CLARITY Draft Sets Rules for DeFi and Tokenized Finance

A 616-page Senate Republican draft of the CLARITY Act proposes a comprehensive crypto regulatory framework—protecting non-custodial DeFi, setting tokenized finance rules, and temporarily restricting federal officials from issuing digital assets until 2029—while facing intense debate over loopholes ahead of the August recess.

Summary:

The latest CLARITY Act draft preserves protections for non-custodial DeFi developers and blockchain infrastructure providers.
The proposal creates a legal framework for tokenized securities while allowing regulated financial institutions to use public blockchains.
A new ethics provision would temporarily prohibit senior federal officials from issuing digital assets while in office, with the restriction expiring in 2029.
The legislation remains under negotiation as lawmakers seek enough support before the Senate’s August recess.

Senate Republicans have unveiled their most comprehensive cryptocurrency market structure proposal to date, with a revised CLARITY Act draft expanding legal protections for decentralized finance, establishing rules for tokenized financial assets and introducing a temporary ethics framework for senior government officials.

DeFi Protections Remain Intact

The revised legislation retains one of the crypto industry’s most closely watched provisions by incorporating the Blockchain Regulatory Certainty Act into the broader market structure package.

Under the proposal, software developers, miners, validators and node operators that do not take custody or control of customer assets would not be classified as money transmitters under the Bank Secrecy Act. The language aims to distinguish providers of blockchain infrastructure from businesses that hold or transfer customer funds, addressing a long-running source of regulatory uncertainty for decentralized finance.

The provision is widely viewed as a safeguard against applying traditional financial licensing requirements to entities whose role is limited to developing or maintaining blockchain networks.

Framework Expands Beyond DeFi

The proposal also broadens the role public blockchain infrastructure could play within the traditional financial system.

Among its key provisions, the draft would:

allow regulated financial institutions to use public blockchain networks for financial services;
establish a regulatory pathway for tokenized securities and digital asset custody;
clarify that customer digital assets remain customer property during bankruptcy proceedings rather than becoming part of a failed firm’s estate;
require stablecoin issuers to comply with lawful token-freezing orders; and
provide additional resources for state-level crypto investigations and anti-illicit finance initiatives.

Together, the measures are intended to provide greater legal certainty for institutions seeking to integrate blockchain technology into regulated financial services while strengthening customer protections.

Ethics Rules Would Expire in 2029

The latest draft also gives legislative form to an ethics compromise that had previously been discussed only in broad terms.

The proposal would prohibit the president, vice president, members of Congress and federal judges from issuing or sponsoring digital assets while serving in office. Rather than creating a permanent restriction, however, the measure includes a sunset clause that would automatically terminate at noon on Jan. 20, 2029, aligning with the end of the current presidential term.

Enforcement authority would rest with the Department of Justice, while the legislation specifies that activities predating the law’s enactment would not constitute violations under the new framework.

Opposition Focuses on Loopholes

The ethics language has become one of the proposal’s most politically contested sections.

Democratic lawmakers, including Senator Elizabeth Warren, argue the draft leaves significant gaps by allowing officials to retain passive digital asset investments and by not fully addressing projects launched through relatives or affiliated entities. Critics have also questioned whether assigning enforcement exclusively to the Department of Justice provides sufficient oversight.

Supporters, meanwhile, contend the provision represents a workable compromise capable of attracting broader support without delaying the wider market structure legislation.

Next Steps Depend on Senate Negotiations

The revised draft combines proposals developed by the Senate Banking and Agriculture committees into a single negotiating text, but it does not guarantee bipartisan backing or final passage.

With lawmakers working against the Senate’s August recess, supporters are pushing to move the legislation to the floor in the coming weeks. Any final version, however, is likely to face further revisions as negotiations continue over the bill’s ethics provisions and broader digital asset framework.

The information presented in this article is intended for informational purposes only and should not be interpreted as financial, investment, or trading advice. Coinspress.com does not promote or advocate for any particular investment strategy, asset, or cryptocurrency project. Cryptocurrency markets are highly volatile and unpredictable – always perform your own research and seek guidance from a qualified financial professional before making any investment decisions.

Author

Alexander Stefanov

Reporter at CoinsPress

Alex is Editor-in-Chief of Coinspress and co-founder of Millennial Media Group, with nearly a decade of experience covering financial markets - crypto first, then everything else. It started in 2016 with Bitcoin. Like most people at the time, he didn't fully understand it - so he kept digging. Blockchain, tokenomics, the projects, the cycles. That curiosity never stopped, and eventually pulled him into traditional markets too: equities, commodities, macro. Not because he left crypto behind, but because you can't properly understand one without the other. What drives him is straightforward: he wants to know why something is happening, not just that it's happening. Most market coverage stops at the headline - price up, price down, here's a chart. Alex finds that kind of reporting actively unhelpful. If you walk away from an article without understanding the mechanism behind the move, what did you actually learn? He holds a degree in Tourism from New Bulgarian University - not the most obvious path into financial markets, but markets have a way of pulling in people who are simply too curious to stay out. He has authored over 200 in-depth analyses and more than 10,000 articles across crypto and traditional finance. He still thinks every day in markets teaches him something new. That's probably why he hasn't stopped.