CLARITY Act Guide

Mechanics of Issuing a Token and Later Converting it to a Security Token for the Distribution of Dividends and Ownership

Note: This guidance is based on the CLARITY Act bill that was passed by the House and initially introduced in the Senate. We haven’t updated it based on the subsequent changes.

1. Selling a Commodity Token at a Nominal Price

Under the CLARITY Act, a token can be sold as a digital commodity if:

• It does not represent equity, debt, revenue share, or dividend rights
• It does not provide ownership in a business entity
• It is primarily tied to network functionality or a digital commodity ecosystem

If the token qualifies as a digital commodity, the CFTC becomes the primary regulator, not the SEC.

However, initial distributions still require disclosures.

Required Disclosures (Core Information Filing)

The Act requires an Initial Digital Commodity Disclosure filed with a registered digital commodity exchange or repository.

Typical disclosures include:

a) Project / Network Disclosure

• Name of the network
• Purpose and functionality of the token
• Technical architecture
• Consensus mechanism
• Governance structure

b) Token Economics

• Total supply
• Inflation schedule
• Vesting schedules
• Distribution plan

c) Allocation Breakdown

You must disclose who holds the tokens:

Example:

d) Insider Holdings

The Act requires disclosure of “affiliated persons”:

• Founders
• Directors
• Developers
• Controlling entities
• Early investors

e) Risk Disclosures

Examples:

• Token price volatility
• Lack of rights
• Technology risks
• Governance risks
• Regulatory risks

f) Development Roadmap

• Network development milestones
• Utility milestones
• Token use cases

g) Smart Contract Disclosure

• Contract address
• Upgradeability
• Mint/burn authority
• Admin privileges

h) Market Information

• Whether tokens will be listed on exchanges
• Liquidity plans
• Market-making arrangements

2. Restrictions on You as a “Related Person”

The CLARITY Act places special rules on insiders, especially during initial distribution.

a) Mandatory Disclosure of Insider Holdings

You must disclose:

• All wallets controlled by insiders
• Token vesting schedules
• Lockups

b) Lockups / Transfer Restrictions

The Act contemplates restricted resale periods for insiders.

Typical expected restrictions (similar to venture token launches):

Example:

c) Anti-Manipulation Rules

You cannot:

• Artificially inflate price
• Coordinate wash trading
• Misrepresent token functionality
• Manipulate supply

These rules mirror CEA anti-manipulation provisions.

d) Insider Trading Restrictions

If insiders possess material nonpublic information, trading may be restricted.

Examples:

• Protocol upgrade
• Major partnership
• Token buyback
• Treasury sale

e) Reporting Requirements

Large insider sales may require ongoing disclosure updates.

3. Selling Tokens Later (Team Allocation)

If your team retains tokens and later sells them:

You must:

1. Update disclosure filings
2. Disclose insider sales
3. Avoid market manipulation
4. Comply with exchange rules

Think of it as similar to Form 4 / insider reporting in spirit, but adapted for tokens.

4. Converting a Commodity Token into a Security

This is one of the most important parts of the CLARITY Act.

A token becomes a digital asset security if it grants:

• Dividends
• Profit sharing
• Governance rights tied to profits
• Equity-like claims
• Claims on assets or revenue

If you later add dividends, the token becomes a security.

5. Steps to Convert Commodity Tokens to Securities

Step 1 — Corporate Structure

Create an issuing entity:

Examples:

• Corporation
• DAO LLC
• Foundation + operating company

Step 2 — Define Security Rights

Attach rights such as:

• Dividends
• Revenue share
• Equity conversion
• Liquidation preference

Step 3 — SEC Registration or Exemption

You must comply with securities laws.

Typical paths:

Step 4 — Token Migration

Possible methods:

Option A — Token upgrade.

Option B — New token issued.

Option C — Wrap commodity token into a security token.

Example:

COMMODITY TOKEN (utility)
          ↓
SECURITY TOKEN (dividend rights)

Step 5 — SEC Filings

You would need:

• Offering memorandum
• Financial disclosures
• Risk factors
• Governance disclosures

Step 6 — Trading Venue

Security tokens must trade on:

• ATS
• Broker-dealer platforms
• National securities exchanges

6. Major Strategic Insight

The CLARITY Act allows a two-phase model:

Phase 1

Launch token as digital commodity

Purpose:

• Bootstrap network
• Build liquidity
• Distribute tokens

Phase 2

Later attach financial rights

→ Token becomes a security

This is similar to the evolution path envisioned for many decentralized networks.

7. Important Risk in Your Plan

If investors buy tokens expecting profit from your team’s work, the SEC may still argue it is a security from day one.

Therefore:

You must ensure:

• Token utility
• Decentralized governance
• Clear non-investment positioning

8. Strategic Structure (Used by Sophisticated Projects)

A typical structure could be:

Foundation
   │
   │ develops protocol
   │
Commodity Token Launch
   │
Network grows
   │
Operating Company generates revenue
   │
Token holders receive dividends
   │
Token becomes Security

9. How Akemona Can Help Issuers

Akemona’s infrastructure is perfectly aligned with this regulatory path:

Akemona could support:

1. Commodity token issuance
2. Disclosure registries
3. Token lifecycle management
4. Conversion into digital securities

Very few platforms are architected for token lifecycle transitions.

10. One Very Important Legal Detail

The CLARITY Act does NOT automatically allow conversion.

You must still comply with:

• Securities Act
• Exchange Act
• Investment Company Act (if applicable)

✅ In short