CLARITY Act Amendments Target DeFi Protections

DeFi Protections Face Direct Challenge

Amendments submitted by Democratic Senators Cortez Masto, Andy Kim, Chris Van Hollen, Elizabeth Warren and Jack Reed would collectively move the bill away from regulating entities with direct control over financial activity. The proposals would make it easier to treat DeFi developers, front-end operators, digital asset businesses and autonomous smart contracts as regulated actors.

Several amendments target the Blockchain Regulatory Certainty Act, or BRCA. The provision says developers and infrastructure providers should not be treated as money transmitters when they do not control user funds, a distinction that matters because money transmitter status can trigger registration, anti-money laundering, reporting and compliance obligations built for financial intermediaries.

Amendment 16 would rewrite BRCA in a way that exposes developers to money-transmitter-style conditions rather than protecting them. Amendments 17 and 22 would strike developer protections in the CLARITY Act’s DeFi sections, Amendment 94 would remove BRCA from the bill entirely, and Amendment 67 would narrow exemptions to developers named in the White House digital assets report while adding national security obligations elsewhere.

Jack Reed also proposed an amendment that would entirely eliminate BRCA. That change would remove a key CLARITY Act provision that exempts DeFi from most new regulations and broadly protects crypto software developers from criminal prosecution.

Van Hollen’s Amendments 32 and 33 target developers for code that “facilitates” crimes including money laundering, unlicensed money transmission or terrorism financing. Amendment 32 uses a “reckless disregard” standard that could expose a developer if the developer allegedly ignored the risk that someone else could misuse a protocol.

CLARITY’s current language directs Treasury to issue anti-money laundering and sanctions guidance for U.S.-owned or operated DeFi front ends while carving out the underlying protocol, nodes, validators and wallets. Amendments 24, 69 and 92 would expand the federal definition of “financial institution” to cover entities operating or developing those carved-out components.

Amendments 27, 70, 71 and 72 would add new anti-money laundering and counter-terrorism financing duties for front ends, covered businesses and other DeFi entities. Those duties would effectively require wallet screening, transaction monitoring, suspicious activity reporting, customer checks and compliance certifications for parts of DeFi that do not custody assets or act as traditional intermediaries.

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Sanctions, Stablecoin Yield and Trump-Linked Crypto Draw Amendments

Andy Kim, who voted to pass the stablecoin-focused GENIUS Act out of committee last spring, introduced several amendments focused on national security protections in crypto. One would require businesses deriving significant revenue from DeFi platforms to institute proactive anti-money laundering and sanctions compliance programs.

Another Kim amendment would give the U.S. government clear jurisdiction to sanction transactions involving U.S.-dollar-backed stablecoins. Warren introduced a separate amendment that would allow the U.S. government to blacklist crypto platforms that facilitate more than one illicit transaction.

Reed’s Amendment 89 responds directly to Van Loon, the Fifth Circuit case involving Tornado Cash. The amendment would allow the government to sanction smart contracts regardless of whether they are autonomous, modifiable or owned by anyone, reopening the door to Tornado Cash-style enforcement against code with no controlling party.

The stablecoin-yield fight also entered the amendment process. Reed reproduced the exact stablecoin-yield language requested by the banking industry, forcing Senate Banking Committee members to vote on whether to include the proposal in the CLARITY Act.

That fight has pitted the banking industry against the crypto lobby for months. The current CLARITY Act language on rewards for U.S.-dollar-pegged stablecoins received crypto-industry approval while drawing heavy criticism from traditional banks.

Tina Smith introduced an amendment that would prohibit the U.S. government from providing crypto businesses with financial assistance to prevent “failure or bankruptcy.”

Warren introduced an amendment that would prevent the U.S. government from approving banking-related applications for institutions directly tied to the president, vice president, members of Congress and their immediate families. The same proposal would prohibit those individuals from controlling or owning banks.

Warren’s banking-application amendment is aimed at World Liberty Financial, the Trump family’s crypto company, which applied this year to receive a banking charter from the Trump administration. Democrats including Warren have criticized the situation as alleged presidential self-dealing.

Kim introduced another amendment requiring the re-establishment of an inter-agency National Cryptocurrency Enforcement Team. The team would investigate crypto ventures with direct ties to the president and their immediate family, among other responsibilities.

Broader language addressing the president’s involvement with crypto remains under negotiation between leaders in both parties. Key pro-crypto Democrats said they will not vote the CLARITY Act through to the Senate floor unless guarantees on that language are secured by the time of the hearing.

Republicans Add Cybersecurity, CBDC and Non-Crypto Proposals

Senate Republicans also introduced amendments focused on illicit crypto activity and privacy. Bill Hagerty and Dave McCormick proposed creating a permanent Digital Asset Cyber Innovation Center at the Treasury Department to counter crypto-related threats from state actors including North Korea and Iran.

Hagerty introduced another amendment that would permanently ban the U.S. government from issuing a central bank digital currency. That proposal would go beyond the five-year CBDC ban attached to a major housing bill currently stalled in the House.

Several amendments fall outside crypto. Hagerty proposed cutting regulations on housing development in certain approved areas of the country. Warren introduced a non-crypto amendment requiring federal banking regulators to release all information in their possession related to Jeffrey Epstein and his co-conspirators within 90 days of the CLARITY Act’s passage.

Warren, who filed over 40 amendments on the bill, also proposed capping credit card interest rates at 10% for one year. Katie Britt introduced an amendment that would increase swipe fees paid by merchants and retailers to banks to keep up with inflation, a policy framed as especially beneficial to community banks that feel threatened by stablecoin yield.

One D.C. insider described Britt’s swipe-fee proposal as a political sweetener for banks, saying, “If you’ve made community banks angry about stablecoin yield, this is a nice little treat on the side.”