U.S. CLARITY Act sparks debate over DeFi developer protections and KYC risks
The proposed CLARITY Act in the U.S. aims to provide legal safeguards for decentralised finance (DeFi) developers. However, concerns remain that parts of the bill could still expose them to strict financial regulations. Lawmakers continue to debate its terms before finalising the legislation. U.S. Senator Cynthia Lummis has stressed that passing the CLARITY Act is crucial for protecting DeFi developers. She claims it offers the strongest legal shields yet for the industry. But recent bipartisan updates to Title 3, which tackles illicit finance, have sparked fresh worries.
Crypto attorney Jake Chervinsky warns that the current wording could still classify non-custodial developers as money transmitters. This would force them to follow Know Your Customer (KYC) rules and Bank Secrecy Act requirements. While Section 604 integrates parts of the Blockchain Regulatory Certainty Act (BRCA)—meant to exclude non-custodial builders from such rules—Title 3's broader definitions might override those protections.
The risk became clearer after the August 2025 conviction of Tornado Cash co-founder Roman Storm. His case highlighted how developers could face legal consequences even without holding user funds. Disputes over stablecoin regulations have further complicated the discussions.
A planned Senate Banking Committee review of the bill has been delayed to allow more negotiations. Lawmakers are still working through disagreements before moving forward. The CLARITY Act remains in draft form as debates over its impact on DeFi developers continue. If passed, its final wording will determine whether non-custodial builders face KYC obligations or gain the intended legal protections. The outcome could shape how DeFi operates under U.S. financial laws.
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