Key Highlights
- Cynthia Lummis renewed support for the CLARITY Act, citing the failures of BlockFi and Genesis.
- She argued the bill would legally separate customer crypto assets from bankruptcy estates.
- Lummis said the legislation aims to prevent users from becoming unsecured creditors if crypto firms fail.
U.S. Senator Cynthia Lummis (R-WY) renewed her call for passage of the CLARITY Act, citing lessons from cryptocurrency platform collapses like BlockFi and Genesis.
In an X post on Thursday, the senator highlighted how customers of BlockFi and Genesis learned that, in the absence of clear regulatory rules, their account balances amounted to unsecured claims in bankruptcy proceedings.
“BlockFi and Genesis customers learned a hard lesson: without clear rules, your account balance is really just an unsecured claim in a bankruptcy filing,” Lummis wrote. “The CLARITY Act changes that math. Segregated customer assets don’t belong to the estate; they belong to those individuals.”
How BlockFi and Genesis exposed a legal gap
BlockFi and Genesis were among the crypto lending platforms that collapsed during the 2022 bear market. BlockFi filed for bankruptcy in November 2022 after being heavily exposed to the FTX collapse. Genesis, a crypto prime brokerage and lending firm owned by DCG, filed for Chapter 11 in January 2023 following massive losses from lending to Three Arrows Capital and the FTX contagion.
In both cases, customer assets were not properly segregated. Depositors became unsecured creditors and were forced into lengthy bankruptcy proceedings, where they recovered only a portion of their funds after competing with other creditors.
Why Lummis says the CLARITY Act is needed
The Wyoming Republican has consistently argued that the legislation is essential for protecting digital asset holders. The bill seeks to establish clear legal boundaries ensuring that customer-owned cryptocurrencies remain the property of the individuals who deposited them, even if the platform fails.
This latest push echoes Lummis’s previous statements following the collapses of Celsius and Voyager. In an earlier X post, she noted, “When Celsius and Voyager went bankrupt, customer deposits didn’t stay customer deposits. They became assets in a bankruptcy pool, fought over by creditors who had never even heard of the customers who owned them.”
Lummis has argued that these high-profile bankruptcies exposed a critical gap in U.S. law. Because customer crypto deposits were not legally segregated, they were treated as company assets available to general creditors. Customers lost direct ownership rights and were relegated to lengthy claims processes alongside other parties, often recovering only a fraction of their holdings after years of litigation.
Previously, the senator highlighted the impact on customers, stating, “Voyager customers didn’t just lose access to their app. They got in line behind banks, bondholders, and lawyers to maybe recover pennies on the dollar, years later, in bankruptcy court. That’s not how customer funds should work. The CLARITY Act requires segregation so your assets never enter that fight in the first place.”
The Senate has updated the CLARITY Act
Senate Republicans unveiled a revised draft of the CLARITY Act yesterday. The updated legislation expands beyond core crypto rules to include new ethics provisions banning the president, vice president, members of Congress, federal judges, and other senior officials, along with their spouses, from issuing or sponsoring digital assets for compensation while in office.
The restriction includes a sunset date of January 20, 2029. Officials must sell their crypto holdings and related investments or place them in a blind trust. The proposal grants the Department of Justice civil enforcement powers, including authority to sue exchanges listing prohibited tokens.
It also requires disclosure of crypto sales over $1,000 and directs a GAO review of ethics gaps. The Blockchain Regulatory Certainty Act and stablecoin provisions remain largely unchanged, with a new law enforcement section added.
Why some Democrats are pushing back
Seven key Senate Democrats said the updated Republican draft of the CLARITY Act falls short of what is needed for passage.
In a joint statement issued Wednesday, Senators Angela Alsobrooks (D-MD), Cory Booker (D-NJ), Catherine Cortez Masto (D-NV), Ruben Gallego (D-AZ), John Hickenlooper (D-CO), Mark Warner (D-VA), and Raphael Warnock (D-GA) said the proposal needs stronger provisions on ethics for elected officials, consumer protection, illicit finance, conflicts of interest, and market integrity.
“The Republican-proposed text of the CLARITY Act as it currently stands falls short,” they stated. However, the senators emphasized they have been negotiating in good faith for the past year and remain committed to continuing talks to reach a final agreement.
Also Read: Ethereum (ETH) Price Trades 17% Below Realized Price — On-Chain Data Signals Caution
