Revised CLARITY Act Targets Control of DeFi Protocols
A revised version of the CLARITY Act would give US regulators more authority to determine when people or groups controlling certain non-decentralized finance protocols should face securities, commodities and anti-money laundering requirements.
The updated legislation, published on Senator Cynthia Lummis’ website, focuses on protocols that can be materially changed by an individual or coordinated group. It also covers systems where controllers can limit access for users or where transactions are not governed entirely by transparent rules set in advance through code.
Under the proposal, the Securities and Exchange Commission and Commodity Futures Trading Commission would create rules based on the activities carried out by these protocols. The requirements could cover registration, market conduct, disclosures, recordkeeping and regulatory supervision.
The Treasury Department would separately determine how existing Bank Secrecy Act requirements should apply to people or groups found to control the affected protocols.
The legislation also makes clear that software and distributed ledger technology would not have to register on their own. In addition, simply taking part in an incident-response team or security council would not automatically mean a person has control over a protocol.
The revised bill comes just days before a procedural Senate vote scheduled for Sept. 15. The measure needs 60 votes to move forward, making Democratic support important despite unresolved disagreements over ethics rules, anti-money laundering measures and rewards linked to stablecoins.
Crypto Council for Innovation CEO Ji Hun Kim described the upcoming vote as an important moment for the US digital asset industry. He argued that lawmakers need rules that protect consumers while also setting clear standards for companies operating in the sector.
Coinbase CEO Brian Armstrong also said this week that the bill was ready for a Senate vote. Speaking to CNBC, Armstrong said issues previously considered essential by Coinbase had been addressed, while discussions over ethics restrictions were still underway and appeared close to a deal.
However, the newly released version shows little change to the ethics section, which has been one of the biggest obstacles in negotiations.
Democratic Senator Ruben Gallego previously warned lawmakers against moving ahead with a vote before reaching an agreement on ethics provisions and stablecoin yield. He said rushing the process could produce an outcome that lawmakers may not want.
Armstrong has also warned that failure to pass the CLARITY Act could leave the SEC and CFTC to pursue new rules and innovation exemptions using powers they already have.
With the Senate vote approaching, negotiations over the remaining issues could determine whether the legislation secures the support needed to advance.