The CLARITY Act is cutting the final link between tokens and protocol revenue
Author: Ching Tseng
Compiled by Deep Wave TechFlow
Original title: The CLARITY Act is quietly killing 90% of tokens
Guide to Shenchao: Most of the tokens issued in the previous cycle had a pricing issue that no one wanted to identify: if your tokens can't legally share the revenue from the agreement, then what exactly are you holding? Author Ching Tseng breaks this down to the bottom:
The three pillars of token valuation are being loosened at the same time. Buyback & Burn is the current safe haven option for the agreements. The two-tier compliance structure may be the way to go, but in the middle, most tokens are priced on something that has not yet been clearly defined.
Most of the tokens issued in the previous cycle had a pricing issue that no one wanted to discuss. If your tokens can't legally share the revenue from the agreement, then what exactly are you holding in your hands? The CLARITY Act didn't kill DeFi; it just forced everyone to acknowledge one thing they knew for a long time.
Almost every token goes live with a promise that can't be exported.
This promise has never been written into any legal document. It lives in footnotes to white papers, chat threads on Discord, and a collective default assumption that sooner or later, the right to govern will turn into some form of economic reward. The rhetoric is simple: Agreements grow, and you benefit along with them.
The CLARITY Act is making that promise difficult to deliver on.
This law only does one thing, but it's critical
The bill divides every type of digital asset into two buckets.
Digital Commodity (Digital Commodity): Under the control of the CFTC (Commodity Futures Trading Commission). The degree of decentralization is high enough that no single entity controls more than 20% of voting power or token supply. Bitcoin and Ethereum are in this category.
Investment contract asset (Investment Contract Asset): Managed by the SEC (Securities and Exchange Commission). There is an identifiable issuer, and holders expect to benefit from the efforts of others.
The sad truth is that most of the tokens issued in the last cycle — UNI, AAVE, MORPHO, PENDLE, OP, ARB, and half of the L1 and DeFi tokens you can name — were all unclean. Real agreements, real revenue, but the legal nature of the token itself has never been defined.
The CLARITY Act says, “Stand on the sidelines, blur is no longer an option.
The part most people miss
Once a token is traded on the secondary market, it is generally biased towards the CFTC and classified as a digital commodity under the CLARITY Act framework. There's almost no going back. All tokens that have already been traded on @binance or @coinbase will most likely be locked in the status of a “digital commodity” once the bill takes effect. The CFTC oversees oil, gold, wheat — assets that no one expects to receive quarterly dividends just by holding them.
The same logic is used here, but with an important minor difference. Although digital products are managed by the CFTC and treated as traditional products rather than securities, this does not mean that an agreement can directly distribute revenue to token holders without risk. According to the SEC and CFTC's joint explanatory guidance of March 2026, if the holder has a reasonable expectation of profit, and this expectation comes from the continued development, management, or efforts of others, this arrangement may still be considered an investment contract and therefore pulled back under SEC review. Even for tokens that have already been traded, promises made at the time of first-level issuance or public communication may continue, creating a retroactive risk exposure if not clearly written off.
Because of this, many agreements have turned to Buyback & Burn (buyback and burn) as a safer and more practical mechanism: directing revenue to open market repurchases and token destruction, supporting prices by reducing supply and boosting capital appreciation, rather than directly allocating revenue. Another path that is receiving attention is to build a permissioned layer (permissioned layer) on top of the basic agreement. The original unlicensed layer continues to operate as Buyback & Burn. The new compliant access layer is only open to authenticated users, granting verified holders the legal right to share the revenue from the agreement. This idea makes sense in theory, but it poses its own complex problems: the same token carries different legal rights at different levels, which raises issues of contractual consistency and fair treatment of holders.
So, what exactly supports the token price?
Historically, token valuations depended on three things.
Speculative premium: The market believes the agreement will grow, so people are now paying for some room for future growth. For most tokens, this is the dominant factor.
Governance premium: holding tokens gives you the right to vote. In theory, there is value in controlling critical infrastructure.
Utility requirements: Some tokens are required for a usage agreement, or can be exchanged for a fee discount.
Until regulations are clear, you can mix these three things up and tell a vague yet usable valuation story. After the CLARITY Act, every pillar weakened. Once the expectation of legal revenue sharing is removed, speculative premiums lose their foundation. Governance premiums always collapse in bear markets—an agreement that doesn't return value, and no one cares about voting rights. The utility demand is real, but it only works for a small portion of the token design.
For most tokens, the pricing logic is quietly falling apart.
What are the agreements doing now
The most common response is Buyback & Burn.
Protocol revenue flows into the DAO treasury. The treasury uses this money to buy back the tokens on the open market and then destroy them. Holders won't get anything directly — but supply is dwindling, which should theoretically support the price.
@Uniswap started at the end of 2025, directing 17% of the swap fee to buying back UNI. @aave will follow in 2026 and channel 100% of agreement revenue into AAVE buybacks.
The legal logic is: capital appreciation is not income distribution. The SEC attacks buybacks, which are much harder than attacking dividends.
But we have to pour cold water here. Both GMX and Metaplex went through large-scale repurchase programs, destroying 6.5% to 12.9% of total supply. The price of the token still dropped by more than 70%. Buyback & Burn is the safest option right now; it's not an antidote.
There is a more interesting path; some people are already taking it
If buybacks aren't enough, what's next?
The idea that is being taken more seriously is to put a license layer on top of the basic agreement.
The original layer remains permissionless, open to everyone, and doesn't require KYC. This tier of tokens continues to do Buyback & Burn.
The new layer is a compliant access layer. Holders who have passed the identity verification can come in. Here, holding a token comes with a legal right to share the revenue from the agreement. Direct distribution, full compliance.
This direction makes sense. But there's another problem that no one has solved cleanly: you're taking the same token, but it has different legal implications at different levels. Holders who have done KYC can get income distribution; those who haven't done KYC can't get it. One contract, one token. Legally speaking, this inconsistency is more troublesome than directly allocating income.
Where will it go next
All three scenarios seem to make sense; I really don't know which one would win.
Scenario 1: SEC explicitly endorses Buyback & Burn. They sent a no-action letter confirming that the buyback mechanism did not constitute an investment contract. The industry can get a clear floor and cover it. Many people are waiting for this signal; it will significantly change the entire calculation.
Scenario 2: The two-tier model becomes the standard. As the regulatory framework matures, licensing authorities receive clear safe harbor treatment. KYC holders have compliant revenue rights, and non-KYC holders have liquidity and governance rights. The two parallel markets coexist. This requires the agreement to incur significant compliance costs and act quickly.
Scenario 3: Most token prices and agreement performance are permanently decoupled. The agreement did a good job, the token didn't work. The price becomes a function of market sentiment, and there is no structural correlation with how much money the underlying agreement actually makes. It's bad for retail holders, but not necessarily fatal to the agreement itself.
Some of my thoughts
I used to hope that tokens would work like stocks, but the new regulations have basically blocked this path. What no one wants to fully understand is what this really means.
If a token doesn't allow holders to share the success of the agreement in any way that is legally tenable, then holding it for a long time is essentially betting on emotions. Emotions can sometimes have amazing rewards. But it's not a set of investment logic.
Buyback & Burn is where we are now. The two-tier model is probably where this thing is going. But between here and there, most tokens are priced on something that hasn't been clearly defined.
The next alpha cycle may not be about finding the fastest growing agreement. Maybe it's about finding agreements that really understand how to link token value to business performance and can withstand legal scrutiny.
Those are the ones worth getting.
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