CLARITY Act & Crypto Regulation Glossary

A plain-English reference for the terms that come up most often when researching the Digital Asset Market CLARITY Act (H.R. 3633) and U.S. crypto market-structure regulation generally. Definitions below note which section of the bill a term ties to, where relevant.

Not legal, financial, tax, or investment advice. This is an independent, educational resource, not affiliated with Congress or any federal agency. For binding definitions, always consult the official bill text at congress.gov.

AML (Anti-Money Laundering)

AML refers to the laws, rules, and internal programs financial firms use to detect and prevent money laundering and terrorist financing. Under the CLARITY Act, registered digital commodity exchanges, brokers, and dealers must run AML programs as a condition of registration (Secs. 110, 404, 406).

Associated Person

An associated person is an individual affiliated with a registered digital commodity exchange, broker, or dealer — such as an officer, partner, or employee — who is subject to the same registration and compliance obligations as the firm itself under the CLARITY Act.

Blockchain

A blockchain is a distributed digital ledger that records transactions across a network of computers in a way that is difficult to alter after the fact. It is the underlying technology for digital assets like Bitcoin and Ethereum, and its degree of decentralization matters for how the CLARITY Act would classify assets built on it.

BSA (Bank Secrecy Act)

The Bank Secrecy Act is a longstanding federal law requiring financial institutions to help detect and prevent money laundering, including recordkeeping and reporting obligations. The CLARITY Act would extend BSA compliance duties to registered digital commodity exchanges, brokers, and dealers (Secs. 404, 406).

CFTC (Commodity Futures Trading Commission)

The CFTC is the federal agency that currently regulates U.S. derivatives markets (futures, swaps, and options). Under the CLARITY Act, it would gain exclusive jurisdiction over digital commodity spot markets through registered exchanges, brokers, and dealers (Sec. 401), plus new anti-fraud authority over that market. See official CFTC guidance in our Resources list.

Decentralization

Decentralization describes how much control any single person or group has over a blockchain network's operation, development, or token supply. It is the central factor in the CLARITY Act's "mature blockchain system" test (Sec. 202) — the less concentrated the control, the more likely reduced disclosure requirements apply.

DeFi (Decentralized Finance)

DeFi refers to financial services — lending, trading, exchanges — built on blockchains and run largely through software rather than traditional intermediaries. Whether DeFi software developers and front-end operators must register under the CLARITY Act is unresolved: Senate Banking and Senate Agriculture committees have circulated different draft language on the question.

Digital Asset

Digital asset is the broad umbrella term for any cryptographically secured, blockchain-based representation of value, including cryptocurrencies, tokens, and stablecoins. The bill uses this umbrella term before sorting specific digital assets into narrower categories like "digital commodity" or "permitted payment stablecoin" — see What Is the CLARITY Act for the full picture.

Digital Commodity

A digital commodity is a digital asset that the CLARITY Act would exclude from the legal definition of a "security" (Sec. 301), placing its spot-market trading primarily under CFTC oversight rather than the SEC's. Classification often turns on whether the underlying blockchain qualifies as a "mature blockchain system."

Digital Commodity Broker

A digital commodity broker is a firm or person that would be required to register with the CFTC under the CLARITY Act to arrange or execute digital commodity transactions on behalf of customers, subject to capital, custody, and AML requirements (Sec. 401).

Digital Commodity Dealer

A digital commodity dealer is a firm that would register with the CFTC under the CLARITY Act to buy and sell digital commodities for its own account as part of a regular business, distinct from an exchange (which operates a trading venue) or a broker (which acts for customers).

Digital Commodity Exchange

A digital commodity exchange is a trading venue that would register with the CFTC under the CLARITY Act to operate a marketplace for digital commodity spot trading, subject to registration, capital, and customer-fund-segregation requirements (Sec. 401).

Digital Commodity Issuer

A digital commodity issuer is the entity that originally creates and distributes a digital commodity. Under the CLARITY Act, issuers in the primary market must file disclosures about the asset and its blockchain system until that system is certified as "mature" (Sec. 202).

Howey Test

The Howey Test is the U.S. Supreme Court standard (SEC v. W.J. Howey Co., 1946) for determining whether a transaction is an "investment contract," and therefore a security: an investment of money in a common enterprise with an expectation of profit derived from the efforts of others. It remains the backdrop against which the CLARITY Act's digital-commodity carve-outs operate. See how this plays out for a specific token in our FAQ.

Investment Contract

An investment contract is a type of security under U.S. law, defined through the Howey Test. The CLARITY Act would have the SEC continue regulating investment contracts involving digital commodities, even where the underlying digital commodity itself is not treated as a security. Not sure how this applies to a specific token? Try our Token Classification Tool.

KYC (Know Your Customer)

KYC is the process financial firms use to verify a customer's identity, typically as part of broader AML compliance. Registered digital commodity exchanges, brokers, and dealers under the CLARITY Act would need KYC procedures as part of their required AML programs.

Market Structure

Market structure refers to the overall legal and regulatory framework governing how a market operates — who can participate, who regulates whom, and under what rules. The CLARITY Act is often described as the first comprehensive federal "market structure" bill for digital assets because it assigns jurisdiction rather than regulating case-by-case.

Mature Blockchain System

A mature blockchain system is a blockchain network that has met the CLARITY Act's decentralization test (Sec. 202), qualifying digital commodities built on it for reduced SEC disclosure requirements. Control is the key variable: broadly, the less any single person or group controls the network, the more likely it is treated as mature. Full detail is in our Section-by-Section Summary.

Permitted Payment Stablecoin

A permitted payment stablecoin is a stablecoin category the CLARITY Act would exclude from the legal definition of a security (Sec. 301). The SEC could oversee permitted payment stablecoins on SEC-registered platforms, but neither the SEC nor the CFTC could regulate a stablecoin issuer's operations directly under the bill.

Primary Market / Secondary Market

The primary market is where a digital asset is first issued and sold by its issuer; the secondary market is where it is subsequently traded between other parties. The CLARITY Act applies different disclosure obligations to each — primary-market issuers must file disclosures until their blockchain system is certified mature (Sec. 202).

Qualified Custodian

A qualified custodian is an entity meeting regulatory standards for safely holding customers' digital assets. The CLARITY Act would require registered digital commodity exchanges, brokers, and dealers to segregate customer funds with qualified digital-asset custodians (Secs. 110, 311).

Registration Statement

A registration statement is the formal disclosure filing an issuer or firm submits to a regulator before offering a security or operating in a regulated market. Under the CLARITY Act, digital commodity exchanges, brokers, and dealers would file for registration with the CFTC or SEC through an expedited process required within 180 days of enactment (Sec. 106).

Rulemaking

Rulemaking is the formal process federal agencies use to write binding regulations that implement a statute. The CLARITY Act sets rulemaking deadlines for the SEC and CFTC, including SEC blockchain recordkeeping rules due within 180 days (Sec. 305) and all implementing rules finalized within 360 days (Sec. 112).

SEC (Securities and Exchange Commission)

The SEC is the federal agency that regulates U.S. securities markets. Under the CLARITY Act, it would regulate investment contracts involving digital commodities, oversee permitted payment stablecoins on SEC-registered platforms, and retain general anti-fraud authority, while losing exclusive jurisdiction over qualifying digital commodities to the CFTC.

Security

A security is a regulated financial instrument — including stocks, bonds, and investment contracts — subject to SEC oversight, generally identified using the Howey Test. The CLARITY Act would exclude qualifying "digital commodities" and "permitted payment stablecoins" from this definition (Sec. 301), the bill's central regulatory mechanism.

Smart Contract

A smart contract is self-executing code deployed on a blockchain that automatically carries out predefined actions when its conditions are met, without a human intermediary. Smart contracts underpin most DeFi applications and many token issuance mechanisms discussed in CLARITY Act debates.

Token

A token is a unit of a digital asset issued and tracked on a blockchain, representing anything from a currency-like asset to access rights or ownership interests. How a specific token is classified — as a digital commodity, a security, or something else — is the practical question the CLARITY Act tries to answer.

Validator

A validator is a network participant that verifies and confirms transactions on a blockchain, often in exchange for rewards, under consensus mechanisms like proof-of-stake. The CLARITY Act generally exempts validators from SEC/CFTC registration for their validation activity specifically (Secs. 309, 409), while anti-fraud liability still applies.