The Clarity Act: What It Means for Developers | Lindsay Fraser (Blockchain Association) at ETHConf

Hello everyone. Thank you very much for being here today. So, I'm Lindsay Fraser. I manage policy at the Blockchain Association. We are a non-profit organization that advocates for the digital asset industry in Washington, DC.

You can see a list of our members on the screen . We have over a hundred different a hundred different member companies that are creating the most innovative technologies in the blockchain field. And I can't think of a better time to discuss the Clarity Act's market structure and what it means for developers. Yesterday, the Blockchain Association brought over 30 of our our member companies to Washington. And in one day, we met with 52 different Senate offices.

So if I look a little tired, it's because yesterday was a very long day, but also a very important one. And now active negotiations and updates are underway. So, this is a great time to chat a little bit about how the market structure will affect developers here in the United States. And to start with, the Clarity Act, um, aims to address at a high level what exactly the Clarity Act aims to do . Hmm, that's the current name for the market structure legislation currently before the U.

S. Senate. Hmm, this isn't the first time the US has considered legislation on market structure. Previous iterations have been in place since 2020. Hmm, so the Clarity Act is actually the result of years of bipartisan effort to advance a bill that could provide clarity for the digital asset industry.

Hmm, and this iteration is very aptly called the law of clarity, and essentially what it does falls into three categories. Hmm, so first the classification of tokens the classification of tokens , trading and marking, and market rules. Hmm, as I'm sure the people in this audience experienced, and we'll all never forget, the Gary Handler era in the SEC Gary Handler era in the SEC ; but, um, the lack of clear rules on, for example, token classification has made it almost impossible for people to build in the US, and that's kind of the first step towards what this market structure bill does. It also provides requirements for various digital asset intermediaries, outlining their registration requirements with both the SEC and CFTC, as well as various consumer protection measures that we see in traditional financial institutions financial institutions . And the last thing I would say is rules or protections for developers.

And it outlines which software developers and activities are regulated and which are not. Hmm, for me, as mentioned earlier, I was in charge of policy at the UNISOP labs. Hmm, and you know, protecting DeFi developers and infrastructure has always been incredibly important to me. And this is now the essence of the debate taking place in Washington. So I'll dedicate the rest of this conversation to figuring out exactly what that looks like.

Hmm, at a high level, why clarity is important for developers. I'm sure many of you have encountered this firsthand . But for years, developers have lacked clear answers to fundamental questions, including whether publishing code is a regulated activity, even if it's not related to concealment and control. Is front-end management a regulated activity? Hmm, this is participation in activities regulated by management.

These are all incredibly important questions that still don't have clear answers. And because of this, we are seeing the percentage of blockchain developers decrease significantly over the last 5 years due to the regulatory environment that we saw under the previous administration. The goal of the Clarity Act is to bring this back to land and make the U.S. the best place to create innovative technology.

So it's clear that the result of this lack of clarity and, as you know, the SEC's regulatory strategy has been a migration overseas, a reduction in investment simply because investors are unsure of what the future of blockchain technology will be here in the United States, and then a delay in innovation. We see some of the most advanced applications of this technology being moved overseas solely because people don't understand what the rules are here and would like to have legal certainty so that they are not subject to potential criminal violations for what they are creating. And so the goal of the market structure legislation that's now going through the Senate is to draw a clear line between creating software and operating as a financial intermediary, which probably sounds simple to everyone in this room. But, um, it's not that easy to do with people who are new to this technology, um, and trying to legislate based on, you know, something that they're still learning. So I'll give you a quick rundown of where we are in this process.

Hmm, last June we saw the bill pass through the House Financial Services Committee and the House Agriculture Committee , and then it moved to the floor for a full House vote . Hmm, we had an overwhelming bipartisan result with 294 members voting yes, including 78 Democrats. Hmm, then from July to January the Senate started working on its version of the market structure. Much was taken from the House bill that passed last summer, but there are also many new additions. Hmm, we saw the advertising committee go first.

And if you're wondering why the advertising committee has a say in crypto politics, it's because of its ties to commodities and the Commodities Trading Commission. And so, the Attorney General introduced his part of the bill in January, and voted against it, and the committee voted 12 to 11 along party lines. And then, about 3 weeks ago, we saw the Senate vote in committee on its portion of the market structure bill. We saw two Democratic senators vote in favor, which resulted in a bipartisan outcome, which was truly remarkable. And now we are trying to advance these two bills.

First we need to put them together, and then we need to put them to a vote in the Senate. And a quick note on Senate procedures: to bypass a filibuster, you need 60 votes for a bill to be brought up for consideration. So this is kind of a magic number–these 60 votes. And as I'm sure people in this audience also know, we have an election in November, a midterm election. I think the closer we get to the election, the more difficult it is to bring, you know, complex legislation up for a vote by the members.

So, we really have a very important period of time over the next month or so to push this bill forward, but most importantly, to push it forward so that it is considered with very strong developer protections developer protections . And so I'm going to quickly review at a high level three key provisions related to developer protection. The last thing I'll talk about is what's garnering the most public attention right now. And here, in my opinion, the input and support of people from the audience can be useful. But to begin, I'll start with Section 601 in the banking version of the Senate bill Senate bill .

So, essentially, it clarifies at a high level both the Securities Act 33 and the Exchange Act 34 to establish clear protections for developers and infrastructure providers from being classified as a securities registrar . Obviously, what we've seen over the last five years are various reports from the SEC that have claimed that even in the DeFi world, people are running unlicensed exchanges. This is what needs to be fixed. Um, this clarifies that developers who do not hold or control user funds are not financial intermediaries and should not be regulated as such. Thus, they do not need to register as an exchange, as a broker, as a dealer.

That's what Section 601 does. And it creates this functional legislative protection for developers, while also preserving the SEC's authority over the true intermediaries. Then we have Section 207 in the portion of the bill that deals with agriculture. It's almost the same thing, but simply adapted to the law on commodity exchanges. Again, it concerns those activities that are protected and do not have to be registered and do not represent any type of intermediation.

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