CLARITY Act Key Provisions: 8 Sections That Matter

Status as of October 28, 2026: The CLARITY Act is not law. The House passed H.R. 3633 on July 17, 2025 (294–134). The Senate Banking Committee advanced its substitute text 15–9 on May 14, 2026, and reported it to the Senate on June 1, 2026 (Calendar No. 423). On September 15, 2026, the Senate failed to invoke cloture on the motion to proceed, 49–50, eleven votes short of 60. Senator Tillis voted no so he could enter a motion to reconsider, which keeps a revival possible, but no new vote is scheduled and passage in this Congress is widely seen as unlikely. Disputes over ethics provisions and stablecoin yield were the main obstacles. Everything below describes what the Banking Committee text would do; section numbers follow the reported text of June 1, 2026. A revised substitute released just before the September vote may differ in details.

This is a key provisions summary of the Digital Asset Market Clarity Act, section by section. When this article was first published in May 2026, the Senate Banking Committee had just released its substitute text and a section-by-section summary. It remains the clearest look at how the US Senate would draw the lines between commodities and securities, what banks would be allowed to do with digital assets, and where developers would stand under federal law.

The bill has stalled, but the architecture is visible, and it is the most likely starting point for any future attempt at US crypto market structure legislation.

What Is an Ancillary Asset? Tokens Are Commodities by Default

The single most consequential framing in the bill sits in Title I. A "network token" is defined as a digital commodity intrinsically linked to a distributed ledger system and treated as a non-security under the securities laws. An "ancillary asset" is a network token whose value depends on the entrepreneurial or managerial efforts of its originator or a related person. The draft creates a rebuttable presumption that any network token is an ancillary asset, which brings SEC disclosure obligations for the originator, but not securities status.

The presumption can be rebutted: the originator (or, in some cases, a trading intermediary) can submit a written certification to the SEC, supported by reasonable evidence, that the token is not an ancillary asset. Either way, the token itself sits on the commodity side of the line. This inverts the regulatory posture of recent years, when the SEC's default assumption was that most tokens were securities until proven otherwise.

Section 103 then carves out an SEC registration exemption, summarized by the committee as Regulation Crypto. Under it, an ancillary asset originator can raise the greater of $50 million in gross proceeds per calendar year (for up to four years) or 10% of the dollar value of the outstanding ancillary assets, subject to a total cap of $200 million. Initial and semiannual disclosures are required. This is meaningful for projects that want to raise from US retail without going through the full securities-registration regime.

There are guardrails. Section 104 requires related persons to hold tokens for at least 12 months and caps how much they can sell in any 12-month period, which is designed to prevent the kind of insider dumps that have defined past token cycles. Notably, the bill's definitions state that a decentralized governance system is not deemed a person or a group of persons acting under common control - a clarification the DeFi community has been pushing for years.

What Banks Are Allowed to Do

Title IV addresses something that has been quietly limiting institutional crypto adoption: banks have not had a clear federal mandate to handle digital assets in their existing business lines.

Section 401 addresses this directly. It clarifies that financial holding companies, national banks, insured state banks, and federal credit unions can use digital assets and distributed ledger systems to perform any activity they are already authorized to perform - payments, lending, custody, trading.

This is not a new license. It is a clarification that the existing license already covers these activities. The practical effect would be that banks no longer need to wait for a separate regulatory blessing to integrate digital assets into payment rails, custody products, or lending operations.

Section 402 then requires the SEC and CFTC to jointly issue portfolio margining rules across securities, swaps, futures, and digital commodity accounts. For sophisticated traders running multi-asset positions through a single broker, this is a structural improvement - risk is netted across the full book rather than fragmented across silos.

CLARITY Act Section 404: Stablecoins Pay No Yield, By Design

Section 404 prohibits digital asset service providers and their affiliates from paying US customers interest or yield solely for holding payment stablecoins, or in any way that is economically equivalent to interest on a bank deposit. (Issuers themselves were already barred from paying interest by the GENIUS Act.) Activity-based rewards - tied to payments, providing liquidity, posting collateral, governance, validation or staking - remain allowed, under joint rules to be written by the SEC, CFTC, and Treasury within a year of enactment.

This is the provision that draws the clearest line between stablecoins and bank deposits. Interest on dollar deposits stays a banking product. The bill preserves that moat. It was also one of the two issues that sank the September cloture vote.

The economic logic is straightforward. If stablecoins paid yield natively, they would functionally compete with bank deposits - and the deposit base is what funds bank lending. A no-yield rule keeps stablecoins in the role of payment infrastructure rather than deposit substitutes.

Section 304 adds a Treasury report on "United States-dependent offshore stablecoins" - payment stablecoins issued outside the US, not registered under the GENIUS Act, backed by reserves with a substantial US nexus such as Treasuries, and used in material volume - with a focus on illicit finance and national security risk. This is the legal scaffolding for treating offshore issuers such as Tether differently from domestic, regulated alternatives.

DeFi: A Decentralization Test Before Regulation

Title III is where the bill draws its most technical lines. Section 301 defines a "non-decentralized" DeFi trading protocol - one where a person or coordinated group can control or materially alter the protocol, restrict or censor its use, or where it does not run solely on pre-established rules encoded in its source code - and directs a rulemaking on how existing securities intermediary and Bank Secrecy Act requirements apply to such protocols.

Protocols that meet the non-decentralized test can be pulled into those requirements. Protocols that do not remain outside that perimeter. A decentralized governance system is not, by itself, treated as a controlling group, and participation in an incident-response or security council does not by itself count as control, provided it acts under disclosed on-chain rules and no single person has unilateral control.

Section 302 then handles the front-end question. A "distributed ledger messaging system" - a web-hosted application that lets users submit transactions to a DeFi protocol - is treated separately from the protocol itself, and explicitly excludes nodes, validators and self-custody wallets. Treasury must publish sanctions and AML/CFT guidance within 360 days for front-ends owned or operated by US persons. This is where the regulatory pressure on DeFi will concentrate first: the websites, not the smart contracts.

Self-Hosted Wallets: Protected, With Limits

Section 605, the Keep Your Coins Act, states that federal agencies cannot prohibit, restrict, or otherwise impair the ability of a US individual to self-custody digital assets in a self-hosted wallet and use them for any lawful purpose. This codifies what has been a contested area of policy.

Section 307 layers on top of it: Treasury can issue guidance for financial institutions that transact with self-hosted wallets, but that guidance cannot require collecting personally identifiable information on the controller of a self-hosted wallet who is not both the institution's customer and a party to the transaction, except where federal law (including sanctions law) requires it.

These provisions preserve existing illicit-finance, sanctions, and money-laundering authorities. The protection is for the act of self-custody - not a blanket immunity from existing financial-crime enforcement.

Software Developers: Explicit Safe Harbor

Title VI provides the clearest protection for technical contributors. Section 601 states that people who only compile or validate transactions, run nodes or oracles, provide computational work, or publish software for distributed ledgers are not subject to the federal securities acts for those activities, and it preempts state securities, commodities and digital-asset laws for them (state anti-fraud, anti-manipulation and AML powers are preserved).

Section 604, the Blockchain Regulatory Certainty Act, says non-controlling developers and providers - those who cannot move users' assets on their own - are not money transmitting businesses and are not subject to similar registration requirements. Criminal liability for knowingly transferring criminal proceeds is preserved.

This addresses one of the longer-running anxieties in the US crypto-developer community: that maintaining open-source infrastructure could trigger securities or money-transmitter obligations. The bill would say explicitly that it does not.

Tokenized Securities Are Still Securities

Section 505 closes one of the more frequently asked questions. A tokenized security is treated, for all regulatory purposes, as the security it represents. The SEC can only adapt how existing requirements are met, not change the asset's status.

This forecloses the argument that tokenization on its own can change the legal character of an asset. The token wrapper does not convert a security into a commodity.

Bankruptcy: Customer Property Protections

Title VII addresses what happens when an exchange or custodian fails. Section 701 brings ancillary assets and digital commodities into the customer-property rules of the stockbroker and commodity broker liquidation chapters of the Bankruptcy Code (Chapter 7), so customer holdings are protected the way securities and commodities customers' property already is, rather than being lumped into the failed firm's general estate.

Section 702 creates an insolvency safe harbor: purchases, sales, loans and similar transactions in digital commodities with brokers and financial institutions are deemed commodity contracts for the Bankruptcy Code's safe-harbor provisions. This lets counterparties close out positions and access collateral despite the automatic stay, mirroring the protections that already exist for conventional derivatives and securities.

For users of regulated exchanges, this would be a meaningful improvement on the post-FTX status quo, where customer claims were contested in court for years. These provisions cannot be replicated by agency rulemaking; they need an act of Congress.

Timing and What Could Still Change

Section 905 requires each regulator to adopt rules within one year of enactment, unless a section says otherwise. Section 906 sets a general effective date of 360 days after enactment; where a provision requires rulemaking, it takes effect 360 days after enactment or 60 days after the final rule is published in the Federal Register, whichever is later.

So even if the bill passes, the operative rules arrive roughly a year later at minimum. The implementation surface is large: the SEC, CFTC, Treasury and federal banking regulators all have rulemaking or guidance obligations under different sections.

The open questions moved beyond the text. The September vote failed over ethics provisions covering federal officials' crypto holdings - strong ethics language had been dropped to get the bill out of committee - and over how far the stablecoin yield ban should reach. Any revival would also need a Senate text reconciled with the Agriculture Committee's bill and then with the House version. In the meantime, the SEC and CFTC are building an interim regime under existing authority: the SEC proposed its own Regulation Crypto Assets in August 2026, with a fundraising exemption of up to $75 million per 12 months for its second tier, well below the $200 million in the bill.

How to Read the CLARITY Act: 6 Takeaways

The Banking Committee text is a roadmap, not law. But its architectural choices are clear enough to watch for in any future version:

1. Default classification favors commodities. Network tokens sit on the commodity side; the ancillary-asset presumption brings disclosure duties, not securities status.
2. Banks are explicitly permitted to integrate digital assets into existing business lines.
3. Passive stablecoin yield is blocked. Exchanges and other intermediaries could not pay deposit-like interest on stablecoin balances; activity-based rewards survive. Domestic issuers are favored over offshore ones.
4. Self-hosted wallets and software development are explicitly protected. The legal risk to non-custodial infrastructure would drop materially.
5. Tokenized securities remain securities. Tokenization is not a regulatory escape hatch.
6. Implementation is at least a year out from enactment, and enactment itself is now uncertain.

The bill failed its first floor test. But the shape of US crypto rules - for the first time in a serious legislative vehicle - is legible, and any successor bill is likely to start from it.

Logs over lambos.

Frequently Asked Questions

What are the key provisions of the CLARITY Act?

In the Senate Banking Committee text, eight provisions carry most of the weight. Network tokens are digital commodities, presumed to be "ancillary assets" with SEC disclosure duties. Regulation Crypto lets originators raise up to $200 million without full securities registration. Banks may use digital assets in existing business lines. Section 404 bans passive stablecoin yield. Non-decentralized DeFi protocols face existing intermediary and BSA rules. Self-custody and software development get explicit protections. Tokenized securities stay securities. Customer crypto becomes protected property in bankruptcy. None of this is law as of October 2026.

What is an ancillary asset under the CLARITY Act?

An ancillary asset is a network token whose value depends on the entrepreneurial or managerial efforts of its originator or a related person. Network tokens are digital commodities, not securities. Title I presumes any network token is an ancillary asset, which brings SEC disclosure obligations, unless the originator certifies to the SEC, with reasonable evidence, that it is not. This inverts the SEC's prior posture, where most tokens were presumed securities until proven otherwise.

Has the CLARITY Act passed, and when would it take effect?

No. The House passed it in July 2025 and the Senate Banking Committee advanced its version in May 2026, but on September 15, 2026 the Senate fell short of the 60 votes needed to begin debate (49–50). A motion to reconsider keeps a revival possible, but as of October 2026 no new vote is scheduled. Even if enacted, the rules would arrive late: Section 905 gives each regulator one year to write them, and Section 906 sets an effective date 360 days after enactment, or, where rulemaking is required, 60 days after the final rule publishes in the Federal Register if that is later.

Does the CLARITY Act allow stablecoin yield?

Not passive yield. Section 404 of the Banking Committee text prohibits digital asset service providers and their affiliates from paying US customers interest or yield solely for holding payment stablecoins, or in a way that is equivalent to deposit interest. Activity-based rewards - tied to payments, liquidity provision, staking or governance - are still allowed under joint rules to be issued by the SEC, CFTC, and Treasury. The bill is not law, so this is not in force.