An amendment to the proposed CLARITY Act has significantly expanded the U.S. Securities and Exchange Commission’s (SEC) authority to classify digital tokens, raising concerns about increased regulatory uncertainty and potential stifling of innovation, particularly impacting stablecoins.
The original CLARITY Act legislation aimed to establish a clear federal regulatory framework specifically for payment stablecoins, emphasizing consumer protection and assigning primary oversight responsibilities.
However, the amendment removes key exemptions that previously limited the SEC’s jurisdiction. This grants the SEC broader power to evaluate tokens on a case-by-case basis using the Howey Test to determine if they constitute securities.
Industry stakeholders argue this expansion of SEC authority undermines the core goal of the CLARITY Act – providing regulatory clarity. They warn it creates unpredictability and may deter innovation, potentially driving cryptocurrency projects towards jurisdictions with more favorable regulatory environments.
The SEC, under Chairman Gary Gensler, has historically relied on an enforcement-first approach utilizing the Howey Test, a standard critics contend is poorly suited for decentralized digital assets.
Concerns persist that the amended legislation could lead to heightened litigation, increased market volatility, and a potential exodus of crypto businesses from the United States due to regulatory unpredictability.