REPLACING HOWEY WITH CLARITY: RESOLVING SECURITIES REGULATION’S TEMPORAL PARADOX Seth C. Oranburg1 ABSTRACT Blockchain-based assets can trans --- orm their legal status as they mature through decentralization, evolving --- rom securities to commodity-like instruments as control disperses. The Supreme Court’s 1946 Howey test leaves ambiguous whether securities regulations governs assets or transactions and provides no --- ramework --- or assets whose legal classi --- ication evolves over time. This gap, termed here the “Temporal Paradox,” has generated judicial --- ragmentation and driven digital asset development outside the United States. The Digital Market Asset CLARITY Act o --- 2025 resolves this paradox through institutional design that structures regulation around asset li --- ecycle phases. The Act establishes a new regulatory --- ramework by de --- ining assets whose value --- lows --- rom network autonomy rather than promoter action as a distinct statutory category. The Act regulates capital-raising through a conditional exemption requiring detailed disclosure and development roadmap, and removes assets --- rom SEC jurisdiction upon demonstrating autonomous operation and dispersed control. CLARITY trades Howey’s doctrinal ambiguity --- or technical ambiguity: courts must now consistently interpret whether networks have achieved autonomous operation and eliminated concentrated control across diverse architectures. This represents a structural shi --- t --- rom subjective legal doctrine to objective technical criteria. However, it introduces a new institutional requirement. I --- courts diverge in interpreting these technical standards, they risk replicating in the technical domain the very --- ragmentation the Act seeks to eliminate. The Act’s success there --- ore depends on whether courts develop su --- --- icient technical interpretive capacity to apply these standards consistently. This institutional capacity, rather than statutory design, emerges as the limiting --- actor in the Act’s implementation. 1 Pro --- essor o --- Law, University o --- New Hampshire Franklin Pierce School o --- Law; Director, Program on Organizations, Business and Markets at NYU Law’s Classical Liberal Institute; JD, University o --- Chicago; BA, University o --- Florida. TABLE OF CONTENTS I. INTRODUCTION................................................................................... 4 II. THE TEMPORAL PARADOX ................................................................ 8 A. What Is the Temporal Paradox? ............................................................. 9 B. The Failure o --- Fixed Classi --- ication....................................................... 12 C. The Resulting Fragmentation ................................................................ 15 III. CLARITY’S OBJECTIVE-MEASUREMENT LOGIC .......................... 17 A. Doctrinal Fragmentation and the Token-Transaction Paradox............. 19 1. The Ripple Bi --- urcation and Secondary Market Indeterminacy ...................... 19 2. Judicial Fragmentation Across Circuits and Assets ....................................... 21 B. Regulatory Oscillation and Administrative Capture ............................. 22 1. The Hinman Era: Recognition o --- Temporal Trans --- ormation (2018) ............. 22 2. The Gensler Era: Rejection o --- Temporal Distinctions (2021-2024) .............. 23 3. The Post-Gensler Reversal: Administrative Oscillation and Loss o --- Credibility (2025) ................................................................................................................. 24 4. Administrative Discretion and Policy Capture ............................................... 25 5. Why Prior Solutions Failed: The Impracticability o --- Guidance-Based Resolution........................................................................................................... 26 C. The Convergence Problem.................................................................... 27 1. The Dual Institutional Failure ........................................................................ 27 2. The Post-Loper Bright Stalemate ................................................................... 28 3. Legislative Necessity ...................................................................................... 29 D. CLARITY’s Pivot to Objective Measurement ..................................... 30 1. The Paradigm Shi --- t: From Functional to Operational .................................... 30 2. Institutional Design and Risk Trans --- ormation ............................................... 31 IV. CLARITY’S POLYCHRONIC IMPLEMENTATION SCHEMA .............. 32 A. Exclusionary De --- initions as Statutory Sidestep.................................... 33 B. The Entry Phase: Initial Coin O --- --- erings and Securities Regulation ..... 35 1. Exemption Conditions .................................................................................... 36 2. Disclosure Requirements ................................................................................ 37 3. Insider Identi --- ication and Ongoing Reporting ................................................ 38 4. Temporal Discipline ....................................................................................... 39 -2- C. The Transition Phase: Maturity Determination and Certi --- ication ........ 39 1. Maturity Certi --- ication Mechanism ................................................................. 39 2. SEC Review and Automatic Approval ........................................................... 40 3. De Novo Appellate Review ............................................................................ 41 4. SEC Discretionary Constraints ....................................................................... 42 5. The Statutory Maturity Criteria ...................................................................... 42 6. Conjunctive Application o --- Maturity Criteria ................................................ 45 D. The Maturity Phase: CFTC Jurisdiction and Commodity Regulation.. 46 1. Secondary Market Treatment and Agent De --- inition ...................................... 46 2. Insider Trading Restrictions in Transition and Maturity ................................ 47 3. CFTC Commodity Regulation Framework .................................................... 47 E. SEC-CFTC Jurisdictional Coordination and Institutional Redesign .... 48 F. SEC-CFTC Joint Rulemaking Authority and Constraints .................... 50 1. Rulemaking Substantive Questions ................................................................ 51 2. SEC-CFTC Rulemaking Constraints.............................................................. 51 3. Limitation Principle on SEC Discretion ......................................................... 51 G. Temporal Architecture and Institutional Discipline ............................. 52 1. Entry Phase Temporal Binding ...................................................................... 52 2. Automatic Transition Phase Approval ........................................................... 53 3. Binary Maturity Transition ............................................................................. 53 4. Addressing Institutional Pathologies .............................................................. 54 5. Implementation Dependency .......................................................................... 54 H. State Securities Law Pre-emption......................................................... 55 V. FROM DESIGN TO DELIVERY: ENTRY DEFAULTS AND INSTITUTIONAL CAPACITY ........................................................................................... 55 A. Entry at the Edge: Five Narrow De --- aults ............................................. 56 B. Institutional Coordination and Appellate Capacity............................... 59 C. Federalism, Technology, and Regulatory Gaming ............................... 61 D. Synthesis and Forward.......................................................................... 63 CONCLUSION ....................................................................................... 64 -3- Replacing Howey with CLARITY [2025-11-05 I. INTRODUCTION The Supreme Court’s 1946 decision in SEC v. W.J. Howey Co. established a --- lexible principle intended to adapt to “countless and variable schemes devised by those who seek the use o --- the money o --- others on the promise o --- pro --- its.”2 This --- lexibility, however, has proven --- atal when applied to blockchain-based digital assets. Blockchain technology creates assets that can trans --- orm their legal status through progressive decentralization, moving --- rom centrally controlled o --- --- erings resembling securities to commodity-like instruments governed by autonomous code. 3 The Howey test assumes asset classi --- ication is --- ixed and permanent. 4 It provides no --- ramework --- or assets whose legal classi --- ication evolves over time. This structural mismatch generates what this Article terms the Temporal Paradox. The result is institutional --- ailure and widespread judicial --- ragmentation. In SEC v. Ripple Labs, Inc., Judge Analisa Torres classi --- ied the same token (XRP) di --- --- erently based on transaction context. 5 Institutional sales to accredited investors under written contracts were securities. 6 Programmatic sales to retail buyers on digital asset exchanges were not. 7 The court held that what changed was whether purchasers could “reasonably expect” Ripple would “use the capital received --- rom its sales to improve the XRP ecosystem.”8 One year earlier, Judge Paul Barbadoro reached the opposite conclusion in SEC v. LBRY, Inc.9 Analyzing --- unctionally similar tokens (LBRY Credits), Judge Barbadoro held that “all o --- LBRY’s past, present, and --- uture o --- --- ers and sales o --- LBC” constituted investment contracts. 10 Unlike Ripple, LBRY did not distinguish between institutional and programmatic sales. 11 The court treated the token 2 SEC v. W.J. Howey Co., 328 U.S. 293, 299 (1946). 3 See Seth C. Oranburg, Truman-Era Securities Ruling That Governs Crypto Needs an Update, Bloomberg L. (Oct. 27, 2025), https://news.bloomberglaw.com/legal-exchange- insights/truman-era-securities-ruling-that-governs-crypto-needs-an-update (“Many tokens --- unction as ‘li --- ecycle’ instruments—they may start like --- undraising tools and later run as decentralized networks.”). 4 See Howey, 328 U.S. at 298-99 (evaluating investment contract status based on transaction structure without providing --- ramework --- or classi --- ication changes). 5 SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308 (S.D.N.Y. 2023). 6 Id. at 325. 7 Id. at 330 (“Programmatic Buyers could not reasonably expect that Ripple would use the capital it received --- rom its Programmatic Sales to improve the XRP ecosystem”). 8 Id. at 327. 9 SEC v. LBRY, Inc., 639 F. Supp. 3d 211 (D.N.H. 2022). 10 Id. at 228. 11 Compare id. at 227-28 (treating all LBC sales as investment contracts), with Ripple, 682 F. Supp. 3d at 325, 330 (distinguishing institutional and programmatic XRP sales). -4- 2025-11-05] Seth C. Oranburg itsel --- as the relevant unit o --- analysis, concluding LBRY’s control over the protocol made LBC an investment contract regardless o --- sale method.12 These cases present incompatible theories about what Howey classi --- ies. Ripple asks: Did this transaction create reasonable pro --- it expectations? LBRY asks: Does this asset embody an investment relationship? 13 The divergence re --- lects Howey’s ambiguous object. Does the test classi --- y assets or transactions? Blockchain technology --- orces courts to choose, and they have chosen di --- --- erently. 14 This --- ragmentation stems --- rom the elastic phrasing o --- Howey’s critical --- ourth prong: whether “pro --- its are derived primarily --- rom the e --- --- orts o --- others.” 15 The SEC attempted clari --- ication in its 2019 Framework --- or “Investment Contract” Analysis o --- Digital Assets, which expanded the --- our-part Howey test into thirty-eight separate considerations. 16 Commissioner Hester Peirce responded that the Framework was so complex that “people not steeped in securities law and its attendant lore” would not know what to make o --- it. 17 Di --- --- erent courts applying these indeterminate standards reach di --- --- erent answers on similar --- acts. This is the core problem o --- a seventy-year-old test designed --- or orange groves, not blockchain networks.18 The Howey test implicitly assumes instruments possess --- ixed characteristics. An orange grove bundled with a service contract will never trans --- orm into a sel --- -su --- --- icient orchard run by decentralized --- armers.19 Blockchain-based assets violate this assumption. Then-SEC Division o --- Corporation Finance Director William Hinman acknowledged in 2018 that digital assets can “morph” over time.20 I --- “the network on which the token or coin is to --- unction is su --- --- iciently decentralized” such that “purchasers would no longer reasonably 12 LBRY, 639 F. Supp. 3d at 228 (“LBRY’s o --- --- ers and sales o --- LBC are properly characterized as investment contracts”). 13 Compare Ripple, 682 F. Supp. 3d at 326-27 (transaction-speci --- ic analysis), with LBRY, 639 F. Supp. 3d at 228 (asset-centric analysis). 14 See Oranburg, supra note 2 (“A 1946 U.S. Supreme Court ruling is deciding the --- ate o --- today’s digital token networks, and the results are irreconcilable.”). 15 Howey, 328 U.S. at 301. 16 SEC, Framework --- or “Investment Contract” Analysis o --- Digital Assets (Apr. 3, 2019), https://www.sec.gov/corp --- in/ --- ramework-investment-contract-analysis-digital-assets. 17 Hester M. Peirce, Comm’r, SEC, Dissent --- rom the Majority’s Release on Amendments to the “Accredited Investor” De --- inition (Aug. 26, 2020), https://www.sec.gov/news/public- statement/peirce-accredited-investor-2020-08-26 (critiquing SEC’s approach to digital asset regulation as generating con --- usion through complexity). 18 See Howey, 328 U.S. at 295-97 (analyzing citrus grove sales with service contracts). 19 Id. 20 William Hinman, Dir., SEC Div. o --- Corp. Fin., Digital Asset Transactions: When Howey Met Gary (Plastic), Remarks at Yahoo Finance All Markets Summit: Crypto (June 14, 2018), https://www.sec.gov/news/speech/speech-hinman-061418. -5- Replacing Howey with CLARITY [2025-11-05 expect a person or group to carry out essential managerial or entrepreneurial e --- --- orts,” the asset may no longer satis --- y Howey.21 Hinman’s --- ramework recognizes that classi --- ication can change. But Howey provides no mechanism --- or identi --- ying when this trans --- ormation occurs, who determines it has occurred, or what legal consequences --- ollow. 22 The test evaluates whether an investment contract exists at a single moment in time. It o --- --- ers no guidance --- or assets whose status changes across their li --- ecycle. This is the Temporal Paradox. Neither the SEC nor --- ederal courts can resolve this problem through interpretation. The issue is not doctrinal con --- usion that better reasoning might clari --- y. It is structural incommensurability between a test designed --- or static instruments and technology that produces dynamic ones.23 Agencies and courts lack authority to create new categorical de --- initions outside the Securities Act’s statutory --- ramework. They can only apply Howey as written.24 But Howey cannot coherently classi --- y assets whose legal status evolves through decentralization. Congress recognized this structural --- ailure. In September 2025, the House o --- Representatives passed the Digital Asset Market Clarity Act o --- 2025 Act (the Clarity Act or simply “CLARITY”). 25 Currently pending Senate consideration, CLARITY would establish the --- irst comprehensive statutory --- ramework --- or digital asset regulation. Some readers may wonder whether it is premature to o --- --- er doctrinal analysis and compliance roadmaps --- or a proposal that has not (yet) become law. Two points justi --- y writing now. First, CLARITY is the leading House vehicle in an active, multi-bill re --- orm wave (Lummis- Gillibrand Responsible Financial Innovation Act, 26 GENIUS Act, 27 etc.); its text is already shaping negotiations, agency planning, and market design. Second, post-Loper Bright, courts will shoulder more interpretive load; --- ront-loaded statutory analysis helps courts and counsel converge on administrable methods even be --- ore --- inal enactment, so that even i --- CLARITY itsel --- never becomes law, something similar eventually must. 21 Id. 22 See Howey, 328 U.S. at 298-99 (providing no --- ramework --- or determining when assets transition between regulatory categories). 23 See Oranburg, supra note 2 (“This rule assumes a static instrument, but digital assets aren’t static.”). 24 See 15 U.S.C. § 77b(a)(1) (de --- ining “security” to include “investment contract” without --- urther speci --- ication). 25 H.R. 3633, 119th Cong. (2025) (passed House Sept. 18, 2025). 26 Responsible Financial Innovation Act o --- 2025, discussion dra --- t (released July 22, 2025 by Sens. Scott, Lummis, Hagerty & Moreno) 27 Guiding and Establishing National Innovation --- or U.S. Stablecoins Act o --- 2025, Pub. L. No. 119-27 (2025) (codi --- ied in scattered sections o --- 12 U.S.C., 15 U.S.C., and 31 U.S.C.). -6- 2025-11-05] Seth C. Oranburg I --- signed into law, the Clarity Act replaces Howey with a regulatory --- ramework explicitly designed --- or blockchain’s li --- ecycle dynamics. CLARITY resolves the Temporal Paradox through institutional redesign, abandoning Howey’s --- ixed classi --- ication model and embracing li --- ecycle-based regulation. The Act creates a new statutory category: “mature digital assets.”28 These are blockchain-based instruments meeting statutory criteria --- or decentralization, demonstrating their value derives --- rom network autonomy rather than promoter action. CLARITY establishes conditional sa --- e harbor allowing networks to launch through disclosed capital-raising, --- ollowed by --- ormal “maturity determination” administered jointly by the SEC and Commodity Futures Trading Commission (CFTC). 29 Assets certi --- ied as mature exit securities regulation and become subject to CFTC oversight as digital commodities.30 This --- ramework directly addresses Howey’s core de --- iciency: the test cannot identi --- y when blockchain-based assets transition --- rom security to non-security status. CLARITY replaces judicial guesswork with administrative process. 31 It establishes speci --- ic decentralization metrics, requires --- ormal agency determination, and provides de novo judicial review o --- maturity certi --- ications. 32 The Act creates a predictable pathway --- or blockchain networks to evolve --- rom securities o --- --- erings to autonomous commodity-like systems while maintaining investor protection during transition. 33 CLARITY’s success, however, depends on institutional capacity. The Act trades Howey’s doctrinal ambiguity --- or technical ambiguity. Instead o --- subjective questions about pro --- it derivation, courts must now interpret objective technical standards: whether a network achieves genuine autonomy, what node distribution threshold counts as “dispersed control.” 34 This is progress. Technical questions are amenable to resolution through evidence and expertise, whereas subjective doctrinal questions are not. But the Act’s e --- --- ectiveness depends on whether --- ederal courts and regulators can develop su --- --- icient technical interpretive capacity to apply these specialized standards consistently. 28 Id. § 9A(b)(2) (de --- ining “mature digital asset”). 29 Id. § 4A (establishing conditional exemption and maturity determination process). 30 Id. § 4A( --- ) (providing --- or CFTC oversight o --- mature digital assets). 31 See H.R. REP. NO. 119-168, pt. 2, at 12-15 (2025) (explaining need --- or legislative solution to Howey’s application to digital assets). 32 H.R. 3633 § 4A(e) (establishing de novo judicial review o --- maturity determinations). 33 See H.R. REP. NO. 119-168, pt. 2, at 18-22 (2025) (describing li --- ecycle-based regulatory --- ramework). 34 H.R. 3633 § 9A(b)(2) (de --- ining criteria --- or mature digital assets including decentralization requirements). -7- Replacing Howey with CLARITY [2025-11-05 Part II examines the Temporal Paradox in detail: what it is, how it emerges --- rom blockchain technology, and why Howey cannot accommodate it. Part III analyzes CLARITY’s statutory design: how it structures regulation around li --- ecycle phases and what institutional assumptions underlie that structure. Part IV evaluates implementation capacity: whether courts and regulators can consistently apply CLARITY’s technical maturity standards, addressing challenges including constitutional questions a --- ter Loper Bright Enterprises and SEC v. Jarkesy, interaction with existing securities exemptions, and practical problems in veri --- ying decentralization claims. This Article concludes that while CLARITY represents necessary legislative intervention to resolve an intractable doctrinal problem, success --- ul implementation depends on agencies developing operational expertise in blockchain architecture and courts maintaining rigorous review o --- maturity determinations. II. THE TEMPORAL PARADOX Blockchain technology enables digital assets to trans --- orm their legal status through progressive decentralization. The Howey test cannot accommodate this trans --- ormation because it treats asset classi --- ication as --- ixed at the time o --- o --- --- er or sale. 35 This rigidity, combined with the test’s inherent elasticity, generates the Temporal Paradox: a --- undamental collision between the U.S. securities regulatory --- ramework and the dynamic nature o --- blockchain-based assets.36 The result is pervasive judicial --- ragmentation and market uncertainty that neither courts nor agencies possess authority to resolve through interpretation alone.37 The core policy objectives o --- the Securities Act o --- 1933 and the Securities Exchange Act o --- 1934 are investor protection and market integrity, primarily achieved through mandatory disclosure o --- material in --- ormation.38 Classi --- ication as an “investment contract” under Howey imposes pro --- ound ongoing obligations, including perpetual disclosure 35 See SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946) (evaluating investment contract status based on transaction structure at time o --- sale without --- ramework --- or classi --- ication changes). 36 See Seth C. Oranburg, Truman-Era Securities Ruling That Governs Crypto Needs an Update, Bloomberg L. (Oct. 27, 2025), https://news.bloomberglaw.com/legal-exchange- insights/truman-era-securities-ruling-that-governs-crypto-needs-an-update (“The test, --- rom SEC v. Howey, treats a deal as a security when people invest in a common enterprise with an expectation o --- pro --- its --- rom others’ e --- --- orts. This rule assumes a static instrument, but digital assets aren’t static.”). 37 See 15 U.S.C. § 77b(a)(1) (de --- ining “security” to include “investment contract” without providing mechanism --- or status changes). 38 See Securities Act o --- 1933, 15 U.S.C. §§ 77a-77aa; Securities Exchange Act o --- 1934, 15 U.S.C. §§ 78a-78pp. -8- 2025-11-05] Seth C. Oranburg requirements and corporate governance restrictions. 39 These burdens make sense --- or instruments whose characteristics remain constant. They become incoherent when applied to assets engineered to evolve --- rom centralized --- undraising mechanisms to decentralized commodity- like networks. A. What Is the Temporal Paradox? The Temporal Paradox describes the structural incompatibility between --- ederal securities law’s synchronic assumptions and blockchain technology’s polychronic reality. The Howey test is --- undamentally synchronic. It evaluates whether an instrument constitutes an investment contract at a single point in time, typically the moment o --- o --- --- er or sale. 40 The test implicitly assumes that classi --- ication, once determined, remains --- ixed. An orange grove bundled with a service contract will never trans --- orm into a sel --- - su --- --- icient orchard operating without the promoter’s e --- --- orts. 41 The investment relationship either exists or it does not. Blockchain-based assets are polychronic. They are o --- ten engineered through multi-stage processes where economic --- unction and managerial centralization evolve over time. 42 In the developmental stage, entrepreneurs raise capital to build networks, and asset value depends entirely on promoter e --- --- orts, --- itting the traditional Howey --- ramework. 43 In the mature stage, networks achieve --- unctional autonomy and dispersed control, meaning value derives --- rom utility and network e --- --- ects rather than ongoing managerial e --- --- orts o --- a centralized team.44 The Temporal Paradox emerges when courts attempt to apply Howey’s subjective standard (“expectation o --- pro --- it” derived --- rom “e --- --- orts o --- others”) to assets designed to legally “morph” --- rom 39 See 15 U.S.C. § 77e (prohibiting sale o --- unregistered securities); id. § 78m (requiring periodic reporting --- or registered securities). 40 Howey, 328 U.S. at 298-99. 41 See id. at 295-97 (describing citrus grove sales with service contracts). 42 William Hinman, Dir., SEC Div. o --- Corp. Fin., Digital Asset Transactions: When Howey Met Gary (Plastic), Remarks at Yahoo Finance All Markets Summit: Crypto (June 14, 2018), https://www.sec.gov/news/speech/speech-hinman-061418 (acknowledging that digital assets can “morph” over time). 43 See Stephen P. Wink, Witold Balaban, John J. Sikora, Jr. & Miles P. Jennings, Digital Asset Regulation: Howey Evolves, 53 Rev. Sec. & Commodities Reg. 1, 3 (2020) (describing how ICO market made “dubious claims about the potentially signi --- icant returns that token purchasers could earn”). 44 Hinman, supra note 39 (stating that i --- “the network on which the token or coin is to --- unction is su --- --- iciently decentralized” such that “purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial e --- --- orts,” the asset may no longer satis --- y Howey). -9- Replacing Howey with CLARITY [2025-11-05 securities to non-securities. 45 The test provides no mechanism --- or identi --- ying when this trans --- ormation occurs, who determines it has occurred, or what legal consequences --- ollow. 46 Howey evaluates a transaction at time T₀. It o --- --- ers no guidance --- or assets whose status changes at time T₁, T₂, or Tₙ. The Howey test relies on --- our prongs: (1) investment o --- money, (2) in a common enterprise, (3) with expectation o --- pro --- its, (4) derived solely --- rom e --- --- orts o --- others. 47 For blockchain-based assets, the critical inquiry typically collapses onto the --- ourth prong: reliance on “e --- --- orts o --- others.”48 This prong’s subjective and elastic nature becomes --- atal when applied to assets whose managerial control diminishes over time by design. The subjective “expectation o --- pro --- it” standard is inherently di --- --- icult to analyze, posing theoretical concerns absent --- rom other Howey elements.49 The SEC attempted clari --- ication through its April 2019 Framework --- or “Investment Contract” Analysis o --- Digital Assets. 50 Rather than providing predictability, the Framework compounded con --- usion. As SEC Commissioner Hester Peirce observed, the Framework lists “38 separate considerations, many o --- which include several sub-points.” 51 This complexity rendered the guidance “perilous business --- or non-lawyers and those not steeped in securities law,” contributing to “the --- eeling that navigating the securities laws in this area is perilous business.”52 The Framework’s thirty-eight --- actors encourage a “ --- acts and circumstances” approach that provides regulatory --- lexibility but lacks necessary market predictability. 53 More --- undamentally, the Framework’s multiplication o --- considerations --- ails to address the core problem: Howey’s rigidity means that an instrument clearly carrying pro --- it expectations and relying on promoter e --- --- orts during initial capital-raising cannot easily morph into one that no longer relies on those e --- --- orts.54 This di --- --- iculty persists even though the central concerns motivating securities regulation—mitigating agency costs and 45 See Oranburg, supra note 33. 46 See Howey, 328 U.S. at 298-99 (providing no --- ramework --- or determining when assets transition between regulatory categories). 47 Id. at 301. 48 See Carol R. Go --- orth, Regulation o --- Crypto: Who Is the Securities and Exchange Commission Protecting?, 58 Am. Bus. L.J. 643, 678-79 (2021) (noting that --- or “novel digital asset[s], the critical inquiry typically collapses onto the --- ourth prong”). 49 See id. at 679. 50 SEC, Framework --- or “Investment Contract” Analysis o --- Digital Assets (Apr. 3, 2019), https://www.sec.gov/corp --- in/ --- ramework-investment-contract-analysis-digital-assets. 51 Hester M. Peirce, Comm’r, SEC, How We Howey, Remarks at International Blockchain Congress (May 9, 2019), https://www.sec.gov/news/speech/peirce-how-we-howey-050919. 52 Id. 53 See Go --- orth, supra note 45, at 679-80. 54 Id. at 679. - 10 - 2025-11-05] Seth C. Oranburg distinguishing investment --- rom consumption—recede once networks achieve genuine decentralization. 55 The Temporal Paradox creates pro --- ound doctrinal instability by --- orcing courts to choose an arti --- icial moment in time --- or classi --- ication. The subjective nature o --- Howey’s --- actors produces widely divergent conclusions even when courts con --- ront similar --- actual patterns o --- asset evolution. 56 This instability mani --- ests in two distinct but related problems: integration analysis and asset-versus-transaction ambiguity. Digital assets are o --- ten o --- --- ered through multi-phase processes, such as sale o --- Simple Agreements --- or Future Tokens (SAFTs) --- ollowed by token distribution when networks become --- unctional. 57 The purpose o --- this structure is to --- und development (Stage 1) through exempt securities o --- --- erings, then distribute utility tokens once networks operate autonomously (Stage 2).58 When courts apply integration doctrine, they o --- ten collapse these phases into a single scheme i --- sales were made --- or the same general purpose and occurred temporally proximate. 59 In SEC v. Kik Interactive Inc., the court integrated the Pre-Sale and token distribution, holding both sales were “part o --- a single plan to introduce the Kin [asset] and jumpstart its economy.” 60 The court’s rationale --- ocused on use o --- proceeds: --- unds --- rom all sales --- unded Kik’s operations and ecosystem development, thereby negating temporal distinction and permanently a --- --- ixing security classi --- ication. 61 This judicial tendency to integrate o --- --- erings denies the dynamic potential Howey --- ails to accommodate. Howey’s ambiguity regarding the subject o --- analysis—the asset itsel --- or the transaction selling it—exacerbates instability. 62 In Balestra v. ATBCOIN LLC, the court assessed de --- endants’ control as o --- --- icers to establish the “managerial e --- --- orts” prong, --- ocusing on whether “Ng and Hoover possessed the power to direct the management and policies o --- ATB.”63 Yet in SEC v. Ripple Labs, Inc., the court applied inconsistent standards to the same asset (XRP), splitting its analysis based on purchaser sophistication (institutional versus retail programmatic 55 Id. 56 See Oranburg, supra note 33 (“A 1946 U.S. Supreme Court ruling is deciding the --- ate o --- today’s digital token networks, and the results are irreconcilable.”). 57 See Blockstack Token LLC, Simple Agreement --- or Future Tokens (2019), https://www.sec.gov/Archives/edgar/data/1693656/000110465919039476/a18- 15736_1ex1a3hldrsrtsd1.htm (providing example o --- SAFT structure). 58 See Go --- orth, supra note 45, at 669-70 (describing SAFT process as “two-stage process pursuant to which crypto entrepreneurs can legally raise --- unds in anticipation o --- the development o --- a --- unctional utility token”). 59 See 17 C.F.R. § 230.502(a) (setting --- orth integration --- actors). 60 SEC v. Kik Interactive Inc., 492 F. Supp. 3d 169, 180-82 (S.D.N.Y. 2020). 61 Id. at 181. 62 See Go --- orth, supra note 45, at 678 (noting Howey’s “ambiguity regarding the subject o --- analysis: is the --- ocus on the token itsel --- , or the transaction used to sell it?”). 63 Balestra v. ATBCOIN LLC, 380 F. Supp. 3d 340, 359-60 (S.D.N.Y. 2019). - 11 - Replacing Howey with CLARITY [2025-11-05 sales). 64 This demonstrates that Howey’s --- ixed classi --- ication --- ramework cannot cope with assets whose market characteristics change over time, resulting in --- ragmented en --- orcement and lack o --- --- air notice --- or market participants.65 This doctrinal collapse con --- irms that the existing static legal --- ramework cannot govern assets capable o --- trans --- ormation, necessitating legislative intervention that explicitly acknowledges and structures regulation around asset li --- ecycle evolution.66 B. The Failure o --- Fixed Classi --- ication Howey’s rigidity is most clearly exposed in the context o --- phased digital asset o --- --- erings, where promoters attempt to --- und network development initially, --- ollowed by distribution o --- utility-based tokens later. The law’s re --- usal to acknowledge this temporal shi --- t is the engine o --- the Temporal Paradox. The capital-raising trajectory --- or many digital asset protocols --- ollows a conceptual two-stage model, intentionally di --- --- erentiating the investment phase --- rom the utility phase. 67 This process is --- requently organized using legal structures like Simple Agreements --- or Future Tokens (SAFTs), designed to shield --- inal assets --- rom securities classi --- ication.68 The SAFT --- ramework operates through distinct steps: securing commitments --- rom accredited investors, selling SAFTs pursuant to registration exemptions (typically Regulation D), developing networks providing genuine utility, and --- inally launching tokens.69 The --- irst phase is an investment scheme where capital is raised --- rom initial investors to --- inance underlying so --- tware development. 70 This initial transaction is clearly tied to managerial and entrepreneurial e --- --- orts o --- the promoter, --- itting the traditional mold o --- a security. The goal is transitioning to an open-source stage --- ocused on decentralized 64 SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 325, 330 (S.D.N.Y. 2023). 65 See Go --- orth, supra note 45, at 679. 66 See id. at 680. 67 See Carol R. Go --- orth, Regulation o --- Crypto: Who Is the Securities and Exchange Commission Protecting?, 58 Am. Bus. L.J. 643, 669-70 (2021) (describing SAFT process as “two-stage process pursuant to which crypto entrepreneurs can legally raise --- unds in anticipation o --- the development o --- a --- unctional utility token”). 68 See Blockstack Token LLC, Simple Agreement --- or Future Tokens (2019), https://www.sec.gov/Archives/edgar/data/1693656/000110465919039476/a18- 15736_1ex1a3hldrsrtsd1.htm. 69 See Go --- orth, supra note 64, at 669-70. 70 Id. at 669. - 12 - 2025-11-05] Seth C. Oranburg governance and network utility, where asset value no longer relies on promoter e --- --- orts and theoretically ceases to be a security. 71 Courts, however, routinely collapse these distinct stages through integration doctrine. Regulation D establishes --- ive --- actors --- or determining whether seemingly separate o --- --- erings should be integrated into a single securities o --- --- ering: whether the o --- --- erings are (1) part o --- a single plan o --- --- inancing, (2) involve the same class o --- securities, (3) are made at or about the same time, (4) involve the same type o --- consideration, and (5) are made --- or the same general purpose.72 In SEC v. Kik Interactive Inc., the court integrated Kik’s SAFT Pre- Sale to accredited investors with its subsequent Token Distribution Event (TDE), holding both sales were “part o --- a single plan to introduce the Kin [asset] and jumpstart its economy.”73 Kik conducted the Pre- Sale privately under Regulation D, raising $50 million --- rom institutional investors.74 One day later, Kik launched the TDE, selling Kin tokens publicly --- or approximately $49 million in cryptocurrency. 75 The court --- ound integration warranted despite temporal proximity being minimal (one day) and consideration di --- --- ering (U.S. dollars versus Ether).76 The dispositive --- actor was use o --- proceeds: --- unds --- rom both sales --- inanced “Kik’s operations and the building o --- the Kin ecosystem,” satis --- ying the “same general purpose” criterion. 77 By collapsing these phases, the court e --- --- ectively ruled that initial determination o --- security status in Stage 1 is permanent, ignoring the asset’s structural transition to Stage 2 utility. 78 This outcome maintains perpetual securities classi --- ication based on historical circumstances o --- the capital raise, --- rustrating the dynamic design blockchain technology enables. The integration doctrine’s temporal collapse trans --- orms non-securities into securities through procedural alchemy. At T₁, SAFTs are admitted securities (investment contracts). At T₂, Kin tokens are allegedly non-securities ( --- unctional utilities). Post-integration, Kin tokens retroactively become securities. The nature o --- the asset (security versus commodity) depends on when 71 William Hinman, Dir., SEC Div. o --- Corp. Fin., Digital Asset Transactions: When Howey Met Gary (Plastic), Remarks at Yahoo Finance All Markets Summit: Crypto (June 14, 2018), https://www.sec.gov/news/speech/speech-hinman-061418. 72 17 C.F.R. § 230.502(a) (2025). 73 SEC v. Kik Interactive Inc., 492 F. Supp. 3d 169, 180-82 (S.D.N.Y. 2020). 74 Id. at 172 (“Kik received $50 million through the Pre-Sale”). 75 Id. (“approximately 10,000 purchasers bought Kin in exchange --- or a total o --- 168,732 Ether, worth approximately $49.2 million”). 76 Go --- orth, supra note 64, at 667-68 (analyzing Kik’s integration analysis). 77 Kik, 492 F. Supp. 3d at 181. 78 See Go --- orth, supra note 64, at 670 (“By integrating the o --- --- erings, the court e --- --- ectively declared that Howey classi --- ication, once triggered in Stage One, is permanent, denying the possibility o --- asset trans --- ormation.”). - 13 - Replacing Howey with CLARITY [2025-11-05 courts measure it, violating any coherent li --- ecycle-based regulatory --- ramework.79 The Temporal Paradox mani --- ests acutely in Howey’s ambiguity regarding the subject o --- analysis: the asset itsel --- or the transaction selling it.80 The Supreme Court warned against this con --- usion in Reves v. Ernst & Young, holding that agricultural cooperative demand notes were securities under the Exchange Act’s distinct “notes” category, not as investment contracts under Howey.81 The Court rejected applying Howey to notes because doing so “would make the Acts’ enumeration o --- many types o --- instruments super --- luous.” 82 Congress separately enumerated stocks, bonds, notes, and investment contracts because they represent distinct economic relationships requiring di --- --- erent regulatory treatment.83 Applying integration doctrine to digital assets creates the same super --- luity Reves condemned. I --- initial --- undraising permanently taints all subsequent distributions regardless o --- technical evolution, the concept o --- “mature blockchain systems” becomes meaningless. Digital assets transition --- rom centralized --- undraising mechanisms to decentralized utility networks, yet integration doctrine denies this trans --- ormation legal recognition. The statutory distinction between securities and commodities collapses when courts integrate across li --- ecycle phases.84 Congress recognized this structural --- ailure in proposing the Clarity Act. Section 4A(e) explicitly addresses secondary market transactions: “the o --- --- er or sale by a person other than the issuer... o --- a digital commodity that originally involved an investment contract... shall be deemed not to be an o --- --- er or sale o --- such investment contract.”85 This provision directly rejects Kik’s integration logic. Under Kik, Phase 1 security status in --- ects Phase 2, making both integrated phases securities. Under CLARITY, Phase 1 security status terminates at the issuer boundary. Phase 2 becomes commodity-regulated --- or non- issuers once networks achieve maturity certi --- ication. 86 CLARITY’s secondary market carve-out operates as the statutory equivalent o --- Reves’ “ --- amily resemblance test,” a substance-over- --- orm 79 See id. at 678-79. 80 See id. at 678 (noting Howey’s “ambiguity regarding the subject o --- analysis: is the --- ocus on the token itsel --- , or the transaction used to sell it?”). 81 Reves v. Ernst & Young, 494 U.S. 56, 63-67 (1990). 82 Id. at 63. 83 See id. at 64 (“Congress’ decision to regulate the entire body o --- notes, some o --- which have no investment element, suggests that [Howey] was not intended to apply to notes”). 84 See Go --- orth, supra note 64, at 679-80. 85 H.R. 3633, 119th Cong. § 4A(e) (2025). 86 See H.R. REP. NO. 119-168, pt. 2, at 18-22 (2025) (explaining CLARITY’s li --- ecycle- based regulatory --- ramework). - 14 - 2025-11-05] Seth C. Oranburg analysis recognizing that economic --- unction, not historical origin, determines regulatory treatment. 87 The Act establishes objective criteria --- or maturity ( --- unctional network utility, dispersed governance, absence o --- in --- ormation asymmetry) and requires --- ormal certi --- ication by SEC and CFTC jointly. 88 Assets meeting these criteria exit securities regulation regardless o --- how initial capital was raised.89 This --- ramework resolves the Temporal Paradox by abandoning Howey’s synchronic assumption. Asset classi --- ication becomes polychronic, explicitly accommodating trans --- ormation through technical maturation. Integration doctrine no longer collapses time, permitting blockchain networks to evolve --- rom securities o --- --- erings to commodity-like systems while maintaining investor protection during transition. The existing static legal --- ramework cannot govern assets capable o --- trans --- ormation. Legislative intervention that explicitly acknowledges and structures regulation around asset li --- ecycle evolution is necessary. 90 C. The Resulting Fragmentation Howey’s subjective standard creates pervasive judicial and regulatory --- ragmentation that undermines market predictability. 91 Fragmentation stems directly --- rom courts’ inability to consistently determine the point o --- su --- --- icient decentralization, when reliance on promoter e --- --- orts ceases to be the “undeniably signi --- icant” --- actor driving asset value. 92 Because the test is standards-based rather than rules-based, courts engage in subjective inquiries that produce widely divergent conclusions --- rom similar --- acts. 93 The --- ragmentation mani --- ests across multiple dimensions. Courts apply Howey inconsistently to --- unctionally identical assets: Ripple distinguished institutional --- rom programmatic XRP sales, 94 while LBRY treated all LBC sales identically. 95 Federal agencies, the Securities and Exchange Commission and Commodity Futures Trading 87 See Reves, 494 U.S. at 65-67 (establishing “ --- amily resemblance test” analyzing economic substance rather than --- ormal characteristics). 88 H.R. 3633 § 4A(c) (establishing joint SEC-CFTC maturity determination process). 89 Id. § 4A( --- ) (providing --- or CFTC oversight o --- mature digital assets). 90 See Go --- orth, supra note 64, at 680, 704-05. 91 Carol R. Go --- orth, Regulation o --- Crypto: Who Is the Securities and Exchange Commission Protecting?, 58 Am. Bus. L.J. 643, 2021 (discussing --- ragmentation and uncertainty produced by Howey’s subjectivity). 92 See SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 327 (S.D.N.Y. 2023) (establishing “undeniably signi --- icant” standard --- or e --- --- orts o --- others prong). 93 Carol R. Go --- orth, Regulation o --- Crypto: Who Is the Securities and Exchange Commission Protecting?, 58 Am. Bus. L.J. 643, 2021 (explaining variability in judicial outcomes and standards-based ambiguity). 94 SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 325, 330 (S.D.N.Y. 2023). 95 SEC v. LBRY, Inc., 639 F. Supp. 3d 211, 228 (D.N.H. 2022). - 15 - Replacing Howey with CLARITY [2025-11-05 Commission, wage jurisdictional tur --- wars over the same digital assets and market participants. 96 Public materials re --- lect meaning --- ul di --- --- erences in regulatory philosophy between the Commissions, compounding uncertainty.97 This regulatory balkanization imposes concrete costs. Multiple --- ederal and state authorities assert overlapping jurisdiction over digital- asset activity, --- orcing market participants through a morass o --- partially con --- licting legal regimes. 98 The SEC and CFTC --- iled separate complaints against Binance in 2023, each claiming jurisdiction over identical assets: the SEC treated Binance USD as a security sold via investment contracts, while the CFTC simultaneously classi --- ied the same stablecoin as a commodity. 99 Market participants cannot plan compliance strategies when the same asset simultaneously occupies contradictory regulatory classi --- ications. 100 The commercial consequences are predictable. Issuers cannot reliably determine whether they must adhere to securities-disclosure requirements perpetually or operate as utility providers subject only to commodities oversight. 101 This uncertainty discourages domestic innovation and investment. Congress has documented that --- irms are shi --- ting activity abroad as other jurisdictions establish clearer --- rameworks. 102 Regulatory ambiguity drives capital --- ormation o --- --- shore, undermining U.S. competitiveness in emerging technologies.103 The lack o --- objective criteria governing asset trans --- ormation perpetuates instability. Howey’s “e --- --- orts o --- others” prong requires qualitative judgment about whether promoter contributions remain “undeniably signi --- icant,” 104 but courts possess no methodology --- or 96 Taylor Anne Mo --- --- ett, CFTC & SEC: The Wild West o --- Cryptocurrency Regulation, 57 U. Rich. L. Rev. 713, 715 (2023). 97 Yuliya Guseva & Irena Hutton, Regulatory Fragmentation: Investor Reaction to SEC and CFTC En --- orcement in Crypto Markets, 64 Boston Coll. L. Rev. 1555, 1574 (2024) (contrasting agency approaches and philosophical di --- --- erences). 98 Yuliya Guseva & Irena Hutton, Regulatory Fragmentation: Investor Reaction to SEC and CFTC En --- orcement in Crypto Markets, 64 Boston Coll. L. Rev. 1555, 1572, 1587–91 (2024) ( --- ragmented U.S. --- ramework and overlapping regulatory buckets). 99 Yuliya Guseva & Irena Hutton, Regulatory Fragmentation: Investor Reaction to SEC and CFTC En --- orcement in Crypto Markets, 64 Boston Coll. L. Rev. 1555, 1572–73 (2024) (Binance dual-complaint example). 100 Taylor Anne Mo --- --- ett, CFTC & SEC: The Wild West o --- Cryptocurrency Regulation, 57 U. Rich. L. Rev. 713, 715 (2023). 101 Carol R. Go --- orth, Regulation o --- Crypto: Who Is the Securities and Exchange Commission Protecting?, 58 Am. Bus. L.J. 643, 2021 (linking regulatory ambiguity to costly compliance choices). 102 H.R. Rep. No. 119-168, pt. 2, at 18–22 (2025). 103 Carol R. Go --- orth, Regulation o --- Crypto: Who Is the Securities and Exchange Commission Protecting?, 58 Am. Bus. L.J. 643, 2021 (observing incentives to relocate activity abroad). 104 See SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 327 (S.D.N.Y. 2023) (requiring qualitative judgment on “undeniably signi --- icant” standard). - 16 - 2025-11-05] Seth C. Oranburg measuring decentralization, no threshold --- or dispersed governance, no metric --- or --- unctional autonomy. Absent veri --- iable technical standards, classi --- ication depends on which judge reviews which evidence at which moment. The doctrinal structure guarantees --- ragmentation.105 The Clarity Act responds by replacing subjective speculation with objective, technical criteria. The Act de --- ines maturity through veri --- iable standards—programmatic --- unctioning and dispersed control—that remove judicial discretion over classi --- ication at maturity and trigger jurisdictional trans --- er. 106 CLARITY’s de --- initional architecture --- urther cabins overlap by speci --- ying terms related to digital commodities within --- ederal statutes, separating them --- rom securities- law categories. 107 The certi --- ication process supplies procedural clarity. Issuers, related persons, or decentralized governance systems may petition the Commission to certi --- y maturity; i --- the Commission takes no action within 60 days, certi --- ication becomes e --- --- ective by operation o --- law.108 This binary switch—security or commodity—replaces Howey’s perpetual uncertainty with legislative resolution. Howey’s insistence on a --- ixed classi --- ication thus creates the Temporal Paradox—judicial --- ragmentation and market 109 unpredictability. CLARITY cures this by legislating a li --- ecycle --- ramework grounded in objective technical veri --- ication and a determinate path out o --- securities regulation at maturity. III. CLARITY’S OBJECTIVE-MEASUREMENT LOGIC The Clarity Act provides a --- undamental institutional solution to the Temporal Paradox. Its core innovation is a shi --- t --- rom subjective legal doctrine to objective technical measurement. 110 Rather than amend Howey, CLARITY establishes a rules-based, li --- ecycle regime where asset classi --- ication depends on veri --- iable maturity criteria: whether the blockchain operates autonomously, whether governance is distributed, 105 Carol R. Go --- orth, Regulation o --- Crypto: Who Is the Securities and Exchange Commission Protecting?, 58 Am. Bus. L.J. 643, 2021 (lack o --- objective criteria perpetuates --- ragmentation). 106 CLARITY Act sec. 205 (adding Exchange Act sec. 42(a)(2)–(3)) (programmatic --- unctioning; dispersed control; maturity standard). 107 CLARITY Act sec. 101 & related de --- initional insertions (terms related to digital commodities that separate them --- rom securities-law categories). 108 CLARITY Act sec. 205 (Exchange Act sec. 42(a)(3)–(6)) (certi --- ication mechanics; 60-day auto-e --- --- ectiveness). 109 Carol R. Go --- orth, Regulation o --- Crypto: Who Is the Securities and Exchange Commission Protecting?, 58 Am. Bus. L.J. 643, 2021 (identi --- ying Howey’s --- ixed-classi --- ication premise as root cause o --- systemic --- ragmentation). 110 Id. § 4A(c)–( --- ) (establishing maturity determination based on veri --- iable technical criteria). - 17 - Replacing Howey with CLARITY [2025-11-05 and whether value --- lows --- rom protocol --- unction rather than promoter e --- --- ort.111 This shi --- t was necessitated by a core pathology. The Howey test, designed to be --- lexible—capturing “countless and variable schemes”— became latently ambiguous when applied to trans --- orming digital assets.112 This ambiguity destroyed the --- air notice and predictability essential to capital markets. 113 Successive SEC leaderships adopted inconsistent positions; courts --- ragmented on identical --- acts; guidance became baroque.114 The SEC’s 2019 Framework expanded --- our Howey --- actors into thirty-eight separate considerations, making compliance perilous --- or non-specialists.115 No prior institution could resolve this. 116 Courts could not agree on whether Howey governs tokens or transactions, producing contradictory results on identical --- acts. 117 Agencies con --- ined to en --- orcement and guidance could not move the law --- orward without creating new ambiguities or supplying a uni --- orm national rule. 118 Most critically, Loper Bright Enterprises v. Raimondo eliminated Chevron de --- erence, requiring courts to exercise independent judgment on statutory interpretation. 119 In this post-Loper Bright environment, ambiguity is no longer a license --- or agency discretion but a mandate --- or judicial review.120 With courts unable to cohere and agencies unable to provide durable guidance, only Congress possessed the institutional capacity to provide a stable, statutory --- ramework. 121 CLARITY is that --- ramework. 111 Id. § 9A(b)(2) (de --- ining “mature digital asset” through technical standards). 112 Supra Part II.A (diagnosing Howey’s ambiguity when applied to blockchain-based assets). 113 See Go --- orth, supra note 45, at 651 (noting lack o --- --- air notice and market predictability resulting --- rom Howey’s indeterminacy). 114 Supra Part II.C (documenting regulatory oscillation and judicial --- ragmentation). 115 SEC, Framework --- or “Investment Contract” Analysis o --- Digital Assets (Apr. 3, 2019); see also Hester M. Peirce, Dissent to SEC Framework --- or “Investment Contract” Analysis o --- Digital Assets (Apr. 3, 2019) (criticizing expansion --- rom --- our Howey --- actors to thirty-eight separate considerations). 116 Supra Part II (establishing that neither courts nor agencies can resolve Temporal Paradox through interpretation). 117 See SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 325, 330 (S.D.N.Y. 2023); SEC v. LBRY, Inc., 639 F. Supp. 3d 211, 228 (D.N.H. 2022); supra Part II.C (documenting judicial divergence). 118 Supra Part II.C (explaining agency dys --- unction in SEC-CFTC tur --- wars and guidance inadequacy). 119 Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024) (eliminating Chevron de --- erence --- or agency statutory interpretations). 120 See id. (requiring courts to determine independently what statutes mean); supra Part III (opening) (explaining constitutional shi --- t post-Loper Bright). 121 See H.R. REP. NO. 119-168, pt. 2, at 12–15 (2025) (explaining necessity o --- legislative solution given institutional limitations o --- courts and agencies). - 18 - 2025-11-05] Seth C. Oranburg A. Doctrinal Fragmentation and the Token-Transaction Paradox The Howey test’s --- lexibility—its greatest strength when addressing the problem it was designed to solve—became its critical liability when applied to blockchain-based digital assets. 122 The --- undamental issue is that the test relies on a single analytical --- ramework that con --- lates two distinct economic realities: the o --- --- er or sale o --- an asset in a primary market at the time o --- issuance, and the subsequent trans --- er o --- that same asset in a secondary market by holders who are not the original promoter.123 For traditional securities, this distinction matters little because the nature o --- the underlying investment contract—typically a relational claim on a company or --- und—does not change merely because it is resold.124 A share o --- stock sold in the secondary market is still a share o --- stock, still represents the same claims, still depends on the same managerial e --- --- orts. With blockchain-based assets, however, the situation is --- undamentally di --- --- erent. A token that begins its existence as a promotional device tied to the development e --- --- orts o --- its creators— and thus plausibly an investment contract at issuance—can, through autonomous protocol development and decentralized governance, --- undamentally trans --- orm its economic character over time.125 It may cease to depend on any identi --- iable promoter’s e --- --- orts; value may --- low instead --- rom the autonomous --- unctioning o --- the underlying protocol; control may distribute across thousands o --- independent validators rather than concentrating in a --- ounding entity. 126 The Howey test o --- --- ers no principled mechanism --- or recognizing this trans --- ormation. 127 Courts applying the test have there --- ore reached irreconcilable conclusions on identical assets based only on the temporal or transactional context o --- the analysis. 1. The Ripple Bi --- urcation and Secondary Market Indeterminacy 122 Supra Part III (Introduction) (discussing Howey’s designed --- lexibility --- or “countless and variable schemes”). 123 This observation is implicit in the Ripple court’s analysis. See SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 320–26 (S.D.N.Y. 2023) (analyzing institutional sales and secondary trading sales separately). 124 This is consistent with modern securities law doctrine. See T.J. Zuckerman, Inc. v. Norbelle, Inc., 409 U.S. 1309 (1973) (addressing secondary markets and the duration o --- security status). 125 Supra Part II.A (discussing the Temporal Paradox and blockchain-based trans --- ormation). 126 Id. 127 This is a novel observation: the Howey test contains no temporal dimension allowing --- or asset trans --- ormation analysis. - 19 - Replacing Howey with CLARITY [2025-11-05 The 2023 decision in SEC v. Ripple Labs, Inc. illustrates this structural de --- iciency with precision. 128 The Southern District o --- New York examined XRP tokens—the same cryptographic asset—and concluded that when sold to institutional investors under purchase agreements, XRP was o --- --- ered as a security. 129 Yet when sold via automated programmatic exchanges to retail customers without individual negotiation or promotional promises, the same XRP token did not constitute an o --- --- er o --- a security. 130 This result is analytically coherent as a matter o --- applying the --- our- --- actor Howey test to distinct transactions: the institutional sales involved explicit investment contracts and ongoing promotional e --- --- orts by Ripple, while retail exchange sales did not. 131 But it is incoherent as a matter o --- classi --- ying the asset itsel --- . XRP did not bi --- urcate into two distinct --- inancial instruments depending on who purchased it or through which venue. The same token, with identical technical and economic characteristics, was simultaneously a security and a non- security based solely on the purchaser’s identity and the transaction structure.132 This outcome le --- t the marketplace—and issuers—without clear guidance. Was XRP a security or not? The answer became indeterminate, contingent on --- acts that market participants could not reliably predict or control. 133 An exchange --- acilitating secondary trading could not determine its regulatory obligations without knowing the characteristics o --- every purchaser—a practical impossibility in decentralized markets. A developer maintaining and upgrading a protocol could not know whether its token was a security or commodity without understanding how the asset would eventually be distributed and to whom. The indeterminacy created a direct con --- lict with the --- air notice requirement o --- due process. 134 Fair notice, as established in the securities law context, demands that the law provide adequate guidance o --- what conduct is prohibited and what consequences will attach to noncompliance. 135 A regime in which the same token asset carries divergent legal classi --- ications based on purchaser characteristics 128 Ripple, 682 F. Supp. 3d 308. 129 Id. at 315–21 (analyzing institutional sales as investment contracts). 130 Id. at 325–30 (concluding secondary exchange sales did not constitute security o --- --- erings). 131 Id. at 320–26 (analyzing distinct market contexts). 132 Id. at 330 (noting the bi --- urcated outcome). 133 This indeterminacy is the essence o --- the Temporal Paradox. See supra Part II (discussing unpredictability and retroactive classi --- ication). 134 See Grayned v. City o --- Rock --- ord, 408 U.S. 104, 108–09 (1972) (establishing --- air notice requirement); accord Connally v. General Constr. Co., 269 U.S. 385, 391 (1926) (law must be su --- --- iciently de --- inite). 135 Grayned, 408 U.S. at 108–09. - 20 - 2025-11-05] Seth C. Oranburg violates this principle by making compliance indeterminate: a plat --- orm --- acilitating secondary trading cannot know whether it is --- acilitating the distribution o --- securities without knowing the characteristics o --- every purchaser. 2. Judicial Fragmentation Across Circuits and Assets The Ripple decision was not an anomaly but rather the crystallization o --- a pattern o --- judicial --- ragmentation extending across multiple districts and applied to multiple digital assets. 136 In SEC v. Telegram Group, Inc., the Southern District o --- New York concluded that Telegram’s Gram token, o --- --- ered only to sophisticated accredited investors under individualized investment contracts, constituted an investment contract and was there --- ore a security. 137 Yet like XRP, the underlying protocol was designed to operate autonomously a --- ter launch without ongoing management by Telegram. 138 In SEC v. Kik Interactive, Inc., the same court applied Howey to conclude that Kin tokens, distributed through a plat --- orm operated by Kik and designed to --- unction within Kik’s ecosystem, constituted investment contracts. 139 Yet Kik’s developer e --- --- orts were not directed toward making the tokens appreciate in value but rather toward building and maintaining the plat --- orm itsel --- —a distinction the Howey test cannot easily accommodate. 140 In SEC v. LBRY, Inc., by contrast, the District o --- New Hampshire reached a materially di --- --- erent conclusion applying the same Howey --- actors to a di --- --- erent asset. The court concluded that LBRY’s LBC token, distributed through similar promotional means and controlled by the same company, did not constitute a security precisely because the network had achieved su --- --- icient decentralization and autonomous --- unctioning. 141 The court credited the timing and degree o --- decentralization as --- actors supporting non-security status—a development analysis that the original Howey --- ramework does not explicitly contemplate.142 Across these cases, courts struggled with a common analytical problem: the --- our- --- actor Howey test, built on the assumption that “e --- --- orts o --- others” would be concentrated and identi --- iable (typically a 136 This is supported by the three major cases discussed above: Telegram, Kik, and LBRY. 137 SEC v. Telegram Grp., Inc., 448 F. Supp. 3d 352, 382–87 (S.D.N.Y. 2020). 138 Id. at 368–72 (discussing Gram’s autonomous network design). 139 SEC v. Kik Interactive Inc., 492 F. Supp. 3d 169, 177–85 (S.D.N.Y. 2019). 140 Id. at 180–84 (analyzing e --- --- orts directed to token appreciation versus plat --- orm development). 141 SEC v. LBRY, Inc., 639 F. Supp. 3d 211, 223–31 (D.N.H. 2022). 142 Id. at 226–28 (crediting decentralization and time since launch as relevant to Howey analysis). - 21 - Replacing Howey with CLARITY [2025-11-05 promoter corporation), provided no clear method --- or analyzing assets whose value might arise --- rom distributed, autonomous protocol operation or --- rom network e --- --- ects that depend on the collective actions o --- a decentralized user base rather than on promoter stewardship.143 The academic literature documenting this --- ragmentation has become substantial. 144 The lack o --- coherent circuit-level doctrine meant that the same token could plausibly be treated as a security in one jurisdiction and as a commodity in another. An issuer or exchange compliance o --- --- icer had no stable rule on which to rely; only litigation outcomes, themselves unpredictable and circuit-dependent, would eventually provide guidance—and only --- or the speci --- ic --- acts o --- the case. This was precisely the institutional uncertainty that the securities laws were designed to prevent. 145 B. Regulatory Oscillation and Administrative Capture Judicial --- ragmentation represents one institutional pathology stemming --- rom Howey’s latent ambiguity. 146 Regulatory oscillation represents another—and it is particularly damaging because it occurs within a single, power --- ul institution tasked with providing durable national guidance. The SEC’s interpretation o --- the securities laws has swung dramatically across three successive leadership periods, each reaching contradictory conclusions under the same statutory test, demonstrating that Howey’s --- unctional --- lexibility a --- --- ords excessive administrative discretion susceptible to political capture.147 1. The Hinman Era: Recognition o --- Temporal Trans --- ormation (2018) In 2018, then-Director o --- Corporate Finance William Hinman delivered remarks at the Yahoo Finance All Markets Summit: Crypto in San Francisco that implicitly acknowledged the li --- ecycle paradigm 143 This represents a key innovation by courts, but one that lacks statutory anchoring in Howey itsel --- . 144 See Lewis Rinaudo Cohen et al., What Are Investment Contracts? A Review o --- the Howey Case Law (DLx Law, Nov. 10, 2022) (documenting extensive --- ragmentation); Go --- orth, supra note 45, at 651 (noting lack o --- consistent application); see also supra Part II.C (detailing judicial --- ragmentation patterns). 145 See supra Part II (explaining that regulatory certainty is --- oundational to securities law). 146 See supra Part III.A (documenting judicial --- ragmentation across multiple districts and asset types). 147 The three periods are: (1) Hinman, 2018 (temporal trans --- ormation possible); (2) Gensler, 2021-2024 (temporal distinctions irrelevant); (3) Atkins, 2025 (temporal trans --- ormation resumes as --- ramework). - 22 - 2025-11-05] Seth C. Oranburg central to the Temporal Paradox. 148 Hinman stated that an asset such as Ether—even i --- it might constitute an investment contract when initially issued with promotional e --- --- orts—could transition out o --- security status by becoming “su --- --- iciently decentralized.”149 This statement recognized a critical distinction: a token’s status under --- ederal securities law could change over time as the underlying network matured and control decentralized. Hinman’s remarks were not issued as --- ormal SEC guidance or adopted policy. Yet they became the interpretive anchor --- or the market. Issuers, plat --- orms, and venture capital investors organized compliance strategies and capital allocation decisions around this temporal trans --- ormation principle. 150 Projects were structured to achieve decentralization milestones that would, under Hinman’s --- ramework, signal graduation --- rom security status. The market operated on the implicit theory that Howey’s “e --- --- orts o --- others” prong could diminish as governance dispersed. 2. The Gensler Era: Rejection o --- Temporal Distinctions (2021- 2024) This --- oundation proved illusory. When Gary Gensler assumed o --- --- ice as SEC Chair in 2021, the SEC’s o --- --- icial position shi --- ted --- undamentally. Gensler and his en --- orcement sta --- --- repeatedly asserted that the scope o --- --- ederal securities laws was “clear” and that the “vast majority” or “almost all” cryptocurrency tokens constituted securities under Howey. 151 Critically, Gensler’s SEC rejected the temporal trans --- ormation theory that Hinman had introduced. Rather than relying on --- ormal rulemaking or transparent guidance to articulate this new position, the SEC pursued “regulation by en --- orcement.”152 The agency --- iled en --- orcement actions against major 148 William Hinman, Director, Division o --- Corp. Finance, SEC, “Digital Asset Transactions: When Howey Met Gary (Plastic),” Speech at Yahoo Finance All Markets Summit: Crypto, San Francisco, CA (June 14, 2018), available at https://www.sec.gov/newsroom/speeches- statements/speech-hinman-061418. 149 Id. (explaining that Ether, by virtue o --- becoming su --- --- iciently decentralized, “may no longer be an investment contract”). 150 This reliance was rational: a senior SEC o --- --- icial’s public remarks, though not --- ormal guidance, signal likely en --- orcement priorities and are understood as articulating agency position. 151 Gary Gensler, Chair, SEC, Testimony Be --- ore the Committee on Banking, Housing, and Urban A --- --- airs (June 8, 2023) (“the vast majority o --- crypto tokens are securities”); Gary Gensler, Chair, SEC, Statement on Digital Asset O --- --- ering, Regulation, and Intermediation (Aug. 8, 2023). 152 ”Regulation by en --- orcement” re --- ers to using en --- orcement actions, rather than prospective notice-and-comment rulemaking, to announce regulatory positions and establish expectations. See Burbank, Farhang & Mulligan, Private En --- orcement o --- Federal Law, 60 UCLA L. REV. 1306 (2013) (analyzing problems with ex post en --- orcement-driven regulation). - 23 - Replacing Howey with CLARITY [2025-11-05 cryptocurrency plat --- orms (Coinbase, Binance, Kraken), token issuers (Telegram, Ripple, Kik), and trading venues, asserting that tokens o --- --- ered through these plat --- orms were securities—o --- ten without prior --- ormal notice o --- the agency’s legal position. 153 This en --- orcement- driven approach created pro --- ound uncertainty: issuers could not know ex ante whether their token would be deemed a security; compliance depended on the agency’s discretionary decision to bring an action. 154 The 2019 Framework, the SEC’s primary attempt at --- ormal guidance during this period, --- ailed to resolve the ambiguity. Instead o --- providing bright-line criteria, the Framework expanded the --- our Howey --- actors into thirty-eight separate considerations with multiple sub- points.155 Commissioner Hester Peirce wrote that this approach raised “more questions and concerns than it answers” and contributed to the perception that regulatory compliance was a “perilous business” --- or all but the most sophisticated issuers. 156 The Framework provided maximum --- lexibility to the regulator while undermining legal certainty—precisely the inverse o --- its stated purpose. Critically, the Gensler SEC never articulated why temporal distinctions should be abandoned. Howey does not explicitly --- oreclose the possibility that a token could transition out o --- security status as decentralization progressed. The agency’s rejection o --- Hinman’s --- ramework was there --- ore not driven by doctrinal clarity but by administrative choice. A di --- --- erent SEC leadership could, and did, reach the opposite conclusion. 3. The Post-Gensler Reversal: Administrative Oscillation and Loss o --- Credibility (2025) The instability o --- Howey-based guidance was con --- irmed in early 2025. Following Gary Gensler’s resignation in January 2025, Acting SEC Chair Mark Uyeda appointed Commissioner Hester Peirce to lead the new Crypto Task Force and announced a sweeping reversal o --- en --- orcement priorities. 157 The SEC began dismissing pending crypto 153 Major en --- orcement actions included SEC v. Coinbase (2023), SEC v. Binance (2023), and SEC v. Kraken (2023), among numerous token issuance cases (See supra Part III.A --- or Ripple, Telegram, Kik). 154 This contingency is central to the Temporal Paradox: compliance is impossible ex ante because the SEC’s position is discretionary and can change. 155 SEC, Framework --- or “Investment Contract” Analysis o --- Digital Assets (Apr. 3, 2019), at 1–5 (listing thirty-eight considerations across multiple categories). 156 Hester M. Peirce, Dissent to SEC Framework --- or “Investment Contract” Analysis o --- Digital Assets (Apr. 3, 2019) (characterizing the --- ramework as creating unmanageable complexity and stating that compliance had become a “perilous business”). 157 Mark Uyeda, Acting Chair, SEC, appointed Hester M. Peirce to lead Crypto Task Force upon Trump administration inauguration on Jan. 21, 2025; SEC began dismissing en --- orcement actions in Feb. 2025. - 24 - 2025-11-05] Seth C. Oranburg en --- orcement actions, including the high-pro --- ile case against Coinbase, characterizing prior en --- orcement strategies as inconsistent with sound regulatory policy.158 In July 2025, newly con --- irmed SEC Chair Paul Atkins declared that “despite what the SEC has said in the past, most crypto assets are NOT securities.” 159 This statement represented a categorical rejection not merely o --- speci --- ic Gensler-era en --- orcement decisions but o --- the theoretical --- oundation underlying them. Where Gensler’s SEC had asserted that decentralization was irrelevant to security status, Atkins’ SEC implicitly endorsed the inverse: that decentralization and network maturity could support non-security classi --- ication. 160 This reversal destroyed the market’s reliance on prior SEC guidance. Issuers who had restructured operations, withdrawn o --- --- erings, or altered governance arrangements in response to Gensler- era en --- orcement actions --- aced a --- undamentally di --- --- erent regulatory landscape. Tokens the SEC had deemed securities in 2024 were now, under Atkins’ leadership, presumptively outside --- ederal securities jurisdiction. The agency’s interpretation o --- the law had not clari --- ied— it had simply oscillated based on political personnel changes. 4. Administrative Discretion and Policy Capture This pattern—Hinman’s temporal recognition → Gensler’s categorical rejection → Atkins’ reversal—demonstrates that Howey’s ambiguity creates excessive administrative discretion. The statute’s --- unctional test does not clearly resolve whether decentralization matters, whether secondary markets are distinct, or how network governance bears on “e --- --- orts o --- others.” This interpretive space a --- --- orded the SEC room to adopt contradictory positions, each de --- ensible under the statute’s text. The practical consequence is “regulation by politics” rather than regulation by law. Each new SEC Chair brought a new interpretation. Market participants could not rely on durable legal principle; they could only hedge against electoral cycles. Sophisticated actors responded rationally by relocating operations to jurisdictions with clearer, more stable regulatory regimes. The hollowing o --- American institutional capacity in a major technology sector was not merely a side e --- --- ect—it 158 SEC, Press Release 2025-47, “SEC Announces Dismissal o --- Civil En --- orcement Action” (Feb. 26, 2025); see also SEC Puts Binance Lawsuit on Ice, Citing New Crypto Task Force, FORTUNE (Feb. 10, 2025). 159 Paul Atkins, Chair, SEC, Statement on Digital Assets (July 31, 2025) (“Despite what the SEC has said in the past, most crypto assets are NOT securities”). 160 This reversal does not necessarily mean Atkins endorsed Hinman’s --- ormulation; rather, it re --- lects recognition that SEC’s prior categorical rejection o --- temporal considerations was inde --- ensible as a legal matter. - 25 - Replacing Howey with CLARITY [2025-11-05 was a direct consequence o --- the SEC’s inability to provide credible, durable guidance.161 The oscillation also demonstrates why guidance, even exhaustive guidance, cannot resolve Howey’s ambiguity. The 2019 Framework attempted to elaborate the test through thirty-eight considerations. Yet it provided no principled method --- or weighing these --- actors, no sa --- e harbor --- or compliance, and no stable anchor --- or interpretation. The Framework could not cure what the statute le --- t ambiguous. The SEC’s next leader could, and did, read the same Framework di --- --- erently. 5. Why Prior Solutions Failed: The Impracticability o --- Guidance-Based Resolution The oscillation between Hinman, Gensler, and Atkins proves that it is impracticable --- or a regulatory agency to resolve Howey’s ambiguity through guidance or en --- orcement-based interpretation alone. Two structural constraints make stable agency interpretation impossible in this context. First, the agency’s discretion is unlimited by statutory text. Howey provides --- our --- actors; it does not speci --- y how to weight them, whether they are conjunctive or disjunctive, or how they apply to assets that did not exist when the test was --- ormulated. This textual openness means that a competent SEC Chair can reasonably reach the opposite o --- their predecessor’s conclusion. 162 Each administration is --- ree to adopt a contradictory interpretation because the statute supports multiple reasonable readings. Chevron de --- erence once accommodated this reality; Loper Bright Enterprises v. Raimondo no longer does.163 Under Loper Bright, courts must independently interpret the statute rather than de --- er to the agency, --- urther destabilizing any reliance on SEC position papers. Second, the absence o --- bright-line rules means that regulatory status remains contingent and uncertain. Without clear criteria speci --- ying which tokens are securities, what governance structures matter, and when an asset achieves non-security status, every token remains potentially subject to SEC reclassi --- ication. This continued 161 U.S. Securities and Exchange Commission & Commodity Futures Trading Commission, Final Rule: Further De --- inition o --- “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant,” and “Eligible Contract Participant”, 85 Fed. Reg. 27,976 (May 8, 2020) (Joint release implementing Section 712(d) o --- the Dodd-Frank Wall Street Re --- orm and Consumer Protection Act, nearly ten years a --- ter enactment). 162 This is the core insight: i --- a statute is genuinely ambiguous, each agency leader can reasonably adopt the opposite interpretation o --- their predecessor. 163 Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024) (eliminating Chevron de --- erence and requiring courts to exercise independent judgment on statutory interpretation). - 26 - 2025-11-05] Seth C. Oranburg vulnerability is incompatible with the long-term capital planning required --- or technology development. Entrepreneurs and institutional investors cannot commit capital to projects operating under permanent threat o --- regulatory reclassi --- ication. The SEC’s repeated reversals and the market’s rational migration overseas demonstrate that regulation by agency discretion—however well-intentioned—cannot provide the legal durability that --- ast-moving technological innovation requires. Howey’s ambiguity cannot be resolved through elaboration, en --- orcement, or guidance. It can only be resolved through legislative action that creates new, statutory categories with bright-line operational criteria. 164 C. The Convergence Problem The two institutional pathologies documented in Parts III.A and III.B—judicial --- ragmentation and regulatory oscillation—are mutually rein --- orcing, creating an inescapable impasse that existing institutions structurally cannot resolve. 165 Neither courts nor agencies can unilaterally supply the durable clarity required --- or managing trans --- orming digital assets. Together, they have exhausted the institutional mechanisms available within the current legal --- ramework. 1. The Dual Institutional Failure Lower courts cannot cohere. As demonstrated by irreconcilable di --- --- erences in applying Howey across similar --- acts—most acutely in Ripple’s bi --- urcation and LBRY’s decentralization-based exemption— reliance on case-by-case litigation is an inherently unstable mechanism --- or establishing predictable doctrine. 166 Judicial analysis is --- act- intensive and dependent on the economic reality o --- each transaction. This reliance --- orces both market participants and courts to endure continuous litigation to resolve ambiguities that the statute itsel --- cannot answer, a slow process that sti --- les innovation and burdens the judiciary. Each new case presents --- resh opportunities --- or divergent interpretation. The outcome o --- any litigation is uncertain, and judicial opinions struggle to address the multi --- unctional character o --- assets serving simultaneously as governance instruments, utility tokens, and economic participation rights. 167 164 This is the transition to Part III.C or IV—whichever --- ollows—explaining why CLARITY’s bright-line statutory regime resolves this impracticability. 165 The thesis o --- Part III: institutional convergence o --- two separate pathologies creates inescapability. 166 See supra Part III.A (documenting Ripple, Telegram, Kik, LBRY --- ragmentation). 167 This multi --- unctionality is central to the Temporal Paradox. See supra Part II (discussing assets that serve multiple economic and governance purposes). - 27 - Replacing Howey with CLARITY [2025-11-05 The SEC cannot provide durable guidance. Agency guidance is institutionally impermanent and structurally limited by public choice incentives. Administrative agencies tend to expand rather than narrow their regulatory authority; the SEC consequently has neither the incentive nor the institutional inclination to promulgate sa --- e harbors that would reduce its own jurisdiction. 168 The history o --- the SEC’s 2019 Framework demonstrates that attempts to clari --- y Howey through non-binding guidance only ampli --- ied uncertainty. By expanding --- our --- actors into thirty-eight separate considerations without establishing principled weighting or hierarchy, the Framework provided maximum regulatory --- lexibility while undermining legal certainty—the inverse o --- its stated purpose. 169 More --- undamentally, the SEC’s three-cycle oscillation (Hinman → Gensler → Atkins) proves that guidance resting on statutory ambiguity is hostage to electoral cycles. Agency interpretations cannot “reset the boundary o --- securities” or supply a uni --- orm rule across administrations. 170 Each new SEC Chair brings a new interpretation; market participants cannot plan on the basis o --- durable legal principle. 2. The Post-Loper Bright Stalemate The Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo trans --- ormed this dual --- ailure into an inescapable impasse. 171 By overruling Chevron de --- erence, Loper Bright eliminated the primary doctrinal mechanism through which ambiguous statutes had been resolved in --- avor o --- agencies. The Chevron --- ramework rested on the presumption that when Congress le --- t a statute ambiguous, it implicitly delegated policy- making authority to the administering agency to reasonably resolve that ambiguity.172 This delegation allowed agencies to exercise discretion, providing a degree o --- stability through regulatory interpretation even when the underlying statute was silent or contradictory. Loper Bright expressly overruled this --- ramework, holding that statutory ambiguities are not implicit delegations o --- law-interpreting power to agencies. 173 The consequence is stark: when courts con --- ront 168 This re --- lects public choice theory and agency budget-maximization incentives. See William A. Niskanen, Bureaucracy and Representative Government (1971). 169 SEC, Framework --- or “Investment Contract” Analysis o --- Digital Assets (Apr. 3, 2019); Hester M. Peirce, Dissent to SEC Framework (Apr. 3, 2019) (criticizing thirty-eight --- actors and characterizing compliance as “perilous”). 170 This language invokes the SEC’s own gap-closing --- unction as now revealed to be inadequate. 171 Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024). 172 See Chevron, U.S.A., Inc. v. Nat. Res. De --- . Council, Inc., 467 U.S. 837 (1984). 173 Loper Bright, 144 S. Ct. at [PAGE] (overruling Chevron and requiring courts to independently interpret ambiguous statutes). - 28 - 2025-11-05] Seth C. Oranburg statutory ambiguity (such as the scope o --- the Howey test), they are no longer relieved o --- their obligation to de --- er to reasonable agency interpretation. Instead, courts must use independent legal judgment to determine the statute’s meaning.174 In this new doctrinal environment, ambiguity is no longer a license --- or agency discretion but a mandate --- or active judicial review. This shi --- t produces paralysis. The SEC can no longer rely on Chevron de --- erence to stabilize the market through discretionary policy positions. 175 Its interpretations o --- Howey are now susceptible to independent judicial scrutiny and potential reversal. Regulatory initiatives without unambiguous congressional authorization rest on “ --- ragile ground.” 176 Yet simultaneously, lower courts remain --- ragmented in their interpretation o --- Howey. Given that courts themselves cannot cohere on the statute’s meaning (Part III.A), and given that the SEC can only o --- --- er impermanent guidance vulnerable to reversal under Loper Bright (Part III.B), the system achieves a stalemate: neither branch can provide the durable, national clarity that technological innovation requires. The impasse is there --- ore complete. Litigation cannot establish stable doctrine. Guidance cannot bind markets across administrations. Agency discretion can no longer --- ill statutory gaps. Lower courts oscillate because Howey is ambiguous. The SEC oscillates because ambiguity permits discretion. Post-Loper Bright, courts will scrutinize any agency interpretation that depends on statutory ambiguity. The result is regulatory stalemate—a system incapable o --- providing --- air notice or predictable compliance standards. 3. Legislative Necessity This institutional paralysis con --- irms that Congress is the only institution capable o --- creating a stable, statutory --- ramework capable o --- surviving electoral cycles and Loper Bright scrutiny. 177 Agency guidance and en --- orcement actions cannot supply a uni --- orm rule across jurisdictions and administrations. The legislative path—through a statutory regime such as CLARITY—becomes institutionally necessary, not merely pre --- erable. 174 Id. (establishing that ambiguity does not license agency discretion but requires judicial determination o --- the statute’s “single, best meaning”). 175 This is the critical insight: Loper Bright removes the institutional tool that previously allowed agencies to resolve statutory ambiguity in their --- avor. 176 This phrase captures the vulnerability o --- agency positions post-Loper Bright. 177 This is the transition to Part IV (or whatever --- ollows)—where CLARITY itsel --- is introduced as the solution. - 29 - Replacing Howey with CLARITY [2025-11-05 CLARITY’s core institutional --- unction is there --- ore to do what Howey’s ambiguity and Loper Bright’s elimination o --- agency de --- erence have rendered impracticable --- or courts or agencies to accomplish: mandate legally durable stability through explicit statutory categories, bright-line operational criteria, and clear standards that survive administrative oscillation and provide adequate --- air notice to market participants. Only through legislative action can the Temporal Paradox be resolved and the oscillation between institutional pathologies be arrested. D. CLARITY’s Pivot to Objective Measurement The con --- luence o --- judicial --- ragmentation and regulatory oscillation documented in Parts III.A and III.B demonstrates that the latent ambiguity o --- the Howey test rendered the existing statutory --- ramework incapable o --- governing assets designed to trans --- orm over their li --- ecycle. 178 In the post-Loper Bright environment, where agency discretion can no longer provide a durable national rule, congressional action became institutionally necessary to provide stability and --- air notice to market participants. 179 The Clarity Act represents Congress’s answer to this institutional impasse, embodying a --- undamental doctrinal pivot in U.S. --- inancial regulation. CLARITY resolves the Temporal Paradox not by reinterpreting the subjective intent embedded in Howey, but by creating a statutory sidestep: an entirely new regulatory regime that explicitly removes mature digital assets --- rom SEC jurisdiction based on objective, veri --- iable technical criteria. 180 1. The Paradigm Shi --- t: From Functional to Operational This --- ramework moves regulation away --- rom the standards-based uncertainty inherent in Howey’s “e --- --- orts o --- others” prong and toward a rules-based model centered on objective, technical measurement. 181 Rather than asking whether an asset quali --- ies as an “investment contract” based on multi --- actorial --- act-intensive analysis, CLARITY 178 See supra Part III.A–C (documenting judicial --- ragmentation, regulatory oscillation, and their convergence). 179 See supra Part III.C (explaining how Loper Bright eliminates agency de --- erence and creates institutional stalemate). 180 See in --- ra Part IV (analyzing the mechanics o --- this statutory regime and its implementation challenges). 181 This re --- lects the theoretical shi --- t toward bright-line rules in lieu o --- --- lexible standards. See Frederick Schauer, Playing by the Rules (1991); c --- . SEC Framework (attempting to clari --- y through elaboration rather than rules). - 30 - 2025-11-05] Seth C. Oranburg asks: Does this asset meet de --- ined statutory criteria --- or autonomous operation and dispersed control? The Act codi --- ies a three-phase regulatory li --- ecycle. In Phase 1 (Initial O --- --- ering), the digital asset is presumed to be an investment contract subject to SEC oversight; disclosure and compliance obligations attach during the development phase when promotional e --- --- orts and capital-raising predominate. 182 In Phase 2 (Maturity Determination), the asset must satis --- y statutory criteria establishing technical maturity: autonomous protocol --- unctioning, dispersed governance, and absence o --- ongoing promoter control. 183 Upon meeting these criteria, the asset transitions to Phase 3 (Mature Digital Commodity), exiting SEC jurisdiction. Regulatory oversight then shi --- ts cleanly to the Commodity Futures Trading Commission (CFTC) --- or secondary market transactions and market integrity violations.184 2. Institutional Design and Risk Trans --- ormation This architecture ensures that regulatory supervision maps directly to measurable risk trans --- ormation rather than to subjective legal categories. 185 The regulatory --- ocus shi --- ts --- rom capital-raising governance (based on promotional promises and reliance) to market integrity governance (based on technical reality and decentralized control). This marks the evolution o --- digital assets --- rom a patchwork o --- ad hoc en --- orcement actions to a structured asset class with transparent jurisdictional boundaries. Critically, CLARITY’s maturity determination mechanism is designed to be objective rather than discretionary. By grounding eligibility in veri --- iable technical --- acts—protocol autonomy, validator distribution, governance decentralization—rather than in the subjective intent or continued e --- --- orts o --- creators, the statute aims to eliminate the oscillation that plagued SEC interpretation. 186 An asset either meets the statutory criteria or it does not; compliance is determinable ex ante rather than contingent on the agency’s en --- orcement discretion. 182 CLARITY § 4A(a) (establishing presumption o --- security status during initial o --- --- ering phase); see in --- ra Part IV.A (detailed analysis o --- Phase 1 requirements). 183 CLARITY § 4A(c)–( --- ) (establishing maturity determination criteria based on technical standards). 184 CLARITY § 9A (trans --- erring jurisdiction to CFTC --- or mature digital assets). This institutional arrangement re --- lects the recognition that secondary market governance (market manipulation, --- raud prevention) di --- --- ers --- undamentally --- rom primary market governance (investor protection, disclosure). 185 This principle—that regulation should track the evolving risk pro --- ile o --- an asset—is central to CLARITY’s design philosophy. It re --- lects the recognition that an asset’s risk character --- undamentally changes as governance disperses and promoter control diminishes. 186 This objectivity principle is intended to survive Loper Bright scrutiny by creating clear statutory boundaries that do not depend on agency interpretation or discretion. See in --- ra Part IV.B (analyzing whether this objective standard succeeds institutionally). - 31 - Replacing Howey with CLARITY [2025-11-05 The ensuing analysis will examine whether this translation --- rom subjective legal concepts to objective technical criteria succeeds in practice, what institutional challenges arise in administering maturity certi --- ications, and whether courts and the SEC can apply these new technical rules consistently—or whether CLARITY has merely shi --- ted the locus o --- ambiguity rather than resolving it --- undamentally. IV. CLARITY’S POLYCHRONIC IMPLEMENTATION SCHEMA The institutional --- ailures documented in Parts II and III—judicial --- ragmentation and regulatory oscillation—stem --- rom a core structural problem: the Howey test provides no mechanism --- or assets to transition --- rom security to non-security classi --- ication as they decentralize over time. 187 The Temporal Paradox results --- rom this structural silence, leaving courts without guidance on how to classi --- y assets designed to evolve through progressive decentralization. CLARITY addresses this problem not by reinterpreting Howey but by creating an entirely new statutory regime explicitly designed to govern assets whose legal character evolves. This Part explains CLARITY’s statutory architecture through its three operational li --- ecycle phases—Entry, Transition, and Maturity—examining how the Act operationalizes the solution through objective technical criteria, --- ormal certi --- ication procedures, and institutional coordination mechanisms that address the temporal trans --- ormation impasse that existing law cannot accommodate.188 The table below summarizes CLARITY’s three-phase regulatory architecture and the key institutional actors governing each phase. 187 Supra Part II.A (explaining that Howey provides no --- ramework --- or asset trans --- ormation across li --- ecycle phases). 188 CLARITY § 205 (adding Securities Exchange Act § 42); id. § 202 (adding Securities Act § 4(a)(8)); id. § 203 (adding Securities Act § 4A). - 32 - 2025-11-05] Seth C. Oranburg Phase Regulator Timeline Mechanism Citation Entry SEC 4 years O --- --- ering statement Securities Act maximum exemption; § 4(a)(8); semiannual CLARITY § reporting 202 Transition SEC & 60 days; Maturity Securities CFTC (joint) plus 120- certi --- ication; SEC Exchange Act day stay (i --- review and de novo § 42; novel appellate appeal CLARITY § issues) 205 Maturity CFTC Ongoing Digital Commodity Commodity (primary); Exchange/Broker Exchange Act SEC registration; § 2(c)(2); (concurrent commodities regime CLARITY §§ anti --- raud) 203–204, 9A CLARITY’s core institutional innovation is a statutory sidestep rather than an amendment. 189 The Act does not reinterpret the “e --- --- orts o --- others” prong o --- Howey. 190 Instead, it creates new statutory categories that remove mature blockchain-based assets --- rom securities regulation based on veri --- iable technical criteria. 191 This represents a --- undamental doctrinal pivot: --- rom subjective legal standards --- ocused on promoter intent to objective technical measurements --- ocused on network autonomy.192 The mechanism is direct: the Act de --- ines “digital commodity” and explicitly excludes these assets --- rom the de --- inition o --- “security” across --- ive securities statutes, creating a new regulatory regime that operates independently o --- Howey’s --- ramework while preserving it --- or other instruments. 193 This statutory architecture eliminates the doctrinal collision between Howey’s --- ixity assumption and blockchain’s dynamic reality by legislatively removing certain assets --- rom Howey’s domain altogether.194 A. Exclusionary De --- initions as Statutory Sidestep 189 Supra Part II.A (discussing Howey’s “e --- --- orts o --- others” prong and its interpretive evolution). 190 CLARITY § 301 (excluding “digital commodity” and “permitted payment stablecoin” --- rom de --- inition o --- “security” under --- ive securities statutes). 191 Id. § 103 (de --- ining “digital commodity” with objective criteria based on technical --- unctionality rather than promoter intent). 192 Id. § 103. 193 Id. § 301(a)–(e) (amending Securities Act § 2(a)(1), 15 U.S.C. § 77b(a)(1); Exchange Act § 3(a)(10), 15 U.S.C. § 78c(a)(10); Investment Advisers Act § 202(a)(29), 15 U.S.C. § 80b– 2(a)(29); Investment Company Act § 2(a)(36), 15 U.S.C. § 80a–2(a)(36); and Securities Investor Protection Act § 16(14), 15 U.S.C. § 78lll(14)); id. § 103 (amending Commodity Exchange Act § 1a(16), 7 U.S.C. § 1a(16)). 194 See in --- ra Section IV.A (explaining statutory sidestep architecture). - 33 - Replacing Howey with CLARITY [2025-11-05 CLARITY does not amend the Securities Act’s core de --- inition o --- “security” or its “investment contract” prong. Rather, the Act explicitly excludes certain assets --- rom securities classi --- ication through nested de --- initional carve-outs. 195 Section 301 o --- CLARITY amends the Securities Act § 2(a)(1), the Securities Exchange Act § 3(a)(10), the Investment Advisers Act § 202(a), the Investment Company Act § 2(a), and the Securities Investor Protection Act § 16(14), each time inserting identical language: the term “security” (or “investment contract”) “does not include a digital commodity or permitted payment stablecoin.”196 This de --- initional approach operates through multiple statutory layers.197 First, the Act de --- ines “digital commodity” in the Commodity Exchange Act § 1a(16)(F) as “a digital asset that is intrinsically linked to a blockchain system, and the value o --- which is derived --- rom or is reasonably expected to be derived --- rom the use o --- the blockchain system.”198 A digital asset quali --- ies as intrinsically linked i --- it relates to the blockchain’s --- unctionality, operation, or the activities --- or which the system is created, including cases where the asset is issued by the blockchain’s programmatic --- unctioning, used to trans --- er value between participants, accessed to use the system, used --- or governance participation, used to pay transaction --- ees, or used as payment or incentive --- or network participants. 199 Second, the Act creates an explicit rule o --- construction to prevent courts --- rom importing Howey analysis into the statutory regime.200 The statute provides: “No presumption shall exist that a digital asset is a security, nor shall a digital asset be excluded --- rom being a digital commodity” based solely on the asset’s voting or economic rights, the potential --- or appreciation in response to blockchain operations, or appreciation --- lowing --- rom blockchain use. 201 This language directly addresses the danger that courts might apply Howey reasoning to digital commodities, importing analysis o --- pro --- it expectations and promoter e --- --- orts into the new statutory regime. 202 Third, Section 201 o --- CLARITY creates an exclusion within the “investment contract” category itsel --- . 203 The term “investment contract” now excludes “investment contract assets”—assets that are 195 CLARITY § 301 (establishing exclusions). 196 Id. § 301(a)–(e); id. § 103 (CEA § 1a(16)(F)). 197 Id. § 103. 198 Id. § 103 (amending Commodity Exchange Act § 1a by adding § 1a(16)(F)(i)). 199 Id. § 103 (CEA § 1a(16)(F)(ii)). 200 Id. § 103. 201 Id. § 103 (CEA § 1a(16)(F)(iv)) (rule o --- construction). 202 See supra Part II.A (explaining danger that courts might apply Howey’s pro --- it-expectation analysis to blockchain assets). 203 CLARITY § 201. - 34 - 2025-11-05] Seth C. Oranburg digital commodities meeting CLARITY’s maturity criteria and have been certi --- ied as mature. 204 This creates a clean jurisdictional boundary: once an asset crosses --- rom initial o --- --- ering to maturity, it is no longer an investment contract under securities law, regardless o --- its historical origin as a securities o --- --- ering. 205 As explained below, this statutory architecture directly rejects integration doctrine: Section 4A(e) provides that “the o --- --- er or sale by a person other than the issuer o --- a digital commodity that originally involved an investment contract shall be deemed not to be an o --- --- er or sale o --- such investment contract.” 206 This provision eliminates the Kik analysis that retroactively collapses phases into uni --- ied securities o --- --- erings.207 This statutory mechanism directly addresses Part II’s diagnosis.208 Howey cannot be reinterpreted to accommodate trans --- ormation because the test is structurally premised on --- ixed classi --- ication at the moment o --- o --- --- er or sale.209 Amending Howey itsel --- would destabilize the entire securities --- ramework, which depends on the assumption that once an instrument is classi --- ied as a security, it remains a security. 210 Integration doctrine crystallizes this rigidity: courts collapse temporal phases into uni --- ied schemes precisely because securities law assumes --- ixed status.211 CLARITY’s statutory sidestep avoids this problem by creating a parallel regime—not a reinterpretation o --- the existing one, but an exclusion --- rom it.212 B. The Entry Phase: Initial Coin O --- --- erings and Securities Regulation The --- irst phase o --- CLARITY’s li --- ecycle regime governs the initial o --- --- er and sale o --- tokens to raise capital. 213 During Entry, digital assets are presumptively securities subject to SEC oversight and the --- ull apparatus o --- securities regulation. 214 Yet CLARITY establishes a conditional exemption --- rom --- ull securities registration through a new Securities Act § 4(a)(8) exemption, allowing issuers to raise capital 204 Id. § 201 (amending Securities Act § 2(a) to add § 2(a)(36) de --- inition o --- “investment contract asset”). 205 Id. § 201. 206 Id. § 203(a) (adding Securities Act § 4A(a)). 207 Supra Part II.B (analyzing SEC v. Kik Interactive, Inc., 492 F. Supp. 3d 169 (S.D.N.Y. 2020)). 208 Supra Part II.A. 209 Id. (explaining Howey’s synchronic assumption). 210 Supra Part II (discussing how securities classi --- ication is presumptively --- ixed). 211 Supra Part II.B (analyzing integration doctrine). 212 See CLARITY § 301 (creating parallel regime distinct --- rom Howey). 213 CLARITY § 202(a). 214 Securities Act § 4(a)(8), 15 U.S.C. § 77d(a)(8). - 35 - Replacing Howey with CLARITY [2025-11-05 under modi --- ied disclosure requirements i --- certain conditions are satis --- ied.215 1. Exemption Conditions The Entry exemption operates as a bounded sa --- e harbor with --- our conjunctive requirements. 216 First, the issuer must establish that the blockchain system either is already certi --- ied as mature under the Act’s maturity determination process, or the issuer intends --- or it to achieve maturity within a de --- ined time --- rame. 217 The statutory language speci --- ies “the later o --- (i) the date that is --- our years a --- ter the --- irst sale o --- the investment contract involving a unit o --- such digital commodity in reliance on the exemption provided under this paragraph, subject to any extensions as may be granted by the Commission or (ii) the date that is --- our years a --- ter the e --- --- ective date o --- this paragraph.”218 This creates a binding temporal obligation: issuers cannot remain inde --- initely in Entry Phase. 219 The --- our-year runway provides su --- --- icient time --- or protocol development while preventing perpetual capital-raising under securities exemptions. 220 Second, the o --- --- ering must comply with a $50 million annual raise limit, adjusted annually --- or in --- lation. 221 The statute speci --- ies: “the sum o --- all cash and other consideration to be received by the digital commodity issuer in reliance on the exemption provided under this paragraph, during the 12-month period preceding the date o --- such o --- --- ering, including the amount received in such o --- --- ering, is not more than $50,000,000 (as such amount is annually adjusted by the Commission to re --- lect the change in the Consumer Price Index --- or All Urban Consumers published by the Bureau o --- Labor Statistics o --- the Department o --- Labor).” 222 This ensures that Entry o --- --- erings remain modest in scale, appropriate --- or development-stage networks.223 The limit applies to all capital raised by the issuer and related persons during the preceding twelve-month period, including consideration received in the o --- --- ering itsel --- .224 215 CLARITY § 202(a)(1) (adding Securities Act § 4(a)(8)). 216 Id. § 202(a)(1). 217 Id. § 202(a)(1) (requiring blockchain be “certi --- ied as a mature blockchain system under section 42 o --- the Securities Exchange Act o --- 1934, 15 U.S.C. § 78u, or the issuer intends --- or the blockchain system...to be a mature blockchain system by the later o --- ...”). 218 Id. § 202(a)(1)(A). 219 Id. 220 Id. ( --- our-year runway design). 221 Id. § 202(a)(1)(B) (“the sum o --- all cash and other consideration to be received by the digital commodity issuer...not more than 50,000,000 as such amount is annually adjusted by the Commission”). 222 Id. § 202(a)(1)(B) ( --- ull statutory language). 223 Id. 224 Id. - 36 - 2025-11-05] Seth C. Oranburg Third, no purchaser may own more than 10 percent o --- total outstanding units --- ollowing the transaction. 225 The statute provides: “a --- ter the completion o --- the transaction, a purchaser does not own more than 10 percent o --- the total amount o --- the outstanding units o --- the digital commodity.” 226 This ownership dispersion requirement prevents concentration that would perpetuate promoter control and is expressly designed to --- acilitate decentralization progression.227 Fourth, the issuer must satis --- y certain negative criteria: it must be organized under U.S. law (a State, territory, or the District o --- Columbia), must not be a development-stage company lacking a speci --- ic business plan, must not be an investment company, and must not be subject to certain SEC disquali --- ication orders.228 These negative criteria --- ilter --- or legitimate development entities while excluding speculative structures.229 2. Disclosure Requirements The central innovation o --- Entry disclosure is that CLARITY replaces --- ull registration with --- ocused, development-stage disclosures.230 Rather than requiring audited --- inancial statements and governance provisions appropriate --- or mature operating companies (which are meaningless --- or so --- tware development), the Act requires an “o --- --- ering statement” containing a detailed “Plan o --- Development.”231 The Plan o --- Development must disclose: the current state and timeline --- or blockchain maturation; how and when the network will achieve autonomous --- unctioning and dispersed control; the roles o --- various participants (developers, validators, governance participants); mechanisms by which control is exerted or intended to be eliminated; and critical operational dependencies. 232 The Plan o --- Development is supplemented by granular technical disclosures. 233 Issuers must disclose the source code (or a publicly accessible webpage displaying it), including in --- ormation on whether code was audited by third parties and material results o --- such audits. 234 Issuers must explain the blockchain’s transaction history, how participants can independently access and veri --- y it, and describe the 225 Id. § 202(a)(1)(C). 226 Id. ( --- ull statutory language). 227 Id. (ownership dispersion requirement). 228 Id. § 202(a)(1)(D). 229 Id. (explaining negative criteria). 230 Id. § 202(b). 231 Id. § 202(b)(1). 232 Id. § 202(b)(2)(E). 233 Id. § 202(b)(2). 234 Id. § 202(b)(2)(B). - 37 - Replacing Howey with CLARITY [2025-11-05 consensus mechanism and validation process. 235 Most critically, issuers must explain the “mechanism --- or driving value” to the digital commodity and the “governance mechanisms --- or implementing changes” to the blockchain system. 236 These disclosures directly address the Howey “e --- --- orts o --- others” concern by --- orcing --- ull transparency about how value --- lows and how control is structured. 237 3. Insider Identi --- ication and Ongoing Reporting The Entry disclosure regime includes ownership in --- ormation. 238 Issuers must --- ile in --- ormation identi --- ying “digital commodity related persons” (core development team, persons receiving material compensation --- rom the project) and “digital commodity a --- --- iliated persons” (entities acquiring 5 percent or more o --- outstanding units). 239 Critically, the Act de --- ines a “digital commodity related person” as one “that is or was in the previous 6-month period a promoter, senior employee, advisory board member, consultant, advisor, or person serving in a similar capacity” or “that acquires or has any right to acquire 1 percent or more o --- the total outstanding units o --- such digital commodity.” 240 Most importantly, the Act provides that “the decentralized governance system” shall not be treated as a digital commodity related person. 241 This statutory language prevents courts or the SEC --- rom treating decentralized systems as uni --- ied entities with concentrated control.242 Once an o --- --- ering statement is --- iled, the issuer is subject to ongoing semiannual reporting requirements until the blockchain is certi --- ied as mature. 243 These reports must update the development timeline, describe e --- --- orts by the issuer and related persons to develop the blockchain, detail how capital raised has been deployed across activity categories, and provide --- inancial statements where applicable. 244 This creates an accountability mechanism: issuers cannot use capital-raising proceeds --- or unrelated purposes without SEC visibility.245 Importantly, anti --- raud authority under Securities Act § 17(a) and Exchange Act § 10(b) persists throughout Entry: the SEC retains --- ull power to police 235 Id. § 202(b)(2)(C). 236 Id. § 202(b)(2)(D). 237 See supra Part II.A (explaining Howey “e --- --- orts o --- others” concern). 238 CLARITY § 202(b)(2)(F). 239 Id. 240 Id. § 101 (amending Securities Act § 2(a) to add § 2(a)(29) de --- inition o --- “digital commodity related person”, 15 U.S.C. § 77b(a)(29)). 241 Id. § 101 (CEA § 2(a)(29)(A)(ii)). 242 Id. (statutory language preventing uni --- ied-entity treatment o --- decentralized governance). 243 CLARITY § 202(b)(3). 244 Id. § 202(b)(3)(A)–(B). 245 Id. - 38 - 2025-11-05] Seth C. Oranburg --- raud and misstatement in Entry disclosures and may en --- orce against issuers making --- alse statements about progress toward decentralization.246 4. Temporal Discipline Critically, Entry is time-limited. 247 I --- the blockchain does not achieve maturity certi --- ication within --- our years (extended by SEC discretion), CLARITY provides that the issuer --- aces enhanced disclosure obligations or loses the ability to conduct --- urther capital- raising. 248 The statute contemplates that systems --- ailing to achieve autonomy within this window may lose their exemption status, --- orcing either --- ull registration or cessation o --- public capital-raising. 249 This temporal discipline directly addresses the market dys --- unction documented in Part II: perpetual capital-raising that --- unded projects inde --- initely without delivering --- unctional networks.250 C. The Transition Phase: Maturity Determination and Certi --- ication When a blockchain network achieves technical maturity, the Transition phase begins—a --- ormal process during which the issuer or other quali --- ied parties petition the SEC and CFTC jointly to certi --- y the network’s maturity. 251 Upon certi --- ication, the asset exits securities regulation and enters mature commodity status. 252 1. Maturity Certi --- ication Mechanism The maturity determination process is governed by Securities Exchange Act § 42 (added by CLARITY § 205). 253 The statute establishes a certi --- ication mechanism with a critical institutional --- eature: broad eligibility to --- ile. 254 The statute provides: “A digital commodity issuer, digital commodity related person, digital commodity a --- --- iliated person, decentralized governance system o --- the blockchain system, or a registered digital commodity exchange, or any other appropriate person as designated by the Commission, may certi --- y 246 Securities Act § 17(a), 15 U.S.C. § 77q(a); Securities Exchange Act § 10(b), 15 U.S.C. § 78j(b); CLARITY does not waive anti --- raud authority during Entry phase. 247 CLARITY § 202(e). 248 Id. 249 Id. (explaining consequences o --- --- ailure to mature). 250 Supra Part II (documenting perpetual capital-raising dys --- unction). 251 CLARITY § 205. 252 Id. § 203. 253 Id. § 205 (adding Exchange Act § 42, 15 U.S.C. § 78u). 254 Id. § 205 (Exchange Act § 42(a)(1)). - 39 - Replacing Howey with CLARITY [2025-11-05 to the Commission that the blockchain system to which a digital commodity relates is a mature blockchain system.” 255 This breadth re --- lects congressional recognition that by the time a network approaches decentralization, no single entity may have clear authority; there --- ore, whoever is in the best position to attest to maturity (even a community governance body) should be able to initiate the process. 256 The petition must include evidence demonstrating that the network is not controlled by any single person or coordinated group. 257 The statute requires “such in --- ormation that is reasonably necessary to establish that the blockchain system is not controlled by any person or group o --- persons under common control,” including in --- ormation regarding the operation o --- the blockchain, --- unctionality o --- the digital commodity, how market value derives --- rom programmatic --- unctioning, any decentralized governance system, and the roles o --- the issuer and related persons i --- material to the system’s operation. 258 The certi --- ication is supported by detailed, objective technical evidence. 259 2. SEC Review and Automatic Approval The SEC’s review is tightly time-bound and creates automatic approval. 260 By statute, the SEC has 60 days to evaluate the certi --- ication. 261 I --- the Commission does nothing, the certi --- ication automatically becomes e --- --- ective a --- ter 60 days, and the blockchain is deemed a mature blockchain system by operation o --- law.262 The SEC can respond in two ways within the 60-day window: (1) rebut the certi --- ication, i --- it determines the network does not meet statutory maturity criteria, or (2) issue a stay o --- up to 120 additional days i --- there are novel or complex issues or inadequate in --- ormation. 263 A stay triggers a public comment process, indicating that the SEC might seek outside input on whether the criteria are met in borderline cases. 264 Ultimately, i --- the SEC a --- --- irmatively objects (rebuts) the certi --- ication, it must noti --- y the --- iler and provide reasons; the --- iler then has 90 days to submit additional materials or to appeal the SEC’s denial to the D.C. Circuit Court o --- Appeals, which reviews the SEC’s decision de novo— an important check that prevents undue SEC intransigence. 265 This 255 Id. ( --- ull statutory language). 256 Id. (explaining broad eligibility design). 257 Id. § 205 (Exchange Act § 42(a)(2)). 258 Id. (speci --- ic --- iling requirements). 259 Id. (emphasizing evidentiary support requirement). 260 Id. § 205 (Exchange Act § 42(a)(3)–(4)). 261 Id. § 205 (Exchange Act § 42(a)(3)). 262 Id. § 205 (Exchange Act § 42(a)(4)(A)). 263 Id. § 205 (Exchange Act § 42(a)(5)(A)). 264 Id. (describing stay and public comment process). 265 Id. § 205 (Exchange Act § 42(a)(8)(A)–(B)). - 40 - 2025-11-05] Seth C. Oranburg timeline --- orces administrative closure. 266 The maximum review period is 180 days (60 + 120 i --- stayed).267 A --- ter that deadline, certi --- ication becomes e --- --- ective. 268 This automatic approval mechanism is architecturally critical. 269 It directly addresses the regulatory oscillation documented in Part III: the SEC can no longer inde --- initely de --- er maturity determination or reverse course based on administrative pre --- erence. 270 CLARITY imposes a hard statutory deadline.271 I --- the SEC intends to rebut the certi --- ication, it must noti --- y the petitioner within 60 days. 272 No --- urther stays or extensions are available a --- ter the initial 120-day stay period. 273 This automatic approval mechanism prevents regulatory limbo—the inde --- inite de --- erral state that plagued the digital asset market --- rom 2018- 2024.274 3. De Novo Appellate Review De novo appellate review is a critical institutional sa --- eguard. 275 The statute speci --- ies: “In an appeal under subparagraph A, the court shall have de novo review o --- the determination to rebut the certi --- ication.” 276 This di --- --- ers signi --- icantly --- rom Chevron de --- erence and --- rom arbitrary- and-capricious review under the Administrative Procedure Act. 277 De novo review means courts exercise independent legal judgment on whether the blockchain meets the statutory criteria, not whether the SEC’s decision was reasonable. 278 The presence o --- de novo review statutory language re --- lects congressional intent to prevent the SEC --- rom obtaining de --- erence on technical maturity determinations.279 This is particularly important post-Loper Bright Enterprises, as courts are now required to exercise independent judgment anyway; CLARITY simply clari --- ies that de novo review is the applicable standard. 280 266 Id. 267 Id. (calculating maximum 180-day timeline). 268 Id. (automatic e --- --- ectiveness provision). 269 See supra Section IV.C (explaining architectural signi --- icance). 270 Supra Part III.B (documenting regulatory oscillation). 271 CLARITY § 205 (Exchange Act § 42(a)(3)–(4)) (60-day deadline with no inde --- inite de --- erral mechanism). 272 Id. § 205 (Exchange Act § 42(a)(3)). 273 Id. § 205 (Exchange Act § 42(a)(5)(A)) (one-time 120-day stay only). 274 Supra Part III (documenting regulatory limbo 2018-2024). 275 CLARITY § 205 (Exchange Act § 42(a)(8)(B)). 276 Id. ( --- ull statutory language speci --- ying de novo standard). 277 Supra Part III (re --- erencing post-Loper Light landscape and Chevron elimination). 278 CLARITY § 205 (Exchange Act § 42(a)(8)(B)). 279 Id. (congressional intent re --- lected in statutory language). 280 Supra Part III (discussing Loper Light Enterprises v. Raimondo, 144 S. Ct. 2244 (2024)). - 41 - Replacing Howey with CLARITY [2025-11-05 4. SEC Discretionary Constraints Critically, § 42(b)(3)(A) constrains SEC discretion during rulemaking: “Nothing in this subsection may be construed to permit the Commission to impose additional criteria to the criteria in subsection c --- or certi --- ying that a blockchain system is a mature blockchain system pursuant to subsection c.”281 The Commission may identi --- y alternative criteria by which blockchain systems may quali --- y as mature, accommodating technological change. 282 But the Commission cannot impose requirements beyond those codi --- ied in § 42(c).283 This statutory constraint directly rejects the SEC’s practice o --- expanding guidance through interpretive complexity: the Framework --- or Investment Contract Analysis o --- Digital Assets added 38 considerations to --- our Howey --- actors without establishing clear thresholds or hierarchies. 284 CLARITY prohibits this doctrinal elaboration, establishing instead a bright-line statutory set o --- maturity criteria. 285 5. The Statutory Maturity Criteria Exchange Act § 42(c)(2) establishes veri --- iable criteria that a blockchain system must satis --- y to be deemed mature. 286 All o --- the --- ollowing conditions must be satis --- ied simultaneously --- or certi --- ication to be granted:287 a. System Value Derivation § 42(c)(2)(A) requires that the digital commodity’s market value be “substantially derived --- rom the use and --- unctioning o --- the blockchain system,” and i --- the issuer published a development plan describing how value would derive --- rom programmatic --- unctioning, “the development o --- such mechanisms has been substantially completed.” 288 “Substantially derived” is not numerically de --- ined but contemplates that value --- lows primarily --- rom network utility rather than --- rom expected --- uture promoter e --- --- orts. 289 The second prong creates an estoppel-like doctrine: i --- issuers made public representations about how value would arise, they cannot later claim value derives --- rom 281 CLARITY § 205 (Exchange Act § 42(b)(3)(A)) (critical constraint on SEC discretion). 282 Id. § 205 (Exchange Act § 42(b)(3)(B)). 283 Id. § 205 (Exchange Act § 42(b)(3)(A)). 284 Supra Part II.A (analyzing 2019 SEC Framework --- or Investment Contract Analysis o --- Digital Assets). 285 CLARITY § 205 (Exchange Act § 42(c)(2)) (establishing bright-line criteria). 286 Id. § 205 (Exchange Act § 42(c)(2)). 287 Id. (conjunctive structure). 288 Id. § 205 (Exchange Act § 42(c)(2)(A)). 289 Id. (de --- ining “substantially derived” concept). - 42 - 2025-11-05] Seth C. Oranburg promoter control i --- they have implemented the promised mechanisms.290 b. Functional System § 42(c)(2)(B) requires a --- unctional system: “The blockchain system allows network participants to engage in the activities the blockchain system is intended to provide,” including using, transmitting, or storing value; deploying or accessing so --- tware and services; participating in consensus or governance; or operating computational in --- rastructure (nodes, validators, clients). 291 This requirement does not demand per --- ection but rather that the intended --- unctions are operational. 292 A payment blockchain must allow payments; a smart contract plat --- orm must allow contract deployment; a governance system must allow voting.293 c. Open and Interoperable System § 42(c)(2)(C) speci --- ies open and interoperable system requirements with two distinct prongs: the blockchain must be “composed o --- source code that is open source,” and it “does not restrict or prohibit based on the exercise o --- unilateral authority any person, other than a digital commodity issuer, digital commodity related person, or digital commodity a --- --- iliated person --- rom engaging in the activities the blockchain system is intended to provide.” 294 Open-source code is veri --- iable through examination; its presence means anyone can audit the so --- tware and --- ork the network i --- they choose. 295 The second prong prevents issuers --- rom using unilateral control to restrict participation: participants cannot be excluded --- rom consensus, governance, or utility provision based on issuer discretion. 296 d. Programmatic System § 42(c)(2)(D) establishes the programmatic system requirement: “The blockchain system operates, executes, and en --- orces its operations and transactions based solely on pre-established, transparent rules encoded directly within the source code o --- the blockchain system.”297 This requirement directly addresses the Howey “e --- --- orts o --- others” 290 Id. (estoppel-like doctrine). 291 Id. § 205 (Exchange Act § 42(c)(2)(B)). 292 Id. (discussing “operationality” standard). 293 Id. (providing examples). 294 Id. § 205 (Exchange Act § 42(c)(2)(C)). 295 Id. (explaining open-source veri --- iability). 296 Id. (second prong restriction). 297 Id. § 205 (Exchange Act § 42(c)(2)(D)). - 43 - Replacing Howey with CLARITY [2025-11-05 concern.298 I --- the blockchain executes based on pre-established code without human discretion or judgment, then ongoing e --- --- orts o --- promoters are not driving pro --- its. 299 This is the critical de --- initional distinction --- rom securities: --- or securities, value depends on ongoing discretionary decisions by managers; --- or programmatic systems, value depends on algorithm execution. 300 e. System Governance § 42(c)(2)(E) requires system governance: “No person or group o --- persons under common control may: (i) have the unilateral authority, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, to control or materially alter the --- unctionality, operation, or rules o --- consensus or agreement o --- the blockchain system or its related digital commodity; or (ii) have the unilateral authority to direct the voting, in the aggregate, o --- 20 percent or more o --- the outstanding voting power o --- such blockchain system by means o --- a related digital commodity, nodes or validators, a decentralized governance system, or otherwise, in a blockchain system which can be altered by a voting system.”301 This criterion contains two independent prohibitions. 302 The --- irst prong prevents “unilateral authority” to control the system. 303 “Unilateral authority” means sole or dominant control that permits one actor to impose decisions without consensus. 304 The second prong establishes a bright-line 20 percent threshold: no person or group under common control may direct 20 percent or more o --- voting power. 305 This bright-line threshold provides certainty that might be absent --- rom the more elastic “unilateral authority” standard. 306 Critically, the de --- inition o --- “group o --- persons under common control” includes digital commodity related persons, a --- --- iliated persons, and others whose conduct is coordinated or whose interests are aligned through contractual arrangements, --- amily relationships, or economic relationships.307 This prevents Balkanization: i --- three separate entities each own 10 percent but coordinate voting, they constitute a “group 298 See supra Part II.A (discussing Howey “e --- --- orts o --- others”). 299 CLARITY § 205 (Exchange Act § 42(c)(2)(D)). 300 Id. (distinguishing --- rom securities regime). 301 Id. § 205 (Exchange Act § 42(c)(2)(E)) ( --- ull statutory language). 302 Id. (two independent prohibitions). 303 Id. ( --- irst prong). 304 Id. (de --- ining “unilateral authority”). 305 Id. (second prong 20% threshold). 306 Id. (explaining threshold bene --- it). 307 Id. § 101 (amending Securities Act § 2(a) to add § 2(a)(29) de --- inition and cross- re --- erencing related de --- initions). - 44 - 2025-11-05] Seth C. Oranburg under common control” with 30 percent aggregate power, triggering the criterion.308 --- . Impartial System § 42(c)(2)(F) requires an impartial system: “No person or group o --- persons under common control may possess a unique permission or privilege with respect to --- unctionality, operation, or rules o --- consensus or agreement o --- the blockchain system or its related digital commodity,” unless such alteration “(i) addresses errors, regular maintenance, or cybersecurity risks o --- the blockchain system that a --- --- ect the programmatic --- unctioning o --- the blockchain system; and (ii) is adopted through the consensus or agreement o --- a decentralized governance system.”309 This prevents special administrative privileges that would allow issuers to unilaterally --- ork the blockchain or impose changes. 310 The exception --- or error-correction and security maintenance permits legitimate protocol upgrades without --- ull consensus.311 g. Distributed Ownership § 42(c)(2)(G) establishes distributed ownership: “No digital commodity issuer, digital commodity related person, or digital commodity a --- --- iliated person may bene --- icially own, in the aggregate, 20 percent or more o --- the total amount o --- units o --- the digital commodity.” 312 This numerical threshold parallels the voting power threshold and prevents both governance dominance and economic dominance by insiders.313 6. Conjunctive Application o --- Maturity Criteria These seven criteria are conjunctive. 314 An asset meets the maturity de --- inition only i --- it satis --- ies ALL seven. 315 This conjunctive structure di --- --- ers markedly --- rom Howey, which is disjunctive: an asset is a security i --- all --- our prongs are satis --- ied, but courts o --- ten collapse the inquiry onto the --- ourth prong.316 By establishing conjunctive technical criteria rather than disjunctive doctrinal --- actors, CLARITY eliminates 308 Id. (Balkanization prevention). 309 Id. § 205 (Exchange Act § 42(c)(2)(F)) ( --- ull statutory language). 310 Id. (preventing unilateral administrative privileges). 311 Id. (exception --- or maintenance). 312 Id. § 205 (Exchange Act § 42(c)(2)(G)). 313 Id. (parallel 20% threshold). 314 Supra Section IV.C (explaining conjunctive structure). 315 CLARITY § 205 (Exchange Act § 42(c)(2)) (all seven criteria required simultaneously). 316 Supra Part II.A (discussing Howey disjunctive structure and judicial collapse). - 45 - Replacing Howey with CLARITY [2025-11-05 argument about which element is “most important.”317 Compliance is determinable through technical analysis rather than through subjective judicial interpretation.318 D. The Maturity Phase: CFTC Jurisdiction and Commodity Regulation Once a blockchain is certi --- ied as mature, the digital commodity transitions to the Maturity phase and exits SEC securities jurisdiction entirely.319 CFTC takes primary authority over the asset --- or purposes o --- secondary market transactions and commodity trading. 320 Substantively, CLARITY § 203 provides that “the o --- --- er or sale o --- a digital commodity that originally involved an investment contract by a person other than the issuer o --- such digital commodity, or an agent or underwriter thereo --- , shall be deemed not to be an o --- --- er or sale o --- such investment contract” under any securities statute. 321 This language directly rejects the integration doctrine discussed in Part II.B. 322 Under Kik, the court integrated the SAFT and token distribution into a single scheme, ruling that all phases were subject to securities regulation because they shared a common purpose. 323 CLARITY § 203 explicitly bi --- urcates: the issuer remains subject to securities regulation even post- maturity; secondary market sales by non-issuers are deemed not to involve investment contracts. 324 This distinction preserves investor protection --- or primary markets while permitting secondary trading to proceed as commodity trading once maturity is achieved.325 1. Secondary Market Treatment and Agent De --- inition The secondary market treatment clari --- ies that issuers retain exposure to securities laws, including anti --- raud provisions.326 Under § 203(c), an “agent” means any person “directly or indirectly controlled by the issuer or under direct or indirect common control with the issuer.” 327 This de --- inition prevents issuers --- rom evading securities requirements by using controlled entities to distribute holdings 317 CLARITY § 205 (establishing conjunctive bright-line criteria). 318 Id. (technical determinability). 319 Id. § 203. 320 Id. § 9A (trans --- erring to CFTC). 321 Id. § 203(a) (adding Securities Act § 4A(a), 15 U.S.C. § 77d-2(a)). 322 See supra Part II.B (analyzing integration doctrine). 323 SEC v. Kik Interactive, Inc., 492 F. Supp. 3d 169 (S.D.N.Y. 2020). 324 CLARITY § 203(a). 325 Id. (bi --- urcating primary and secondary markets). 326 Id. (issuer securities exposure persists). 327 Id. § 203(c). - 46 - 2025-11-05] Seth C. Oranburg incrementally. 328 I --- the SEC determines that a person is an agent— controlled by or operating under common control with the issuer— sales by that person remain subject to securities restrictions even a --- ter certi --- ication.329 Critically, anti --- raud authority persists on both sides and creates concurrent jurisdiction: SEC anti --- raud provisions under Securities Act § 17(a) and Securities Exchange Act § 10(b) remain applicable to the conduct o --- issuers and agents throughout Entry and Transition phases, while CFTC anti --- raud and anti-manipulation authority under CEA § 4c(h) applies to post-maturity trading by all participants and to the conduct o --- CFTC-regulated intermediaries. 330 This overlap ensures no regulatory gap in investor protection. 331 2. Insider Trading Restrictions in Transition and Maturity CLARITY § 204 separately addresses sales by “digital commodity related persons” and “digital commodity a --- --- iliated persons” during Transition and a --- ter Maturity certi --- ication, establishing a tiered insider- trading regime.332 Prior to maturity, such persons can only sell units i --- semiannual reports have been --- iled with the SEC, the person has held units --- or at least 12 months, and sales amount --- all within speci --- ied percentage bands set by the SEC. 333 A --- ter maturity certi --- ication, “digital commodity related persons” may --- reely sell holdings. 334 “Digital commodity a --- --- iliated persons” may sell i --- the required post- maturity in --- ormation is publicly available, the person has held units --- or the earlier o --- 12 months or 3 months --- ollowing certi --- ication, and sales do not exceed speci --- ied percentages (5 to 10 percent o --- total outstanding tokens annually as determined by SEC rulemaking). 335 This creates a tiered regime: insiders remain subject to some restrictions even a --- ter maturity, but restrictions relax to re --- lect changed in --- ormation asymmetry once networks operate autonomously.336 3. CFTC Commodity Regulation Framework The CFTC’s role in Maturity is de --- ined by CLARITY § 9A, which amends the Commodity Exchange Act § 2(c)(2) to treat mature digital 328 Id. (de --- ining “agent” to prevent evasion). 329 Id. (agent restrictions). 330 Securities Act § 17(a), 15 U.S.C. § 77q(a); Securities Exchange Act § 10(b), 15 U.S.C. § 78j(b); Commodity Exchange Act § 4c(h), 7 U.S.C. § 6c(h). 331 See supra Section IV.D (explaining dual anti --- raud regime). 332 CLARITY § 204. 333 Id. § 204(c)(1). 334 Id. § 204(c)(2)(A). 335 Id. § 204(c)(2)(B). 336 Id. (tiered restriction structure). - 47 - Replacing Howey with CLARITY [2025-11-05 assets as commodities.337 The CFTC gains authority over spot market transactions in mature digital commodities, primarily to regulate market manipulation and --- raud. 338 The Act establishes new categories o --- CFTC registration --- or digital asset intermediaries: “Digital Commodity Exchanges,” “Digital Commodity Brokers,” and “Digital Commodity Dealers.”339 These roughly correspond to --- amiliar entities like exchanges, brokers, and dealers in commodities markets. 340 A Digital Commodity Exchange must register with the CFTC and comply with core principles (preventing market manipulation, providing price transparency, sa --- eguarding customer assets, etc.) akin to those --- or traditional --- utures exchanges. 341 Digital Commodity Brokers and Dealers must --- ollow regulations protecting customer --- unds and avoiding con --- licts o --- interest, subject to capital and conduct requirements analogous to --- utures commission merchants or swap dealers. 342 By importing many tried-and-true regulations --- rom the commodities and securities worlds, the Act ensures that as the industry matures, it operates under --- amiliar investor protection standards (recordkeeping, anti- --- raud rules, capital requirements). 343 This addresses practitioners’ concern that a new legal category might otherwise create an unregulated shadow sector. 344 E. SEC-CFTC Jurisdictional Coordination and Institutional Redesign The Act’s jurisdictional hando --- --- --- rom SEC to CFTC is care --- ully structured to avoid gaps. 345 When the SEC receives a maturity certi --- ication --- iling, it must provide a copy to the CFTC and make the outcome public, ensuring the CFTC is aware when a token exits securities jurisdiction to become a --- ully regulated commodity. 346 This coordination prevents either regulator --- rom losing track o --- digital assets transitioning between jurisdictions. 347 More --- undamentally, CLARITY establishes a new institutional architecture --- or sustained SEC-CFTC coordination.348 The Act codi --- ies SEC FinHub (Strategic Hub --- or Innovation and Financial Technology) 337 Id. § 9A (amending Commodity Exchange Act § 2(c)(2), 7 U.S.C. § 2(c)(2)). 338 Id. (CFTC spot market authority). 339 Id. §§ 404–406 (establishing registration categories). 340 Id. (comparing to traditional commodities --- ramework). 341 Id. § 404(b) (core principles --- or Digital Commodity Exchanges). 342 Id. §§ 405–406 (registration and regulation). 343 Id. § 402–413 (importing securities and commodities protections). 344 Supra Part IV.D (addressing shadow-sector concern). 345 CLARITY § 205 (Exchange Act § 42(a)(9)). 346 Id. (requiring SEC-CFTC noti --- ication). 347 Id. (coordination mechanism). 348 Id. § 502–503. - 48 - 2025-11-05] Seth C. Oranburg as a permanent statutory o --- --- ice under Securities Exchange Act § 4(l) and CFTC LabCFTC as a permanent statutory o --- --- ice under Commodity Exchange Act § 18(c), each with explicit mandates. 349 Previously, FinHub and LabCFTC existed as internal o --- --- ices within their respective agencies. 350 CLARITY elevates them to statutory status, providing permanent --- unding, reporting requirements, and explicit operational mandates.351 SEC FinHub is charged with --- acilitating communication between the SEC and --- intech businesses, providing outreach and guidance on digital assets to innovators. 352 FinHub maintains a permanent committee drawing sta --- --- --- rom divisions like Trading & Markets, Corporation Finance, and Investment Management. 353 The Act requires FinHub to report annually on its activities, and its mandate includes establishing mechanisms through which entrepreneurs can seek in --- ormal guidance on novel structures. 354 During Entry and Transition phases, a token issuer can approach FinHub to discuss the --- orm and content o --- required disclosures, or to structure decentralization milestones satis --- ying the maturity criteria. 355 Having an internal SEC champion --- or innovation improves regulatory clarity: FinHub can internally advise the SEC on where existing rules might need updating or where no-action relie --- might be appropriate --- or novel situations. 356 CFTC LabCFTC is similarly cemented as an o --- --- ice reporting directly to the CFTC Commission, with duties to “provide outreach” to innovators and to recommend regulatory improvements --- or CFTC rules as they relate to new technology. 357 LabCFTC’s statutory charter to encourage engagement and obtain --- eedback --- rom innovators means that as projects approach Maturity and beyond, they have a --- ormal avenue to discuss how a decentralized exchange or a DeFi protocol might comply with commodity trading regulations.358 The Act requires LabCFTC to keep records o --- its public engagements and adhere to con --- identiality rules, re --- lecting sensitivity to both transparency and protection o --- proprietary in --- ormation. 359 349 Id. § 502 (codi --- ying SEC FinHub as Securities Exchange Act § 4(l)); id. § 503 (codi --- ying CFTC LabCFTC as Commodity Exchange Act § 18(c)). 350 Id. (elevating --- rom internal to statutory status). 351 Id. (statutory mandate and --- unding). 352 Id. § 502(b). 353 Id. (committee structure). 354 Id. § 502(c) (annual reporting requirement). 355 Id. (Entry and Transition phase applications). 356 Id. (advisory and internal guidance --- unction). 357 Id. § 503(b). 358 Id. (Maturity phase applications). 359 Id. § 503(c)–(d). - 49 - Replacing Howey with CLARITY [2025-11-05 These codi --- ied institutions represent a regulatory philosophy shi --- t.360 Rather than adopting a reactive en --- orcement-driven approach, the statute contemplates that regulators will engage iteratively with industry to re --- ine how laws apply. 361 By --- ormalizing FinHub and LabCFTC at the statutory level, Congress signals its expectation that e --- --- ective implementation o --- CLARITY requires sustained dialogue with evolving blockchain markets. 362 Additionally, CLARITY § 304 calls --- or SEC-CFTC rulemaking --- or dual-registered entities, anticipating that some exchanges or --- irms may register with both the SEC ( --- or securities activities) and CFTC ( --- or digital commodity activities). 363 The regulators are instructed to streamline requirements in such cases, which is critical --- or market participants who operate in both realms. 364 This provision prevents regulatory arbitrage while reducing compliance burden --- or legitimate multi-regulator participants. 365 F. SEC-CFTC Joint Rulemaking Authority and Constraints CLARITY § 105(a) requires that the SEC and CFTC jointly issue rules within 270 days to implement the statutory maturity regime. 366 Section 42(e) provides that “not more than 270 days a --- ter the date o --- enactment o --- this section, the Commission shall issue rules to carry out this section.” 367 The 270-day deadline creates institutional urgency: agencies cannot inde --- initely delay implementation. 368 SEC FinHub and CFTC LabCFTC serve as dedicated channels --- acilitating the SEC- CFTC coordination necessary to meet this timeline. 369 As o --- November 2025, --- inal rules implementing § 42 have not yet been issued; the 270- day deadline runs --- rom CLARITY’s enactment. 370 Current reports indicate the SEC and CFTC remain in interagency coordination. 371 This delay illustrates the practical challenge o --- translating statutory language into operational procedure, particularly when interagency coordination is required.372 360 See supra Section IV.E (explaining institutional philosophy shi --- t). 361 CLARITY § 502–503 (codi --- ying iterative regulatory engagement). 362 Id. (congressional signal about implementation requirements). 363 Id. § 304. 364 Id. (dual registration streamlining instruction). 365 Id. (preventing regulatory arbitrage while enabling legitimate operations). 366 Id. § 105(a)(1). 367 Id. § 205 (Exchange Act § 42(e)). 368 Id. (270-day institutional deadline). 369 Id. § 502–503 (FinHub and LabCFTC coordination roles). 370 Based on current regulatory timeline reports as o --- November 4, 2025: SEC and CFTC remain in joint rulemaking process but have not published proposed rules. 371 Id. 372 Id. (challenges o --- interagency coordination). - 50 - 2025-11-05] Seth C. Oranburg 1. Rulemaking Substantive Questions The joint rulemaking must address multiple interpretive questions.373 The statute de --- ines maturity criteria but does not provide numerical speci --- icity --- or all terms. 374 What counts as “substantially derived” value—80 percent? 90 percent? 375 The statute speci --- ies 20 percent voting thresholds --- or governance and ownership but does not address multi-stage decision-making systems where preliminary decisions are made by one group and --- inal decisions by another. 376 Does a system with a core development team making technical decisions (within 5 percent ownership) and governance token holders (each under 5 percent) satis --- y the criteria even i --- e --- --- ective control remains concentrated in the developers’ discretionary design authority? 377 2. SEC-CFTC Rulemaking Constraints Section 42(b)(2) constrains SEC-CFTC rulemaking: the rules must be “consistent with the protection o --- investors, maintenance o --- --- air, orderly, and e --- --- icient markets, and the --- acilitation o --- capital --- ormation.” 378 This standard-setting constraint mirrors language throughout the securities laws. 379 Agencies cannot constrain the maturity determination process such that it becomes impossible to achieve. 380 I --- rulemaking makes maturity determinations so burdensome that no network can satis --- y them, the rulemaking is inconsistent with “ --- acilitation o --- capital --- ormation.”381 Conversely, i --- rulemaking makes maturity determinations so permissive that demonstrably controlled systems quali --- y, the rulemaking is inconsistent with “protection o --- investors.”382 3. Limitation Principle on SEC Discretion Section 42(b)(3)(B) provides a counterbalancing grant o --- authority: “Nothing in this subsection or subsection c may be construed to limit 373 CLARITY § 205 (Exchange Act § 42(c)(2)) (statutory criteria with interpretive gaps). 374 Id. (lacking complete numerical speci --- icity). 375 Id. (“substantially derived” value threshold unde --- ined). 376 Id. § 205 (Exchange Act § 42(c)(2)(E)) (20% thresholds silent on multi-stage decision structures). 377 Id. (interpretive question --- or rulemaking). 378 Id. § 205 (Exchange Act § 42(b)(2)). 379 Securities Act § 2(b), 15 U.S.C. § 77b(b); Securities Exchange Act § 3( --- ), 15 U.S.C. § 78c( --- ). 380 CLARITY § 205 (Exchange Act § 42(b)(2)) (agencies must balance investor protection and capital --- ormation). 381 Id. ( --- acilitation o --- capital --- ormation constraint). 382 Id. (protection o --- investors constraint). - 51 - Replacing Howey with CLARITY [2025-11-05 the Commission’s ability to identi --- y alternative conditions and criteria by which a blockchain system may be considered a mature blockchain system.” 383 This preserves agency --- lexibility to evolve standards as technology changes.384 I --- a novel blockchain architecture emerges that does not --- it the enumerated criteria but genuinely achieves decentralization and autonomy, the SEC can identi --- y alternative pathways to maturity certi --- ication. 385 However, this alternative pathways authority must remain secondary to the statutory criteria; it cannot supplant them.386 The rulemaking constraint represents a deliberate institutional choice to prevent regulatory dri --- t. 387 By limiting the SEC’s ability to expand criteria unilaterally, the statute prevents regulatory capture through elaboration.388 It also prevents the SEC --- rom shi --- ting standards based on administrative pre --- erence. 389 Whereas prior SEC Chairs could adopt contradictory positions on Howey (Hinman, Gensler, Atkins), the statutory constraints here --- orce consistency. 390 Future SEC leadership can apply the criteria more stringently or develop additional alternative pathways, but they cannot unilaterally add new requirements beyond the statute or contract existing ones.391 G. Temporal Architecture and Institutional Discipline CLARITY’s three-phase regime creates institutional discipline through temporal structure and automatic approval mechanisms. 392 This architecture directly addresses the regulatory oscillation documented in Part III.B.393 1. Entry Phase Temporal Binding The --- irst discipline is the --- our-year Entry runway.394 Issuers cannot remain inde --- initely in development status raising capital under exemptions. 395 The statute establishes a binding deadline: maturity must be achieved within --- our years (subject to SEC extension 383 Id. § 205 (Exchange Act § 42(b)(3)(B)). 384 Id. (technological --- lexibility). 385 Id. (alternative pathways authority). 386 Id. (alternative pathways remain secondary). 387 See supra Section IV.F (explaining rulemaking constraint as institutional choice). 388 CLARITY § 205 (Exchange Act § 42(b)(3)(A)). 389 Id. (preventing standards shi --- t). 390 Supra Part III (documenting Hinman, Gensler, Atkins oscillation). 391 CLARITY § 205 (Exchange Act § 42(b)(3)(A)) (statutory constraint on --- uture SEC discretion). 392 See supra Section IV.G (explaining temporal architecture). 393 Supra Part III.B (documenting oscillation). 394 CLARITY § 202(a)(1)(A) ( --- our-year Entry deadline). 395 Id. (binding temporal obligation). - 52 - 2025-11-05] Seth C. Oranburg authority) or the issuer loses exemption status. 396 This prevents the perpetual capital-raising that characterized early ICO markets where projects raised --- unds --- or years without demonstrating --- unctional networks. 397 The deadline is strict enough to incentivize genuine network development but --- lexible enough to permit protocols to achieve su --- --- icient maturity. 398 2. Automatic Transition Phase Approval The second discipline is automatic Transition Phase approval. 399 Unlike most regulatory determinations where agencies maintain discretion to approve or deny inde --- initely, CLARITY provides that --- ailure to rebut a maturity certi --- ication within 60 days results in automatic approval.400 The SEC can extend this review period once --- or up to 120 additional days --- or “novel or complex issues.”401 But a --- ter 180 total days, the certi --- ication is e --- --- ective. 402 This automatic approval mechanism prevents regulatory limbo—the inde --- inite de --- erral state that plagued the digital asset market --- rom 2018-2024.403 The contrast with Howey litigation is stark. 404 In Ripple, the case proceeded --- or three years be --- ore Judge Torres issued a decision. 405 In LBRY, similar time --- rames applied. 406 The Kik litigation spanned multiple years. 407 During such periods, the asset’s regulatory status remained indeterminate, preventing issuers or exchanges --- rom planning compliance strategies. 408 CLARITY’s 180-day determination window --- orces administrative closure, with hard statutory deadlines. 409 3. Binary Maturity Transition The third discipline is the binary Maturity transition. 410 Once maturity is certi --- ied, the asset is no longer a security under the --- ederal 396 Id. (exemption loss consequence). 397 Supra Part II (documenting perpetual capital-raising dys --- unction). 398 CLARITY § 202(a)(1)(A) ( --- our-year --- lexibility balance). 399 Id. § 205 (Exchange Act § 42(a)(4)(A)) (automatic approval mechanism). 400 Id. (60-day rebut period). 401 Id. § 205 (Exchange Act § 42(a)(5)(A)) (120-day stay provision). 402 Id. § 205 (Exchange Act § 42(a)(4)(A)) (certi --- ication e --- --- ective a --- ter expiration). 403 Supra Part III (documenting regulatory limbo 2018-2024). 404 SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308 (S.D.N.Y. 2023); SEC v. LBRY, Inc., 639 F. Supp. 3d 211 (D.N.H. 2022); SEC v. Kik Interactive, Inc., 492 F. Supp. 3d 169 (S.D.N.Y. 2020). 405 Ripple, 682 F. Supp. 3d at 308 (three-year litigation). 406 LBRY, 639 F. Supp. 3d at 211 (multi-year proceeding). 407 Kik, 492 F. Supp. 3d at 169 (extended litigation). 408 Supra Part III (discussing regulatory indeterminacy e --- --- ects). 409 CLARITY § 205 (Exchange Act § 42(a)(3)–(4)) (hard statutory deadlines). 410 Id. § 203(a) (binary security/commodity transition). - 53 - Replacing Howey with CLARITY [2025-11-05 securities laws.411 There is no middle ground or conditional status. 412 This contrasts with Howey regimes where an asset might be “mostly” a security or where courts distinguish transaction types (Ripple’s institutional versus programmatic sales). 413 CLARITY eliminates ambiguity through binary classi --- ication: mature or immature, security or commodity.414 4. Addressing Institutional Pathologies This temporal architecture addresses the speci --- ic institutional pathologies documented in Part III.415 Regulatory oscillation occurred because the SEC could inde --- initely de --- er classi --- ication decisions, adopt contradictory positions, and reverse course based on administrative pre --- erence.416 CLARITY prevents this through automatic approval and statutory criteria that constrain agency discretion. 417 Judicial --- ragmentation occurred because di --- --- erent courts applied Howey’s subjective --- actors to similar --- acts and reached di --- --- erent conclusions. 418 CLARITY replaces subjective standards with technical criteria that courts can apply more consistently. 419 5. Implementation Dependency Whether this discipline succeeds depends on institutional compliance.420 I --- courts diverge in interpreting whether a blockchain meets “programmatic --- unctioning,” “unilateral authority,” or “distributed ownership” standards, they risk replicating the very --- ragmentation CLARITY seeks to eliminate. 421 This institutional dependency --- oreshadows the implementation capacity questions examined in Part V: whether --- ederal courts and the SEC possess su --- --- icient technical expertise to apply CLARITY’s objective standards consistently across diverse blockchain architectures and evolving protocols.422 The question is not whether CLARITY’s statutory design 411 Id. (securities law exclusion). 412 Id. (no conditional intermediate status). 413 Ripple, 682 F. Supp. 3d at 308 (institutional vs. programmatic distinction); Supra Part II.B (analyzing transaction-type analysis). 414 CLARITY § 203(a) (binary classi --- ication). 415 See supra Part III (documenting institutional pathologies). 416 Id. Part III.B (regulatory oscillation). 417 CLARITY § 205 (Exchange Act § 42(a)–(b)) (automatic approval and statutory constraint). 418 Supra Part III.A (judicial --- ragmentation). 419 CLARITY § 205 (Exchange Act § 42(c)(2)) (technical conjunctive criteria replacing subjective Howey --- actors). 420 See in --- ra Part V (examining implementation capacity). 421 Id. (technical interpretive capacity question). 422 Id. (institutional capacity dependency). - 54 - 2025-11-05] Seth C. Oranburg is theoretically sound, but whether institutional actors can develop and deploy su --- --- icient interpretive discipline to apply these technical standards uni --- ormly over time. 423 H. State Securities Law Pre-emption While CLARITY § 308 exempts digital commodities --- rom state blue-sky securities laws by treating mature digital commodities as “covered securities” under Securities Act § 18(b)(5), this exemption applies only upon maturity certi --- ication. 424 During Entry and Transition phases, issuers must comply with both --- ederal SEC requirements and applicable state securities regulation, creating a multi-layer compliance --- ramework that practitioners must care --- ully navigate.425 Whether states will voluntarily honor --- ederal preemption on digital commodities depends on state legislative and regulatory action, creating a secondary implementation question distinct --- rom --- ederal institutional capacity and creating an ongoing coordination challenge between --- ederal regulators and state securities administrators.426 V. FROM DESIGN TO DELIVERY: ENTRY DEFAULTS AND INSTITUTIONAL CAPACITY Parts I–IV established that the Clarity Act resolves the Temporal Paradox through structural legislative redesign. 427 Where Howey treats asset classi --- ication as permanently --- ixed at the moment o --- o --- --- er or sale, CLARITY establishes a li --- ecycle regime acknowledging that blockchain-based assets can legitimately trans --- orm their legal character as networks decentralize and promoter control diminishes.428 This Part con --- ronts a necessary but di --- --- icult question: does CLARITY’s elegant statutory architecture translate into reliable institutional practice? The Act moves regulation away --- rom subjective legal standards toward objective technical measurement, but that paradigm shi --- t does not eliminate interpretive challenges; it relocates them. 429 Courts and agencies must now demonstrate su --- --- icient technical literacy to apply CLARITY’s maturity criteria consistently across diverse blockchain 423 Id. (interpretive discipline requirement). 424 CLARITY § 308 (state blue-sky treatment); Securities Act § 18(b)(5), 15 U.S.C. § 77r(b)(5) (covered securities). 425 Id. (multi-layer compliance structure --- or Entry and Transition phases). 426 Id. (state-level implementation question and --- ederal-state coordination challenge). 427 Supra Parts II–IV (explaining statutory structure and li --- ecycle mechanism o --- CLARITY Act). 428 Supra Part II (Temporal Paradox); Part IV.D (Maturity phase transition). 429 In --- ra Sections V.B–V.C (examining implementation challenges). - 55 - Replacing Howey with CLARITY [2025-11-05 architectures, evolving protocols, and novel governance mechanisms. 430 This Part supplies --- ive narrow interpretive de --- aults grounded in settled doctrine to guide entry-phase adjudication, then diagnoses the institutional pressures—jurisdictional coordination, appellate capacity, --- ederalism --- riction, technological evolution, and rational gaming—that could undermine CLARITY’s implementation even i --- its statutory design is sound. A. Entry at the Edge: Five Narrow De --- aults CLARITY leaves entry-phase analysis less explicit than later stages, creating interpretive gaps that courts can stabilize through --- ive narrow de --- aults rooted in established doctrine and statutory coherence.431 These de --- aults do not purport to supply a comprehensive entry test; rather, they channel judicial discretion through --- amiliar doctrinal --- ilters, allowing the li --- ecycle --- ramework to --- unction as intended while preserving regulatory --- lexibility i --- the SEC or Congress determine that more complete guidance is needed. 432 The --- irst de --- ault returns to the scheme-not-object principle --- oundational to Howey.433 SEC v. W.J. Howey Co. and United Housing Found., Inc. v. Forman direct courts to examine the arrangement’s economic reality, not the asset’s label. 434 Read entry-phase classi --- ication as a transaction- --- ocused inquiry: did purchasers, at the moment o --- purchase, reasonably expect pro --- its --- rom the promoter’s e --- --- orts? 435 This --- raming distinguishes the asset’s eventual technological --- orm --- rom its initial capital-raising scheme. CLARITY’s separation o --- “investment contract” --- rom “investment-contract asset” con --- irms this principle. 436 The security exists in the scheme at time t, not permanently in the token across all chronological time. 437 When courts encounter secondary-market tokens originally distributed as investment vehicles, they should ask whether the investment rationale 430 In --- ra Section V.B (discussing technical interpretive capacity and appellate role). 431 These de --- aults do not exhaust entry doctrine but channel judicial discretion through established --- ilters. They are conservative in scope: rooted in Howey, the canon against surplusage, established Ripple and Terra --- orm precedent, and constitutional --- air notice principles. 432 This is the working presumption: the statute provides su --- --- icient guidance --- or courts, but leaves --- lexibility --- or --- uture re --- inement through SEC rulemaking or Congressional amendment as technology and case law develop. 433 SEC v. W.J. Howey Co., 328 U.S. 293, 298–99 (1946); United Housing Found., Inc. v. Forman, 421 U.S. 837, 849–52 (1975). 434 Id. 435 This --- ormulation prioritizes the transactional moment and the parties’ reasonable expectations at that moment. 436 CLARITY § 101 (amending Securities Act § 2(a)(25) to separate “investment contract” and “investment-contract asset”). 437 Supra Part II.A (scheme-not-object principle). - 56 - 2025-11-05] Seth C. Oranburg persists at the moment o --- analysis, not assume historic classi --- ication binds present transactions.438 The second de --- ault applies the canon against surplusage to harmonize entry interpretation with transition and maturity stages. 439 Interpretations that e --- --- ectively re-label secondary trades as investment contracts would render CLARITY’s transition disclosures and maturity certi --- ications super --- luous, contrary to the principle that courts should give e --- --- ect to every statutory provision. 440 The statute’s architecture— separating entry, transition, and maturity into distinct phases with di --- --- erentiated regulatory consequences—signals that courts should interpret entry doctrine to preserve genuine work --- or each stage. 441 This is not permission to ignore entry-stage securities --- raud, but rather instruction to construe entry doctrine in a way that respects Congress’s decision to map regulatory treatment to li --- ecycle evolution rather than --- reezing status at issuance. 442 The third de --- ault anchors “expectation o --- pro --- it” in context and knowledge at the point o --- sale. Howey’s “expectation” prong is inherently --- act-sensitive and contextual. 443 SEC v. Ripple Labs, Inc. distinguished institutional purchasers who received investment contracts and contractual commitments --- rom programmatic exchange purchasers without direct interaction with the issuer. 444 SEC v. Terra --- orm Labs Pte. Ltd. recognized that vigorous marketing campaigns could carry investment expectations into secondary markets even among distant participants unconnected to the promoter. 445 Courts should weigh promotional messaging, purchaser sophistication, mode o --- sale, and whether the promoter pledged ongoing operational e --- --- orts.446 A white paper promising that token-sale proceeds will --- und continued development by a core team signals investment contract status; a network launched when --- ully operational and user-governed points away --- rom reliance on others’ e --- --- orts. 447 The inquiry is 438 This re --- lects Ripple’s distinction between institutional and programmatic sales contextualized to each transaction. 439 Hibbs v. Winn, 542 U.S. 88, 101 (2004) (canon against surplusage). 440 Id. (every provision should be given e --- --- ect). 441 CLARITY § 201–205 (establishing three-phase li --- ecycle with distinct entry, transition, and maturity provisions). 442 This respects the legislative judgment that temporal evolution is legitimate and should be accommodated rather than denied. 443 Howey, 328 U.S. at 301 (de --- ining expectation as core element). 444 SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 325, 330 (S.D.N.Y. 2023) (institutional sales constituted investment contracts; programmatic exchange sales did not). 445 SEC v. Terra --- orm Labs Pte. Ltd., 684 F. Supp. 3d 170, 183–92 (S.D.N.Y. 2023) (promotional messaging established expectations). 446 These --- actors re --- lect the --- act-intensive inquiry Howey contemplates and Ripple/Terra --- orm operationalize. 447 This distinction tracks the capital-raising phase (where investment expectations are promoted) versus utility phase (where --- unction replaces promise). - 57 - Replacing Howey with CLARITY [2025-11-05 necessarily contextual, and that contextuality is appropriate; it re --- lects Howey’s --- oundational commitment to substance over --- orm.448 The --- ourth de --- ault tailors remedies to the period during which the investment-contract scheme actually existed. When a blockchain network is genuinely mature—a determination CLARITY § 205(a)(2) provides --- ormal process --- or recognizing—the rationale --- or securities remedies recedes. 449 The Commodity Exchange Act’s anti --- raud and anti-manipulation provisions, codi --- ied in 7 U.S.C. § 9(1) and 17 C.F.R. § 180.1, govern secondary market conduct post-maturity. 450 This avoids un --- airly hobbling a now-decentralized network and respects Congress’s jurisdictional hand-o --- --- .451 Remedial proportionality is itsel --- a rule-o --- -law virtue: en --- orcement tools should be calibrated to the temporal period and risk pro --- ile they address. 452 Extending securities remedies inde --- initely to a network that is demonstrably mature contravenes this principle by applying sanctions to conduct occurring under conditions no longer presenting the agency costs that justi --- ied securities regulation.453 The --- i --- th de --- ault requires --- air notice at the borderline. In a novel regulatory domain with inherent ambiguity, courts should resist retroactively punishing conduct that was not clearly unlaw --- ul ex ante. 454 Loper Light Enterprises v. Raimondo eliminated Chevron de --- erence, requiring courts to exercise independent judgment on statutory interpretation.455 Due process principles demand that persons be punished only --- or conduct they could reasonably understand to be illegal. 456 FCC v. Fox Television Stations, Inc. established this --- oundational protection. 457 Where a promoter operated in borderline territory between merely promoting a technology and explicitly making pro --- it guarantees tied to promoter e --- --- orts, retroactively extending investment-contract classi --- ication would violate --- air notice 448 Supra Part V.A (scheme-not-object de --- ault). 449 CLARITY § 205 (adding Securities Exchange Act § 42, establishing maturity recognition process). 450 7 U.S.C. § 9(1) (CEA § 6(c)(1), CEA anti --- raud authority); 17 C.F.R. § 180.1 (CEA anti- manipulation rule). 451 CLARITY § 204 (CFTC jurisdiction post-maturity); id. § 203 (secondary sales deemed not to involve investment contracts once mature). 452 This is a core rule-o --- -law principle: proportionality between conduct, harm, and remedy. 453 Supra Part IV.D (Maturity Phase mechanism). 454 FCC v. Fox Television Stations, Inc., 567 U.S. 239, 253–54 (2012) ( --- air notice requirement in due process). 455 Loper Light Enterprises v. Raimondo, 144 S. Ct. 2244, 2273–74 (2024) (eliminating Chevron de --- erence and requiring independent judicial judgment). 456 Grayned v. City o --- Rock --- ord, 408 U.S. 104, 108–09 (1972) ( --- air notice requirement); Connally v. General Constr. Co., 269 U.S. 385, 391 (1926) (law must be su --- --- iciently de --- inite). 457 Fox, 567 U.S. at 253–54. - 58 - 2025-11-05] Seth C. Oranburg principles.458 This de --- ault is not a license --- or wrongdoing, but a guard against retroactive legal surprise—a hallmark o --- rule-o --- -law governance.459 These --- ive de --- aults converge on a core thesis: interpret entry doctrine to --- ocus on the arrangement’s economic reality at the moment it mattered—the initial capital-raising—rather than retroactively extending that classi --- ication through time based on subsequent technical evolution. 460 They preserve the li --- ecycle coherence that CLARITY’s statutory design contemplates.461 B. Institutional Coordination and Appellate Capacity CLARITY assigns entry-stage oversight to the SEC (o --- --- erings, transition certi --- ication, maturity review) and post-maturity trading to the CFTC, creating a dual-regulator structure that --- unctions only through genuine institutional coordination. 462 The Dodd-Frank experience demonstrates the di --- --- iculty. Meaning --- ul SEC–CFTC harmonization on swap-dealer de --- initions consumed nearly a decade, with both agencies pursuing overlapping rulemaking, con --- licting guidance, and divergent en --- orcement priorities creating substantial market con --- usion. 463 This was not incompetence; it was structural --- riction. Lisa Schultz Bressman’s analysis o --- administrative procedures demonstrates that procedures are bargaining tools through which institutional actors with divergent interests leverage process to advance pre --- erred policies. 464 Joint rulemaking deadlines and coordination mandates become contested battlegrounds. Without power --- ul incentives to converge, agencies protect tur --- and diverge on interpretation.465 458 This re --- lects the principle articulated in Fox: when law leaves conduct ambiguous, due process counsels against retroactive en --- orcement. 459 Rule-o --- -law values include not only clarity but also non-retroactivity—the principle that persons are not punished --- or conduct not clearly unlaw --- ul at the time. 460 This thesis harmonizes the entry de --- aults: all --- ive ensure that entry analysis --- ocuses on the economic reality when capital-raising occurred, not on retrospective reclassi --- ication based on subsequent technical events. 461 Supra Part IV (explaining li --- ecycle architecture and its dependence on distinct treatment o --- entry, transition, and maturity). 462 CLARITY § 205 (joint SEC-CFTC rulemaking and coordination mandate); id. § 204 (CFTC jurisdiction post-maturity). 463 SEC & CFTC Joint Press Release No. 2020-264 (Oct. 22, 2020) ( --- inalizing swap-dealer margin harmonization); U.S. Gov’t Accountability O --- --- ice, Derivatives Market Regulations: Regulators’ E --- --- orts to Improve Oversight and Coordination, GAO-13-8, at 15–23 (Nov. 2012) (documenting implementation delays and coordination challenges across decade-long process). 464 Lisa Schultz Bressman, Procedures as Politics in Administrative Law, 98 Colum. L. Rev. 1389, 1399–1402 (2007) (explaining how procedures become bargaining tools --- or inter- agency leverage). 465 Id. (absent convergence incentives, agencies pursue divergent interests). - 59 - Replacing Howey with CLARITY [2025-11-05 CLARITY’s 270-day joint rulemaking deadline creates urgency Dodd-Frank lacked, but urgency alone does not guarantee alignment. 466 The statute does create institutional incentive through reputation. Both agencies must submit annual coordination reports to Congress explaining progress on joint guidance, including documentation o --- areas o --- agreement and disagreement. 467 Congressional oversight o --- coordination --- ailure creates visibility and accountability that private- sector pressure cannot achieve. 468 Daniel P. Carpenter’s research on institutional reputation demonstrates that agencies with genuine technical competence and procedural integrity generate compliance and trust across courts and market participants. 469 I --- FinHub and LabCFTC --- unction as authentic coordination hubs—maintaining ongoing dialogue on maturity standards, developing aligned guidance on custody and market integrity, and jointly --- lagging where --- ormal rulemaking requires adjustment—they can reduce --- riction that procedural mandates alone cannot overcome. 470 De novo appellate review o --- maturity determinations creates institutional risk that must be --- rankly assessed. 471 Richard A. Posner’s analysis o --- appellate court capacity documents a constraint: courts lack laboratories --- or technical protocol analysis and depend on expert testimony and lengthy administrative records that extend timelines despite statutory deadlines. 472 A --- ter Loper Light, courts must exercise independent judgment on statutory meaning; agency views are persuasive only. 473 This increases divergence risk. Courts could --- ragment in interpreting “unilateral authority,” “substantially derived,” or “distributed ownership,” replicating the very --- ragmentation CLARITY seeks to eliminate. 474 Yet de novo review creates valuable systemic --- eedback. Cass R. Sunstein’s analysis o --- judicial minimalism shows that narrow, case- speci --- ic rulings either accumulate into coherent doctrine through 466 CLARITY § 105(a) (270-day joint rulemaking deadline --- or SEC-CFTC standards). 467 CLARITY § 205(b) (annual coordination reporting requirement). 468 Congressional oversight creates political accountability that market pressure or internal agency coordination cannot achieve, as it makes coordination success or --- ailure visible to elected representatives. 469 Daniel P. Carpenter, Reputation and Power: Organizational Image and Pharmaceutical Regulation at the FDA 3–10, 52–87 (Princeton UP 2010) (explaining how agency reputation generated by competence and integrity creates compliance across institutional boundaries). 470 FinHub and LabCFTC are described in CLARITY §§ 502–503 as permanent o --- --- ices with explicit coordination mandates. 471 De novo review creates risk because courts make independent legal judgments that might diverge. 472 Richard A. Posner, The Federal Courts: Challenge and Re --- orm 79–95 (Harv. UP 1996) (documenting appellate court in --- ormation costs and capacity constraints --- or complex technical decisions). 473 Loper Light, 144 S. Ct. at 2273–74. 474 Supra Part III.A (judicial --- ragmentation on Howey across similar --- acts); Part II.C (core doctrinal problem o --- integration and asset-transaction ambiguity). - 60 - 2025-11-05] Seth C. Oranburg incremental convergence or --- ragment into ad hoc precedent when courts treat similar cases inconsistently. 475 Observable divergences become diagnostic. I --- appellate courts split on whether a speci --- ic blockchain architecture meets maturity criteria, that split exposes ambiguity and --- orces either convergence or explicit legislative clari --- ication.476 Per --- ormance can be measured through --- our indicators: (1) variance in maturity outcomes across --- unctionally similar blockchain architectures (same --- acts, di --- --- erent classi --- ications signal interpretive divergence); (2) appellate reversals o --- SEC maturity determinations on technical grounds (reversals indicate inconsistent review standards); (3) SEC requests --- or extension o --- transition timelines governed by CLARITY § 205(a)(2) deadlines (deadline slippage signals implementation strain); and (4) existence o --- joint SEC–CFTC guidance on custody, market-integrity, and dual- registration standards (absence indicates coordination --- ailure). 477 I --- these metrics track --- avorably in years one through three, institutional per --- ormance is succeeding. I --- they diverge, the system signals strain requiring Congressional attention and possible textual amendment. C. Federalism, Technology, and Regulatory Gaming CLARITY excludes mature tokens --- rom state blue-sky laws only post-maturity (§ 308). 478 Entry and Transition remain --- ederal–state hybrids where both regimes apply. Bulman-Pozen and Gerken’s analysis o --- uncooperative --- ederalism documents that states resist even textually clear --- ederal preemption through sub-implementation, reinterpretation, and strategic leverage o --- their institutional position. 479 State attorneys general and --- inancial regulators o --- ten maintain digital- asset licensing --- rameworks independent o --- --- ederal requirements, creating de --- acto dual-compliance obligations that --- rustrate --- ederal policy. 480 New York’s virtual-currency licensing architecture, --- or instance, imposes separate registration, capital, and custody requirements constraining token distribution during entry even when 475 Cass R. Sunstein, One Case at a Time: Judicial Minimalism on the Supreme Court 10–18 (Harv. UP 1999) (explaining how narrow rulings either converge through incrementalism or --- ragment through inconsistency). 476 This --- eedback role is critical: visible divergence in maturity determinations would signal that CLARITY’s technical standards are insu --- --- iciently speci --- ic and require legislative clari --- ication. 477 These metrics operationalize the --- eedback mechanism: they are observable, measurable, and tied to the statutory architecture’s --- unctioning. 478 CLARITY § 308 (treating mature digital commodities as “covered securities” under Securities Act § 18(b)(5), preempting state blue-sky laws post-maturity). 479 Jessica Bulman-Pozen & Heather K. Gerken, Uncooperative Federalism, 118 Yale L.J. 2182, 1278–82 (2009) (documenting state sub-implementation, reinterpretation, and strategic resistance to --- ederal law even when preemption is textually clear). 480 Id. (state resistance to --- ederal mandates through licensing and regulatory structure). - 61 - Replacing Howey with CLARITY [2025-11-05 --- ederal law permits it. 481 The practical consequence is a patchwork nudging o --- --- erings toward particular jurisdictions or o --- --- shore venues, precisely what CLARITY’s clarity was designed to prevent. 482 Early --- ederal–state memoranda o --- understanding and public model guidance can mitigate --- riction, but preemption on paper o --- ten di --- --- ers --- rom practice once implemented through state institutional actors with divergent incentives.483 CLARITY’s technical maturity criteria --- it current blockchain architectures—proo --- -o --- -stake, proo --- -o --- -work, smart contracts, DAOs—but --- ace pressure as protocols evolve. 484 Lawrence Lessig’s --- oundational insight that “code is law” applies directly: protocol design embeds governance structures, and architectural changes shi --- t the legal categories applicable to them. 485 Criteria keyed to “voting power” or “unilateral authority” may mis --- ire --- or proo --- -o --- -humanity systems, delegated-governance models, or consensus mechanisms not yet deployed. 486 CLARITY’s alternative-pathway provision (§ 205(c)) allows the SEC to identi --- y supplementary maturity criteria, accommodating technological evolution. 487 But agencies must interpret, not rewrite; this requires institutional restraint that regulatory agencies o --- ten lack under pressure. 488 The deeper challenge is that rational market participants will arbitrage regulatory criteria. Founders can hold ownership just below statutory thresholds, split wallets to simulate distribution, engineer technically “open” governance paths with non- --- unctional participation while retaining de --- acto control, or temporarily o --- --- -load holdings be --- ore certi --- ication and reacquire a --- terward. 489 George J. Stigler’s regulatory capture theory explains the mechanism: regulated industries 481 C --- . New York Department o --- Financial Services virtual-currency licensing --- ramework (imposing registration and operational requirements independent o --- --- ederal regime); Bulman- Pozen & Gerken, supra note 479 (noting state licensing regimes create dual-compliance burdens despite --- ederal preemption). 482 Supra Part II.C (consequences o --- jurisdictional uncertainty and --- ragmentation). 483 Federal–state coordination requires good- --- aith state implementation o --- --- ederal preemption, which cannot be guaranteed by statute alone. 484 CLARITY § 205 (maturity criteria de --- ining “programmatic --- unctioning,” “unilateral authority,” “distributed ownership” applicable to current architectures). 485 Lawrence Lessig, Code and Other Laws o --- Cyberspace xii–xiv, 5–29 (Basic Books 1999) (code embeds governance; design choices regulate behavior as law does). 486 Novel governance mechanisms—proo --- -o --- -humanity, delegated consensus, AI-assisted governance—may not map onto traditional voting or ownership structures. 487 CLARITY § 205(c) (SEC authority to identi --- y alternative maturity criteria through notice- and-comment rulemaking). 488 Wendy E. Wagner, The “Bad Science” Fiction: Reclaiming the Integrity o --- the Regulatory Process, 66 L. & Contemp. Probs. 63, 64–65 (2003) (documenting how agencies under pressure o --- ten exceed statutory boundaries). 489 George J. Stigler, The Citizen and the State: Essays on Regulation 5–21 (U. Chi. Press 1975) (regulatory capture thesis: regulated industries shape compliance rules to advantage through strategic behavior). - 62 - 2025-11-05] Seth C. Oranburg exploit regulatory ambiguity --- or strategic advantage. 490 Counter- measures cannot depend solely on ex-post en --- orcement; they require transparent measurement systems. I --- the SEC speci --- ies veri --- iable indicators—validator concentration over time, proposal-passage dependency on core developers, correlated wallet behavior, governance participation rates—courts and regulators can assess genuine versus arti --- icial decentralization without expert guesswork. 491 Measurement grounds en --- orcement in observable --- act rather than contested interpretation, reducing gaming incentives and improving predictability. 492 But building such systems demands sustained institutional technical expertise and commitment that may exceed regulatory capacity i --- agencies are simultaneously managing coordination, appellate engagement, and state relations.493 D. Synthesis and Forward CLARITY solves a doctrinal problem by making time explicit in regulatory structure. 494 That creates an institutional question: can courts, agencies, and states reliably per --- orm time? The entry de --- aults supply interpretive discipline --- or entry adjudication; the coordination, capacity, --- ederalism, technology, and measurement analyses map the institutional seams where execution can --- ail. I --- entry de --- aults are applied consistently across courts, SEC–CFTC coordination --- unctions despite structural --- riction, appellate courts develop su --- --- icient technical literacy, states respect preemption, agencies exercise interpretive restraint, and measurement systems deter gaming, then li --- ecycle regulation will succeed.495 Under Howey, courts lacked temporal guidance, producing the --- ragmentation documented in Parts II–III. 496 CLARITY provides architecture: entry governs capital --- ormation; transition provides transparency toward decentralization; maturity trans --- ers authority to commodities oversight once control disperses. 497 Yet elegant design does not guarantee competent execution. Part VI proposes targeted 490 Id. 491 These indicators are “hard --- acts” amenable to technical analysis rather than subjective interpretation. 492 Transparent measurement systems reduce opportunities --- or strategic arbitrage by making compliance determinable ex ante. 493 Institutional overload occurs when regulatory agencies lack capacity to simultaneously manage multiple complex --- unctions. Supra Part III.C (convergence o --- institutional pathologies). 494 CLARITY makes time explicit through three distinct phases with di --- --- erent regulatory regimes --- or each. 495 This is the conditional thesis: IF all institutional actors meet per --- ormance standards, THEN li --- ecycle regulation works. 496 Supra Parts II–III ( --- ragmentation analysis). 497 Supra Parts II–IV (explaining Howey de --- iciency and CLARITY’s structure). - 63 - Replacing Howey with CLARITY [2025-11-05 textual amendments to eliminate residual entry ambiguity, cement the li --- ecycle approach into black-letter law, and provide agencies the procedural roadmap needed to sustain coordination and measurement systems. The goal is converting interpretive de --- aults into explicit doctrine—not because courts cannot manage gaps, but because reducing variance among institutional actors is essential to credibility in a regime built on clarity and temporal precision. CONCLUSION The Howey test has endured --- or eighty years because it captured a structural truth about investment: where people pool capital and rely on others’ e --- --- orts, the securities laws should apply. Its weakness was temporal. Howey --- roze a moment in a scheme’s li --- e and then tried to extrapolate that moment inde --- initely. The result, across Kik, Telegram, LBRY, Ripple, and Terra --- orm, was that static doctrine met dynamic technology and broke. The Clarity Act answers that --- ailure by treating time as a legal variable. It divides the digital-asset li --- ecycle into entry, transition, and maturity, assigning appropriate disclosure, oversight, and market rules to each phase. That structural insight—law calibrated to the temporal evolution o --- economic systems—is this Article’s central claim: time belongs in the test. Parts I through IV demonstrated how CLARITY re-codes Howey’s --- unctional inquiry into statutory architecture; Part V showed that even the best design must still be per --- ormed. The statute’s success will turn on how institutions inhabit its timeline: how courts interpret entry- phase ambiguity with technical discipline, how the SEC and CFTC coordinate through FinHub and LabCFTC rather than compete across a moving jurisdictional --- rontier. The Dodd-Frank experience reminds us that coordination deadlines can harden into procedural battlegrounds; success will require not only shared authority but shared reputation. States, meanwhile, will test the limits o --- pre-emption through licensing and consumer-protection law, a reminder that --- ederal clarity still depends on local cooperation. Agencies must also sustain technical literacy as blockchain code changes --- aster than regulation can. The test --- or CLARITY is thus not whether it is elegant, but whether it is executable. The Act converts doctrinal uncertainty into an institutional experiment—asking whether Congress, agencies, and courts can coordinate across time as well as across jurisdictions. That experiment will measure the American administrative state’s capacity to regulate evolving systems without sti --- ling them. - 64 - 2025-11-05] Seth C. Oranburg Still, CLARITY o --- --- ers a normative advance that transcends crypto. It models how law can govern temporal systems—domains where value and control evolve continuously—through staged accountability rather than static classi --- ication. Similar li --- ecycles could structure the law o --- arti --- icial intelligence training data, climate-transition --- inance, or automated supply-chain contracts. The method is general: build temporal checkpoints into legal categories, then align regulatory jurisdiction and remedies with those checkpoints. Doing so makes the rule o --- law compatible with continuous innovation. Whether CLARITY --- ul --- ills that promise will depend on ordinary virtues: interpretive discipline, procedural transparency, and sustained expertise. Transparency also means measurable decentralization— public metrics on validator concentration, governance participation, and insider control (the measurable signs o --- genuine decentralization)—that keep objectivity --- rom eroding into theater. I --- courts apply the entry-phase de --- aults consistently, i --- agencies resist jurisdictional tur --- wars through institutionalized coordination mechanisms, i --- states respect the boundaries o --- --- ederal preemption, and i --- Congress remains willing to adjust the statutory timeline as technology evolves, the Act can replace the arbitrary with the predictable—turning post-Howey chaos into coherent li --- ecycle law. I --- not, the test o --- time will once again become the test that time de --- eats. For now, CLARITY marks a turning point. It reminds us that good law is not only about who governs or what is governed, but when governance occurs. The --- uture o --- --- inancial regulation—and perhaps o --- adaptive legislation more broadly—depends on institutions that can per --- orm time with --- airness, precision, and restraint. In that per --- ormance lies the possibility that securities law, born in the age o --- orange groves—can still govern the digital orchards o --- the twenty- --- irst century. - 65 -