For most of the past decade, the United States regulated cryptocurrency through enforcement rather than legislation. When agencies wanted to act against a crypto firm, they filed lawsuits and argued that whatever asset was involved qualified as a security under laws written in the nineteen-thirties. Companies that asked for clear rules were told to register under frameworks never designed for digital assets. The resulting environment, described widely as regulation by enforcement, produced legal uncertainty, constrained traditional financial institutions, and pushed innovation to friendlier jurisdictions overseas.
That period ended on the seventeenth of July 2025 when the House of Representatives, by a bipartisan vote of two hundred and ninety-four to one hundred and thirty-four, passed the Digital Asset Market Clarity Act. It was the most comprehensive piece of crypto regulation ever to pass one chamber of Congress. The bill is now advancing through the Senate, and industry observers widely expect a reconciled version to reach the President's desk by mid-2026. This is the architecture that the rest of the digital dollar settlement is built upon.
The legislative path
Representative French Hill introduced H.R. 3633 on the twenty-ninth of May 2025. The bill drew on years of staff work in the Financial Services Committee, on lessons from the FTX collapse and other exchange failures, and on the substantial body of guidance that the SEC, the CFTC, the OCC, and FinCEN had produced piecemeal in the absence of legislation. By Crypto Week, as Congress dubbed the week of the seventeenth of July, the House had reached the bipartisan supermajority required to send the bill across the Capitol.
The Senate has proven more contentious. A mid-January 2026 markup session by the Senate Banking Committee was indefinitely postponed amid industry pushback over an amendment related to stablecoin interest payments. The Senate Agriculture Committee has passed its own version, focused heavily on CFTC authority. Senate Majority Leader John Thune has promised floor time once a reconciled bill emerges from committee. As of this writing the White House remains the most vocal institutional supporter, with the Trump administration framing the Act as central to establishing U.S. leadership in digital finance.
Resolving the SEC–CFTC fight
The central achievement of the CLARITY Act is the resolution of the long-running jurisdictional battle between the Securities and Exchange Commission and the Commodity Futures Trading Commission. Under the Act, the CFTC receives exclusive jurisdiction over digital commodity spot markets, while the SEC retains authority over investment contract assets, which are essentially tokens tied to centralized projects that look more like traditional securities. The boundary is drawn based on the functional decentralization of a given blockchain network.
A digital commodity, as defined by the Act, is a digital asset whose value is intrinsically linked to the use of the underlying blockchain. The definition explicitly excludes securities, derivatives, and stablecoins. Bitcoin and Ether qualify as digital commodities. Newer, more centralized tokens may qualify as investment contract assets and remain under SEC authority. A blockchain is deemed mature once its network is sufficiently decentralized, triggering different regulatory obligations for token issuers.
The boundary will be tested in litigation. There is no statutory mechanism for unilaterally declaring a network mature, and the criteria the Act sets out require fact-intensive analysis that the agencies will administer through guidance and enforcement. The boundary, however, exists. For the first time in a decade, market participants have a definable test to apply to their own products.
The new registration regime
The Act creates new registration categories for digital commodity exchanges, brokers, and dealers. These entities are subject to Bank Secrecy Act anti-money laundering requirements, disclosure obligations, conflict-of-interest rules, and qualified custody standards. A new qualified digital asset custodian requirement, which may include regulated banks, will be subject to state or federal oversight depending on the institution type.
The qualified custody requirement is the legislative response to the FTX collapse and to the broader pattern of exchange failures in which customer and proprietary assets were commingled. Registered entities must hold customer assets with a custodian that meets institutional-grade security, capital, and operational standards, must segregate customer assets from proprietary holdings, and must satisfy ongoing reporting and audit requirements. The cost of compliance is material. Smaller exchanges will face the choice of meeting the new standards, partnering with a registered entity, or exiting the U.S. market.
Stablecoins and DeFi
The CLARITY Act explicitly excludes stablecoins from federal securities laws, resolving a major source of compliance uncertainty. Permitted payment stablecoins are treated as digital commodities for trading purposes, with CFTC jurisdiction applying on commodity exchanges. The SEC retains only anti-fraud authority when stablecoins are used on SEC-regulated platforms. The substantive stablecoin regulation occurs under the GENIUS Act, examined in part two of this series, which mandates full reserves, audits, and federal or state registration.
Decentralized finance activities, such as on-chain validation, are excluded from the Act's registration requirements. DeFi participants remain subject to the agencies' anti-fraud and anti-manipulation authorities. This compromise reflects congressional recognition that fully decentralized protocols cannot realistically comply with institutional registration requirements, while ensuring that basic investor protections still apply. The treatment is contested. Consumer protection advocates argue that the carve-out leaves retail investors materially exposed in a category of products that has produced repeated failures. Industry argues that any registration requirement on truly decentralized protocols would simply push the activity overseas.
The CBDC prohibition
The CLARITY Act incorporates the Anti-CBDC Surveillance State Act, amending the Federal Reserve Act to prohibit Federal Reserve banks from offering products or services directly to individuals and banning the use of any central bank digital currency for monetary policy. This codifies President Trump's January 2025 executive order into statutory law. The codification is consequential. An executive order can be reversed by a successor administration. Statutory law requires congressional action to repeal.
The legislative architecture therefore privileges privately issued, dollar-pegged stablecoins as the digital form of the U.S. dollar. The choice has implications for surveillance, monetary policy, and the position of the dollar in international trade that are examined in full in part four of this series. For present purposes, the relevant point is that the CLARITY Act forecloses, by statute, an entire category of policy choice that ninety-four percent of central banks globally are actively pursuing.
What enactment will trigger
If the CLARITY Act is enacted in 2026 in substantially its current form, several things will follow within twelve to eighteen months. The CFTC will acquire significant new jurisdictional authority and will expand its examination, enforcement, and rulemaking capacity. Registered exchanges, brokers, and dealers will face material compliance investment in customer due diligence, transaction monitoring, qualified custody arrangements, and capital requirements. The OCC will continue to refine the conditions under which national banks may custody digital assets and issue stablecoins. The SEC, under Chairman Atkins, will continue its Project Crypto initiative with rulemakings for tokenized securities and an innovation exemption for testing novel business models.
The legislative settlement will not end the controversy. Several aspects of the Act, particularly the DeFi carve-out and the statutory CBDC prohibition, will remain politically contested for years. The settlement does, however, end the worst of the regulation-by-enforcement period. Market participants will know which agency to register with, what custody standards to meet, and which categories of activity are permitted. After a decade of operating in regulatory ambiguity, that knowledge alone is consequential.
What remains open
The Senate is where the architecture will be tested. The principal substantive point of contention is the stablecoin interest amendment that prompted the January 2026 postponement. The deeper political question is whether the Banking Committee, which historically has been more cautious on crypto than the Agriculture Committee, will accept a reconciled bill that preserves the broad CFTC jurisdiction the House version contemplates. The bill that emerges from the Senate may differ from the House version in ways that require conference reconciliation, and conference reconciliation in a divided Senate is never guaranteed.
The most likely path is enactment in modified form by mid-2026. The least likely path is total failure. The middle path, which is a partial enactment that addresses stablecoins and CBDC but defers comprehensive market structure, would leave the digital asset industry in a partial settlement that resembles the present condition more than the architecture the House passed. The choice between these paths will be made in committee rooms over the next several months, and the outcome will define the operating environment for digital assets in the United States for the remainder of the decade.