The announcement by David Sacks on December 18 that Senate Banking Chair Tim Scott and Senate Agriculture Chair John Boozman confirmed a January 2026 markup for the CLARITY Act might sound like a significant step forward. Sacks’ enthusiasm, stating, “We look forward to finishing the job in January!” reflects a hope for resolution. However, for those closely following the legislative process, a January markup is far from the finish line. It marks the very beginning of a multi-year journey, laden with unresolved questions and statutory language still encased in brackets, signaling a long road ahead before any concrete changes impact the crypto market.
The CLARITY Act, which successfully passed the House in July alongside the GENIUS stablecoin bill, now resides within the Senate Banking Committee. Here, two distinct drafts must be meticulously merged before any markup can even commence. These drafts contain critical bracketed definitions concerning what constitutes a “security” and the extent to which decentralized finance (DeFi) infrastructure falls within the proposed regulatory perimeter. Furthermore, the specifics of reporting requirements for trading venues remain undecided. A January markup simply signifies an agreement among staff to initiate negotiations, not that the hard decisions have been made.
The Act’s Core Vision and its Significant Blanks
At its heart, CLARITY seeks to categorize crypto assets into three main groups:
- Digital commodities: These are tokens linked to blockchain systems, encompassing functionalities like payments, governance, and network incentives. Crucially, this category excludes securities and stablecoins.
- Investment contract assets: Defined as digital commodities initially sold for capital-raising purposes. They would begin their life as securities under the SEC's jurisdiction during issuance, then shed their security status in secondary trading to fall under the CFTC's oversight.
- Permitted payment stablecoins: National-currency tokens issued by supervised entities, designed to integrate with the GENIUS framework.
This framework is designed to grant the CFTC exclusive jurisdiction over digital commodity spot markets, expanding its current anti-fraud mandate. The SEC would retain authority over issuers and offerings of investment contract assets, while banking regulators would supervise stablecoin issuers. While these divisions appear clear on paper, many vital details are still uncertain. The very definition of “security” itself remains bracketed in the Senate text. Perhaps most critically, the Senate Agriculture draft leaves entire sections pertaining to DeFi explicitly bracketed and labeled “seeking further feedback.” This highlights a fundamental disagreement: no consensus has been reached on what level of decentralization is sufficient for an asset or protocol to shed its security status, if at all.
Building New Regulatory Plumbing for a Novel Industry
CLARITY proposes the creation of an entirely new ecosystem of registered entities to manage this bifurcated digital asset landscape:
- Digital commodity exchanges: These platforms would need to adhere to core principles covering listing standards, market surveillance, system safeguards, capital requirements, and reporting obligations. They would only be permitted to list tokens where issuers meet stringent disclosure requirements, including providing source code.
- Digital commodity brokers and dealers: These intermediaries would require CFTC registration and must comply with capital standards, recordkeeping rules, and robust retail customer protections.
- Qualified digital asset custodians: These entities would be responsible for holding customer digital assets for registered firms, operating under the supervision of either banking regulators, the SEC, or the CFTC.
Notably, the bill also outlines carve-outs for certain non-custodial DeFi activities, such as running nodes, validating transactions, and building wallets. These activities would generally be excluded from regulated intermediary status, though anti-fraud powers would still apply. However, these specific DeFi sections are precisely what remain bracketed in the Senate Agriculture draft. The unresolved trade-off is stark: crafting carve-outs that are too broad risks a complete collapse of retail investor protections, potentially exposing ordinary users to significant harm. Conversely, making them too narrow could stifle innovation and inadvertently drive legitimate crypto protocols and businesses offshore, away from US jurisdiction.
One of the bill's most impactful provisions revolves around custody. CLARITY would compel exchanges and brokers to hold customer digital assets with qualified custodians and mandate the segregation of customer property. The draft also directs regulators to modernize recordkeeping to accommodate blockchain technology for books and records. Significantly, it aims to prevent regulators from forcing banks to treat customer crypto as balance-sheet assets or to hold extra capital beyond operational risk. Yet, much of the true detail, from custodial standards to disclosure templates and specific listing rules, is largely punted into future regulatory rulemaking processes. The bill grants regulators 360 days from enactment to write most of these rules, with some provisions extending to 18 months in Senate drafts. This protracted timeline implies years of a hybrid market status, where existing market infrastructure will coexist with a partially implemented US legal framework.
The Unsettled Political Landscape and Long Road Ahead
“January is not the finish line; it’s merely the starting gun for a marathon of legislative hurdles, political negotiations, and eventual regulatory rulemaking that will shape the future of crypto in the United States.”
The markup process is unfolding against a complex political backdrop. Democrats have expressed unease regarding potential executive influence over independent agencies, particularly given ongoing debates about the President's ability to fire SEC and CFTC commissioners at will. Legal analyses have also highlighted a potential concern: the investment contract carve-out could inadvertently facilitate regulatory arbitrage. This might allow oversight to shift away from the SEC post-fundraising, potentially leaving a historically underfunded CFTC to police the vast and complex retail spot trading market, a task many former officials believe the agency is ill-equipped for without significantly more resources and staff.
Before any changes appear on an exchange screen, significant legislative milestones remain. First, the Banking and Agriculture committees must merge their distinct drafts. Both committees then need to navigate through markups, where Democrats are expected to push for more stringent retail protections and limits on presidential control over regulatory bodies. Following this, leadership in the Senate must secure a challenging 60 votes on the Senate floor, a far from guaranteed outcome in a deeply divided chamber. Subsequently, the House and Senate versions must be reconciled, either through a conference committee or direct acceptance. Only then can the President sign the bill into law, followed by appropriators needing to fund a much larger CFTC footprint. Regulators will then embark on the challenging task of writing the actual rules within the 360-day to 18-month timeframe. During this period, firms will transition into provisional status while the rules are finalized. Inevitably, the courts will weigh in; Supreme Court doctrine on agency power suggests that key rulemakings, especially those concerning token classification and DeFi treatment, will face extensive litigation.
So, while David Sacks may anticipate “finishing the job in January,” from the market's perspective, that month truly marks the genesis of a multi-year pipeline. Nothing will become legally binding for quite some time, and the most challenging negotiations and implementations are yet to begin. The hard part, it seems, has barely started.
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