Last-Minute Clarity Act Edit Threatens to Collapse DeFi-Find Out Why!

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Amid the Clarity Act fanfare is some worry over how a last-minute deal may punch DeFiNews Analysis

What to know:

  • A consequential amendment that revised the crypto Clarity Act last week included a potentially significant change to how decentralized finance developers would be handled.
  • One section of the Clarity Act freed non-controlling developers from treatment as money services businesses, but the amendment revised another section that could still leave them with a chance to be treated as securities intermediaries.
  • Other amendments in the Senate Banking Committee’s markup will have various effects, though most changes were technical.

A key part of a new U.S. Senate bill about cryptocurrency – called the Digital Asset Market Clarity Act – addresses trading platforms that present themselves as decentralized finance (DeFi) but aren’t truly run that way. The bill would allow regulators to apply standard rules to these platforms. However, a recent change has raised concerns within the DeFi community, as it could significantly broaden the scope of those regulations.

A last-minute effort to gain Democratic support during the Senate hearing for the Clarity Act succeeded. Two Democrats ultimately voted in favor, allowing the bill to pass with bipartisan support. However, this victory for the bill’s supporters, including Senator Cynthia Lummis, might come at a cost, potentially impacting the bill’s provisions related to DeFi.

Legislators removed a section from the Clarity Act that shielded blockchain developers who build the software for decentralized platforms and crypto wallets, but don’t actually run those platforms. The current version of the bill could now classify these developers as financial intermediaries if regulators can prove they exert enough control to undermine the claim that the projects are decentralized.

Federal regulators likely have broad power to label projects as “fake DeFi” and treat them as traditional, centralized companies, even if they don’t have complete control. The current wording of the rules could potentially encompass anyone who is involved in coordinating or influencing how a protocol operates, simply by having an agreement or understanding with others.

The DeFi community welcomed the positive news that key legal protection for developers – the Blockchain Regulatory Certainty Act, which generally prevents software creators who don’t handle user funds from being classified as money transmitters – made it through negotiations.

Senator Lummis stated on Monday that securing the Blockchain Regulatory Certainty Act within the bill was a key goal, and they succeeded in doing so during Thursday’s committee work. While her office didn’t comment on concerns about a change to one of her own proposed additions, she affirmed her commitment to collaborating with industry participants to pass the legislation and establish the U.S. as a leader in digital asset innovation. She aims to get the bill signed into law by the President.

Emerging threat

Although supporters celebrated the progress of the BRCA bill – with DeFi advocates joining the wider crypto community in relief – a new challenge emerged late in the process. This happened as lawmakers simultaneously worked to finalize the Clarity Act, and involved a last-minute effort to reach a compromise.

This change allows federal regulators, like the Securities and Exchange Commission, more flexibility in overseeing investments. While the current leaders at the agency may not prioritize this type of oversight, future leaders might see things differently.

According to one source who wished to remain anonymous, simply having an agreement or coordinated effort among token holders could lead to unwanted regulatory scrutiny. For example, developers who jointly work on a protocol and consistently vote together might be seen as controlling it, even if they don’t actually manage the funds involved. This cooperation, even without direct control of assets, could be enough to trigger regulation.

Despite a previous standstill, the bill is progressing again, and some supporters of decentralized finance are optimistic they can still influence its final form.

According to Bill Hughes, senior counsel at Consensys, some Democrats specifically wanted to give the SEC and Treasury Department leeway in how they handle things. He described the recent change as subtle but significant, emphasizing that the agencies’ future rule-making will be crucial in determining how the law is actually put into practice and what protections it ultimately provides.

Winning bipartisanship

During last week’s hearing, adjustments related to decentralized finance (DeFi) helped the Clarity Act gain support from Democratic Senators Angela Alsobrooks and Ruben Gallego. This led to the bill passing out of committee with a vote of 15 to 9. Senator Mark Warner, another Democrat, suggested he might also vote for the revised bill.

Representative Gallego explained that his ‘yes’ vote on the Clarity Act was to allow continued work on complex issues like regulations for cryptocurrency, protecting consumers, handling bankruptcies, stablecoin interest rates, and crypto ATMs. He emphasized, however, that this vote doesn’t ensure the bill will be debated and voted on by the full House.

The change that significantly impacted the DeFi world was part of a larger set of proposals introduced by Senator Lummis during a Senate Banking Committee meeting. These other proposals covered topics like allowing credit unions to work with digital assets, how the SEC handles tokenization, and creating consumer protections for digital commodities at the state level.

During the hearing, an amendment proposed by Senator Mike Rounds of South Dakota was also approved. This amendment would create a testing environment, or ‘sandbox,’ allowing financial companies to explore artificial intelligence products. This introduces a new element to the crypto legislation, which lawmakers will need to address as they work towards a final bill.

Senator Dave McCormick successfully added an amendment allowing financial institutions more flexibility in how they calculate profit margins across their investments. This change, described as a significant benefit for how markets function and something the industry has been requesting for a long time, was championed by Hughes.

Now that those changes have been made, the Clarity Act will be combined with a similar bill that’s already passed through the Senate Agriculture Committee. After that, the combined bill will go to a full Senate vote. However, it must include a rule limiting how high-ranking government officials can participate in the cryptocurrency industry – a point Democrats are pushing for, arguing that former President Trump’s connections to the sector were problematic.

The Clarity Act still isn’t finalized, and it faces several challenges before it could potentially become law with Trump’s signature.

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2026-05-19 15:13