# Plain Language Summary: Clarity for Digital Tokens Act of 2021

This bill creates a special legal pathway for cryptocurrency and digital token projects to operate without being treated as traditional securities for a limited time. Right now, most tokens are regulated like stocks and bonds, which means they have to follow strict rules about registration, disclosure, and who can buy them. This bill says that if a token project meets certain conditions, it can skip those requirements for up to three years while the project gets off the ground.

Here's what the bill actually requires: The team developing the token has to publicly disclose detailed information about how the project works, including the computer code behind it, how many tokens will exist, who's on the development team, and their timeline for making the network independent and decentralized. They also have to file paperwork with the Securities and Exchange Commission (SEC) and update their disclosures every six months. The key requirement is that the project must be working toward "network maturity"—meaning it becomes truly decentralized and not controlled by the original development team. If a development team owns more than 20 percent of the tokens or controls more than 20 percent of how the network operates, they don't qualify for this protection.

The practical effect is that cryptocurrency exchanges, brokers, and advisors who deal with these tokens won't face the same regulatory burden they would with traditional securities. This could make it easier and cheaper for new blockchain projects to launch and for people to trade these tokens. However, the bill still protects investors from fraud and requires transparency about who's involved and what they're doing with the project. After three years, if the network hasn't become truly independent, the tokens would need to register as securities like any other investment product, or trading would have to stop.

Clarity for Digital Tokens Act of 2021

McHenry, Patrick T.

Clarity for Digital Tokens Act of 2021 This bill excludes certain offerings of digital tokens (i.e., a digital representation of value or rights recorded on a publicly available ledger) from securities registrations. The exclusion from securities registration is in effect until the later of 3 years from the date of the first sale of a token or 3 years after the effective date of the bill. During this exclusionary period, the initial development team of a token must disclose every 6 months details of the network&#8212;the system of connected devices that create and validate the ledger of transactions. This includes disclosure of the source code, the transaction history, the economics of the token, the plan to achieve network maturity, prior token sales, information regarding the team, trading platforms used, and certain material transactions. On or before the end of this period, the team must report to the Securities and Exchange Commission regarding the maturity of the network. Network maturity is reached either through decentralization of the network or through network functionality, as specified by the bill. If network maturity is not reached within 3 years, the initial development team must register the tokens as a security.