Clarity Act, we hardly knew ye: We look at what was in the bill and what's replacing it

OK, the Clarity Act is dead (at least for now). Most crypto enthusiasts had a sense that this was a big bummer for the sector. But how many knew what the legislation actually did?

The Digital Asset Market Clarity Act was Congress' umpteenth version of a similar concept that's made the rounds for years: to define the different kinds of cryptocurrencies and related assets, and say exactly which regulators have power over them.

For much of the industry's history in the U.S., it battled with agencies such as the U.S. Securities and Exchange Commission over what platforms like Coinbase and Kraken were allowed to do and whether issuing crypto was legally the same as launching a security. It got heated, and there were a lot of enforcement actions, expensive settlements and drama, much of it starring former SEC Chair Gary Gensler. (Pausing for crypto insiders to boo and hiss.)

The Clarity Act would have cleared that up and also elevated the SEC's sister agency, the Commodity Futures Trading Commission, to new authorities — most importantly full supervisory powers over the crypto commodity spot markets. Spot markets are where commodities trade directly, and since bitcoin BTC$81,522.18 and Ethereum's ether ETH$2,642.13 were eventually determined to be commodities, it became clear the bulk of crypto trading happens in that space that's absent a hands-on regulator (except in situations in which bad guys are manipulating the markets).

This conflict is uniquely American, because the U.S.' regulatory regime developed completely separate securities and derivatives agencies, unlike the unification elsewhere. (Yes, everybody knows it's unnecessarily complicated.) So figuring out which one is responsible for each asset has been a minefield from day one.

Defining the different buckets of blockchain-native assets and who would regulate them was a core aspect of Clarity. Plus, the bill did a lot of things meant to curb illicit finance. And — in a particularly contentious arena — it sought to offer limited legal protections to software developers in decentralized finance (DeFi), so they wouldn't get prosecuted for how other people use their work.

We'll pass on talking about the sections that actually killed the bill, which had very little to do with the legislation's primary business. Instead, we'll look at what happens in the Clarity-shaped hole in U.S. policy. And thanks to the SEC, we didn't have to wait long.

The industry isn't entirely back to square one after Clarity tanked. Exhibit A: the SEC. The securities watchdog is run by a guy hand-picked by crypto booster President Donald Trump, and SEC Chairman Paul Atkins started his tenure with digital assets rules top of mind. Now that Clarity fizzled, he sees a responsibility for building out what he can to replace it.

Before the paramedics had time to double check Clarity's pulse, Atkins pushed forward two days later with a major policy initiative to establish a legitimate space in U.S. regulations for tokenizing securities — a centerpiece of the SEC's new crypto focus. But that was neither the beginning nor end of his agenda.

He and the CFTC chairman — a former crypto-focused official at Atkins' SEC, Mike Selig — had already embarked on a joint digital assets campaign and started with a set of standards for how different assets would be treated, known as a "taxonomy." It was among a number of staff-level policy projects that have provided some clarity for the industry, though the efforts aren't terribly sturdy, because they could easily be overwritten by new management at the agencies.

Atkins also started on several more formal initiatives:

As Capital Alpha policy analyst Ian Katz put it, the SEC and CFTC are now able to "shift into overdrive with aggressive, pro-industry proposals."