The CLARITY Act officially passing the U.S. House of Representatives marks a turning point for token projects, policy advocates, and decentralized governance ecosystems. The Act delineates oversight between the SEC and CFTC by clearly defining the criteria for tokens to become a mature blockchain system and be classified as a commodity. 

While the bill still has a few more steps before being signed into law, the Act establishes clear frameworks for achieving mature blockchain status that teams can implement today.

The CLARITY Act establishes specific criteria for when tokens qualify as digital commodities under CFTC oversight versus remaining securities under SEC jurisdiction. Commodity classification provides projects with a defined pathway under the CLARITY Act's framework, while security classification continues under existing securities laws with the SEC's associated requirements and limitations. For protocols, this distinction affects fundamental decisions around token design as each classification comes with varying compliance obligations that teams must navigate throughout the token’s lifecycle.

The CLARITY Act defines criteria for a token to transition from a security to a commodity:

Digital Commodity: "A digital asset that is intrinsically linked to a blockchain system, and the value of which is derived from or is reasonably expected to be derived from the use of the blockchain system." The Act specifies this includes digital assets "used to transfer value between participants," "used to access the activities or services of the blockchain system," "used to participate in the decentralized governance system," or "used or removed from circulation in whole or in part to pay fees or otherwise verify or validate transactions.” (Section 103)

Mature Blockchain System: "A blockchain system, together with its related digital commodity, that is not controlled by any person or group of persons under common control." Key requirements include no entity having "unilateral authority to control or materially alter the functionality, operation, or rules" of the system, no entity controlling "20 percent or more of the outstanding voting power," and "no digital commodity issuer, digital commodity related person, or digital commodity affiliated person beneficially owns, in the aggregate, 20 percent or more of the total amount of units of the digital commodity." (Section 205)

Certification Process: The CLARITY Act establishes that "a digital commodity issuer, digital commodity related person, digital commodity affiliated person, decentralized governance system of the blockchain system, or a registered digital commodity exchange, or any other appropriate person as designated by the Commission, may certify to the Commission that the blockchain system to which a digital commodity relates is a mature blockchain system." The certification must include "such information that is reasonably necessary to establish that the blockchain system is not controlled by any person or group of persons under common control." The certification becomes effective after 60 days unless the Commission objects or "determines that the blockchain system is not a mature blockchain system." (Section 205)

Token design should focus on these mechanisms to meet the criteria of a mature blockchain system: Distributed Control, Functional Utility, and Open Source and Programmatic System.

Distributed Control

The CLARITY Act requires mature blockchain systems be "not controlled by any person or group of persons under common control" and establishes ownership concentration limits. No entity may have "unilateral authority to control or materially alter the functionality, operation, or rules" of the system or control "20 percent or more of the outstanding voting power." Additionally, "no digital commodity issuer, digital commodity related person, or digital commodity affiliated person beneficially owns, in the aggregate, 20 percent or more of the total amount of units of the digital commodity." Projects should design governance systems where token holders collectively control protocol decisions and implement allocation strategies that prevent excessive concentration among insiders within these limits. (Section 202, Section 205)

Projects should design governance systems where token holders collectively control protocol decisions through transparent, decentralized mechanisms, while implementing allocation strategies that prevent excessive concentration among insiders, founders, or early investors. The Act explicitly recognizes a decentralized governance system is not considered "a person or a group of persons under common control," providing regulatory clarity for genuine community-driven decision-making. With the Act's 20% aggregate ownership limit for digital commodity issuers and related persons, careful allocation planning and governance participation records help demonstrate that protocol changes stem from collective consensus rather than centralized control.

Functional Utility

The CLARITY Act requires that a digital commodity be "intrinsically linked to a blockchain system, and the value of which is derived from or is reasonably expected to be derived from the use of the blockchain system." A digital asset qualifies as intrinsically linked when it is "directly related to the functionality or operation of the blockchain system or to the activities or services for which the blockchain system is created or utilized," including where the digital asset is "used to transfer value between participants in the blockchain system," "used to access the activities or services of the blockchain system," "used to participate in the decentralized governance system of the blockchain system," "used or removed from circulation in whole or in part to pay fees or otherwise verify or validate transactions on the blockchain system," or "used as payment or incentive to participants in the blockchain system to engage in the activities of the blockchain system." Additionally, for mature blockchain systems, "the digital commodity has a value that is substantially derived from the use and functioning of the blockchain system." (Section 103, Section 205)

Tokens should function as essential components for network utility such as transaction fees, staking mechanisms, and service access. The Act requires tokens be intrinsically linked to the blockchain system and that their value derives from network use, making documentation of specific operational use cases important for demonstrating compliance.

Open Source and Programmatic System

The CLARITY Act requires that a mature blockchain system "is composed of source code that is open source" and "operates, executes, and enforces its operations and transactions based solely on pre-established, transparent rules encoded directly within the source code of the blockchain system." Additionally, the system must not "restrict or prohibit based on the exercise of unilateral authority any person, other than a digital commodity issuer, digital commodity related person, or digital commodity affiliated person from engaging in the activities the blockchain system is intended to provide." The Act also specifies that "no person or group of persons under common control possesses a unique permission or privilege with respect to functionality, operation, or rules of consensus or agreement of the blockchain system or its related digital commodity," unless such changes address "errors, regular maintenance, or cybersecurity risks" and are "adopted through the consensus or agreement of a decentralized governance system." (Section 205)

The token's underlying blockchain infrastructure must operate transparently with publicly accessible source code and automated execution based on predetermined rules. The Act requires open source code and prohibits unilateral authority over system operations, with limited exceptions for maintenance or security issues that follow decentralized governance processes.

The CLARITY Act represents a turning point for crypto regulation, establishing clear pathways for tokens to achieve compliance. The Act elevates the importance of decentralized governance as projects must demonstrate distributed control and community-driven decision-making through transparent, measurable participation. Understanding what constitutes a mature blockchain system and designing tokens accordingly positions protocols for success under the CLARITY Act.  

At Tally, we're developing the infrastructure to help teams achieve compliance in the CLARITY Act era. The world’s most valuable networks use Tally to manage the complete token lifecycle and reach maturity with speed and confidence. 

Ready to launch? Reach out at tally.xyz/contact .

Read the full CLARITY Act Bill here.

The CLARITY Act officially passing the U.S. House of Representatives marks a turning point for token projects, policy advocates, and decentralized governance ecosystems. The Act delineates oversight between the SEC and CFTC by clearly defining the criteria for tokens to become a mature blockchain system and be classified as a commodity. 

While the bill still has a few more steps before being signed into law, the Act establishes clear frameworks for achieving mature blockchain status that teams can implement today.

The CLARITY Act establishes specific criteria for when tokens qualify as digital commodities under CFTC oversight versus remaining securities under SEC jurisdiction. Commodity classification provides projects with a defined pathway under the CLARITY Act's framework, while security classification continues under existing securities laws with the SEC's associated requirements and limitations. For protocols, this distinction affects fundamental decisions around token design as each classification comes with varying compliance obligations that teams must navigate throughout the token’s lifecycle.

The CLARITY Act defines criteria for a token to transition from a security to a commodity:

Digital Commodity: "A digital asset that is intrinsically linked to a blockchain system, and the value of which is derived from or is reasonably expected to be derived from the use of the blockchain system." The Act specifies this includes digital assets "used to transfer value between participants," "used to access the activities or services of the blockchain system," "used to participate in the decentralized governance system," or "used or removed from circulation in whole or in part to pay fees or otherwise verify or validate transactions.” (Section 103)

Mature Blockchain System: "A blockchain system, together with its related digital commodity, that is not controlled by any person or group of persons under common control." Key requirements include no entity having "unilateral authority to control or materially alter the functionality, operation, or rules" of the system, no entity controlling "20 percent or more of the outstanding voting power," and "no digital commodity issuer, digital commodity related person, or digital commodity affiliated person beneficially owns, in the aggregate, 20 percent or more of the total amount of units of the digital commodity." (Section 205)

Certification Process: The CLARITY Act establishes that "a digital commodity issuer, digital commodity related person, digital commodity affiliated person, decentralized governance system of the blockchain system, or a registered digital commodity exchange, or any other appropriate person as designated by the Commission, may certify to the Commission that the blockchain system to which a digital commodity relates is a mature blockchain system." The certification must include "such information that is reasonably necessary to establish that the blockchain system is not controlled by any person or group of persons under common control." The certification becomes effective after 60 days unless the Commission objects or "determines that the blockchain system is not a mature blockchain system." (Section 205)

Token design should focus on these mechanisms to meet the criteria of a mature blockchain system: Distributed Control, Functional Utility, and Open Source and Programmatic System.

Distributed Control

The CLARITY Act requires mature blockchain systems be "not controlled by any person or group of persons under common control" and establishes ownership concentration limits. No entity may have "unilateral authority to control or materially alter the functionality, operation, or rules" of the system or control "20 percent or more of the outstanding voting power." Additionally, "no digital commodity issuer, digital commodity related person, or digital commodity affiliated person beneficially owns, in the aggregate, 20 percent or more of the total amount of units of the digital commodity." Projects should design governance systems where token holders collectively control protocol decisions and implement allocation strategies that prevent excessive concentration among insiders within these limits. (Section 202, Section 205)

Projects should design governance systems where token holders collectively control protocol decisions through transparent, decentralized mechanisms, while implementing allocation strategies that prevent excessive concentration among insiders, founders, or early investors. The Act explicitly recognizes a decentralized governance system is not considered "a person or a group of persons under common control," providing regulatory clarity for genuine community-driven decision-making. With the Act's 20% aggregate ownership limit for digital commodity issuers and related persons, careful allocation planning and governance participation records help demonstrate that protocol changes stem from collective consensus rather than centralized control.

Functional Utility

The CLARITY Act requires that a digital commodity be "intrinsically linked to a blockchain system, and the value of which is derived from or is reasonably expected to be derived from the use of the blockchain system." A digital asset qualifies as intrinsically linked when it is "directly related to the functionality or operation of the blockchain system or to the activities or services for which the blockchain system is created or utilized," including where the digital asset is "used to transfer value between participants in the blockchain system," "used to access the activities or services of the blockchain system," "used to participate in the decentralized governance system of the blockchain system," "used or removed from circulation in whole or in part to pay fees or otherwise verify or validate transactions on the blockchain system," or "used as payment or incentive to participants in the blockchain system to engage in the activities of the blockchain system." Additionally, for mature blockchain systems, "the digital commodity has a value that is substantially derived from the use and functioning of the blockchain system." (Section 103, Section 205)

Tokens should function as essential components for network utility such as transaction fees, staking mechanisms, and service access. The Act requires tokens be intrinsically linked to the blockchain system and that their value derives from network use, making documentation of specific operational use cases important for demonstrating compliance.

Open Source and Programmatic System

The CLARITY Act requires that a mature blockchain system "is composed of source code that is open source" and "operates, executes, and enforces its operations and transactions based solely on pre-established, transparent rules encoded directly within the source code of the blockchain system." Additionally, the system must not "restrict or prohibit based on the exercise of unilateral authority any person, other than a digital commodity issuer, digital commodity related person, or digital commodity affiliated person from engaging in the activities the blockchain system is intended to provide." The Act also specifies that "no person or group of persons under common control possesses a unique permission or privilege with respect to functionality, operation, or rules of consensus or agreement of the blockchain system or its related digital commodity," unless such changes address "errors, regular maintenance, or cybersecurity risks" and are "adopted through the consensus or agreement of a decentralized governance system." (Section 205)

The token's underlying blockchain infrastructure must operate transparently with publicly accessible source code and automated execution based on predetermined rules. The Act requires open source code and prohibits unilateral authority over system operations, with limited exceptions for maintenance or security issues that follow decentralized governance processes.

The CLARITY Act represents a turning point for crypto regulation, establishing clear pathways for tokens to achieve compliance. The Act elevates the importance of decentralized governance as projects must demonstrate distributed control and community-driven decision-making through transparent, measurable participation. Understanding what constitutes a mature blockchain system and designing tokens accordingly positions protocols for success under the CLARITY Act.  

At Tally, we're developing the infrastructure to help teams achieve compliance in the CLARITY Act era. The world’s most valuable networks use Tally to manage the complete token lifecycle and reach maturity with speed and confidence. 

Ready to launch? Reach out at tally.xyz/contact .

Read the full CLARITY Act Bill here.