The Clarity Act is the most important consumer protection effort in years

The collapse of FTX nearly four years ago made it clear that the U.S. lacked a workable regulatory regime that properly protected digital asset investors and consumers. The Clarity Act will fix this lingering gap, but we haven’t spent enough time highlighting the protections it would provide for those customers.

Consumers were hurt after the collapse of FTX because basic protections either arrived too late or were missing altogether. Many did not know where their assets were held, whether their property was held separate from the platform’s funds, or what would happen if the company failed. Regulators, bankruptcy courts, and enforcement agencies were left to sort through the wreckage, and the customers paid the price.

The Clarity Act would establish strong consumer protections in markets before crises occur. The Act would establish clear federal rules for the centralized platforms, brokers, dealers, and custodians that consumers use to buy, sell, and hold digital assets. Those rules would cover registration, supervision, disclosure, custody, segregation, market integrity, conflicts of interest, fraud prevention, and bankruptcy.

As a former financial regulator, I understand that no law can prevent every market failure or stop every bad actor. Fraud exists in every market, at every scale, but strong rules can mitigate the worst outcomes. They give regulators visibility, set obligations for companies before consumers engage with their products, and require firms to operate with basic and enforceable accountability. The bill is often described as crypto market structure legislation. That description is accurate, but it doesn’t capture the full scale. Market structure is the legal architecture that determines who must register with which agency, who supervises the market, what firms owe their customers, how assets are protected, what disclosures must be made, and what happens when something goes wrong.

Today, millions of Americans already use digital asset exchanges, brokers, dealers, and custodians. They open accounts, buy and sell assets, rely on platforms to execute transactions, and often trust intermediaries to hold their property. If those businesses are going to serve American consumers, they should operate under clear federal rules.

The Clarity Act would create those rules. Digital asset intermediaries would have to register, meet capital and risk-management standards, keep records, disclose material information to retail customers, monitor markets, address conflicts of interest, and follow conduct rules covering fraud, manipulation, marketing, supervision, and fair pricing. Those are basic safeguards in mature financial markets. They should apply here too.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.