The CLARITY Act Is Quietly Killing 90% of Tokens

Author: Ching Tseng

Translation: TechFlow

TechFlow Editor's Note: Most tokens issued in the last cycle have a pricing problem no one is willing to state clearly: If your token cannot legally share protocol revenue, what exactly are you holding? Author Ching Tseng breaks this down thoroughly:

The three pillars of token valuation are loosening simultaneously. Buyback & Burn is the current safe haven choice for protocols, a dual-layer compliance structure might be the destination, but in between, most tokens are priced on something not yet clearly defined.

Most tokens issued in the previous cycle have a pricing problem no one is willing to discuss. If your token cannot legally share protocol revenue, what exactly are you holding? The CLARITY Act did not kill DeFi; it just forced everyone to admit something they already knew deep down.

Almost every token carries an unspoken promise when it launches.

This promise was never written into any legal document. It lives in the footnotes of whitepapers, Discord chat threads, and a collectively default assumption—governance rights will sooner or later turn into some form of economic return. The narrative is simple: the protocol grows, you benefit along with it.

The CLARITY Act is making this promise very difficult to fulfill.

This Law Did Only One Thing, But It Was Critical

The bill divides every digital asset into two buckets.

Digital Commodity: Regulated by the CFTC (Commodity Futures Trading Commission). Decentralization level is high enough; no single entity controls more than 20% of voting rights or token supply. Bitcoin and Ethereum fall into this category.

Investment Contract Asset: Regulated by the SEC (Securities and Exchange Commission). There is an identifiable issuer, and holders expect to profit from the efforts of others.

The awkward fact is that most tokens issued in the previous cycle—UNI, AAVE, MORPHO, PENDLE, OP, ARB, and half the L1 and DeFi tokens you can name—fit cleanly into neither bucket. Real protocols, real revenue, but the legal nature of the tokens themselves was never defined.

The CLARITY Act says: Pick a side; ambiguity is no longer an option.

What Most People Missed

Once a token is traded on the secondary market, under the CLARITY Act framework it usually leans towards CFTC jurisdiction, classified as a digital commodity. There is basically no going back. All tokens already trading on @binance or @coinbase, once the bill takes effect, will likely be locked into the "digital commodity" identity. The CFTC regulates oil, gold, wheat—assets no one expects to receive quarterly dividends from just by holding.

The same logic applies here, but there is an important nuance. Although digital commodities are regulated by the CFTC and treated as traditional commodities rather than securities, this does not mean protocols can distribute revenue directly to token holders without risk. According to the joint interpretive guidance from the SEC and CFTC in March 2026, if holders have a reasonable expectation of profit, and this expectation comes from the protocol's continuous development, management, or the efforts of others, this arrangement may still be deemed an investment contract, thus being pulled back into the SEC's scope of review. Even for tokens already trading, promises made during primary issuance or in public communications, if not explicitly disclaimed, may persist, forming retrospective risk exposure.

Because of this, many protocols have turned to Buyback & Burn, treating it as a safer, more practical mechanism: directing revenue towards open market repurchases and token burns, supporting price by reducing supply and driving capital appreciation, rather than distributing revenue directly. Another path gaining attention is building a permissioned layer on top of the base protocol. The original permissionless layer continues with Buyback & Burn; the new compliance access layer is open only to identity-verified users, granting verified holders the legal right to share protocol revenue. This idea makes sense theoretically, but it brings its own complex issues: the same token carries different legal rights on different layers, raising questions about contract consistency and fair treatment of holders.

So, What Exactly Prop Up Token Prices?

Historically, token valuation relied on three things.

Speculative Premium: The market believes the protocol will grow, so people pay now for some future upside. For most tokens, this is the dominant factor.

Governance Premium: Holding tokens gives you voting rights. Theoretically, controlling key infrastructure is valuable.

Utility Demand: Some tokens are necessary to use the protocol, or can be exchanged for fee discounts.

Before regulation was clear, you could mix these three together and tell a vague but workable valuation story. After the CLARITY Act, every pillar is weakening. Once the expectation of legally sharing revenue is removed, speculative premium loses its foundation. Governance premium always collapses in a bear market—no one cares about voting rights for a protocol that cannot return value. Utility demand is real, but it only works for a small subset of token designs.

For most tokens, the pricing logic is quietly collapsing.

What Protocols Are Doing Now

The most common response is Buyback & Burn.

Protocol revenue flows into the DAO treasury. The treasury uses this money to repurchase tokens on the open market and then burns them. Holders do not receive anything directly—but supply decreases, which theoretically should support the price.

@Uniswap started this at the end of 2025, directing 17% of swap fees to repurchasing UNI. @aave followed in 2026, directing 100% of protocol revenue to AAVE repurchases.

The legal logic is: capital appreciation is not revenue distribution. It is much harder for the SEC to attack repurchases than dividends.

But here comes a cold splash of water. GMX and Metaplex both ran significant repurchase programs, burning 6.5% to 12.9% of total supply. Token prices still fell by over 70%. Buyback & Burn is the safest option for now; it is not a cure.

There Is a More Interesting Path, Some Are Already Walking It

If repurchases are not enough, what comes next?

The idea being taken more seriously is building a permissioned layer on top of the base protocol.

The original layer remains permissionless, open to everyone, no KYC required. Tokens on this layer continue with Buyback & Burn.

The new layer is a compliance access layer. Identity-verified holders can enter. Here, holding tokens comes with the legal right to share protocol revenue. Direct distribution, fully compliant.

This direction makes sense. But there is still a problem no one has solved cleanly: you hold the same token, but it carries different legal implications on different layers. KYC holders get revenue distribution, non-KYC holders do not. Same contract, same token. This inconsistency is legally more troublesome than direct revenue distribution.

Where Things Go From Here

Three scenarios seem plausible; I really don't know which one will win.

Scenario One: The SEC explicitly endorses Buyback & Burn. They issue a no-action letter confirming the repurchase mechanism does not constitute an investment contract. The industry gets a clear floor to build upon. Many are waiting for this signal; it will significantly change the entire calculation.

Scenario Two: The dual-layer model becomes the standard. As the regulatory framework matures, the permissioned layer receives explicit safe harbor treatment. KYC holders get compliant revenue rights, non-KYC holders get liquidity and governance rights; two parallel markets coexist. This requires protocols to absorb significant compliance costs and move quickly.

Scenario Three: Most token prices permanently decouple from protocol performance. The protocol does well, the token does not. Price becomes a function of market sentiment, with no structural correlation to how much money the underlying protocol actually earns. This is bad for retail holders, but not necessarily fatal for the protocol itself.

Some Thoughts from Me

I once hoped tokens could operate like stocks, but new regulations have basically blocked this path. What no one is willing to think through thoroughly is what this actually means.

If a token cannot allow holders to share in the protocol's success in any legally defensible way, then holding it long-term is essentially betting on sentiment. Sentiment can sometimes bring amazing returns. But it is not a set of investment logic.

Buyback & Burn is where we are now. The dual-layer model is likely where this is going. But between here and there, most tokens are priced on something not yet clearly defined.

The alpha of the next cycle may not lie in finding the fastest-growing protocols. It may lie in finding those protocols that have truly figured out how to connect token value with business performance and can withstand legal scrutiny.

Those are the ones worth holding.