Revised CLARITY Act targets ‘non-decentralized’ DeFi operators

A revised version of the CLARITY Act posted on Senator Cynthia Lummis’ website would require U.S. regulators to decide whether controllers of so-called “non-decentralized” DeFi trading protocols are subject to securities, commodities and anti-money-laundering rules. The bill sets criteria for what constitutes a non-decentralized protocol and directs the SEC, CFTC and Treasury to create activity-based rules and clarify Bank Secrecy Act obligations for affected controllers.

By AI NewsroomPublished 27 minutes agoUpdated 27 minutes ago0 views

Revised CLARITY Act targets ‘non-decentralized’ DeFi operators

Why It Matters

The proposal would shift oversight onto controllers of protocols that can be materially altered by people or coordinated groups, potentially changing how many DeFi projects are regulated. The timing of the revised text and an upcoming Senate procedural vote means lawmakers and industry stakeholders are racing to resolve outstanding disputes on ethics and stablecoin issues before the measure advances.

Key Facts

Bill: Revised CLARITY Act (text posted on Sen. Cynthia Lummis’ website)
Targeted entities: People or groups controlling "non-decentralized finance trading protocols"
Definition detail: Covers protocols whose functionality, operation or rules can be materially altered by a person or coordinated group, or whose controllers can restrict users or whose transactions aren’t governed solely by transparent, pre-established code
Regulatory roles: SEC and CFTC to develop activity-based rules; Treasury to determine Bank Secrecy Act application
Rule topics: Registration, conduct, disclosure, recordkeeping, supervision (to be addressed by SEC/CFTC)

A revised CLARITY Act text circulated by Senator Cynthia Lummis would task federal regulators with deciding whether controllers of certain DeFi trading protocols must follow securities, commodities and anti-money-laundering requirements. The draft singles out protocols that can be materially changed by an individual or coordinated group, and also covers situations where controllers can restrict users or where transactions aren’t governed solely by transparent, pre-established code.

Under the proposal, the Securities and Exchange Commission and the Commodity Futures Trading Commission would each adopt activity-based rules covering registration, business conduct, disclosures, recordkeeping and supervision for entities the agencies deem to be controllers. The Treasury Department would be responsible for explaining how controllers fall under existing Bank Secrecy Act obligations. The text also clarifies that software and distributed ledger systems themselves would not be required to register, and that mere participation in an incident-response or security council would not automatically establish control over a protocol.

The revised language arrived ahead of a procedural Senate vote set for Sept. 15; the measure needs 60 votes to advance, meaning Republican sponsors will likely require Democratic support. Negotiations have continued over several sticking points — notably ethics restrictions, anti-money-laundering protections and stablecoin yield rules — and the ethics section in the newly posted text remains largely unchanged from previous versions. Democratic Senator Ruben Gallego had cautioned on Aug. 20 against moving to a vote before those issues were settled.

Industry voices welcomed parts of the update while urging resolution of remaining disputes. Crypto Council for Innovation CEO Ji Hun Kim described the upcoming vote as pivotal and said the U.S. needs a framework that pairs consumer protections with business conduct standards. Coinbase CEO Brian Armstrong told CNBC the bill was "ready to get a yes vote," saying core concerns his firm raised had been addressed even as ethics negotiations continued; he also warned that if Congress does not act, the SEC and CFTC may pursue rulemaking and innovation exemptions under their existing authority.