Human Control Would Shape CLARITY Act DeFi Rules

A revised version of the CLARITY Act is making its way in the news, with text posted on Senator Cynthia Lummis’ website. It would direct the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Treasury. This version would determine whether people or coordinated groups controlling “non-decentralized finance trading protocols” must comply with securities, commodities, and anti-money-laundering requirements. The revised draft arrives ahead of a procedural Senate vote scheduled for Sept. 15, which requires 60 votes to advance. This is proposed legislation, not enacted law, and the outcome of next week’s cloture vote remains unresolved. This is a proposal that draws the regulatory line around identifiable human control rather than around the existence of code or a distributed ledger. A protocol could fall within scope if its functionality, operation, or rules can be materially altered by a person or coordinated group. It could also be in scope if its controllers can restrict users, or if its transactions aren’t governed solely by transparent, pre-established code. Software and distributed ledger systems themselves would not be required to register ...