Legislative Briefing: The Digital Asset Market Clarity Act of 2025 (H.R. 3633)

The 119th Congress (2025–2026) has initiated a fundamental restructuring of the U.S. financial regulatory architecture to address digital assets. Moving away from a decade of "regulation by enforcement," the Digital Asset Market Clarity Act of 2025 (CLARITY Act) aims to provide statutory definitions for digital commodities versus securities, modernizing the Securities Act of 1933 and the Commodity Exchange Act (CEA).

The legislation reflects a shift toward "responsible innovation," catalyzed by the Trump Administration's mandate to establish the U.S. as a global leader in the digital asset economy. While the House has passed a version focused on "Functional Decentralization" (allowing assets to "graduate" to commodity status), the Senate Banking Committee is currently marking up an amendment that introduces "Ancillary Assets"—a hybrid class subject to a tailored SEC disclosure regime.

Critical points of contention include:

💰 The Yield Loophole: A fierce battle between the banking lobby and the crypto industry over Section 404, which prohibits intermediaries from paying interest on stablecoins to prevent the destabilization of the traditional banking system.
🔓 DeFi Protections: Differing approaches to whether developers should be exempt from registration under a "Code is Speech" doctrine.
🛡️ Consumer Protection: Post-FTX safeguards including mandatory asset segregation, "Proof of Reserves," and priority status for customers in bankruptcy proceedings.

1. Legislative Context and Progression

The CLARITY Act emerged during a definitive legislative session for financial modernization, following the enactment of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act in July 2025.

1.1 The GENIUS Act Precursor

The GENIUS Act resolved the status of "payment stablecoins" (e.g., USDC, PayPal USD) by placing them under a bank-like regulatory regime supervised by the OCC and state regulators. This allowed the CLARITY Act to focus specifically on volatile cryptocurrencies (e.g., Bitcoin, Solana, Ether) and overall market structure.

1.2 Legislative Timeline

📅 May 29, 2025: H.R. 3633 introduced by Rep. French Hill (R-AR) with bipartisan support.
📅 June 2025: Dual referral to the House Committees on Financial Services and Agriculture to address the securities/commodities overlap.
✅ July 17, 2025: The House passed H.R. 3633 with a 294 to 134 vote, signaling a fracturing of traditional partisan divides as 78 Democrats joined the Republican conference.
📅 January 12, 2026: Senate Banking Chairman Tim Scott released an "Amendment in the Nature of a Substitute," signaling a more cautious, disclosure-heavy approach than the House version.

2. Defining the Asset Class: House vs. Senate Models

The primary legal innovation of the CLARITY Act is the creation of a statutory bridge for assets that begin as centralized offerings but evolve into decentralized goods.

2.1 The House Model: Functional Decentralization

The House version utilizes a dynamic classification system based on network maturity:

Restricted Digital Assets: Assets are presumed to be securities at launch due to information asymmetry and reliance on a central issuer.
Digital Commodities: An asset transforms into a commodity when the network achieves "Maturity."
The 20% Rule: Maturity is defined as a state where no single person or group controls more than 20% of the assets or voting power.
⏱️ The 60-Day Certification: Once an issuer files for maturity and remains unchallenged by the SEC for 60 days, the asset moves to the exclusive spot-market jurisdiction of the CFTC.

2.2 The Senate Model: The Ancillary Asset "Third Way"

The Senate Banking Committee rejects the binary graduation model in favor of a new asset class:

Ancillary Asset: Defined as an intangible, fungible asset offered with an investment contract that does not provide traditional financial rights (e.g., dividends, liquidation proceeds, or corporate voting).
Rebuttable Presumption: The Senate text presumes network tokens are ancillary assets. The SEC bears the burden of proving a token is a security.
📋 Disclosure Regime: While not registered as securities, issuers must provide semi-annual reports to the SEC regarding tokenomics, source code, and insider sales.

3. Key Contested Provisions

3.1 The Passive Yield Ban (Section 404)

The Senate's January 2026 draft includes a strict prohibition on "digital asset service providers" paying interest or yield on payment stablecoins.

🏦 Banking Lobby Rationale: The American Bankers Association (ABA) argues that if stablecoins offer 4–5% risk-free yield, up to $6.6 trillion in deposits could flee the traditional banking system for tech-led platforms.
Activity Exemption: Yield is permitted only if tied to "activity," such as loyalty programs, providing liquidity, or transactions. This remains a major point of legislative friction.

3.2 DeFi and "Code is Speech"

House Approach: Section 409 provides a robust exclusion for persons who solely develop or publish software and do not maintain custody of funds, codifying the "Code is Speech" doctrine.
Senate Approach: While exempting non-custodial developers from money transmission laws, it suggests that "front-ends" (websites facilitating protocol access) must conduct KYC/AML checks, effectively requiring a centralized gatekeeper for U.S. users.

3.3 Consumer Protection and "FTX-Proofing"

The legislation seeks to prevent future collapses through several mechanisms:

🔒 Asset Segregation: Strict statutory prohibition against commingling customer and proprietary assets; violations are classified as felonies.
Bankruptcy Priority: Title VII clarifies that digital assets are "customer property," placing users first in line during exchange failures rather than treating them as unsecured creditors.
✔️ Proof of Reserves: The Senate version mandates cryptographic proof that intermediaries hold the assets they claim to owe.

4. Stakeholder Analysis

Trump Administration

Stance: Strong Support ✅
Key Concerns/Objectives: Positioning the U.S. as the "crypto capital"; views assets as a strategic national interest.

Banking Lobby (ABA/ICBA)

Stance: Strategic Opposition ⚠️
Key Concerns/Objectives: Preventing "regulatory arbitrage" where stablecoins compete with bank deposits without bank regulations.

Sen. Elizabeth Warren

Stance: Opposed ❌
Key Concerns/Objectives: Argues the "Ancillary Asset" class creates a "Tokenization Loophole" endangering retirement savings (401ks).

Crypto Industry

Stance: Mixed Support 🤝
Key Concerns/Objectives: Favors CFTC oversight but opposes the Section 404 yield ban as a threat to revenue streams.

State Regulators (NASAA)

Stance: Opposed ❌
Key Concerns/Objectives: Concerns over federal preemption of state "Blue Sky" laws, removing the "local cop on the beat."

5. Comparative Analysis: House vs. Senate Frameworks

PRIMARY DEFINITION

House Version (H.R. 3633): Digital Commodity (20% decentralization)
Senate Banking Amendment: Ancillary Asset (No financial rights)

SEC ROLE

House Version (H.R. 3633): Gatekeeper (certifies maturity)
Senate Banking Amendment: Disclosure Regulator (oversees reports)

STABLECOIN YIELD

House Version (H.R. 3633): Silent (relies on GENIUS Act)
Senate Banking Amendment: Section 404 Ban on interest

DeFi TREATMENT

House Version (H.R. 3633): Broad developer exemption
Senate Banking Amendment: Nuanced (targets front-ends)

STATE PREEMPTION

House Version (H.R. 3633): Broad preemption of state registration
Senate Banking Amendment: Targeted (preserves state fraud authority)

LEGACY ASSETS

House Version (H.R. 3633): Provisional registration path
Senate Banking Amendment: Rebuttable presumption (safe harbor)

6. Strategic Implications and Second-Order Insights

6.1 Creation of a Parallel Capital Market

By establishing "Ancillary Assets" as a distinct class from equity, Congress is enabling a shift toward "Web3" business models. Tech startups may increasingly favor this lighter disclosure regime over the onerous Sarbanes-Oxley requirements of traditional public equity listings, potentially leading to a decline in traditional IPOs.

6.2 The Bank-Stablecoin "Grand Bargain"

The yield ban represents a compromise where banks concede that stablecoins will be the future payment rails, provided banks retain the balance sheet benefits. This is expected to trigger significant M&A activity, with major banks acquiring stablecoin issuers once the yield threat is neutralized.

6.3 The "Code is Speech" Precedent for AI

The protection of non-custodial developers sets a legal cornerstone for the autonomous agent economy. By codifying that writing code is not moving money, Congress may be insulating open-source AI developers from liability for financial transactions executed by their agents.

6.4 Disambiguation: H.R. 3633 vs. S. 3108

⚠️ Analysts must distinguish this legislation from the AI-Related Job Impacts Clarity Act (S. 3108). Sponsored by Senators Warner and Hawley, S. 3108 concerns Department of Labor reporting on AI-related layoffs and has zero legislative overlap with the Digital Asset Market Clarity Act.

7. Conclusion

The Digital Asset Market Clarity Act of 2025 represents an economic strategy to repatriate the digital asset industry to the United States. The final passage of the bill hinges on the resolution of Section 404 and the "Alsobrooks Amendment" regarding yield. Whether the future of finance belongs to crypto-native neobanks or incumbent institutions utilizing crypto rails depends on the specific language of the yield exemptions currently under debate in the Senate.

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