Author: Cobo Researcher

With the official passage of the U.S. "GENIUS Act," global attention is now focused on the next key piece of legislation in the U.S.—the "Digital Asset Market Clarity Act" (CLARITY Act). This legislation, known as the "Digital Asset Market Clarity Act" (CLARITY Act, H.R. 3633), aims to establish a clear and unified regulatory framework for the digital asset market in the U.S. Currently, the bill has been passed by the House with a high vote and is under review in the Senate, with the goal of completing the legislation within the year. The Senate is drafting its own version of the market structure and will discuss it based on the CLARITY Act.

So, what are the core contents of the CLARITY Act? How will it work in conjunction with the GENIUS Act to impact the U.S. and global markets? In the context of an established licensing moat, what space and development potential do DeFi and self-custody have under the CLARITY Act framework? This article will comprehensively analyze these key issues for you.

Why is the CLARITY Act Needed?

Why is the CLARITY Act needed when we already have the GENIUS Act? In fact, another way to phrase this question is: how will the CLARITY Act work in conjunction with the GENIUS Act?

The GENIUS Act has become the first federal law on stablecoins in the U.S., establishing basic rules for the issuance, custody, and operation of stablecoins, accelerating their application in payment, clearing, and other scenarios, and promoting the migration of financial activities to blockchain. However, the GENIUS Act still focuses solely on stablecoins themselves and does not regulate the underlying blockchain networks they depend on.

For a long time, blockchain systems have developed rapidly in an environment lacking a regulatory framework, making it difficult for legitimate businesses to formulate medium- to long-term strategies, while speculative behavior has profited from the regulatory vacuum. Meanwhile, consumer rights lack protection, and systemic risks have gradually accumulated in opaque infrastructures.

The CLARITY Act is designed to fill this critical gap; it proposes standards for measuring the security, transparency, and governance structure of blockchain networks, clarifies the regulatory boundaries between the SEC and CFTC, fills policy gaps, and establishes a compliance path for the underlying networks that support stablecoin operations.

The combination of the GENIUS Act and the CLARITY Act will form a regulatory closed loop for on-chain financial infrastructure: the former regulates assets, while the latter regulates infrastructure. Together, they ensure the stability of the financial system while promoting trustworthy technological innovation, providing the U.S. with a systemic advantage in the global digital economy competition. If passed smoothly, the CLARITY Act is expected to end the uncertainty of on-chain compliance and establish the basic rules of on-chain financial order, comparable in significance to the 1933 Securities Act for traditional capital markets.

What is the Clarity Act?

After understanding its significant importance, it is necessary to clarify the core objectives and main contents of the CLARITY Act. The Act aims to guide the digital asset industry onto a path of regulated development by establishing a predictable, tiered regulatory framework that provides clear guidance for innovation while enhancing the protection of market order and consumer rights.

The underlying logic of the CLARITY Act can be summarized as a "control-based" dynamic regulatory system. Its core lies in applying differentiated regulation to different types of market participants based on the degree of decentralization of the system: the more centralized, the stricter the requirements; the more decentralized and closer to the technical protocol itself, the more lenient the regulation.

For centralized service providers (such as exchanges, brokers, market makers, etc.), the Act requires them to register with the CFTC and comply with a full set of traditional financial regulatory obligations, including customer due diligence (KYC), anti-money laundering (AML) measures, fund segregation, manipulation prevention, and regular disclosures. Since these intermediaries bear responsibilities for asset custody and transaction matching, they have the potential for systemic risk spillover and should be subject to strict regulation.

In contrast, the Act takes a more lenient approach to truly decentralized protocols and applications (such as DeFi systems that do not rely on any intermediaries and allow users to interact directly through smart contracts). The operational risks of these protocols are primarily determined by the underlying code and network consensus rather than institutional behavior. If control has shifted from the team to an on-chain governance structure, they may be exempt from certain traditional regulatory obligations.

To implement this principle, the CLARITY Act introduces a "decentralization maturity framework" to objectively assess whether a project is still in a centralized stage or has substantially decentralized. The core indicators revolve around whether control over the network or native assets has been eliminated: if it is still held by the founding team, foundation, or key entities, regulators will treat it as a security and apply stricter standards; if governance has been distributed to the community and control is no longer centralized, it will be treated as a commodity-like asset, with reduced regulatory intensity. This mechanism attempts to provide dynamic space for industry development while ensuring that regulatory resources focus on areas with genuine intermediary risks.

What Does This Mean for DeFi and Self-Custody Products?

The CLARITY Act delineates important boundaries for decentralized finance (DeFi) and self-custody products.

For DeFi, the Act clearly states that if the system itself does not act as an intermediary, it may be exempt from traditional trading platform regulatory requirements. This principle provides a clear compliance path for native token issuance, decentralized governance, and user self-management of assets, while also opening up space for continuous innovation in DeFi projects.

However, this set of rules also has obvious limitations. The current Act primarily focuses on "digital commodities" and does not cover regulated asset types such as tokenized securities and derivatives. Additionally, although federal-level guidance is provided, DeFi projects may still be affected by state-level regulatory differences. These gaps will still need to be addressed through further legislation in the Senate or coordinated supplements from agencies like the SEC and CFTC.

For "tool-based" self-custody products, the CLARITY Act provides a clear exemption path: as long as the control of funds remains in the hands of the user and the protocol itself does not provide custody, transfer, or other functions, it will not be regarded as a fund service institution, allowing it to operate under lighter regulation. This unlocks compliance space for products guided by smart accounts, such as debit authorizations, periodic payments, and permission management. The core lies in the complete separation of "function" and "custody"—service providers build interfaces and logic, while users retain asset control through wallets, thus developers no longer bear intermediary roles and directly comply with the exemption principles defined by the CLARITY Act.

Achieving this model requires support from underlying infrastructure. Cobo provides modular MPC wallets, self-custody accounts, security risk control, and settlement capabilities, offering developers an integrable solution that does not require them to bear custody responsibilities. Its smart account framework supports programmable functions such as yield routing, periodic payments, and payment commissions, helping developers build financial products with lower compliance costs while ensuring user fund safety and sovereignty. Additionally, Cobo has supported bank transfers in multiple countries and 24/7 stablecoin clearing and settlement, meeting the CLARITY Act's expectations for global, regulated financial service infrastructure and providing a feasible "compliance programmable" paradigm for Web3 finance.

Reference link: https://a16zcrypto.com/posts/article/genius-act-clarity-act-crypto-legislation-explained/

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