Why the Senate CLARITY Act Became the "Nemesis": Regulation or Capital Domination

The “Digital Asset Market Transparency Act (CLARITY Act),” regarded as a symbol of cryptocurrency regulation, is once again causing ripples. In mid-January, the internal review scheduled by the Senate Banking Committee was postponed, and as the details of the bill became clearer, voices of criticism from industry stakeholders began to surge. Originally, the regulatory guidelines that garnered expectations across the industry have now transformed into a “bill unsupported by anyone.” Behind this shift lie political compromises and strategies for profit redistribution through capital.

Background of the Bill: Conflict Between Two Committees and Political Dilemmas

What exactly is the CLARITY Bill? In July 2025, the House of Representatives passed the bill with a majority of 294 votes and sent it to the Senate. At that time, the market was optimistic. It was predicted that the bill would be approved by the Senate before Thanksgiving, or at the latest, by the end of the year. But reality is more complicated.

Because the bill involves the allocation of authority between the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC), the Senate version must undergo a complex approval process. The Senate Banking Committee will develop provisions related to the SEC (token definitions, project registration exemptions, banking and stablecoin regulations), while the Senate Agriculture Committee will handle CFTC-related parts (regulation of intermediaries in derivatives markets). The reason CFTC is under the supervision of the Agriculture Committee has historical roots—futures trading was once limited to agricultural products, and that system has persisted.

Currently, the two committees have not even reached a basic consensus. As political negotiations intensify, the bill’s content has deviated significantly from its initial goal of “supporting innovation,” and regulatory elements have become more prominent.

Full Scope of the Bill: Why “Good News” for Individual Investors Became a “Shackle” for the Industry

Let’s examine the specific provisions of the bill to understand what it actually entails.

New Token Definitions: Division Between “Network Tokens” and “Attached Assets”

The most significant change is in the classification system for tokens. Native tokens on public blockchains (such as ETH or SOL) are defined as “network tokens” and are denied securities status. However, they will be subject to disclosure obligations. Conversely, project tokens like those used in DApps are classified as “attached assets” and are considered investment contracts. They can qualify for registration exemptions but face strict transfer restrictions and disclosure requirements.

NFTs are even more complex. Traditional NFTs such as art pieces, tickets, or membership rights are considered non-securities. However, NFTs that are widely minted and traded, divisible NFTs, or those representing economic interests in underlying assets are all regarded as securities. In other words, projects known as “Blue Chip NFTs” or those planning to issue tokens will, in effect, be subject to securities regulations.

Tokenization of stocks is also fully covered under current securities law. U.S. stock trading platforms are likely to need to comply with regulations similar to those of traditional broker-dealers.

Strict Path for Decentralized Certification: From 30-Day Pre-Disclosure to 3-Year Continuous Reporting

The process for a project to be recognized as “decentralized” is surprisingly strict. At least 30 days before issuing tokens, the project must submit detailed information to the SEC, including company info, financials, tokenomics, and risk factors. This disclosure must be repeated every six months and continue for three years.

Project stakeholders (founders, employees, controlling parties) are prohibited from transferring tokens exceeding a certain amount during the 12 months prior to decentralization certification. Even after certification, there is a 6-month lock-up period, and within any 12-month window, they cannot transfer more than 10% of circulating tokens.

Decentralization certification is evaluated based on three aspects: open-sourcing the code, sufficient distribution of token holdings, and effective on-chain governance. The SEC plans to specify these criteria separately. After application, the SEC will either directly certify the project or, if no objections are raised within 90 days, it will be deemed approved.

Under these conditions, many projects holding more than 20% of total tokens in “liquidity incentive pools” or “community funds” may need to wait to apply for decentralization until these funds are fully distributed.

Regulation of Fundraising: Custody Requirements and Funding Limits

Projects raising funds through token sales must meet two strict conditions to qualify for registration exemptions: annual fundraising below $50 million, total fundraising below $200 million, and tokens issued during fundraising along with investors’ funds must be held by a third party.

Custody requirements are particularly important. Projects cannot transfer tokens to investors before they have ownership rights over the raised funds. This effectively eliminates current ICOs that allow free transfer and oversubscription. All future token fundraising must have predetermined rules, with funds deposited into a custody institution, which involves KYC and identity verification.

If the fundraising exceeds limits or the project refuses to use a custodian, it must follow the regular registration process, or it will be considered illegal.

DeFi and Developers: Proof of Decentralization as a Condition for Survival

For DeFi protocols, control, modification, or review by a single individual or group will be considered “non-decentralized,” requiring registration as securities intermediaries and compliance with SEC and FinCEN rules (including anti-money laundering, customer verification, and record-keeping). If the front end is operated by a U.S. entity, screening for sanctioned addresses, transaction prevention, and risk assessment are mandatory.

Conversely, if recognized as decentralized, they will enjoy significant regulatory exemptions similar to other decentralized projects.

For protocol developers, those outside the project team who only write code, maintain systems, run nodes, or provide liquidity are exempted, provided they do not hold control over protocol rules. However, anti-fraud and anti-manipulation clauses still apply.

Banks and Brokers: Full Implementation of Traditional Regulatory Framework

The bill incorporates digital assets into the Bank Secrecy Act, requiring digital asset brokers, dealers, and exchanges to establish anti-money laundering and counter-terrorist financing programs, register as money services businesses, comply with U.S. Treasury sanctions, report suspicious transactions, and verify customer identities.

Banks are permitted to handle digital asset custody, trading, collateral lending, stablecoin issuance, node operation, and development of self-custody wallets. There are special provisions for stablecoins: mere holding and interest payments are prohibited, but activities like trading, liquidity provision, and governance participation are authorized. Banks cannot advertise in ways that imply “deposits or FDIC insurance.”

Industry Backlash: Why Did It Become the “Universal Enemy”?

Objections from major industry players highlight the ideological contradictions underlying the bill.

The CEO of a major exchange pointed out on X that the bill effectively bans stock tokenization, grants the government surveillance rights over DeFi trading records, expands SEC authority, suppresses innovation, and bans stablecoin rewards, thereby giving banks the ability to strike at competitors.

Objectively, this bill antagonizes nearly all industry stakeholders. Web3 projects face regular disclosures and cash-out restrictions; trading firms are subjected to regulations similar to traditional securities firms; NFTs are effectively banned; DeFi faces strict limitations; and individual investors’ crypto portfolios are subjected to increased transparency.

Meanwhile, some large VC funds have a different view. They acknowledge the bill is insufficient but argue that further delays should be avoided. Why? Because stricter regulations would directly eliminate Meme tokens and create a larger space for “VC tokens.” For capital-rich players, this means eliminating competitors and strengthening market dominance.

Political Compromises: Why Did Republican Concessions Occur?

The reason the bill shifted from “industry-friendly” to “regulatory tightening” lies in complex political negotiations.

Initially, Republicans advocated for a more relaxed regulatory environment, aiming to position the U.S. as a global “cryptocurrency hub.” Industry voices like Senator Armstrong likely supported this. However, Democrats criticized the Republican proposal as “overly lenient,” arguing it insufficiently protects investors and could promote “political corruption.”

Currently, Republicans hold only 53 seats in the Senate, requiring 60 votes to avoid a filibuster. This means at least 7 Democratic senators must be persuaded. With the 2026 midterm elections approaching, support for “obvious manipulative practices” in crypto could alienate some voters, pressuring Republicans to make significant concessions.

Industry analysts say that Democrats demanded amendments such as front-end regulation, stricter DeFi rules, and setting fundraising caps. These demands are reflected in the recently released bill. The main reason for the bill’s increased regulatory tone is thus attributed to Republican compromises.

The Final Picture: Investor Protection or New Capital Domination?

Ultimately, this bill could function as a “good material” for individual investors. Regular disclosures will make project realities more transparent and reduce the risk of being misled by flashy marketing on X. The costs of project misconduct will be significantly increased.

However, a more serious issue is that these new compliance requirements will dramatically raise barriers to entry for small firms and strengthen the monopolistic position of large corporations. Surviving tokens will have their prices dictated by capital.

The fundamental problem with the bill is that it treats the Web3 industry as a nascent sector rather than a modern innovation, recklessly embedding it into a traditional financial regulatory framework established perhaps a century ago. Behind the Banking Committee are Wall Street financial institutions that cannot accept losing influence and pricing power over digital assets. New entrants are forced to follow outdated rules set by vested interests, under which cryptocurrencies are merely “another security.”

The CLARITY Bill functions less as a shield for investors and more as a “decree of reassurance” for capital dominance over digital assets.