Don't Wait for the Rulebook: Inside the CLARITY Act Debate

Originally introduced in the US House of Representatives in 2025 and now under consideration in the Senate, the CLARITY Act aims to establish a comprehensive regulatory framework for digital assets. Among other things, it seeks to define when a crypto asset falls under the jurisdiction of the Securities and Exchange Commission or the Commodity Futures Trading Commission. The Act is supposed to create pathways for certain tokens to transition out of securities treatment as networks decentralize and establish rules for digital asset intermediaries. 

Supporters of the Act argue the bill would provide long-sought regulatory certainty, while its critics contend that many key questions would still be left to future rulemaking and regulatory interpretation.

Today we sit down with Gerald Gallagher, a co-host of the “Crypto in America” podcast, to cover the CLARITY Act and to discuss what the legislation could mean for the future of the US crypto industry.

THE SUMSUBER: The CLARITY Act is often described as the most significant US crypto market structure bill to date. If you had to explain its practical importance to someone outside the industry, what problem is the legislation trying to solve that current laws and regulators have not addressed?

GERALD: The scale of impact of the CLARITY Act is broad. It’s the biggest financial reform bill since Dodd-Frank, and that means that there are a lot of stakeholders across DeFi, tokenized assets, developers, and everywhere in between. 

The issue with the current regulatory system is that (forgive the pun) there is no clarity. The industry is stuck between political appointees at regulatory agencies, law enforcement groups, and, of course, the initiatives of Congress and the White House. When you have this grey area, bad actors tend to take more risks, and consumers are eventually the ones who get hurt. 

With clear rules of the road, we have a strong path forward for American dominance of 21st-century finance. We will still need regulatory guidance, and the CFTC and SEC under chairs Selig and Atkins, respectively, have been doing a great job. However, we need legislation to make this more durable from one administration to the next.

THE SUMSUBER: Much of the current debate around the bill focuses on drawing a clearer line between the SEC's and the CFTC's jurisdiction. From your perspective, is the biggest benefit knowing which regulator oversees a project, or knowing the criteria that determine if a token is treated as a security or a commodity in the first place?

GERALD: Knowing how your business and underlying assets are treated eliminates a ton of uncertainty. 

In the past administration, Gary Gensler almost unanimously decided that every single token was a security, without doing any real analysis. You can’t, as a startup, comply with the burden of explaining to the SEC why your token is not a security, while also having no path forward with the CFTC—because you’ve been told by the SEC that you’re in securities territory. 

We absolutely need to modernize the rules and regulatory approaches for assets that have both network utility and financial value. It’s also been great to see the agencies push forward with clearer guidance and joint rulemaking in the absence of legislation. But again, the best solution here is to pass the Act.

THE SUMSUBER: One of the Act's main ideas is that a network can become sufficiently decentralized over time and move out of traditional securities regulation. Is the industry ready to prove decentralization in a measurable way, or do you see this becoming the next major area of regulatory dispute?

GERALD: I think the tests laid out by both the CFTC and SEC, particularly the joint guidance rolled out this past March, which included a comprehensive token taxonomy, were a huge step forward in knowing what you need to pass the test. 

That said, the industry is also moving on from “decentralization for the sake of decentralization.” Projects know that humans and decisive leaders will need to be associated with any project. It will be up to consumers to decide what tools they want to use and what projects they want to engage with, based on the level of disclosure, clarity of governance, and other factors. 

I may not like the idea that a snapshot vote can determine the outcome of my financial future, and that’s okay. From a regulatory side, if I know what information the SEC or CFTC needs from me to be comfortable with my governance structure, that’s okay too. It means that I’m at least informed about my crypto finances, which is a huge goal of CLARITY.

THE SUMSUBER: Supporters say the CLARITY Act would end years of uncertainty that led to what many in the industry call 'regulation by enforcement,’ and critics argue that many of the most important details would still be determined through future rulemaking by the SEC, CFTC, and the Treasury. Does the bill genuinely create certainty, or does it simply move the debate to a different stage?

GERALD: Bills never create immediate certainty. Rules related to Dodd-Frank are still being implemented, and that bill was passed over a decade ago. There will always be a need for new rules. 

We’re seeing this with the implementation of the GENIUS Act now. The difference is that the SEC acted without any mandate from Congress in the past administration. In the US, Congress tells agencies how to proceed, and then it’s the agencies’ job to follow through. 

I’m sure there will be aspects that the agencies change or diverge on in future administrations, and there will obviously be litigation, but the mandate from Congress makes it much clearer for both agencies and private stakeholders on the path forward.

THE SUMSUBER: The legislation also attempts to define where software developers, protocol builders, and infrastructure providers sit within the regulatory framework. In practice, many crypto projects blur those boundaries. Where do you think regulators should draw the line between publishing software and operating a financial service?

GERALD: The importance of legal frameworks in the US, whether you’re talking about local statutes, federal law, or regulatory guidance, is always in the details. 

There’s been a lot of discussion, particularly in the BRCA language (Section 604), over definitions like control and who exactly is a developer. Crypto projects blur these lines because the lawmakers don’t know what the developers can’t do (which is exacerbated by the lack of legislation). On top of that, open source software development is much messier than starting, say, a lemonade stand. 

Regulators should make it clear that they want developers to stay in the US and give them enough certainty to keep building here.

THE SUMSUBER: AML and illicit finance remain major points of contention in Washington's crypto debate. Do you think the CLARITY Act strikes the right balance between encouraging innovation and maintaining effective oversight, specifically in areas such as DeFi and non-custodial infrastructure?

GERALD: Yes, and this is one of the more thoughtful parts of the bill even though it doesn't get the headlines. 

Section 301 draws an actual line between a decentralized and a non-decentralized protocol with 3 real tests: can somebody flip the rules, does it run on transparent published code, and can anyone freeze or censor a user? 

If you're on the wrong side of any of those, you're operating a venue and the BSA reaches you. If you're on the right side, you're publishing software and the First Amendment protects you, and the statute actually says that out loud. 

Then Section 604, BRCA, backs it up: a non-controlling developer is not a money transmitter under 5330 or 1960. That's what the industry has been asking for, and getting it into statute matters. 

My real concern is implementation. The agencies have to actually issue tailored rules the way the statute tells them to, rather than letting enforcement fill the gap. We’ve also seen a lot of misinformation around resources and what these sections do, so I hope this doesn’t prevent the bill.

THE SUMSUBER: Stablecoins are among the most heavily negotiated parts of the legislation, particularly regarding yield and rewards programs. Is this ultimately a consumer protection discussion, a banking-sector discussion, or a broader battle over who will control the next generation of payment infrastructure?

GERALD: All three. The way Section 404 got written tells you which lobby had the most to lose. 

The framing of the bill is consumer protection. The stablecoin yield conversation significantly postponed the final text of the bill, but the bottom line is that you can’t let a non-bank sell a token that pays “interest” like a deposit without FDIC behind it. It’s a fair concern, but read the actual language. 

The ban is on anything “economically or functionally equivalent to interest on an interest-bearing bank deposit.” That's not banning yield. It's banning yield that competes with a bank deposit. That's the banking sector protecting its franchise. 

Credit to Senators Tillis and Alsobrooks for their work on the amendment that is codified in subsection (c)(2), which preserves activity-based rewards: transaction rebates, market-making, staking, validation, governance, loyalty programs, calculated by reference to balance or tenure. 

That's a control fight over who runs the next generation of payments. Banks want the monopoly on paying you for the use of your money. Crypto wants a native layer that rewards participation. You'll beat the other sectors by monetizing participation, and Section 404 leaves that door open.

THE SUMSUBER: Finally, even if the CLARITY Act passes, implementation could take years as agencies develop detailed rules. What should serious crypto companies be doing now to prepare for that future regulatory environment rather than waiting for the final rulebook to arrive?

GERALD: Not waiting. Full stop. People often believe that nothing is official until the 360-day rulemaking period ends. This is not quite right: several key provisions are binding on the effective date. 

Section 109 insider trading is the clearest example; the safe harbor requires a written trading plan that predates the material non-public information. If you wait until the rule drops, you've missed the point. Get plans in place now for founders, executives, and foundation officers. 

Second, start building the record for your ancillary asset non-certification package under new Section 4B. The presumption starts against you, and the record takes time to build. 

Third, map your DeFi activities against the Section 601 and 209 developer safe harbors. They're conduct-specific, so the same company has some activities inside and some out.

Serious founders should be building the compliance function for the entity they'll be in eighteen months, not the one they were at launch. That's the mindset shift. No rulemaking is going to force it.