Retail investors are collateral damage in crypto's legal limbo. Congress can fix that.
By Adrian Wall, Managing Director, Digital Sovereignty Alliance (DSA)
Consider a retired teacher in Ohio who bought Ethereum through a regulated U.S. exchange in 2021. She did not design a token issuance structure. She did not consult a securities lawyer. She saw a functioning market, read publicly available information, and made an investment. Today, she may be a named plaintiff in a class action lawsuit – not because she was defrauded, but because the regulatory framework governing her transaction was never designed for digital assets and is now being replaced by one that is.
Congress is in the final stretch of passing the most significant digital asset legislation in history. The Digital Asset Market Clarity Act has passed the House with broad bipartisan support and the Senate is now shaping the final framework. Lawmakers have rightly focused on prospective clarity – how tokens should be classified, which regulator oversees them, what compliance looks like going forward. But legislation that ignores the past risks failing the very retail consumers that reform is meant to protect. A narrowly tailored "clean slate" provision for secondary market transactions is the missing piece. Without it, reform is incomplete.
Financial regulation has confronted this challenge before and found a principled answer.
When policymakers replaced the LIBOR benchmark, they faced a problem structurally similar to the one digital asset markets present today. Trillions of dollars of contracts were written under a system that everyone agreed needed to change. The 2022 LIBOR Act did not simply establish new benchmarks and leave the past unresolved. It created a statutory transition mechanism, effectively a savings clause, that provided legal certainty for legacy contracts while preserving accountability for misconduct. Importantly, the Federal Reserve's implementation identified specific SOFR-based replacements, giving courts and parties a clear path forward without years of wasteful litigation over defunct standards.
The mechanism worked because it drew a clear line: replace the framework, resolve the ambiguity, and let markets move forward. Anti-fraud enforcement remained fully intact. The transition was not a favor to bad actors; it was sound policy design.
Digital asset legislation presents the same opportunity, and the same obligation.
Over the past several years, courts, regulators, and market participants struggled to apply securities laws written nearly a century ago to decentralized technologies those laws were never designed to govern. Enforcement actions and private lawsuits followed, many alleging technical registration violations rather than fraud. The individuals now caught in that litigation are not primarily token developers or exchange executives. They are retail participants, people who bought and sold assets in secondary markets, often years after the initial distributions, on regulated U.S. exchanges, relying on publicly available information.
The strongest objection to a clean slate provision is that it could shield wrongdoers who exploited regulatory ambiguity. That concern deserves a serious answer. A well-drafted provision addresses it directly: it would apply only to secondary market transactions and would leave anti-fraud enforcement entirely intact. The SEC would retain full authority to pursue deception, manipulation, and misleading disclosures. Token issuers who structured offerings to evade securities laws would remain exposed. What the provision would do is recognize that a retail investor who bought a token on a registered exchange, years after its initial issuance, should not bear perpetual liability for a classification dispute that Congress itself is now resolving.
The distinction between issuers and secondary market participants is not a loophole – it is a principle. Accountability for those who designed and distributed tokens is a different question from accountability for those who simply bought them later. Conflating the two does not protect investors; it punishes them.
Some proposals attempt a narrower solution: exempting only tokens that have received favorable court rulings or are included in approved ETFs. The instinct is understandable, but the execution is flawed. Regulatory and judicial processes move slowly and unevenly. A token may be the subject of a pending ETF application delayed by administrative timelines rather than substantive concerns. Another may trade on regulated U.S. exchanges as part of a diversified product without having received formal judicial classification. Conditioning relief on whether an asset happened to clear a procedural milestone substitutes timing for policy coherence, and leaves retail investors exposed to consequences they had no role in creating.
Leaving this gap has real costs. Courts will continue adjudicating past conduct under standards that Congress has determined are inadequate for digital assets. The result will be years of inconsistent judicial outcomes, continued class action exposure, and a litigation overhang that discourages the responsible market participation that reform is designed to encourage. Markets depend not only on clear rules but on confidence that regulatory transitions will be implemented coherently. Reform that addresses only prospective conduct does not deliver that confidence.
Congress has a narrow window. The CLARITY Act must still pass the Senate and then go through the House – a process that, in complex legislation, can take months. The November 2026 midterm elections create a hard deadline. If a clean slate provision is not included in this legislative vehicle, it may not have another opportunity for years. In the meantime, retail investors who did nothing wrong will continue to pay the legal costs of a regulatory dispute that Congress has already decided to resolve.
Protecting investors does not mean excusing fraud. It means ensuring that those who purchased or sold tokens in good faith in the secondary market are not trapped in years of litigation arising from unclear rules that Congress is now replacing. Include a clean slate provision for secondary market transactions in the CLARITY Act. It is the difference between reform that sounds good and reform that works.