Ryan Chan-Wei
In an earlier post, we assessed the Senate’s latest draft of the Clarity Act and singled out two provisions, in Title III and Section 404, that we believe Congress should fix. This post turns to Title I, which attempts to draw the jurisdictional lines between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Our overall read is that it is a commendable step toward greater regulatory clarity, though there are notable areas for improvement, which we highlight below.
What Title I Does
One of the defining questions in digital asset regulation has long been whether a given token falls within the jurisdiction of the SEC or CFTC. We think Title I correctly acknowledges that a token can resemble a security when it is first sold and a commodity once the project behind it has matured, such that it comes under both SEC and CFTC oversight during its lifetime. Title I does this by locating the relevant distinction in the transaction rather than in the token, meaning that the securities laws are implicated not by a token itself, but rather by the investment contract through which a token is sold (i.e., the arrangement in which investors commit capital expecting profits from the originator’s efforts). The bill defines tokens within its ambit as network tokens, which are classified as digital commodities and are distinguished by being intrinsically tied to a distributed ledger and deriving their value from the use of that network [4B(a)(7)].
For as long as a network token’s value remains dependent on the entrepreneurial or managerial efforts of its originator, the bill appropriately treats it as an ancillary asset and keeps it within the SEC’s perimeter, subject to ongoing disclosure, but only for as long as necessary. The bill then rightly ties the transition out of SEC oversight to genuine decentralization, such that once the originator’s efforts no longer drive the token’s value and the network has decentralized to the point that coordinated control no longer exists, the token sheds its designation as an ancillary asset and is regulated by the CFTC as an ordinary network token.
Policy Recommendations
Even so, three features of Title I can still be improved. First, there appears to be some definitional inconsistency. The bill treats a network token as a non-security [4B(b)(2)], but it also defines an ancillary asset as a subset of network tokens, using the criterion of whether the value of such assets depends on “the entrepreneurial or managerial efforts” of the originator or a related person [4B(a)(1)]. That is one of the classic indicia of an investment contract under the securities laws, and ancillary assets indeed fall under the SEC’s jurisdiction.
However, this gives rise to an inconsistency: ancillary assets are regulated like securities (e.g., through disclosure requirements) even though the broader category to which they belong is statutorily defined as a digital commodity rather than a security. This was pointed out in a January 2026 letter to the Senate Banking Committee from the North American Securities Administrators Association. To sidestep this problem, one potential solution might be to define ancillary assets as a distinct category from network tokens.
Second, there should be greater statutory clarity on how to determine when an ancillary asset becomes a regular network token. There are two operative questions. The first is whether the originator’s efforts still drive a token’s value, and the second is whether coordinated control still exists. Both need to be answered in the negative for a token to shift from SEC oversight to CFTC oversight [4B(a)(1), 2(4), 104(b)(5)]. However, the bill grants the SEC significant rulemaking latitude on both questions, to the extent that the SEC would have the power to effectively delineate its own regulatory perimeter [4B(d)(3)(B), 104(b)].
We believe that such fundamental questions should be answered by Congress and codified in statute, not left to the discretion of administrative agencies.
Third, there should not be a rebuttable presumption that every network token is an ancillary asset. The bill creates such a presumption and therefore places network tokens within the SEC’s purview by default, unless the originator or a digital asset intermediary certifies otherwise [4B(b)(5)]. We believe that this is wrong as a matter of principle. A presumption allocates the benefit of the doubt, and if network tokens are fundamentally non-securities according to their statutory definition, then the burden of proof should reflect that legal characterization. We recommend inverting the presumption so that the digital asset sector is freed from a baseline obligation to affirmatively prove that it can operate outside the SEC’s regulatory perimeter. Instead, the onus should be on the SEC to demonstrate that a token constitutes an ancillary asset.
Conclusion
These problems represent meaningful gaps but not deep structural flaws, so they should not be unduly difficult to address. Defining ancillary assets as their own category, codifying the test for when a token leaves the SEC’s perimeter, and inverting the presumption would each move the bill closer to the clarity it sets out to deliver. Title I already does the hard conceptual work of separating tokens from the contracts that surround them. A few more adjustments would let the Clarity Act finally live up to its name.
