of “sufficient decentralization,” meaning there is no single entity that can unilaterally alter the protocol’s operating rules. Non-custodial wallets, blockchain software developers, validators, and infrastructure providers should not be considered money transmission entities solely because they build or maintain a decentralized network.

Q4: What is the funding cap for the token issuance exemption?

Under the “Regulation Crypto” framework, the annual issuance cap is $50 million or 10% of total circulating supply (whichever is higher), and the cumulative total issuance cap is $200 million. Issuers must submit initial and semiannual information disclosures.

Q5: What impact does the bill have on already-listed mainstream tokens?

Any token that, before January 1, 2026, has already been listed and traded on a national securities exchange as an underlying spot ETF asset is automatically deemed a non-security. BTC, ETH, SOL, XRP, and others are all included.