Former CFTC Chairman Believes the 236-Page Clarity Act Creates More Ambiguity Than Clarity, Threatens Securities System and Proposes Alternative SRO Model.
Former Chairman of the Commodity Futures Trading Commission (CFTC) Timothy Massad issued a stern warning about the Digital Asset Market Clarity Act of 2025 (Clarity Act) during a hearing before the House Financial Services Committee. He argued that the act could cause more ambiguity than clarity and threaten the securities law system built over decades.
Massad argued that an effective digital asset market structure law must adhere to two simple principles: "do no harm" and "keep things simple". He emphasized that any law on digital asset market structure must not undermine the US's $120 trillion capital and debt market, which he describes as "the foundation of the American economy and the world's dream".
The former CFTC official warned that "a law rewriting the definition of securities or adjusting the Howey test to serve new technology could easily weaken the financial market." He pointed out that changing fundamental legal principles could create unforeseeable consequences for the entire financial system.
Three Serious Flaws of the Clarity Act
Massad highlighted three points where the Clarity Act violates core principles. First, he criticized the act for being overly dependent on decentralization as a regulatory framework, arguing it is "an unstable foundation for regulation" because decentralization is difficult to define, measure, can change over time, and is not necessarily an accurate measure of technological innovation.
Second, he believed the act does not address the primary legal gap it aims to handle. Although the Clarity Act mentions regulating "digital commodities", this definition likely covers only a very small number of tokens, while major exchanges like Coinbase, Kraken, and Gemini list 70 to 400 tokens. Therefore, most remaining tokens would continue to operate without significant oversight.
Third, the 236-page length and complex definition system of the bill create opportunities for legal circumvention. Massad warned: "Many lawyers will spend hours finding ways to exploit loopholes in this act and build strategies to bypass it for their clients' interests." In his view, laws should focus on high-level principles, with technical details left to regulatory enforcement agencies.
Instead of the Clarity Act's approach, Massad re-proposed a model establishing a Self-Regulatory Organization (SRO) co-supervised by the SEC and CFTC. This SRO would apply to any trading platform or intermediary conducting transactions with Bitcoin or Ether, covering all digital asset tokens traded on those platforms.
Under the proposal, the SEC and CFTC would closely supervise, appoint executive boards, approve budgets and operating rules for the SRO. Core principles would include governance standards, customer asset protection, conflict of interest regulations, and fraud prevention measures, similar to existing securities and derivative markets.
Massad believes this approach would quickly create a comprehensive investor protection mechanism, as most spot market transactions currently occur through centralized intermediaries, while avoiding the complex definitional issues in the Clarity Act.
