HOUSE FINANCIAL SERVICES COMMITTEE
SUBCOMMITTEE FIELD HEARING
For questions on the note below, please contact the Delta Strategy Group team.
On July 17, the House Committee on Financial Services Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence held a hearing entitled “Building the Future of Finance: How the CLARITY Act Unlocks Innovation.” The witnesses in the hearing were:
- Sarah Aberg, Chief Legal Officer, Nova Labs Inc.
- Randi Abernethy, Head of Clearing and Group Risk, Bullish
- Ryan Louvar, Chief Legal Officer, WisdomTree
- Jason Somensatto, Director of Policy, Coin Center
Below is a summary of the hearing prepared by Delta Strategy Group, which includes several high-level takeaways, followed by summaries of opening statements and discussion.
KEY TAKEAWAYS
Importance of the CLARITY Act & Market Structure
- Chairman Hill (R-AR) and Subcommittee Chairman Steil (R-WI) framed the Digital Asset Market Clarity (CLARITY) Act alongside the Guiding and Establishing Innovation for U.S. Stablecoins (GENIUS) Act as the culmination of nearly a decade of Congressional work and urged the Senate to pass the legislation.
- Louvar and Aberg said statutory certainty is necessary because agency guidance alone cannot provide durable rules for long-term investment.
- Somensatto and Abernethy discussed how clear rules would allow capital, talent, and firms that have structured operations abroad to return to the U.S.
SEC/CFTC Jurisdiction & Regulatory Framework
- Abernethy said a consistent federal framework would be a consumer protection benefit relative to the current state by state patchwork and would bring liquidity onshore.
- Abernethy said the CLARITY Act’s provision shoring up the Securities and Exchange Commission (SEC) authority over digital commodities supports a form of dual registration between the SEC and the Commodity Futures Trading Commission (CFTC).
- Somensatto said the CLARITY Act’s core function is defining which entities fall within the regulatory perimeter and empowering regulators to oversee them.
- Louvar said continuing uncertainty over whether a digital asset falls under SEC or CFTC jurisdiction has historically created an operational and compliance burden.
Digital Asset & Blockchain Use Cases
- Representative Timmons (R-SC) and Somensatto discussed blockchain’s potential to counter authoritarian information and capital control given its decentralized nature.
- Aberg, Louvar, and Somensatto highlighted blockchain technology’s practical applications beyond digital asset trading, including communications infrastructure, payments, peer-to-peer transactions, and tokenized financial markets.
Tokenization & Modernization of Financial Markets
- Louvar said Section 505 of the CLARITY Act appropriately preserves the principle that a tokenized security remains the security it represents while modernizing operational mechanics.
- Louvar noted trading volumes have increased since the GENIUS Act’s passage, with stablecoin issuers using the tokenized money market fund as an instantly liquid reserve asset.
- Louvar said tokenization modernizes financial infrastructure by enabling faster settlement, direct wallet-to-wallet transfers, and greater investor control while preserving the principle that tokenized securities remain subject to existing securities laws.
DeFi & Developer Protections
- Somensatto said developers who write and publish open-source code enabling peer-to-peer transactions are not money transmitters, distinct from those who take custody of customer funds.
Exchange Structure & Affiliate Trading
- Abernethy described how Bullish was built under foreign regulatory regimes due to the historical absence of a U.S. federal framework.
- Abernethy defended the CLARITY Act’s approach of permitting affiliate trading subject to guardrails, outlining how FTX’s collapse resulted from unregulated offshore misappropriation of customer assets rather than affiliate trading itself.
Consumer Protection & Market Integrity
- Multiple witnesses stated regulatory clarity, and consistent investor protection standards would strengthen consumer protection while allowing digital assets to operate under the same anti-fraud and disclosure principles as traditional markets.
- Somensatto said the CLARITY Act pairs clear entity definitions with existing Bank Secrecy Act (BSA) obligations, preserving anti-money laundering (AML) requirements for newly defined intermediaries.
- Abernethy described digital assets as another tradable asset class, distinguished mainly by technology that enables more frequent margining and more flexible collateral use than current rules contemplate.
OPENING STATEMENTS
Committee Chairman Hill (R-AR)
Our leadership in finance and technology depends on clear, predictable rules. If we want to have the ultimate success in our economy and see the transition of traditional finance on an analog basis to a distributed ledger, blockchain basis, the country has to have the rules to make the U.S. the center of that digital ecosystem in the world.
Subcommittee Chairman Steil (R-WI)
Our goal is clear: replace regulation by enforcement with clear rules of the road for digital assets. For 250 years, America has led the world in financial innovation.
Sarah Aberg, Nova Labs
Clarity is not a call for deregulation, it is a call for the right regulation, from the right regulator, under rules that market participants can understand and follow. It distinguishes between digital assets that function as securities and digital commodities that power operational networks, and it assigns oversight accordingly between the SEC and CFTC.
Randi Abernethy, Bullish
Regulatory clarity is not a favor to industry. It is how Congress brings this activity onshore under American regulators, with American investor protections. The failures that hurt investors happened offshore, beyond the reach of any U.S. regulator. Under this framework, registered exchanges would live under the disciplines that have protected investors for generations, segregated customer assets, capital requirements, surveillance, and federal examination. Affiliate trading is not a novel feature of crypto. Futures exchanges clear through affiliated clearing houses. Clearing houses trade for their own account to manage default and correct errors. Exchanges rely on affiliates to provide liquidity in new markets until independent market makers arrive. The SEC expressly permits a broker-dealer running an alternative trading system (ATS) to trade on its own platform. If a ban were necessary to protect investors, our securities and futures markets would not be built the way they are. These structures are safe because they come with guardrails that work, strict segregation of customer assets, conflict of interest management, disclosure, and anti-manipulation enforcement. The CLARITY Act applies that same proven architecture to digital assets. FTX did not fail because affiliates traded on it. FTX was an unregulated, offshore exchange whose affiliate misappropriated customer assets, deploying them largely on other unaffiliated venues. A trading ban would not have stopped that. Every element of that conduct was already illegal for registered firms. The one piece of FTX that survived was its CFTC-regulated exchange and clearing house, precisely because it was under federal supervision
Ryan Louvar, WisdomTree
The CLARITY Act matters because it can provide the market structure certainty around asset classification and SEC and CFTC jurisdiction, with broader modernization provisions needed for responsible tokenization and blockchain-based infrastructure to scale in the U.S. Section 505 is particularly important because it preserves the principle that a tokenized security should remain the security it represents. It fosters the proposition that regulators should be able to modernize how operational requirements apply to blockchain-based infrastructure. Tokenization is often described as a new asset class, but it is better understood as a new set of rails for owning, transferring, and settling financial products. What changes is the infrastructure through which the asset can be held and moved. Exchange-traded funds (ETFs) did not invent stocks or bonds, they gave investors greater transparency and access to those asset classes at lower cost. Tokenization can do something similar and potentially more compelling by modernizing the speed and flexibility of financial infrastructure while preserving investor protections. For most Americans, the focus is not really about blockchain but realizing the benefits that may come from it. The GENIUS Act has shown that clear Congressional rules can bring serious institutions off the sidelines. CLARITY can do the same at far greater scale for the broader digital asset market, and that matters for U.S. leadership.
Jason Somensatto, Coin Center
Blockchain networks are not merely a new way to trade assets. At their best, they are open computing networks that allow individuals to hold and transfer value without depending on a bank, exchange, payment processor, or other centralized intermediary. They give individuals the freedom to transact in a peer-to-peer fashion without being censored or unnecessarily surveilled. If Congress creates clear rules for centralized cryptocurrency businesses but leaves developers exposed to open ended liability for building non-custodial software, then the legislation will have protected part of the market while undermining the technology that makes that market possible. The CLARITY Act includes protections designed to ensure that software developers and infrastructure providers are not required to register with the SEC or CFTC simply because they write code, publish software, validate transactions, or otherwise support the functioning of a blockchain network, without taking control of customer assets or acting in a trusted capacity as a traditional intermediary. CLARITY protects developers through the Blockchain Regulatory Certainty Act (BRCA). CLARITY creates new categories for businesses operating in the digital commodity markets and imposes stringent regulations on those newly defined intermediaries.
DISCUSSION
Importance of the CLARITY Act & Market Structure
Chairman Hill (R-AR): How important is it to have CLARITY signed into law for regulatory legal certainty? Louvar: The current SEC staff has been innovative and forward-thinking, the exact opposite of the prior SEC, but durable rules embedded in what Congress approves matter because they carry from administration to administration rather than depending on which agency leadership happens to be in place.
Chairman Hill: Would you agree that absent codified rules, compliance becomes guesswork, and that legislation is the only way to prevent a future SEC chair from reversing course? Aberg: A regulatory environment that changes with the election cycle is not sustainable or durable, and does not support long-term infrastructure projects; legislation is the only way to prevent a future SEC chair from simply changing his mind and reversing the guidance currently in place.
Representative Timmons (R-SC), Stutzman (R-IN), and Meuser (R-PA): What is the cost of waiting to pass the CLARITY Act? How would enactment encourage firms, investment, and talent to remain in or return to the U.S.? What would happen if Congress does not act? Abernethy: Getting this right brings liquidity, capital, and innovation back onshore. Failing to do so will continue pushing activity abroad; Somensatto: Many firms have structured operations outside the U.S. because of regulatory uncertainty, and clear rules would encourage development and investment to return; Louvar: Passage would help ensure the U.S. remains the leading center for capital markets innovation; Aberg: Failure to enact the CLARITY Act risks the U.S. losing its leadership role and becoming reactive to foreign regulatory frameworks.
SEC/CFTC Jurisdiction & Regulatory Framework
Subcommittee Chairman Steil (R-WI): How will clear definitions of digital asset intermediary roles impact crypto exchanges, and how will providing these frameworks at the federal level enable greater consumer protection compared to the current patchwork of state regulatory regimes? Abernethy: Clarity over roles and responsibilities allows firms to know the rules of the road, and a federal framework’s consistency across all states is one of its biggest investor protections, bringing liquidity onshore and allowing the market to grow with proper protections in place.
Subcommittee Chairman Steil: Why is it important that the CLARITY Act shore up SEC authority over digital commodities sold as part of an investment contract and allow SEC-registered entities to offer digital commodities on their platforms? Abernethy: This provision supports a form of dual registration between the SEC and CFTC. The memorandum of understanding (MOU) between the two agencies and related interpretive guidance are evidence the agencies are actively working to harmonize overlapping jurisdiction and portfolio margining is an area where coordination could improve risk management and unlock capital and liquidity.
Representative Timmons (R-SC): How does CLARITY establish a clear regulatory framework that promotes innovation while strengthening market integrity? Somensatto: The key is defining which entities fall within the regulatory perimeter and then empowering regulators to actually oversee them. The industry has operated for a decade with unclear, unwritten rules and evolving interpretations between regulators, and CLARITY’s clear lines give guidance to both regulators and market participants.
Representative Meuser (R-PA): Does today’s uncertainty over whether a digital asset falls under the SEC’s or CFTC’s jurisdiction create an operational or compliance burden? Louvar: It has historically.
Digital Asset & Blockchain Use Cases
Subcommittee Chairman Steil and Representative Moore (R-NC): Why should a regulatory framework recognize decentralized networks differently from centralized networks? If the CLARITY Act is enacted, where do you see blockchain technology and digital assets in five, ten, and twenty years? Somensatto: Blockchain’s innovation is enabling peer-to-peer transactions without centralized intermediaries, and regulation should focus on regulated activities rather than the technology itself; Louvar: Blockchain’s potential is comparable to the ETF industry’s growth and said the CLARITY Act would provide the certainty needed for long-term digital asset market development.
Tokenization & Modernization of Financial Markets
Subcommittee Chairman Steil and Chairman Hill: What roadblocks remain to tokenization? What value does twenty-four hour settlement provide, and how does the CLARITY Act help modernize financial market infrastructure? Louvar: Nearly eight years of regulatory uncertainty delayed tokenization in the U.S. while products launched successfully abroad. Section 505 preserves the principle that a tokenized security remains the underlying security while modernizing operational requirements. Trading volumes have increased since the GENIUS Act’s passage, with investors increasingly expecting around-the-clock settlement.
Representatives Haridopolos (R-FL), Meuser, and Moore: How does tokenization improve transfers and investor access? How does the CLARITY Act support broader participation by investors and financial institutions? Louvar: Tokenization enables direct wallet-to-wallet transfers, faster settlement, greater investor control, and more efficient financial infrastructure while allowing traditional financial institutions and fintech firms to compete under consistent regulatory standards.
DeFi & Developer Protections
Representatives Haridopolos and Moore: How does the CLARITY Act distinguish software developers from regulated financial intermediaries? What happens to decentralized finance without these protections? What lessons should Congress learn from other jurisdictions, and why is it important to preserve decentralized finance’s ability to innovate? Somensatto: Developers who publish open-source software without taking custody of customer assets should not be treated as money transmitters or regulated intermediaries. The legislation preserves innovation while existing criminal laws and AML requirements continue to apply where appropriate.
Exchange Structure & Affiliate Trading
Subcommittee Chairman Steil: Why is permitting affiliate activity subject to guardrails the right approach? Abernethy: Affiliate trading is common and often necessary in the futures and securities markets this legislation uses as its model, futures exchanges clear through affiliated clearing houses, clearing houses trade for their own account to manage default, and exchanges rely on affiliates to provide liquidity in new markets. These structures are made safe through guardrails including strict segregation of customer assets, conflict of interest management, disclosure, and anti-manipulation enforcement. FTX did not fail because affiliates traded on it; it failed because an unregulated, offshore affiliate misappropriated customer assets, conduct already illegal for registered firms, and a trading ban would not have prevented it.
Chairman Hill: Can you walk through the migration of traditional finance intermediated settlement activities toward a decentralized blockchain approach, and how will a blockchain registered exchange comply with Consolidated Audit Trail (CAT) obligations to show that lit market? Abernethy: Bullish operates on a centralized basis rather than moving into decentralized infrastructure, and has pending CFTC applications for centralized futures exchange, clearing house, and intermediary registration. Bullish acquired Equiniti to combine tokenized securities issuance and registry infrastructure with the firm’s existing blockchain and trading platform, covering the full lifecycle from issuance and registry through trading.
Representative Stutzman (R-IN): Why did Bullish have to develop abroad before coming to the U.S.? Abernethy: When the exchange launched in 2021, very few regulatory jurisdictions had a framework that included proper investor protections in place, and Gibraltar was one of the few that did at the time.
Consumer Protection & Market Integrity
Representative Timmons: How does the CLARITY Act encourage responsible innovation while safeguarding against illicit finance, market manipulation, and operational risks? Somensatto: CLARITY establishes clear regulatory categories while preserving BSA obligations and existing AML requirements.
Representatives Meuser and Haridopolos: How would the CLARITY Act better protect consumers from digital asset scams? How should everyday Americans think about digital assets? Aberg: Codified rules would replace regulatory uncertainty with predictable compliance obligations benefiting companies, investors, and counterparties; Abernethy: Investor protections should apply equally to traditional securities, tokenized assets, and digital assets, and digital assets should be viewed as another tradable asset class supported by more efficient technology.