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Revised CLARITY Act targets ‘non-decentralized’ DeFi operators
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Revised CLARITY Act Targets ‘Non-Decentralized’ DeFi Operators
The revised CLARITY Act would direct United States regulators to decide whether people or coordinated groups controlling “non-decentralized finance trading protocols” must satisfy securities, commodities, and anti-money laundering (AML) requirements. The updated text, posted on Senator Cynthia Lummis’ website, arrives just days before a procedural Senate vote scheduled for Sept. 15. That vote needs 60 senators to advance, so Republicans must attract Democratic support. The bill matters because it could establish the first comprehensive federal dividing line between truly decentralized DeFi and controlled platforms.
The CLARITY Act has been a central piece of US crypto market-structure legislation for months. Lawmakers have argued over ethics provisions, AML protections, and stablecoin rewards, delaying a final vote. The previous version already faced Democratic resistance, with Senator Ruben Gallego warning on Aug. 20 that a rushed vote could produce an unwanted result. Industry leaders, meanwhile, have pushed for clear rules rather than enforcement-led regulation.
The revised bill defines a covered protocol as one whose functionality, operation, or rules can be materially altered by a person or coordinated group. It also captures 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 write activity-based rules covering registration, conduct, disclosure, recordkeeping, and supervision. Treasury would determine how existing Bank Secrecy Act obligations apply to affected controllers.
Crucially, the text says software and distributed ledger systems would not have to register in their own capacity. Participation in an incident-response or security council would not, by itself, establish control over a protocol. That distinction is technical but vital: immutable, autonomous code may remain outside direct registration, while upgradeable contracts, admin keys, and governance overrides could trigger compliance duties. Regulators would focus on what a controller can actually do.
In the short term, all eyes are on the Sept. 15 procedural vote. If the bill advances, the SEC, CFTC, and Treasury would begin rulemakings that could take months or years. If it fails, Coinbase CEO Brian Armstrong suggested the agencies could pursue rulemaking and innovation exemptions under existing authority. Either path would shape how DeFi founders design tokens, governance, and front ends, with compliance costs becoming a competitive factor.
Reactions are mixed. Crypto Council for Innovation CEO Ji Hun Kim called the vote a “pivotal moment” for digital assets, innovation, and American leadership, stressing the need for consumer protections and business conduct standards. Armstrong told CNBC the CLARITY Act was “ready to get a yes vote,” saying Coinbase’s must-have issues were resolved. However, the ethics section remained largely unchanged, and Gallego’s concerns about stablecoin yield and ethics persist.
Looking ahead, the Senate could still amend the bill before final passage, especially on ethics and stablecoin rewards. A successful vote would signal that Congress can legislate crypto market structure, potentially reducing reliance on enforcement. A failed vote would leave the SEC and CFTC to define DeFi control through case-by-case actions. For now, DeFi operators should watch the Sept. 15 vote and prepare for activity-based compliance if their protocols are deemed non-decentralized.
