Senate Republicans Update CLARITY Act, Add CFTC…

Senate Republicans have released a revised version of the Digital Asset Market CLARITY Act that would bring certain non-decentralized DeFi trading protocols under Commodity Futures Trading Commission registration, addressing one of the issues raised during negotiations with Democrats. The updated legislation was released September 10, less than a week before the Senate is scheduled to hold its first procedural vote on the bill.Under the new language, trading protocols that fall outside the legislation's protections for genuinely decentralized finance would be required to register with the CFTC. The legislation directs the CFTC and Treasury Department to develop implementing rules.The addition represents a significant attempt to draw a regulatory boundary between decentralized software and platforms that use DeFi architecture while retaining meaningful centralized control.

Decentralization Determines Regulatory Treatment

The revised framework does not impose conventional intermediary registration on every DeFi protocol. Instead, it attempts to distinguish software that operates without meaningful centralized control from trading systems where identifiable parties retain sufficient influence over operations. The bill preserves protections for software developers who publish, maintain or contribute to code without controlling customer assets.Self-custody is similarly protected. But Senate Republicans say those protections are not intended to allow effectively centralized intermediaries to avoid regulation simply by describing their services as DeFi. Protocols deemed non-decentralized would face a tailored CFTC rulemaking and registration framework.The latest text also clarifies that the relevant DeFi provisions apply to “spot and cash digital commodity transactions.” Senator Cynthia Lummis said that clarification was intended partly to address concerns raised by tribal governments that broader language could inadvertently affect prediction markets.The revision also makes changes concerning how credit unions can conduct digital-asset activities. More broadly, CLARITY would divide federal crypto oversight between the SEC and CFTC, establishing CFTC supervision over spot digital-commodity markets while retaining SEC authority over securities and certain investment-contract assets.

September 15 Vote Remains Major Hurdle

The revisions arrive ahead of a critical Senate vote scheduled for September 15. Senate Majority Leader John Thune has filed cloture on the motion to proceed to the legislation, meaning the immediate vote concerns whether the Senate will advance to consideration of CLARITY rather than final passage of the bill.Sixty votes are required to overcome the procedural hurdle. Republicans hold 53 Senate seats, making Democratic support necessary even if every Republican votes to proceed. That support remains uncertain.Republican senators acknowledged earlier this week that the legislation was at serious risk of failing amid disagreements over government ethics provisions and other unresolved issues. The latest version does not contain significant changes to the ethics section, according to reporting on the revised text.Democrats have pushed for stronger restrictions governing crypto activities involving the president and senior public officials, while negotiations have also covered illicit-finance protections and stablecoin-related issues. The new DeFi registration provision appears to address a separate Democratic concern.Senate Banking Republicans argue the legislation protects genuinely decentralized software while ensuring centralized operators cannot use DeFi terminology to escape oversight. Critics are likely to focus on how regulators ultimately determine when a protocol is sufficiently decentralized. That distinction can be difficult in practice.A protocol may use autonomous smart contracts while retaining upgrade keys, governance concentration, fee switches, front-end control or other mechanisms through which identifiable parties exercise influence. Because the legislation delegates details to CFTC and Treasury rulemaking, the practical boundary would depend substantially on regulations written after enactment.First, however, CLARITY must survive the Senate. The September 10 revision shows Republicans are still changing the bill only days before the September 15 vote, with the DeFi language representing an effort to win additional support without subjecting genuinely decentralized protocols to the same framework as centralized exchanges.