U.S. Republican lawmakers unveiled a 630-page revised CLARITY Act, bringing non-decentralized DeFi protocols under CFTC registration requirements, but stablecoin yield and ethics controversies may still block the procedural vote on September 15.
Author: ChandlerZ, Foresight News
On September 10, Republican senators in the U.S. Senate released a 630-page revised text of the CLARITY Act, preparing to comprehensively rewrite H.R.3633, passed by the House of Representatives, as an amendment in the nature of a substitute. Cynthia Lummis, chair of the Senate Banking Committee’s Digital Assets Subcommittee and lead sponsor of the bill, said the new version incorporates over 100 amendments proposed by Democratic lawmakers.
The Senate will hold a cloture vote at 2:15 PM Eastern Time on September 15 to determine whether to proceed with consideration of the bill; this vote only decides if the Senate can begin processing the bill and requires 60 votes in favor—it does not equate to the bill passing the Senate. According to The Block, citing Politico, as of September 10, the revised text had not yet gained support from Democratic senators.
The CLARITY Act seeks to define the regulatory boundaries between the SEC and CFTC for the U.S. cryptocurrency market. H.R.3633 passed the House of Representatives in July 2025 by a vote of 294 in favor and 134 against, with 78 Democratic representatives voting yes; in May of this year, the Senate Banking Committee advanced its own version by a vote of 15 in favor and 9 against. The 616-page text released in July first merged the proposals from the Banking and Agriculture Committees, and the September version added 14 additional pages to this foundation.
If the bill takes effect, digital commodity exchanges, brokers, and dealers will register with the CFTC and be subject to obligations including client asset segregation, conflict of interest management, trade recordkeeping, and bankruptcy protection. Securities and tokenized stocks will remain under SEC regulation, and network tokens meeting the definition of "covered assets" will be required to disclose project progress, token allocations, and affiliated party holdings.
Non-decentralized DeFi protocols enhance CFTC registration pathways
The July text requested the SEC and the U.S. Treasury to establish rules for "non-decentralized financial transaction protocols" applicable to persons engaging in activities such as securities brokerage, trading, execution, clearing, or custody. The September version added corresponding provisions under the Commodity Exchange Act, assigning oversight of digital commodity spot transactions to the CFTC and requiring the CFTC to collaborate with the SEC and the Treasury in developing rules.
The new version outlines three criteria for evaluation: if the protocol has a controller capable of altering its functionality, operation, or consensus rules; if transactions are not fully executed according to transparent, pre-coded rules; or if someone can restrict, censor, or prohibit users from using the service—meeting any one of these conditions may classify the protocol as "non-decentralized." Regulatory requirements are determined based on actual functions such as brokerage, trading, execution, clearing, and custody; using names like DAO, foundation, or open-source protocol will not change this determination.
Protocol operators retaining upgrade keys, pause switches, transaction review rights, or asset control rights may be required to comply with CFTC registration, disclosure, recordkeeping, business oversight, and Bank Secrecy Act obligations. Individuals merely operating nodes, providing oracles, releasing code, developing non-custodial wallets, or offering read-only interfaces will not incur CFTC registration obligations solely due to these activities; participation in a security committee or incident response alone will not be deemed as controlling the protocol. The CFTC may still take enforcement action against fraud, manipulation, and false reporting.
Clarify regulation of prediction markets and credit cooperatives
The September text limited CFTC’s DeFi protections to spot and cash transactions of digital commodities. Prediction markets, which typically use event contracts, cannot automatically qualify for DeFi exemptions under this provision. Lummis stated that this amendment addresses concerns from Native American tribes about prediction markets circumventing tribal gaming rights and state gambling regulations. The bill does not directly determine whether event contracts constitute gambling products, and disputes between CFTC authority, state laws, and tribal gaming agreements will continue.
The terms for credit unions have also been technically adjusted. Federal credit unions may utilize digital assets or distributed ledgers to conduct payment, lending, custody, or trading activities already permitted by law, and insured deposit credit unions may operate under the same conditions. The text also clarifies that this provision does not expand the existing statutory authority of credit unions or exempt them from capital, risk management, and consumer protection requirements.
Stablecoin yields and official ethics clauses remain largely unchanged.
The new version continues to prohibit cryptocurrency service providers and their affiliates from paying passive interest or earnings to U.S. users solely for holding payment stablecoins, while preserving rewards generated from genuine activities such as payments, transfers, exchanges, settlements, and providing liquidity. The SEC, CFTC, and Treasury must jointly establish detailed regulations within one year after the bill is enacted into law. Banks seek further restrictions on stablecoin rewards, while crypto platforms aim to retain transaction and usage incentives—the September text did not resolve the dispute between the two sides.
The ethics provisions for officials remain the same as the July plan: public officials, federal employees, and their spouses are prohibited from issuing or sponsoring digital assets in exchange for consideration during their tenure, but they may hold digital assets as investments. Violations may only be pursued through civil litigation initiated by the U.S. Attorney General; state attorneys general and private parties are barred from filing suit. The ban will expire at noon on January 20, 2029. Democrats such as Elizabeth Warren previously called for expanding the scope and enforcement authorities, but the new version makes no significant changes.
In July, Senators Mark Warner, Cory Booker, Ruben Gallego, and six others jointly stated that provisions on official ethics, consumer protection, illicit finance, conflicts of interest, and market integrity still require strengthening. If H.R.3633 fails to secure 60 votes by September 15, it will remain stalled in the Senate, leaving the SEC and CFTC to rely solely on their existing authorities to issue rules independently. If the procedural vote passes, the Senate must then consider amendments and hold a final vote. The Senate’s version differs from the House version, and the House must either accept the Senate’s text or negotiate a unified version through a conference committee before the bill can be sent to the President for signature. Most provisions of the bill are set to take effect 360 days after enactment, while those requiring rulemaking will also wait until 60 days after the final rules are published.
