Key Highlights
- 1inch says the Senate’s CLARITY Act delay extends uncertainty for DeFi developers and non-custodial protocols.
- Senior Legal Counsel Maylea Ma says the current bill contains protections for software developers and self-custody.
- 1inch warns those provisions could change as lawmakers continue negotiations.
The U.S. Senate’s decision to postpone consideration of the CLARITY Act until September has extended the regulatory uncertainty facing decentralized finance (DeFi), according to an analysis from 1inch.
In a detailed X post on Tuesday, 1inch Senior Legal Counsel Maylea Ma focused on the provisions of the proposed market-structure bill that could affect non-custodial protocols, software developers, and self-custody.
Rather than arguing that the legislation is without flaws, Ma’s analysis weighs the potential benefits of having a federal statutory framework against continuing to rely on agency interpretations and enforcement policies.
1inch highlights protections for DeFi developers
Ma argues that the current CLARITY Act text contains provisions that could provide protections for non-custodial software and developers. Her analysis points to language connected to the Blockchain Regulatory Certainty Act (BRCA), protections for software developers and self-custody, as well as provisions distinguishing non-custodial applications from traditional financial intermediaries.
The distinction matters for DeFi protocols that do not control or custody user funds. If developers are treated differently from companies operating as financial intermediaries, the regulatory obligations they face could also differ.
Ma notes that some of these protections were narrowed during earlier amendment discussions, making the final language a key issue as negotiations continue.
Law enforcement groups challenge DeFi protections
The bill’s proposed protections for DeFi have drawn opposition from law enforcement groups, which argue the provisions could create gaps in anti-money-laundering and sanctions enforcement.
The National Sheriffs’ Association said in a July 31 letter to Senate leaders that the legislation could allow decentralized platforms, software developers, mixers and blockchain bridges to avoid certain compliance requirements.
The Blockchain Association pushed back in an August 3 letter to Senate Majority Leader John Thune and Minority Leader Chuck Schumer, arguing that the bill distinguishes between entities that control customer funds and developers providing neutral software.
The group said developers who knowingly facilitate illegal transactions or exercise control over customer assets would remain subject to existing criminal laws.
The disagreement highlights a key issue in the CLARITY Act negotiations: whether protections for developers and self-custody are necessary safeguards for DeFi or create gaps in financial crime enforcement.
Earlier anti-DeFi proposals remain part of the debate
The dispute over developer protections predates the latest Senate delay.
Earlier this year, crypto industry groups, including the DeFi Education Fund, opposed proposed amendments that they said could narrow liability protections for developers and impose bank-style compliance requirements on parts of the DeFi sector.
Those disagreements reflected a broader question facing lawmakers: how to impose consumer and financial safeguards without applying the same requirements to non-custodial software as to companies that hold customer assets or operate as financial intermediaries.
For 1inch, that distinction remains central to the current CLARITY Act negotiations.
Ma says imperfect CLARITY Act could be better than no law
Ma argues that an imperfect law could still be preferable to the current system if the final legislation preserves meaningful protections for DeFi. “The alternative to imperfect-but-enacted is not perfect-but-enacted. There is no law at all.”
Her argument is based on the difference between statutory law and agency interpretation. Regulatory guidance and enforcement approaches can change as agency leadership and administrations change, while legislation can provide a more durable framework.
That does not mean 1inch supports every version of the bill. Ma also pointed to Coinbase’s temporary withdrawal of support earlier this year as an example of the industry pushing back against provisions viewed as harmful to DeFi.
September 15 vote sets next test
The Senate’s next opportunity to consider the CLARITY Act comes with the September 15 cloture vote. A cloture vote would require 60 senators to advance the legislation, meaning bipartisan support remains necessary.
Even if the procedural vote succeeds, the bill would still have to clear further Senate proceedings before becoming law. Differences with the House version and other legislative priorities could also affect the timeline.
The September schedule leaves lawmakers with a relatively narrow window before the November midterm elections, adding another constraint to the legislative process.
What the delay means for DeFi
Until Congress acts, DeFi developers and non-custodial protocols will continue operating under the existing regulatory framework. Questions surrounding software development, self-custody and non-custodial financial applications will therefore remain subject to existing laws, regulatory interpretations and enforcement decisions.
That is the central concern raised by 1inch’s analysis. The debate is not simply about whether the CLARITY Act is good or bad for DeFi, but whether the final legislation can preserve the protections currently contained in the bill while providing developers with greater certainty than the existing system.
The September 15 vote will be the next major test of whether lawmakers can move the framework forward.
Also Read: As CLARITY Act Stalls, SEC Moves to Write Its Own Crypto Rules
