CLARITY Act Unveiled, SEC Issues Staking Guidance and 401(k) Crypto Ban Reversed

This week’s tracker covers several significant developments in crypto policy. Lawmakers released a new draft of the CLARITY Act, a market structure bill that would expand the CFTC’s role and clarify how digital assets are classified and regulated. The SEC issued a staff statement interpreting many proof-of-stake staking activities not to involve the offer or sale of securities, providing greater clarity for validators and service providers. The Department of Labor rescinded its 2022 guidance warning fiduciaries against including crypto in 401(k) plans, signaling a shift toward a more neutral approach. And the Vice President outlined the administration’s crypto policy priorities in a keynote address at the Bitcoin 2025 Conference.

Congressional Updates

CLARITY Act Unveiled: Congress Moves to Overhaul US Crypto Market Structure

• On May 29, five House Republicans and three Democrats released a draft of the CLARITY Act, long-awaited legislation to overhaul U.S. digital asset regulation. Building on the FIT21 framework passed by the House last Congress, the bill seeks to clarify federal oversight of digital assets and expand the CFTC’s authority. The draft builds on a version released May 5 by the House Financial Services and Agriculture Committees. The House Financial Services Committee is scheduled to consider the CLARITY Act during a markup on June 10.
  • Expanded CFTC Authority. The bill significantly expands the CFTC’s authority over digital asset markets by establishing a new regulatory regime for digital commodities. The CFTC would serve as the primary federal regulator for spot markets in digital commodities, overseeing the registration and supervision of digital commodity exchanges, brokers, dealers and other intermediaries.
  • Categories of Digital Assets. The bill defines two primary categories of digital assets: “digital commodities” and “investment contract assets.” Under the bill, a digital asset may be considered a digital commodity, subject to certain exclusions below. If it is sold pursuant to an investment contract, such as in a capital-raising transaction, it is also an “investment contract asset.” Over time, the token may lose its investment contract asset status.
    • Digital Commodity. A “digital commodity” is defined as a digital asset that is intrinsically linked to a blockchain system, the value of which is derived from its use. A digital asset is considered “intrinsically linked” if it is generated by the blockchain, used to transfer value between participants, used to access services on a blockchain, used to participate in governance, used to pay fees or used as an incentive for participants to engage in activities or to validate transactions. See Section 103, pp. 21-23.
    • Digital Commodity Exclusions. The term “digital commodity” excludes several types of assets, including permitted payment stablecoins, regulated derivatives, pooled investment vehicles, banking deposits and tokenized real-world assets. Most notably, it also excludes certain securities, which are divided into two categories for purposes of exclusion. First, it excludes traditional securities such as stocks and bonds. Second, even if a token falls into a category commonly associated with digital assets, such as a note, investment contract or profit-sharing agreement, it is still excluded from “digital commodity” treatment if it gives the holder an interest in the revenues, profits, assets or debts of an issuer or affiliated person (unless that interest is in a decentralized governance system). See Section 103, pp. 23–24.
    • Investment Contract Asset. A digital asset is an “investment contract asset” if it is a digital commodity that: (i) can be “exclusively possessed and transferred, person to person, without necessary reliance on an intermediary, and is recorded on a blockchain” and (ii) “is sold or otherwise transferred, or intended to be sold or transferred, pursuant to an investment contract.” In other words, the transaction, not the token, confers the status of a security on what is otherwise a digital commodity. See Section 201, p. 61.
  • Initial Classification. If a digital asset is offered for capital raising, it may be classified as an “investment contract asset” at inception; if the digital asset is air-dropped, mined or otherwise distributed for nominal consideration, referred to as an “end-user distribution,” then the digital asset may begin circulating solely as a digital commodity. See Sec. 101, p. 9.
  • Secondary Transactions. The resale of a digital commodity by a person other than the issuer, or an agent or underwriter of the issuer, is expressly deemed not to be an offer or sale of the original investment contract. This safe harbor applies even if the digital commodity was initially sold as part of an investment contract, thereby shielding secondary market transactions from securities law treatment, so long as the transaction does not involve the issuer or its controlled entities. This provision aims to provide legal certainty for peer-to-peer and exchange-based trading of digital commodities following initial issuance. See Sec. 203, pp. 80–81.
  • Exclusion for DeFi Activities. A person is generally not subject to the market structure legislation if, in relation to a decentralized finance trading protocol, it engages in any of the following activities: (i) compiling network transactions or relaying, searching, sequencing, validating or acting in a similar capacity to a contract of sale of a digital asset; (ii) providing computational work; (iii) providing a user-interface that enables a user to read and interact with a blockchain system; (iv) developing a blockchain or decentralized finance trading protocol; (v) developing or maintaining a decentralized messaging system; and (vi) developing or maintaining systems that facilitate an individual’s ability to safeguard his or her digital assets or private keys. See Sec. 409, p. 203.
  • Section 4(a)(8) Exemption for Capital Raising. The CLARITY Act would create a new exemption from registration under Section 4(a)(8) of the Securities Act for issuers conducting capital raises involving digital commodities. To rely on this exemption, (i) an issuer must be a U.S.-organized entity and not subject to disqualifying events, (ii) aggregate token sales under the exemption must not exceed $75 million over 12 months and (iii) no purchaser may acquire more than 10% of the total outstanding supply in any single offering. See Sec. 202, pp. 62-65.
  • Disclosure Requirements. An issuer relying on Section 4(a)(8) must file a detailed pre-offering disclosure, including business description, financials, distribution plan, use of proceeds, source code, transaction history, supply, consensus mechanism, governance, affiliate ownership and risks. Semiannual updates are required until the blockchain is certified as mature. See Sec. 202, pp. 65-71.
  • Test for “Mature Blockchain System.” The term “mature blockchain system” means a blockchain system with its related digital commodity that “is not controlled by any person or group of persons under common control.” See Sec. 101, p. 10. A token may cease to be subject to ongoing disclosure obligations under the 4(a)(8) exemption if the underlying blockchain system is certified as “mature.” See Sec. 202, pp. 72-74. To qualify, the system must meet specific criteria, including: that the blockchain is functional for executing transactions, accessing services, or participating in the validation or governance process; the blockchain is composed of open source code; and no single person or group (including affiliates) holds 20% or more of the token supply. See Sec. 205, pp. 97-100. The issuer may file a certification of maturity with the SEC. The SEC has 60 days to rebut or issue a stay for up to 120 days.

Executive Branch Updates

Vice President Outlines Pro-Crypto Agenda at Bitcoin 2025

• On May 28, the Vice President delivered a keynote address outlining the administration's top crypto policy priorities at the Bitcoin 2025 Conference in Las Vegas. The Vice President called for eliminating regulatory barriers to the crypto industry, highlighting the end of “Operation Chokepoint 2.0,” and emphasized the need to pass stablecoin legislation that fosters innovation while providing legal clarity. He also supported a comprehensive market structure bill to define the regulatory framework for other digital assets. The Vice President concluded by reaffirming the administration’s commitment to advancing pro-crypto policies and urged the industry to continue pushing for legislative action.

 

SEC Clarifies Staking Is Not a Securities Offering

• On May 29, the SEC’s Division of Corporation Finance issued a staff statement interpreting many proof-of-stake activities not to involve the offer or sale of securities. The guidance marks a shift toward regulatory clarity for node operators, validators, custodians and other network participants, signaling that such activities generally fall outside the SEC’s jurisdiction.
  • Type of Staking. The statement applies to “Protocol Staking” involving crypto assets used to secure and operate public, permissionless proof-of-stake networks. The SEC focused on crypto assets that are “intrinsically linked” to network consensus mechanisms and earned as rewards for validation services, not tokens with embedded profit or equity rights.
  • Three Types. The SEC considered three staking models as subject to the guidance. In all three models, stakers retain ownership or control over staked assets and staking rewards are seen as compensation for ministerial or administrative work, not profits derived from the entrepreneurial or managerial efforts of others. As such, the SEC found that these activities do not satisfy the “efforts of others” prong of the Howey test used to determine whether an investment contract exists.
    • Self (Solo) Staking. Users stake their own assets using their own nodes. In this case, a user’s expectation to receive rewards is not derived from any third party’s managerial or entrepreneurial efforts. Instead, the expected financial incentive from the protocol is payment in exchange for the services it provides to the network.
    • Self-Custodial Staking with Third Parties. Where users delegate validation rights to a third-party node operator but maintain custody of their assets and private keys, the node operator’s services to the crypto asset owner are administrative, not entrepreneurial or managerial. This type of staking “remains an administrative or ministerial activity, and the expected financial incentive is derived solely from such activity and not the success of the PoS Network or some other third party.” Additionally, the node operator does not guarantee a fixed reward to the owner.
    • Custodial Staking. A custodian stakes users’ assets on their behalf, but assets are not used for business purposes, leveraged or otherwise rehypothecated. In this situation, the custodian does not decide whether, when or how much of an owner’s crypto assets to stake. The activities are administrative or ministerial and do not involve managerial or entrepreneurial efforts. Additionally, the custodian does not guarantee a fixed reward to the owner.
  • Slashing. The statement also clarifies that related services, like slashing protection, early unbonding or bundling small stakes to meet minimum thresholds are considered non-investment contract activities as long as the service provider does not guarantee returns or actively manage the user’s investment.
  • Other Types of Staking Excluded. This statement reflects the staff’s view, not formal Commission action, and does not apply to other types of staking that use pooling, like liquid staking or restaking.

Department of Labor Withdraws Guidance Warning Against Crypto in 401(k) Plans

On May 28, the Department of Labor’s Employee Benefits Security Administration formally rescinded Compliance Assistance Release No. 2022-01, which had warned fiduciaries against offering cryptocurrency in 401(k) plans. The 2022 guidance had cautioned plan sponsors to “exercise extreme care” before adding crypto as an investment option and suggested that such decisions could violate their duties of prudence and loyalty under ERISA. By rescinding the 2022 guidance, the department affirmed a neutral stance, neither endorsing nor disapproving of plan fiduciaries who conclude that including cryptocurrency in a plan’s investment menu is appropriate.