As the Senate Banking Committee gears up for the markup of the highly anticipated crypto market structure bill, known as the CLARITY Act, an updated draft has emerged following extensive negotiations. This new version aims to provide a clearer regulatory framework for digital assets, strategically delineating the oversight responsibilities between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
The latest draft, released late Monday night, boasts critical provisions that industry experts view as substantial advancements. Notably, Paul Barron, a prominent market expert, emphasized the bill’s recognition of “Custodial and Ancillary Staking Services” as legitimate activities, categorizing them as “administrative or ministerial.” This classification allows registered intermediaries to facilitate staking for customers, all while ensuring that individual assets remain segregated from the platform’s own funds. However, assets can be pooled with others for efficiency via an omnibus account.
Moreover, the bill solidifies the current framework concerning anti-money laundering (AML) and know-your-customer (KYC) regulations. Exchanges and brokers will still need to comply with the Bank Secrecy Act, perform KYC checks, and vigilantly monitor for any illicit financial activities.
Among the bill’s consumer-friendly provisions is a guaranteed right to self-custody. Section 105(c) grants U.S. individuals the legal right to maintain hardware or software wallets for their own custody of digital assets. Crucially, this section also safeguards the ability to engage in direct peer-to-peer (P2P) transactions using self-custody wallets, eliminating the need for financial intermediaries.
Additionally, the legislation aims to protect wallet developers, with Section 109 ensuring that non-controlling blockchain developers or providers of hardware or software facilitating customer custody will not be classified as money transmitters. This provision would shield developers of wallets—including those from Ledger, Tangem, and MetaMask—from being regulated as financial institutions based solely on their coding efforts.
Critical Insights on DeFi Provisions
Another key element of the bill is its provisions regarding decentralized finance (DeFi). The Act establishes certain exclusions that protect DeFi protocols and developers from being classified as centralized exchanges (CEXs) or brokers. Specifically, Section 309 states that individuals will not fall under the Securities Exchange Act strictly for engaging in activities such as developing DeFi trading protocols or publishing user interfaces for blockchain systems.
For consumers utilizing DeFi products and protocols, the Act provides a legal “safe harbor,” permitting continued engagement with decentralized finance without the imposition of mandatory intermediaries. However, it is imperative to note that this does not provide immunity from illegal financial activities.
Pro-crypto Senator Cynthia Lummis, who has been at the forefront of negotiations to secure favorable conditions for digital asset growth in the U.S., recently conveyed a message to her Democratic colleagues via social media, urging them to embrace the progress made:
After months of hard work, we have bipartisan text ready for Thursday’s markup. I urge my Democrat colleagues: don’t retreat from our progress. The Digital Asset Market Clarity Act will provide the clarity needed to keep innovation in the U.S. & protect consumers. Let’s do this!
As for the bill’s likelihood of passing, Barron posits a medium to high probability, estimating a 60-70% chance of it becoming law by early 2026. However, he cautiously notes that this outcome may depend on modifications to the “Anti-CBDC” provisions or concessions to banks concerning stablecoin reserves to achieve the necessary Senate approval.
With the crypto industry awaiting clarity, this latest draft of the CLARITY Act represents a pivotal moment in defining the future of digital assets in the United States.
