Client Alert: CLARITY Act and SEC Exemption: U.S. Crypto Regulation Update
Date: July 2, 2025
The U.S. crypto landscape is transforming, with new regulations poised to redefine how digital asset businesses operate. We previously explored stablecoin rules under the GENIUS Act (read more here), which recently passed the U.S. Senate by a vote of 68-30. Now, we are focusing on the Crypto Market Structure Bill—known as the CLARITY Act—and the SEC’s proposed “Innovation Exemption” for DeFi, which together offer a roadmap for navigating the broader crypto ecosystem.
The CLARITY Act: Bringing Order to Digital Assets
The Crypto Market Structure Bill, or CLARITY Act, is a bipartisan effort to bring long-overdue structure to the U.S. crypto market. As of June 2025, the House Financial Services and Agriculture Committees have passed versions of the bill, and a merged version is expected to advance to the House floor. The CLARITY Act would create a detailed regulatory framework for activity involving certain digital assets, covering market structure, offers and sales of certain digital assets, and oversight roles by the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”).
Key Features:
- Three-Tier Token Taxonomy: Classifies digital assets into (1) digital commodities, (2) permitted payment stablecoins, and (3) excluded digital assets. Commodities fall under CFTC oversight; securities remain with the SEC.
- Digital Commodity Issuers: Entities launching blockchain tokens must file disclosures and may raise up to $75 million annually through a new SEC exemption if they intend to decentralize (“mature”) on the blockchain within 4 years.
- Maturity and Decentralization: Tokens can transition from securities to commodities once the related blockchain system is no longer controlled by a person or coordinated group. This “maturity” test is central to the Act’s compliance structure.
- Federal Exchange Registration: Establishes a federally regulated category of Digital Commodity Exchanges (DCEs), eliminating the need for state-by-state money transmitter licenses and enabling compliant spot market trading.
- Rulemaking & Oversight: Requires joint SEC-CFTC rulemaking within 180 days of enactment to define core terms, compliance roles, and enforcement mechanisms.
- Stablecoin Recognition: Permitted payment stablecoins receive a distinct regulatory classification, creating a clearer path forward for dollar-pegged digital assets used in payments.
- Restrictions on Insiders: Imposes strict resale limitations on tokens held by insiders and affiliated persons in early-stage projects until maturity is certified. This aims to incentivize decentralization and prevent manipulation.
- Liquidity & Market Making: Clarifies when market makers and liquidity providers must register under CFTC rules and when they qualify for exemptions – especially relevant for DeFi liquidity protocols and algorithmic traders.
What It Means for Crypto Businesses: This framework empowers founders and developers to launch with greater legal certainty. Crypto businesses should act now to assess whether their projects can meet maturity criteria and prepare for a new compliance standard around token issuance and exchange access.
SEC’s Innovation Exemption: A Boost for DeFi Innovation
Alongside the CLARITY Act, the SEC is exploring a groundbreaking “Innovation Exemption” to support decentralized finance (DeFi). In a June 2025 speech, SEC Chair Paul Atkins proposed a safe harbor for DeFi developers, allowing both registered and non-registered entities to launch on-chain products without immediate enforcement risks. This proposal, under review by the SEC’s Crypto Task Force, reflects a shift toward accommodating decentralized technologies.
Atkins highlighted the importance of self-custody—where users control their own assets—and reducing unnecessary intermediaries. Commissioner Hester Peirce reinforced this, arguing that developers shouldn’t face securities law violations for writing open-source code, provided they avoid custodial or execution roles.
What It Means for Crypto Businesses: The Innovation Exemption could unlock DeFi innovation by reducing regulatory uncertainty. However, its details are still forming, so proactive governance planning is essential.
5 Steps to Prepare for CLARITY Act and DeFi Regulations
To stay compliant and competitive under the CLARITY Act and emerging DeFi rules, take these steps now:
- Review Token Structure: Analyze your tokens’ legal classification (security or commodity) under the CLARITY Act’s framework and assess whether it is eligible for reclassification as a digital commodity.
- Plan Disclosures: Prepare for detailed reporting requirements, tailored to your project’s structure and investor base.
- Build a Compliance Roadmap: Develop a strategy for licensing, custody, and anti-fraud measures to meet CLARITY Act standards.
- Assess DeFi Governance: Evaluate your platform’s decentralization to leverage the SEC’s Innovation Exemption.
- Monitor SEC/CFTC Updates: Track developments on DeFi exemptions and self-custody guidance to stay ahead. Final definitions will follow within 180 days.
The CLARITY Act and the SEC’s Innovation Exemption take a critical step forward in developing a comprehensive U.S. framework for digital asset regulation. Proactive compliance will be a business’s competitive edge. If you have any questions about the issues addressed in this alert, please do not hesitate to call or email the author, Daniel Podhaskie, at 646.618.8654 or dpodhaskie@whitefordlaw.com
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.