July 22, 2026, saw Senate Republicans formally release the latest revised draft of the Digital Asset Market Structure Act (CLARITY Act) in the United States. At 616 pages, this draft marks the most significant update since the House passed the bill by a vote of 294 to 134 in July 2025. For the first time at the federal legislative level, the bill explicitly prohibits the President, Vice President, members of Congress, federal judges, and other senior officials from issuing or sponsoring digital assets for profit during their terms. At the same time, the bill provides the most detailed regulatory framework yet for key issues such as stablecoin reward mechanisms, DeFi protocol classification, token issuance exemptions, and anti-money laundering obligations.
As the August congressional recess approaches (with a hard deadline of August 7), the legislative window is rapidly closing. The Senate requires 60 votes to pass the bill, meaning Republicans must secure support from at least seven Democratic senators.
Why the Public Official Token Ban Became the Bill’s Central Focus
The most closely watched provision in the new draft is the first federal legislative red line for public officials participating in crypto asset activities. The restricted "public officials or employees" include the President, Vice President, members of Congress, federal judges, and other senior government officials, as well as their spouses.
During their terms, covered individuals are prohibited from "issuing or sponsoring digital assets for compensation." The bill defines "issuing" as establishing, minting, launching, or controlling the initial sale or distribution of digital assets. The definition of "sponsor" is broader—providing funding, organizing, or publicly endorsing tokens all count, and even using one’s name, likeness, or official position in related creation or promotion. Importantly, this is not a blanket ban on holding cryptocurrency. The bill explicitly allows regulated individuals to continue holding digital assets as investments, subject to existing disclosure and conflict-of-interest requirements. Crypto asset sales exceeding $1,000 must be disclosed. Violators may be required to disgorge profits and pay civil penalties; if a digital asset intermediary knowingly lists prohibited tokens, it faces fines of up to $250,000 per day per violation.
The timing of this provision is notable. Just weeks earlier, President Trump’s 2025 financial disclosure revealed crypto-related income of $1.2 to $1.4 billion. Critics pointed out that while the President advocates for crypto-friendly policies, his family businesses reap massive profits from the industry. The new draft directly addresses this controversy through institutional reform.
One of the most contentious features is the ethical ban’s "sunset clause"—the restrictions automatically expire at noon on January 20, 2029, coinciding exactly with the end of Trump’s second term. This temporary measure has drawn joint opposition from seven Democratic senators. Democrats particularly object to vesting enforcement authority solely in the Department of Justice; Maryland Democrat Angela Alsobrooks called this arrangement "absurd, unserious, downright crazy."
How the Stablecoin Reward Mechanism Draws the Line Between Incentives and Regulation
The stablecoin yield provisions are among the most commercially impactful elements of the draft. The bill’s core principle is: prohibit interest-like returns on idle stablecoin balances, but allow rewards tied to transactional activity.
Specifically, companies may not pay interest on stablecoins simply for users depositing idle funds. However, businesses can offer rewards linked to actual activity, such as using stablecoins for payments, staking services, or wallet usage. The caveat is that these rewards must not be equivalent to bank deposit interest rates. Regulators will set compliance standards, disclosure requirements, and permissible reward structures.
This distinction profoundly affects current crypto business models. Yield on stablecoin deposits—like USDC and USDT—is a core revenue stream in DeFi. Once enacted, sectors relying on "hold-to-earn" models will see profits shrink significantly. The contest between banks and crypto platforms over trillions in capital flows will intensify.
From a policy perspective, the design aims to maintain a regulatory boundary between stablecoins and bank deposits. If stablecoins could pay interest like bank deposits without equivalent oversight, it would create regulatory arbitrage. By prohibiting passive interest but allowing activity-based rewards, the bill seeks a balance between innovation incentives and financial stability.
How DeFi Protocols Are Classified and When Regulatory Exemptions Apply
Regulatory classification of decentralized finance (DeFi) protocols has long been one of the most contentious issues in the legislative process. The new draft offers the clearest framework yet for DeFi regulation.
The bill preserves the core spirit of the Blockchain Regulatory Certainty Act (BRCA), explicitly stating that non-custodial wallets, blockchain software developers, validators, or infrastructure providers should not be classified as money transmitters or money services businesses solely for building or maintaining decentralized networks. However, those who intentionally assist illicit actors remain criminally liable.
Additionally, the Keep Your Coins Act is fully incorporated, guaranteeing individuals the right to self-custody their crypto assets. Users can retain their own assets without being forced to deposit them with exchanges or custodians.
For DeFi regulatory exemptions, the bill sets clear thresholds: protocols must meet the "sufficient decentralization" standard, meaning no single entity can unilaterally alter protocol rules. Qualifying DeFi protocols are exempt from SEC registration as securities trading platforms. The bill also creates an SEC exemption path for digital commodity issuance.
The logic here is to shift regulatory focus from technical form to functional substance. Highly decentralized protocols do not rely on any particular party’s efforts or control, so centralized intermediary regulations are unnecessary. This definition provides legal certainty for DeFi innovation and prevents "pseudo-decentralized" projects from exploiting exemption loopholes.
How the Token Issuance Exemption Mechanism Lowers Compliance Barriers for US Projects
Token issuance compliance is one of the bill’s most structurally innovative features for the crypto industry. The new draft establishes a "Regulation Crypto" registration exemption framework for token issuers.
Under the bill, if a project sells tokens to US users and meets certain criteria, it does not need full SEC registration. Key parameters include: an annual issuance cap of $50 million or 10% of total circulating supply (whichever is greater), and a cumulative cap of $200 million. Issuers must submit initial and semiannual disclosures.
The bill also includes an important "grandfather clause": any token listed as the underlying asset of a spot ETF on a national securities exchange before January 1, 2026, is automatically deemed a non-security. This means not only BTC and ETH, but also SOL and XRP launched in Q4 2025, are classified as non-securities. Issuers are granted a 60-day self-certification window; if the SEC raises no objections within this period, the asset is not considered a security.
The significance of this exemption is clear: previously, US projects faced prolonged uncertainty over whether tokens qualified as securities, driving much innovation overseas. The new framework provides a clear compliance path and funding caps, greatly reducing legal risks and compliance costs for US crypto projects.
How Anti-Money Laundering Obligations and Enforcement Strengthen the Balance Between Compliance and Innovation
Anti-money laundering (AML) and enforcement provisions are among the most robust regulatory enhancements in the draft. The bill contains nearly twenty distinct clauses on AML, sanctions, and enforcement authority.
Under the bill, digital asset service providers—including exchanges, brokers, and dealers—are comprehensively brought under the Bank Secrecy Act (BSA) for the first time. These entities must fulfill full compliance obligations: risk assessment, internal controls, appointing compliance officers, training, auditing, and suspicious activity reporting. Digital commodity exchanges, brokers, and dealers are classified as financial institutions, facing compliance standards similar to traditional banks.
On the enforcement side, the bill increases funding for crypto-related investigations, provides training for enforcement personnel, establishes a cybercrime center, and requires stablecoin issuers to comply with lawful orders to freeze, seize, destroy, or reissue tokens when necessary. A new chapter strengthens enforcement, including funding for blockchain analytics tools for state and local governments, a dedicated "cyber center" to combat nation-state hackers, and authorizes the Department of Justice to pursue civil enforcement against violating exchanges.
Client asset protection is also a key part of the bill. It explicitly states that customers’ crypto assets are recognized as client assets, not company assets in bankruptcy proceedings. This aims to prevent a repeat of the FTX collapse, ensuring user assets are segregated if an exchange goes bankrupt.
How SEC and CFTC Regulatory Powers Are Redefined
The allocation of regulatory authority is the CLARITY Act’s core institutional innovation. The bill’s logic is to classify digital assets based on their actual function.
According to the draft, digital assets fall into three main categories. The first is "digital commodities"—tokens whose value primarily derives from their underlying blockchain system, regulated by the CFTC. The CFTC has exclusive jurisdiction over spot trading of digital commodities. The second category is "digital securities"—assets dependent on the efforts of promoters, with the SEC overseeing primary issuance, disclosure, and investor protection. The third category covers stablecoins and other functional assets, subject to dedicated regulatory rules.
This classification ends the years-long "security or commodity" debate. The bill’s core mechanism builds a regulatory bridge between the SEC and CFTC: "ancillary assets" dependent on promoter efforts are regulated by the SEC, requiring issuers to disclose audited financials, ownership, tokenomics, and more. Once token control becomes sufficiently decentralized, it transitions to a "digital commodity" under CFTC oversight for trading venues and intermediaries.
From a regulatory design perspective, the key innovation is a dynamic classification path—a token can transition from "security" to "commodity" once the network achieves sufficient decentralization. This offers a comprehensive regulatory fit for the lifecycle of crypto projects.
Conclusion
The release of the CLARITY Act revised draft marks a pivotal shift in US crypto regulation—from enforcement-driven oversight to rule-based governance. This 616-page draft offers the most systematic framework yet across six core dimensions: the public official token ban sets the highest federal ethical standards; stablecoin reward rules delineate boundaries between innovation and financial stability; DeFi classification standards provide legal regulatory exemptions for decentralized protocols; token issuance exemptions significantly lower compliance barriers for US projects; anti-money laundering obligations bring the digital asset industry fully under traditional financial regulation; and the SEC-CFTC power split finally resolves the longstanding jurisdictional debate.
However, the bill’s legislative prospects remain highly uncertain. The Senate requires 60 votes for passage, and seven Democratic senators have already voiced opposition. Prediction markets estimate a 40%–42% chance of the CLARITY Act becoming law in 2026. As the August 7 recess deadline approaches, whether the bill can garner enough support in the final window will be the biggest variable shaping US crypto regulation in the coming weeks.
Regardless of whether the bill ultimately passes in 2026, its text already clearly signals the future direction of US crypto regulation: clearer rules, stricter ethical standards, more precise boundaries of authority, and institutional space for compliant innovation.
Frequently Asked Questions (FAQ)
Q1: What stage is the CLARITY Act currently at in the legislative process?
The bill passed the House on July 17, 2025, by a vote of 294 to 134. On May 14, 2026, the Senate Banking Committee approved it by 15 to 9. On July 22, 2026, Senate Republicans released the latest revised draft. The bill is now awaiting a full Senate vote and needs 60 votes to advance.
Q2: What are the specific rules for the stablecoin reward mechanism?
The bill prohibits interest-like returns on idle stablecoin balances. However, it allows rewards tied to transactional activity, such as using stablecoins for payments, staking, or wallet usage. Regulators will set detailed compliance standards and reward structures.
Q3: Under what conditions can DeFi protocols be exempt from SEC regulation?
Qualifying DeFi protocols must meet the "sufficient decentralization" standard, meaning no single entity can unilaterally alter protocol rules. Non-custodial wallets, blockchain software developers, validators, and infrastructure providers are not classified as money transmitters solely for building or maintaining decentralized networks.
Q4: What are the funding caps for token issuance exemptions?
Under the "Regulation Crypto" framework, the annual issuance cap is $50 million or 10% of total circulating supply (whichever is higher), and the cumulative cap is $200 million. Issuers must submit initial and semiannual disclosures.
Q5: What is the bill’s impact on already-listed mainstream tokens?
Any token listed as the underlying asset of a spot ETF on a national securities exchange before January 1, 2026, is automatically deemed a non-security. BTC, ETH, SOL, XRP, and others are included in this category.
