Senate Panel Moves Crypto "Clarity Act" Forward; Late DeFi Rewrite Raises "Fake DeFi" Fears

The Senate's Digital Asset Market Clarity Act cleared a major committee vote this week, strengthening bipartisan momentum for U.S. crypto legislation. A last-minute rewrite to the bill's DeFi section is drawing pushback from developers and policy advocates who say the compromise may broaden regulators' reach. The Senate Banking Committee advanced the bill 15–9 after Republican Sen. Cynthia Lummis backed a package of amendments that won support from Democratic Sens. Angela Alsobrooks and Ruben Gallego. Sen. Mark Warner suggested he could be open to supporting the measure later. Backers framed the vote as progress toward a long-sought federal market structure framework. The bill keeps the Blockchain Regulatory Certainty Act (BRCA), a provision generally designed to prevent non-controlling blockchain developers—those who write software but do not take custody of users' funds—from being treated as money transmitters. Lummis had made preserving BRCA a priority. Still, industry attention is focused on a late change to the DeFi language. The revised text removes earlier protections for non-controlling developers and could allow regulators to determine that a protocol is not genuinely decentralized. If agencies can show some level of control, they could treat participants as "securities intermediaries." The edit also extends potential exposure to anyone "acting pursuant to an agreement, arrangement, or understanding" to influence a protocol, wording critics say could be read broadly. Developers and policy officials warn the language could capture routine coordination—such as governance token holders or protocol teams voting in blocs—even when they do not control user assets. That, they argue, could pull developers and contributors into securities or other financial regulation based on informal cooperation rather than clear operational control. The risk is heightened by the possibility of shifts in enforcement priorities under future agency leadership. "Giving SEC and Treasury the flexibility here was clearly what certain Democrats were demanding," said Bill Hughes, senior counsel and director of global regulatory matters at Consensys. He described the edit as "very nuanced" and said the practical impact will depend heavily on eventual rulemaking. The DeFi change was part of a broader compromise that brought two Democrats on board to advance the bill. The amendment package also included provisions extending digital asset activity to credit unions, SEC tokenization measures, and state-level consumer protections tied to digital commodities. Other markup additions expanded the bill's scope. Sen. Mike Rounds secured an AI "regulatory sandbox" for financial firms. Sen. Dave McCormick won greater flexibility for institutions calculating margin across portfolios—a long-standing industry request Hughes called "substantively beneficial" for institutional market structure. Next, lawmakers will reconcile the Clarity Act with a related bill that previously passed the Senate Agriculture Committee before the legislation heads to the full Senate. Negotiators still face unresolved flashpoints, including a Democratic-backed ethics provision aimed at limiting senior government officials' involvement in the crypto industry, an issue linked to concerns about President Trump's ties to the sector. The committee vote keeps core developer protections in place and revives bipartisan momentum. At the same time, the late expansion of authority to label some projects "fake DeFi" and potentially subject contributors to securities rules adds new uncertainty. Market participants say the outcome will hinge on how regulators interpret and implement the language if the bill becomes law.