CLARITY Act Aims to Clarify Crypto Token Classification, Expand CFTC Authority

The CLARITY Act aims to clarify when crypto tokens are treated as investments and when they behave like commodities. Currently, U.S. regulators struggle to determine whether a token is a security or a commodity due to its unclear classification.

When a company creates a new token and sells it to fund a project, the sale can resemble an investment. However, years later, the same token may trade widely across a decentralized network, no longer tied to the original team. This ambiguity leaves tokens in a grey area between securities and commodities.

The CLARITY Act attempts to draw a line based on function rather than origin for tokens like Ethereum and XRP. Fundraising activity would remain under SEC oversight, while later-stage trading in tokens that qualify as sufficiently decentralized could shift to the new CFTC framework.

If CLARITY passes, crypto businesses would gain a clearer federal rulebook for registering and operating in the U.S. This would establish boundaries in advance rather than after the fact, clarifying legal boundaries before products launch.