CLARITY Act Merge: New Ethics, AML Titles, Same 60-Vote Math

The 616-page merged CLARITY Act text Senator Cynthia Lummis released July 22 is not a committee draft massage. It is a new document stitching the Senate Banking Committee's market-structure framework, passed 15-9 on May 14, to the Agriculture Committee's commodity provisions, then layering on three titles neither committee produced: a government ethics title, a law enforcement tools title, and 25 sections addressing sanctions and anti-money-laundering gaps.

The bill number remains H.R. 3633, the same vehicle that passed the House 294-134 in July 2025.

The core mechanism is a statutory taxonomy sorting every digital asset into three categories. Digital commodities are tokens whose blockchains have reached functional maturity or sufficient decentralization. They fall under CFTC jurisdiction, and the CFTC gains exclusive authority over their spot markets -- power it currently lacks under the Commodity Exchange Act, which limits spot-market work to anti-fraud and anti-manipulation enforcement. Investment contract assets are tokens sold as part of an investment contract that have not graduated to commodity status; they remain under SEC jurisdiction. Permitted payment stablecoins are carved out entirely and governed by the GENIUS Act, passed July 2025.

This replaces the Gensler-era enforcement-by-litigation approach with a statutory line, seven Democratic Senate staffers said Wednesday. A token's classification is no longer a question answered in a federal courtroom years after launch. The statute, the maturity certification process, or the grandfather clause resolve it.

The merged text introduces a provisional registration regime for digital commodity exchanges and brokers. Firms can register with the CFTC and continue operating while final rules are written, avoiding the years-long limbo that defined the old environment. An exchange that could not know whether its tokens were securities or commodities until a court told it now registers, lists certified or pipeline tokens, and operates under CFTC oversight from day one.

The certification process

An issuer can notify the SEC that its digital asset is, or will become within four years, functionally mature or sufficiently decentralized. The SEC evaluates the claim against statutory criteria: the network no longer depends on a centralized group to function, the token has real utility within its ecosystem, and ongoing management by the original development team is no longer the primary driver of value. Once certified, the asset is no longer a security. Filing obligations lighten. The CFTC takes over.

This is the on-ramp the industry calls the bill's central innovation. It is also the provision most dependent on SEC rulemaking that has not begun. The certification process exists in statute but cannot operate until the SEC writes the rules, and the base rate for timely agency rulemaking in space is poor, three former SEC officials told lawmakers in closed briefings.

The grandfather clause

Section 10101 of the merged text permanently classifies any token that was the principal asset of a qualifying exchange-traded product listed on a national securities exchange before January 1, 2026, as a non-security. The classification operates by force of statute the day the bill takes effect. The SEC cannot reverse it through rulemaking.

Bitcoin, Ether, XRP, SOL, and DOGE all anchored qualifying ETPs before the cutoff. They are grandfathered as digital commodities without any issuer action, certification filing, or waiting period. For those five assets, the classification war ends on signature day.

The grandfather clause is permanent. It does not sunset. It does not require renewal. And because it operates by statute, not agency interpretation, it survives changes in SEC leadership and rulemaking priorities. This is the single provision in the bill that delivers its effects without requiring a federal agency to do anything.

Regulation Crypto and DeFi

The merged text carries forward the Regulation Crypto framework from the House version. An originator can raise the greater of $50 million per calendar year for four years, or 10 percent of the total dollar value of outstanding ancillary assets, subject to a $200 million aggregate cap. The exemption comes with tailored disclosure requirements rather than full securities registration.

The key constraint is the cap structure. A project that raises $50 million a year exhausts its four-year allowance at $200 million. A project whose outstanding ancillary assets are worth $3 billion can raise $300 million per year but still cannot exceed the $200 million aggregate limit. The math channels early-stage capital into projects that are building, not projects already large enough to register.

Section 604 incorporates the Blockchain Regulatory Certainty Act, unchanged from the House version. Non-custodial software developers are not money transmitters under federal law and carry no Bank Secrecy Act obligations. The BRCA draws a bright line between custodial and non-custodial activities. A separate DeFi exclusion exempts validating transactions and publishing open-source code from SEC registration requirements. Anti-fraud and anti-manipulation enforcement still applies; the shield covers registration, not conduct.

The ethics title

Section 13152 prohibits covered federal officials and their spouses from issuing or sponsoring a digital asset in exchange for consideration during public service. "Covered federal officials" includes the president, vice president, members of Congress, and senior executive branch appointees.

The design choices are deliberate. The ban covers issuing new assets, not holding or profiting from existing ones. A safe harbor protects officials who place earlier crypto interests in qualified blind trusts or divest them. Penalties reach $250,000 per day of violation. And enforcement belongs solely to the Attorney General of the United States, with state attorneys general and private plaintiffs expressly barred from bringing actions. The provision sunsets on January 20, 2029, the next presidential inauguration day.

These design choices are why the ethics provision is the center of the bill's political fight. Seven Senate Democrats who had been negotiating the bill, including Senators Booker, Murphy, Van Hollen, and Merkley, issued a joint statement rejecting the released version the same day. Their objections center on two points: DOJ-only enforcement places the mechanism under a department whose nominee is the president's former personal lawyer, and the 2029 sunset means the restriction expires with the current administration rather than enduring as a permanent standard.

The two Democrats whose committee votes carried the bill through the Banking Committee, Senators Alsobrooks and Gallego, also oppose the released version, for the same reasons.

Law enforcement expansion

The merged text is substantially heavier on law enforcement provisions than either committee draft. Title II, Protecting Against Illicit Finance, and Title III, Responsible Innovation in Decentralized Finance, extend Bank Secrecy Act obligations to digital asset intermediaries and create rulemakings giving regulators new tools to address illicit finance through the existing AML framework.