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The Three Major Cryptocurrency Bills - The Clarity Bill

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The SEC has long posed challenges for cryptocurrency projects, often labeling them as securities, which leads to high compliance costs and limits user participation. The introduction of the "Clarity Act" aims to provide clearer regulatory standards, shifting the focus from the outdated Howey Test to a new criterion based on decentralization. Projects can now qualify as commodities if they meet specific conditions, allowing them to escape SEC oversight and fall under CFTC jurisdiction. The Clarity Act also positively impacts DeFi by recognizing it as a legitimate financial structure that operates through smart contracts, offering a regulatory exemption path as long as projects do not hold user assets and maintain decentralization. For exchanges, the Act clarifies registration requirements based on whether they deal with digital commodities or securities, which could increase compliance costs but reduce regulatory uncertainty. Developers benefit from a "safe harbor" provision, allowing them to innovate without the burden of traditional financial regulations. Overall, the Clarity Act represents a significant step toward establishing a more predictable regulatory environment for Web3, fostering innovation and enabling projects to focus on value creation.

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I. The SEC's "Sword of Damocles" Finally Falls#

For over a decade, the SEC has wielded its enforcement stick, brandishing the old sword of the Howey Test from 1946, swinging it at will. Take Ripple, for example; in 2020, the SEC sued, claiming XRP was a security. For five years, Ripple has been troubled, unable to conduct normal business, and the price performance has been mediocre, only to rebound immediately after the controversy was resolved.

There are also centralized exchanges like Coinbase, Crypto.com, decentralized exchanges like Uniswap, and infrastructure like the Web3 wallet MetaMask, among others. Almost all influential projects have faced trouble from the SEC.

So why is everyone afraid of being classified as a security?

Because once you are classified as a security, it essentially signals commercial death for the project:

  1. High compliance costs;

  2. Ordinary users cannot participate;

  3. Can only be traded on registered exchanges;

  4. A slight misstep can cross regulatory red lines.

II. Without Regulatory Clarity, Innovation Will Wither#

This has led to a lack of good projects emerging in recent years, with only Bitcoin and meme coins thriving. Why is that?

Because under the old standards:

BTC is classified as a commodity;

Meme coins have no team, no roadmap, no "effort party";
→ Thus, they are considered "the safest."

Any project with even a slight design, technical goals, or operational team could potentially be classified as a security.

This undoubtedly stifles true innovators.

III. The Clarity Act is Here, Regulatory Standards Upgraded#

Previously, we judged securities using the four standards of the "Howey Test":

  1. There is a monetary investment;

  2. Investment in a common enterprise;

  3. There is an expectation of profit;

  4. Profits come from the efforts of others.

Now, the Clarity Act introduces a more operational judgment logic:

"Whether a project is sufficiently decentralized determines if it is a security or a commodity."

How is this judged? The act introduces a core concept: "mature blockchain systems."

As long as the following conditions are met, it can upgrade from "security" to "commodity":

  1. Not controlled by any single entity;

  2. Network operation does not rely on a specific team;

  3. No single address holds more than 20% of the tokens;

  4. The launch or issuance time has reached 4 years;

  5. Apply to the SEC for "maturity certification" and obtain approval.

Once approved, it can escape SEC regulation and fall under CFTC jurisdiction.

From now on, Web3 projects have their own compliance path.

You can start centralized, but as long as you are willing to gradually move towards decentralization, you have the opportunity to shed the security identity.

IV. Impact on DeFi#

Having discussed the SEC, what impact does the Clarity Act have on DeFi, exchanges, and developers?

First, for DeFi, I think it can be summarized in one sentence: DeFi is finally not "illegal finance."

This time, the Clarity Act explicitly recognizes: DeFi is a new financial structure that does not rely on companies or individuals but operates through smart contracts and protocols.

The Clarity Act provides a clear regulatory exemption path for DeFi for the first time. As long as the project does not hold user assets, runs open-source code, and maintains decentralization (control below 5% or 20%), it does not need to register as a securities exchange or broker. Developers, node operators, and interface providers are no longer automatically considered intermediaries. This greatly reduces compliance costs and encourages more innovation. However, the act still retains anti-fraud and anti-manipulation provisions and sets a 270-day compliance transition period. Overall, it provides DeFi projects with the possibility of "moving from gray to sunlight."

V. Impact on Exchanges#

What impact does it have on exchanges? The biggest impact of the act on exchanges is the introduction of clear regulatory divisions and registration requirements. In the future, if an exchange trades digital commodities (like BTC, ETH), it must register with the CFTC; if it involves security-type assets (like certain tokens), it must register with the SEC, and may even require dual registration. This alleviates the fears of exchanges due to regulatory ambiguity but also brings higher compliance costs. Additionally, exchanges must comply with KYC, anti-money laundering, customer asset segregation, and cybersecurity regulations.

VI. Impact on Developers#

What about developers? The Clarity Act establishes a "safe harbor" for blockchain and DeFi developers. As long as they do not hold assets or act as intermediaries, they can be exempt from registration and traditional financial compliance obligations. This means that technical activities such as developing software, deploying front ends, and running nodes are no longer considered regulatory subjects. This enhances developers' expectations of legal path stability and is expected to unleash more innovative vitality.

So compared to the stablecoin act, the Clarity Act truly touches on the "fundamental institutional design" of Web3—who should be regulated? Who regulates whom? How to regulate? This not only concerns the life and death of projects but also determines the future direction of the industry.

While it may not be perfect, it has taken a crucial step.

At least, Web3 is no longer just "feeling the stones to cross the river," but has a path to follow and a space to anticipate. Innovation finally has the opportunity to step out of the gray area and into the sunlight.

And we can finally redirect more energy back to the act of "creating value" itself.

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