What Is The GENIUS Act?

The U.S. House of Representatives recently passed the Digital Asset Market Clarity Act, known as the CLARITY Act (HR 3633), with bipartisan backing. The bill passed by a vote of 294 to 134, including support from 78 Democrats. It aims to establish a regulatory structure for digital assets, a step that many in the industry view as long overdue. The legislation now moves to the Senate, where a companion effort is already in motion. If approved, the law could bring much-needed clarity to a space that has developed quickly but without consistent rules.

What Is The GENIUS Act?

Addressing the Regulatory Gap in Digital Assets

For over a decade, blockchain technology and digital assets have grown without a clear legal framework in the United States. What started as a niche experiment has evolved into a broader infrastructure for digital payments, markets, and decentralized platforms. However, the absence of regulation has led to uncertainty for legitimate developers and opportunities for abuse by bad actors. The CLARITY Act is designed to balance innovation with accountability by creating a legal path for compliant projects and tools for regulators to address real risks.

Key Provisions of the CLARITY Act

The bill sets up a process for identifying certain digital assets as "digital commodities," which would fall under the oversight of the Commodity Futures Trading Commission (CFTC). It introduces a control-based maturity model that allows blockchain projects to start under securities regulation and transition to commodities oversight as they become more decentralized. The Act also requires intermediaries like exchanges and brokers to register with the CFTC and follow rules that mirror those in traditional finance. Transparency is another focus, with disclosure requirements and insider trading restrictions aimed at protecting retail users.

What Is The GENIUS Act?

Oversight and Regulatory Transitions

A central issue the CLARITY Act tries to resolve is when a digital asset should be treated as a security and when it should be seen as a commodity. The current approach, largely shaped by the SEC, relies on a vague decentralization test that lacks clear benchmarks. The CLARITY Act proposes an objective test based on control. In the early stages, when a small group or team runs the network, securities rules apply. As the system matures and control becomes more distributed, oversight shifts to the CFTC. This method is designed to offer predictability while maintaining oversight where it's needed most.

The Control-Based Maturity Framework

The maturity model outlined in the bill focuses on control over a blockchain and its token. When a project is centrally managed, it stays under tighter regulatory scrutiny. As it grows and decentralizes, the level of regulatory oversight adjusts accordingly. This approach aims to reduce pressure on teams to step away from development too early just to appear decentralized. Instead, it offers a path to gradual decentralization with clearer legal boundaries at each stage.

What Is The GENIUS Act?

Implications for Decentralized Finance

Decentralized finance, or DeFi, gets special attention in the CLARITY Act. Projects that don't operate as intermediaries would not be required to meet the same compliance standards as centralized platforms. DeFi systems could launch native tokens and use decentralized governance without being automatically labeled as centralized entities. The bill also protects the right to self-custody, supporting users who want to control their own digital assets. However, the Act does not override state-level laws, which could still apply depending on how a project is structured.

Comparing CLARITY with Previous Efforts

The CLARITY Act builds on earlier legislative work, including the Financial Innovation and Technology for the 21st Century Act (FIT21). While both aim to create a regulatory structure for digital assets, CLARITY strengthens disclosure rules and adds limits on insider trading during a project's early stages. It also replaces FIT21’s decentralization standard with seven clear criteria to assess when a blockchain is no longer under centralized control. These updates are intended to offer more certainty without limiting innovation.

What Is The GENIUS Act?

Relationship to the GENIUS Act

The recent passage of the GENIUS Act, which addresses stablecoin regulation, highlights the importance of broader blockchain legislation. As stablecoins become more common in digital payments, they increasingly depend on blockchain systems. While GENIUS provides rules for the stablecoins themselves, it does not regulate the underlying networks. The CLARITY Act fills this gap by setting standards for blockchain infrastructure, helping ensure that these systems are reliable, secure, and fairly operated.

Next Steps in the Legislative Process

With House approval secured, the CLARITY Act now heads to the Senate. It could be reviewed by the Banking or Agriculture Committees, or a new version could be introduced with input from both parties. If the Senate passes its version, lawmakers will need to reconcile it with the House bill before it can go to the President for signature. Some members of Congress have expressed a goal of finalizing a digital asset market structure law by the end of September.

What Is The GENIUS Act?

Industry and Public Engagement

The House vote on the CLARITY Act signals growing interest in a more structured approach to digital asset regulation. The support of 216 Republicans and 78 Democrats suggests broad political interest in resolving legal uncertainty. The bill has also received backing from many in the industry, who see value in its clearer rules and stronger consumer protections. Those who support regulatory clarity are encouraged to contact their Senators or take part in advocacy efforts as the bill moves forward.

Final Thoughts

The CLARITY Act is a major step toward resolving the legal uncertainty that has surrounded digital assets in the United States. By introducing a framework that evolves with the maturity of a project, the bill seeks to protect consumers without stifling innovation. It brings together elements of securities and commodities law in a way that reflects how blockchain systems actually work. As the Senate takes up the bill, its final form may still change, but its core ideas lay the groundwork for more consistent and transparent rules in the digital asset space.

Source: a16z