Revised CLARITY Act targets non-decentralized DeFi ahead of Senate vote
In brief
- CLARITY Act defines non-decentralized protocols as those whose functionality can be materially altered by a person or group
- SEC and CFTC would develop activity-based rules on registration, conduct, disclosure, and supervision
- Ethics section remained largely unchanged despite being a main contention point in negotiations
- Coinbase CEO Brian Armstrong said must-have issues were resolved; Republicans need 60 votes and Democratic support
Definition and regulatory framework
The revised text, posted on Senator Cynthia Lummis' website, defines a non-decentralized protocol as one whose functionality, operation, or rules can be materially altered by a person or coordinated group. The definition also covers protocols whose controllers can restrict users or whose transactions are not governed solely by transparent, pre-established code.
Under the proposal, the SEC and CFTC would develop activity-based rules addressing registration, conduct, disclosure, recordkeeping and supervision. The Treasury would establish how existing Bank Secrecy Act obligations apply to affected controllers. The bill specifies that software and distributed ledger systems would not be required to register in their own capacity, and participation in an incident-response or security council would not, by itself, establish control over a protocol.
Industry support and lingering disputes
Coinbase CEO Brian Armstrong told CNBC that the CLARITY Act was "ready to get a yes vote." He said the "must-have issues" previously raised by Coinbase had been resolved, while negotiations over ethics restrictions remained active and appeared close to a solution. Armstrong did not specify which provisions had changed.
Yet the ethics section in the newly released text remained largely unchanged from the previous version, despite being one of the main points of contention in negotiations. Democratic Senator Ruben Gallego warned against holding a vote before lawmakers resolved disputes involving ethics and stablecoin yield.
Republicans will need support from Democrats despite continuing disagreements over ethics, anti-money laundering protections and stablecoin rewards. Crypto Council for Innovation CEO Ji Hun Kim called the Senate vote a pivotal moment for digital assets, innovation and American leadership.
If the legislation does not advance, Armstrong noted that the SEC and CFTC could instead pursue rulemaking and innovation exemptions using their existing authority.
