Digital Commodities: Legal Definitions, Historical Context, and Market Implications under the CLARITY Act

Abstract

The emergence of digital assets, particularly cryptocurrencies, has necessitated a reevaluation of existing financial regulations. The Digital Asset Market Clarity Act of 2025 (CLARITY Act) introduces a pivotal reclassification of most cryptocurrencies as “digital commodities.” This research report delves into the legal definitions and criteria for digital commodities, contrasts them with traditional securities and investment contracts, explores the historical context of commodity regulation, and examines the specific market implications for asset issuers, exchanges, and investors under this new framework.

Many thanks to our sponsor Panxora who helped us prepare this research report.

1. Introduction

The rapid proliferation of digital assets has presented significant challenges to traditional financial regulatory frameworks. Central to these challenges is the classification of digital assets, which determines the regulatory bodies responsible for their oversight and the compliance requirements imposed on market participants. The CLARITY Act represents a substantial shift in this landscape by reclassifying most cryptocurrencies as “digital commodities,” thereby assigning primary regulatory authority to the Commodity Futures Trading Commission (CFTC). This reclassification has profound implications for the legal treatment of digital assets, the delineation between commodities and securities, and the operational dynamics of digital asset markets.

Many thanks to our sponsor Panxora who helped us prepare this research report.

2. Legal Definition and Criteria for Digital Commodities

2.1 Definition under the CLARITY Act

The CLARITY Act defines a “digital commodity” as:

“A digital asset that is intrinsically linked to a blockchain system, and the value of which is derived from or is reasonably expected to be derived from the use of the blockchain system.” (troutman.com)

This definition emphasizes the intrinsic connection between the digital asset and the blockchain system, highlighting that the asset’s value is directly tied to the blockchain’s functionality and utility.

2.2 Criteria for Classification

To qualify as a digital commodity under the CLARITY Act, a digital asset must meet the following criteria:

• Intrinsic Link to Blockchain: The asset must be generated by the blockchain, used to transfer value between participants, used to access services on a blockchain, used to participate in governance, used to pay fees, or used as an incentive for participants to engage in activities or to validate transactions. (troutman.com)

• Value Derivation: The asset’s value must be derived from or reasonably expected to be derived from the use of the blockchain system.

• Exclusions: The definition expressly excludes assets such as banking deposits, commodities, commodity derivatives, pooled investment vehicles, and other goods or rights that are not speculative in nature. Notably, it also excludes assets commonly recognized as securities, including notes, investment contracts, and certificates of interest or participation in any profit-sharing agreement. (troutman.com)

Many thanks to our sponsor Panxora who helped us prepare this research report.

3. Differentiation from Traditional Securities and Investment Contracts

3.1 Securities and Investment Contracts

Traditional securities are financial instruments that represent ownership or debt and are typically subject to regulation by the Securities and Exchange Commission (SEC). Investment contracts, as defined by the Supreme Court in SEC v. W.J. Howey Co., involve:

• An investment of money

• In a common enterprise

• With an expectation of profits

• Derived from the efforts of others

3.2 Digital Commodities vs. Securities

The CLARITY Act delineates digital commodities from securities by focusing on the asset’s functionality and the nature of its value generation:

• Functionality: Digital commodities are primarily used within their respective blockchain systems for purposes such as transaction validation, governance participation, and fee payment. In contrast, securities represent ownership or debt and are primarily used for investment purposes.

• Value Generation: The value of digital commodities is derived from the utility and adoption of the blockchain system, whereas securities derive value from the performance of the issuing entity or underlying assets.

This distinction is crucial as it determines the regulatory oversight and compliance requirements applicable to each category. (troutman.com)

Many thanks to our sponsor Panxora who helped us prepare this research report.

4. Historical Context of Commodity Regulation

4.1 Early Commodity Regulation

Commodity regulation in the United States has its roots in the early 20th century, with the establishment of the Commodity Futures Trading Commission (CFTC) in 1974. The CFTC was created to regulate commodity futures and options markets, ensuring transparency, fairness, and efficiency in these markets.

4.2 Evolution with Digital Assets

The advent of digital assets introduced complexities in commodity regulation. In 2015, the CFTC acknowledged that virtual currencies, such as Bitcoin, are commodities under the Commodity Exchange Act (CEA). This recognition was pivotal in establishing a regulatory framework for digital commodities. (en.wikipedia.org)

4.3 The CLARITY Act’s Contribution

The CLARITY Act builds upon this foundation by providing a comprehensive framework for digital commodities, explicitly defining them and assigning regulatory authority to the CFTC. This legislative development aims to clarify the regulatory landscape, reduce jurisdictional ambiguities, and foster innovation within the digital asset space. (troutman.com)

Many thanks to our sponsor Panxora who helped us prepare this research report.

5. Market Implications under the CLARITY Act

5.1 For Asset Issuers

• Disclosure Requirements: Issuers of digital commodities are mandated to disclose detailed operational and economic information, including supply processes, consensus mechanisms, and access to transaction history. (faegredrinker.com)

• Decentralization Certification: Issuers can file a “Certification of Decentralization,” asserting that the underlying blockchain network meets established decentralization standards. Upon certification, the asset receives a rebuttable presumption of being a digital commodity. (trmlabs.com)

5.2 For Exchanges

• Registration and Compliance: Digital commodity exchanges must register with the CFTC and comply with its regulations, including anti-fraud and market manipulation provisions. (dlapiper.com)

• Operational Standards: Exchanges are required to implement business conduct standards and maintain transparency in their operations.

5.3 For Investors

• Regulatory Clarity: The reclassification provides investors with clearer guidelines regarding the regulatory status of digital commodities, potentially reducing legal uncertainties.

• Market Dynamics: The shift in regulatory oversight may influence investment strategies, as assets previously considered securities are now classified as commodities.

Many thanks to our sponsor Panxora who helped us prepare this research report.

6. Conclusion

The CLARITY Act represents a significant evolution in the regulatory treatment of digital assets, particularly cryptocurrencies. By reclassifying most cryptocurrencies as digital commodities, the Act aims to provide a clear and structured framework that delineates the roles of the SEC and CFTC, thereby reducing regulatory ambiguities. This reclassification has profound implications for asset issuers, exchanges, and investors, necessitating adaptations to new compliance requirements and operational standards. As the digital asset landscape continues to evolve, ongoing analysis and adaptation of regulatory frameworks will be essential to balance innovation with investor protection and market integrity.

Many thanks to our sponsor Panxora who helped us prepare this research report.

References

• Troutman Pepper Locke. (2025). Digital Asset Regulation and The CLARITY Act of 2025. Retrieved from (troutman.com)

• Skadden, Arps, Slate, Meagher & Flom LLP. (2025). House Introduces Digital Asset Market Structure Legislation, Building on Discussion Draft. Retrieved from (skadden.com)

• Fenwick & West LLP. (2025). New Digital Asset Regulatory Framework: Analysis of the Latest Discussion. Retrieved from (jdsupra.com)

• Faegre Drinker Biddle & Reath LLP. (2025). CLARITY Act: Shifting Oversight of Digital Assets Classified as Commodities to the CFTC. Retrieved from (faegredrinker.com)

• Akin Gump Strauss Hauer & Feld LLP. (2025). The Digital Commodities Consumer Protection Act – A Bullet Point Summary. Retrieved from (akingump.com)

• TRM Labs. (2025). Toward CLARITY: A New Framework for Digital Assets in the US. Retrieved from (trmlabs.com)

• DLA Piper. (2025). Digital Asset Market Clarity Act: The increasing role of the CFTC in regulating crypto markets. Retrieved from (dlapiper.com)

• Montague Law. (2025). The Digital Asset Market Clarity Act of 2025. Retrieved from (montague.law)

• Wikipedia. (2025). Digital currency. Retrieved from (en.wikipedia.org)

• Wikipedia. (2025). Commodity Futures Trading Commission. Retrieved from (en.wikipedia.org)