Pseudo-DeFi Must Register, 60 Votes Needed: Key Changes in the New CLARITY Act

Original author: ChandlerZ, Foresight News

On September 10, Senate Republicans unveiled a 630-page revised text of the Digital Asset Market Clarity Act (CLARITY Act), intended to replace the House-passed H.R.3633 as a substitute amendment. Senator Cynthia Lummis, chair of the Senate Banking Committee's Digital Assets Subcommittee, said the new version incorporates more than 100 changes proposed by Democratic lawmakers.

The Senate will hold a cloture vote at 2:15 p.m. ET on September 15 to begin consideration. This vote only determines whether the Senate can start processing the bill and requires 60 votes; it does not mean the bill has passed the Senate. The Block, citing Politico, reported that as of September 10, the new text still lacked support from Democratic lawmakers.

The CLARITY Act seeks to delineate regulatory authority between the SEC and CFTC for the U.S. crypto market. The House passed H.R.3633 in July 2025 by a vote of 294 to 134, with 78 Democrats voting in favor; the Senate Banking Committee advanced its own version in May by a vote of 15 to 9. The 616-page text released in July first merged the Banking and Agriculture Committees' proposals, and the September version adds 14 pages to that.

If enacted, digital commodity exchanges, brokers, and dealers would register with the CFTC and be subject to obligations including customer asset segregation, conflict-of-interest management, transaction recordkeeping, and bankruptcy protection. Securities and tokenized equities would remain under SEC oversight, and network tokens meeting the definition of "affiliated assets" would require disclosure of project progress, token distribution, and related-party holdings.

Non-Decentralized DeFi Protocols Gain CFTC Registration Path

The July text already required the SEC and Treasury to establish rules for "non-decentralized financial transaction protocols," applying to controlling persons engaged in activities such as securities brokerage, trading, execution, clearing, or custody. The September version adds corresponding provisions to the Commodity Exchange Act, assigning digital commodity spot operations to the CFTC and requiring the CFTC to jointly develop rules with the SEC and Treasury.

The new version lists three categories of criteria: if a protocol has a controlling person who can alter its functionality, operation, or consensus rules; if transactions are not executed entirely according to transparent rules pre-written in code; or if someone can restrict, censor, or prohibit user access—meeting any one of these may place the protocol in the "non-decentralized" category. Regulatory requirements are determined based on actual functions such as brokerage, trading, execution, clearing, and custody; adopting names like DAO, foundation, or open-source protocol does not change the determination.

Protocol operators that retain upgrade keys, pause switches, transaction censorship authority, or asset control rights may be subject to CFTC registration, disclosure, recordkeeping, business supervision, and Bank Secrecy Act compliance obligations. Persons who merely run nodes, provide oracles, publish code, develop non-custodial wallets, or offer read-only interfaces will not incur CFTC registration obligations solely from these activities; participating only in a security council or incident response will not alone be deemed control of the protocol. The CFTC may still take enforcement action against fraud, manipulation, and false reporting.

Further Clarification on Prediction Markets and Credit Unions

The September text limits CFTC-side DeFi protections to digital commodity spot and cash transactions. Prediction markets typically use event contracts and cannot automatically obtain DeFi exemptions through this provision. Lummis said this change responds to concerns from Native American tribes that prediction markets could circumvent tribal gaming rights and state gambling rules. The bill does not directly rule on whether event contracts constitute gambling products; disputes over CFTC authority, state law, and tribal gaming compacts will continue.

Credit union provisions also underwent technical adjustments. Federal credit unions may use digital assets or distributed ledgers to conduct payment, lending, custody, or trading activities already permitted by law, and federally insured credit unions may operate under the same conditions. The text also notes that this provision does not expand credit unions' existing statutory authority, nor does it exempt them from capital, risk management, and consumer protection requirements.

Stablecoin Yield and Official Ethics Provisions Largely Unchanged

The new version continues to prohibit crypto service providers and their affiliates from paying U.S. users passive interest or yield solely for holding payment stablecoins, while preserving rewards from genuine activities such as payments, transfers, exchanges, settlements, and liquidity provision. The SEC, CFTC, and Treasury must jointly issue rules within one year of enactment. The banking industry wants further restrictions on stablecoin rewards, while crypto platforms want to retain trading and usage incentives; the September text does not resolve the dispute.

Official ethics provisions also follow the July version: public officials, federal employees, and their spouses may not issue or sponsor digital assets in exchange for consideration during their tenure, but may hold digital assets as investments. Violations may only be pursued through civil actions by the U.S. Attorney General; state attorneys general and private parties cannot sue. The prohibition will expire at noon on January 20, 2029. Democrats including Elizabeth Warren had previously called for broader applicability and enforcement authority, but the new version makes no major adjustments.

In July, seven Democratic senators including Mark Warner, Cory Booker, and Ruben Gallego jointly stated that provisions on official ethics, consumer protection, illicit finance, conflicts of interest, and market integrity still need strengthening. If the 60-vote threshold is not met on September 15, H.R.3633 will remain in the Senate, and the SEC and CFTC can only rely on existing authority to issue rules separately; if the procedural vote passes, the Senate will still need to process amendments and hold a final vote. The Senate-passed text differs from the House version, so the House must accept the Senate text or the two chambers must reconcile a unified version before it can be sent to the President for signature. Most provisions of the bill are set to take effect 360 days after enactment, and provisions involving rulemaking must wait until 60 days after final rules are published.