Here's What Will Happen in Crypto If The Clarity Act Passes

For years, crypto investors and financial institutions in the U.S. have had to work with an incomplete set of regulations. That's kept a lot of institutional capital sidelined, and, at least if you believe some crypto investors, it has also given the Securities and Exchange Commission (SEC) leeway to pursue piecemeal enforcement actions as a substitute for actual policy.

The Digital Asset Market Clarity Act, commonly known as the Clarity Act, which cleared the Senate Banking Committee on May 14, is Congress's most serious attempt thus far to end that ambiguity. If it becomes law, Ethereum (CRYPTO: ETH), Solana (CRYPTO: SOL), and XRP (CRYPTO: XRP) would operate under a new statutory framework rather than a patchwork of enforcement memos.

Here's what you need to know about what would likely happen.

Image source: Getty Images.

This could unlock the floodgates for institutional capital

Under the Clarity Act, every digital asset will fall into one of three categories:

• Digital commodities, which are to be overseen by the Commodity Futures Trading Commission (CFTC)
• Investment contract assets, which stay with the SEC
• Permitted payment stablecoins, which fall under banking regulators per last year's Genius Act, with the SEC and CFTC retaining anti-fraud authority over stablecoin trades on their registered venues

In that framework, tokens whose value derives from a sufficiently decentralized blockchain qualify as commodities, while tokens sold through investment contracts to fund development qualify as securities.

The SEC and CFTC issued joint interpretive guidance on March 17, classifying Bitcoin (CRYPTO: BTC), Ethereum, Solana, XRP, and 12 other crypto assets as digital commodities. But that was administrative guidance, not law, so a future SEC chair could reverse it with a memo, which might cause some disruption if it happened.

Thus, the Clarity Act writes the classification framework into federal statute, with major tokens qualifying based on their decentralized characteristics. That structure would only be reversible by Congress.

But why does the CFTC matter? Under the bill, exchanges and brokers that handle digital commodities must register with the CFTC. The longer answer is that, because the CFTC is a smaller regulatory agency that has historically focused on financial derivatives, some industry experts assume its posture will be less adversarial toward crypto businesses and investors.

So some people expect the CFTC's stewardship to lead to more bullish conditions, though there isn't much real evidence for that view yet.

The bill also protects developers who write open-source, noncustodial software. Publishing a smart contract would no longer risk being treated as running an unlicensed money transmitter. That's the most important for Ethereum and Solana, as they're home to large decentralized finance (DeFi) ecosystems that depend on developers who don't custody user funds.

The stablecoin yield issue

The Clarity Act also addresses the $323 billion stablecoin market. Passive yield on stablecoin balances is banned under the bill's current formulation, meaning crypto platforms can no longer offer interest-like returns for holding dollar-backed stablecoins.

But the bill includes a compromise that preserves activity-based rewards for stablecoin capital tied to transactions, payments, staking, or liquidity provision. Think of it as the difference between earning interest on a savings account for doing absolutely nothing (set to be banned) and earning cash back on the spending from an account (set to be explicitly permitted).

For holders of Ethereum, Solana, and XRP, this is a big change, and it could be a good one in the long run. Aside from being a value storage vehicle, stablecoins power DeFi lending pools and liquidity on decentralized exchanges, and ruling out passive yield generation while endorsing activity-based rewards could plausibly increase the velocity of on-chain capital.

In other words, capital might be incentivized to move around more in search of yield rather than parking, which could drive more activity in the large crypto ecosystems. It's also possible that yield-seeking capital simply migrates off-chain instead, if activity-based rewards prove insufficient.

On the other hand, the stablecoin or DeFi provisions won't directly affect Bitcoin. However, it could still catch a tailwind, as the Clarity Act would represent the strongest congressional endorsement of digital assets in U.S. history.

Before it becomes law, the bill still needs to be passed in the Senate, reconciled with the House version that passed in July 2025, and then signed by the president. Nonetheless, the odds look favorable for this bill's passage at the moment. Soon enough, investors might get to see whether the hopes of a regulation-induced bull run are true.

Alex Carchidi has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.