Cardano (CRYPTO: ADA) founder Charles Hoskinson rejected Ripple CEO Brad Garlinghouse’s “bad bill is better than no bill” stance, arguing the CLARITY Act makes new crypto projects securities by default while grandfathering XRP (CRYPTO: XRP).

The ‘Security By Default’ Problem

HR 3633, the Digital Asset Market Clarity Act of 2025, passed the House and is currently being debated in the Senate. 

The bill requires projects to petition the SEC for graduation to commodity status under CFTC oversight by proving their blockchain achieved “sufficient decentralization.”

The SEC controls the graduation process.

Under the bill, the SEC has 60 days to review petitions but can pause the clock indefinitely by issuing deficiency letters requesting additional documentation. 

In a podcast on X on Monday, Hoskinson compared this to FDA approval delays and New York’s BitLicense process.

The Four Attack Vectors

Hoskinson outlined four attack vectors the SEC could use to trap projects as securities permanently. 

First, the SEC could require “substantially complete” filings with constantly evolving 500-page disclosure requirements. 

Second, the agency could define “common control” so broadly that any developers contributing to the same GitHub repository constitute centralized control.

Third, the SEC could require proof that no single beneficial owner controls more than 20% of network stake, demanding KYC documentation for all large wallets or certification from SEC-registered blockchain forensic auditors that don’t yet exist. 

Fourth, the agency could require proof that more than 50% of price appreciation comes from on-chain utility rather than speculation—a test Bitcoin would fail.

The XRP Exception

Hoskinson argued that while XRP, Cardano, Ethereum (CRYPTO: ETH), and other established tokens would likely be grandfathered in, every new project would face these barriers. 

“What they’ll do in practice is grandfather in the top 10 and projects that have been around for a long time,” Hoskinson said.

This creates a two-tier system. Existing projects get commodity status while new projects must navigate SEC bureaucracy with no objective graduation criteria. 

“Every new blockchain project moving forward has to blacklist the United States and grow outside of the United States,” Hoskinson said.

The Political Risk

Hoskinson warned that pro-crypto Republican control won’t last forever. 

If Democrats win in 2028 campaigning on “crypto equals corruption,” they could appoint aggressive SEC leadership to weaponize the bill’s provisions.

The bill strips developer protections that were in earlier drafts. DeFi projects get no coverage, and the bill doesn’t address yield-bearing stablecoins or prediction markets. 

The only holdup in Senate negotiations involves stablecoin yield, not the core framework.

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