Former Commodity Futures Trading Commission (CFTC) Chair Timothy Massad warned lawmakers that the Digital Asset Market Clarity Act of 2025 (Clarity Act) could create more confusion than clarity while potentially undermining decades of established securities law. In testimony before the House Financial Services Committee, Massad argued that effective digital asset legislation for market structure should follow two simple principles: “do no harm and keep it simple.”
Massad emphasized that any digital asset market structure legislation must not undermine the U.S.’s $120 trillion equity and debt markets, which he described as “the foundation of the U.S. economy and the envy of the world.” He cautioned that “legislation that rewrites the definition of a security or revises the Howey test to promote this technology can easily undermine the markets.”
Clarity Act’s fatal flaws
The former regulator identified several ways the Clarity Act violates his core principles. First, he criticized the bill’s excessive reliance on decentralization as a regulatory framework, calling it “unstable ground on which to build a regulatory framework” because it’s difficult to define and measure, can change over time, and isn’t necessarily the right metric for judging innovation.
Second, Massad argued the Act fails to address the primary regulatory gap it aims to fill. While the Act provides for regulation of “digital commodities,” its definition would likely cover only a handful of tokens, even though major exchanges like Coinbase, Kraken and Gemini list anywhere from 70 to 400 tokens. The remaining tokens would continue operating without meaningful oversight.
Third, the legislation’s length (236 pages) and complex definitions create opportunities for regulatory arbitrage. Massad warned that “many, many lawyers will spend huge amounts of time developing ways to exploit this legislation and engage in regulatory arbitrage strategies on behalf of their clients.” In his view legislation should focus on higher level principles and leave the details to others.
A simpler path forward
Instead of the Clarity Act’s approach, Massad renewed his proposal for a joint Self-Regulatory Organization (SRO) overseen by both the SEC and CFTC. This SRO would apply to “any trading platform or other intermediary transacting in bitcoin or Ether” and cover all digital asset tokens traded on those platforms.
The proposed SRO would be tightly supervised by the SEC and CFTC to avoid regulatory capture by the industry, with agencies appointing its board and approving its budget and rules. Core principles would include governance standards, customer asset protection, conflict of interest rules, and anti-fraud measures similar to existing securities and derivatives markets.
Massad argued this approach would provide comprehensive investor protection quickly by covering most spot market trading, which occurs through centralized intermediaries, while avoiding the complex definitional problems that plague the Clarity Act.
