July 17, 2026, the U.S. House Financial Services Committee’s Subcommittee on Digital Assets held a field hearing on Wall Street in New York, themed "Building the Future of Finance: How the CLARITY Act Unleashes Innovation." The hearing took place at Federal Hall—just steps from the New York Stock Exchange. By moving the session from Capitol Hill in Washington to Wall Street, lawmakers made a statement: their message was aimed squarely at exchanges, banks, asset managers, and custodians.
The CLARITY Act—formally known as the Lummis-Gillibrand Responsible Financial Innovation Act of 2026—is seen by many in the industry as the "1996 Telecommunications Act moment" for U.S. crypto. The 1996 Telecom Act broke up AT&T’s monopoly and paved the way for competition in the internet era; the CLARITY Act is expected to end the years-long regulatory tug-of-war between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), establishing for the first time clear federal boundaries for digital asset jurisdiction.
However, the legislative journey of the CLARITY Act has seen a dramatic shift in odds: from a predicted 82% chance of passage in February 2026 to just 35% by July 16. What does this 309-page draft actually contain? Why did it go from "a sure thing" to "up in the air"? What does it mean for exchanges, developers, and investors? This article systematically unpacks the CLARITY Act from three angles: the bill’s text, its legislative process, and its industry impact.
The Bill: Three Core Logics in 309 Pages
"Ancillary Asset": Carving Out a Niche Beside the Howey Test
To understand the CLARITY Act, you first need to grasp the fundamental dilemma of U.S. crypto regulation. The 1946 Howey Test is an unshakable precedent in case law—it uses the standard of "a reasonable expectation of profits based on the efforts of others" to classify nearly all tokens as securities. The SEC’s lawsuits against Ripple, Coinbase, and Binance are all rooted in this logic.
The CLARITY Act does not attempt to overturn the Howey Test. Instead, it takes a more nuanced approach: it creates a new legal category called the "ancillary asset." If a token’s value depends on the "entrepreneurial or managerial efforts" of its issuer or core team, it is deemed an ancillary asset. The bill acknowledges the Howey Test’s "reliance on others" relationship, then establishes a separate rule for such assets: the act of issuance is legally considered "securities-related," but once the token is issued, it is no longer a security—it becomes an ancillary asset, subject to disclosure requirements rather than registration rules.
In plain terms, the CLARITY Act creates a regulatory middle ground—an "intermediate layer" where disclosure obligations are denser than for commodities but lighter than for securities. This is designed for assets that are neither stocks nor like corn. This means projects distributing tokens in the U.S. will have a clearer legal path, no longer needing to rely on exemptions like SAFT, Reg D, or Reg S. More importantly, the U.S. is finally poised to give tokens a clear legal identity—ending the Schrödinger’s cat scenario where "if the SEC sues you today, it’s a security; if you settle tomorrow, it’s not."
Dividing Jurisdiction Between the SEC and CFTC
Another core mechanism of the bill is building a regulatory bridge between the SEC and CFTC. According to the latest draft, the CFTC will have exclusive jurisdiction over "digital commodities"—that is, mature, native tokens whose value primarily derives from decentralized blockchain functionality. The SEC retains authority over "investment contracts" and assets during their initial issuance phase. The bill introduces a "Mature Blockchain Test," requiring blockchain systems to meet criteria like no single entity control, distributed ownership, and open-source status—think Bitcoin and Ethereum. Once certified, relevant tokens automatically become non-securities; issuers are exempt from certain SEC registration requirements but must provide initial and semiannual disclosures.
Additionally, the bill includes a notable provision: any token listed as the underlying asset of a spot ETF on a national securities exchange before January 1, 2026, is automatically recognized as a non-security. This means not only Bitcoin and Ethereum are clearly classified as non-securities, but any token already approved for an ETF receives the same legal certainty.
AML, Consumer Protection, and DeFi Exemptions
On illicit finance, the bill brings digital assets under the Bank Secrecy Act (BSA) and sanctions laws. Digital asset brokers, dealers, and trading platforms must register with the CFTC and fulfill customer asset segregation, risk disclosure, and anti-money laundering (AML) obligations. The bill also requires registration of digital asset self-service terminals (Bitcoin ATMs), including customer warnings, receipts, anti-fraud policies, risk monitoring, compliance officers, fraud detection, holding periods, and withdrawal limits.
For decentralized finance (DeFi), the bill incorporates provisions from the Blockchain Regulatory Certainty Act, granting explicit exemptions for non-custodial DeFi protocols, node operators, and open-source developers—as long as the protocol is truly decentralized, they do not need to register as money services businesses or brokers. In July, the Blockchain Association publicly labeled the CLARITY Act as a bill to "combat crypto crime and strengthen law enforcement cooperation," arguing that clear federal rules will enable investigators to track illicit financial activity.
Regarding stablecoins, the bill restricts the payment of interest or yield, allowing it only when "related to payment stablecoins" or "economically or functionally equivalent to bank deposit interest or yield." This provision remains a point of contention between the crypto and banking industries.
Legislative Process: From House Passage to the Senate’s 60-Vote Threshold
Timeline Recap
The CLARITY Act was formally introduced by House Financial Services Committee Chair French Hill (R-AR) on May 29, 2025. On July 17, 2025, the bill passed the House with strong bipartisan support—294 votes in favor, 134 against.
In 2026, the process moved to the Senate. On January 12, Senate Banking Committee Chair Tim Scott released the latest bipartisan revised text. On May 12, the Senate Banking Committee published the 309-page updated draft. On May 14, the committee approved the bill by a 15-9 vote. Notably, only two Democrats—Ruben Gallego and Angela Alsobrooks—crossed party lines to vote yes.
On July 13, the Senate reconvened after the July 4 recess. The new draft merged versions from the Senate Banking and Agriculture Committees into a single text, adding over 70 pages and placing greater emphasis on consumer protection. Senate Majority Leader John Thune controls the legislative calendar and will ultimately decide when the bill goes to a full Senate vote. Lummis expects deliberations during the week of July 20.
Why 60 Votes?
In the U.S. Senate, most bills must overcome a filibuster. To end debate and move to a vote, at least 60 votes are needed—this is known as the "cloture" threshold. Republicans currently hold 53 Senate seats. This means that even if all Republicans vote yes, at least 7 Democrats must cross party lines to reach the 60-vote mark.
Three Major Hurdles: Ethics, Time Pressure, and Partisan Divide
Ethics Controversy. The biggest unresolved issue is a restriction demanded by Democrats: a ban on senior government officials (including the president) maintaining business ties with the crypto industry. On July 15, Democratic Senators Chris Murphy, Jeff Merkley, and Chris Van Hollen publicly opposed the bill, citing its failure to address "Trump’s crypto corruption"—referring to Trump’s ties to the industry through meme coins, World Liberty Financial, and other ventures. The two Democrats who previously voted yes in committee have also warned they may not support the final bill without ethics provisions.
Time Pressure. The Senate’s 2026 calendar shows the August state work period runs from August 10 to September 11, with August 7 as the last scheduled session before recess. From the July 13 reconvening to the August 7 recess, there’s roughly a three-week window. Missing the August recess could push legislative efforts into 2027.
Volatile Odds. In February 2026, prediction markets put the odds of the CLARITY Act passing that year at 82%. Since then, the probability has steadily declined: mid-May Polymarket odds hovered around 74%-75%; Galaxy Research dropped its estimate from 75% in May to 60%, then to 50%; on July 13, Polymarket odds hit a low of 24%. As of July 16, Gate’s prediction market showed just a 35% chance of passage. This sharp downward curve reflects persistent market pessimism over ethical gridlock, time constraints, and unpredictable cross-party support.
July 17 New York Hearing: Wall Street’s "Closing Argument"
At 10:00 AM on July 17, the House Financial Services Committee’s Digital Assets Subcommittee held its field hearing in New York. Testifying were four organizations: Sarah Aberg, Chief Legal Officer of Nova Labs (developer of the Helium network); Randi Abernethy, Head of Clearing & Group Risk at crypto exchange Bullish; Ryan Louvar, Chief Legal Officer at asset manager WisdomTree; and Jason Somensatto, Policy Director at crypto policy group Coin Center.
This was a field hearing, distinct from typical committee room sessions. Holding it in New York signaled lawmakers’ intent to address the institutions that will actually operate under the new framework. Industry witnesses were expected to focus on how clear rules would finally allow them to launch digital asset products previously held back by regulatory uncertainty. The hearing’s main message: the CLARITY Act is about American innovation, jobs, and competitiveness—not just another debate on regulatory technology.
The hearing also covered two documents: H.Res. 111, a resolution supporting blockchain technology and digital assets, urging the U.S. to establish a framework early; and H.R. 8957, the U.S. Reserve Modernization Act.
Industry Impact: Who Wins, Who Faces Pressure?
For exchanges and intermediaries. The bill brings digital asset brokers, dealers, and trading platforms under the CFTC registration regime and subjects them to Bank Secrecy Act requirements for AML, customer identification, suspicious activity reporting, and sanctions compliance. This will significantly increase compliance costs but also brings legal certainty. Coinbase’s VP of Public Policy has noted that these provisions allow platforms to suspend suspicious transfers at law enforcement’s request.
For DeFi developers and the open-source community. The bill provides clear exemptions for non-custodial DeFi protocols, node operators, and open-source developers—as long as the protocol is truly decentralized, developers do not need to register as money services businesses or brokers. This is seen as a crucial safeguard for the U.S. blockchain development ecosystem.
For investors and consumers. Lauren Belive, Ripple’s Global Head of Public Policy and Government Affairs, urged the Senate to pass the bill on July 15, warning that if it fails, crypto holders will be exposed to bad actors exploiting regulatory loopholes. She stated: "A vote against the CLARITY Act is not a vote against crypto—it’s a vote against consumers. It exposes crypto holders to risks from bad actors exploiting regulatory arbitrage."
For the stablecoin market. The bill’s ban on interest payments for payment stablecoins could reshape stablecoin business models. At the same time, the bill allows stablecoins to be integrated into lending, payments, and DeFi protocols without entering the regulated banking sector. The lobbying battle between the crypto and banking industries continues.
For the overall market. If the legislation moves forward, exchanges, blockchain developers, and crypto businesses could benefit from more predictable compliance requirements. Clear rules may encourage innovation, attract long-term investment, and reduce the legal uncertainty that has plagued the market for years. In the long run, the crypto market could see stronger institutional participation, greater investor confidence, and more blockchain investment.
Conclusion: 1996 Telecom Act Moment or Another Legislative Failure?
Supporters of the CLARITY Act liken it to the 1996 Telecommunications Act—which broke up monopolies and defined the rules of competition for the internet age. Opponents argue the bill fails to resolve ethical conflicts, could weaken existing market oversight, and may open the door to corruption and abuse.
The data tells the story: a 35% chance of passage, according to prediction markets as of July 16, reflects a cautious market outlook. The August 7 recess deadline is fast approaching. Even if the Senate passes the bill, the House must still approve the Senate version before it can go to the president’s desk. The White House has yet to endorse the merged text.
Regardless of whether the CLARITY Act becomes law in 2026, it has already achieved something important: moving the U.S. crypto regulatory debate from "whether regulation is needed" to "how to regulate." As Senator Lummis put it: "We want to meet the needs of the industry… It’s tough, but we’re ready to take the stage."
FAQ
Q: What is the full name of the CLARITY Act?
The CLARITY Act’s full name is the Lummis-Gillibrand Responsible Financial Innovation Act of 2026, introduced by House Financial Services Committee Chair French Hill in May 2025.
Q: What is the current status of the CLARITY Act in Congress?
The bill passed the House in July 2025 by a vote of 294 to 134, and the Senate Banking Committee on May 14, 2026, by a vote of 15 to 9. It is now awaiting a full Senate vote, where it must meet the 60-vote cloture threshold to advance.
Q: What was the July 17 New York hearing?
On July 17, the House Financial Services Committee’s Digital Assets Subcommittee held a field hearing on Wall Street in New York, themed "Building the Future of Finance: How the CLARITY Act Unleashes Innovation." Representatives from Nova Labs, Bullish, WisdomTree, and Coin Center testified.
Q: How does the CLARITY Act define SEC and CFTC jurisdiction?
The bill places "ancillary assets" that rely on the efforts of their initiators under SEC oversight; once token control is decentralized and the "Mature Blockchain Test" is passed, they become "digital commodities" regulated by the CFTC, which oversees trading venues and intermediaries.
Q: What is the impact of the bill on DeFi developers?
The bill provides explicit exemptions for non-custodial DeFi protocols, node operators, and open-source developers—as long as the protocol is truly decentralized, developers do not need to register as money services businesses or brokers.
