Senator Cynthia Lummis released the merged text of the Digital Asset Market Clarity Act (CLARITY Act) on July 22, combining the Senate Banking Committee’s work with the Agriculture Committee’s Digital Commodity Intermediaries Act into a single 616-page package.
The document is the most complete version of the bill to date. What follows is an examination of the actual statutory language, how the major disputes evolved, who gains and loses under the text, a close reading of the ethics division, and the practical consequences for DeFi protocols, stablecoin issuers, and developers.
Lummis framed the release as progress rather than a conclusion. “The coming weeks are likely the last real chance we will have for years to get this right,” she said, thanking her Democratic colleagues for their contributions and expressing “my commitment to reaching a deal in the coming days that will allow this legislation to become law.”
That framing matters. The bill’s lead author was, on the day of release, describing an agreement that had not yet been reached.
1. What the Text Actually Contains
The merged bill is organized into four divisions, amending the Securities Act of 1933, the Commodity Exchange Act, the Bank Secrecy Act, and other federal statutes.
Division A carries the Banking Committee’s work across 10 titles. Division B is the Digital Commodity Intermediaries Act, establishing CFTC jurisdiction. Division C contains the ethics requirements. Division D sets the effective date.
The definitions that carry the framework
Two definitions carry most of the bill’s structural weight. A network token is defined as “a digital commodity that is intrinsically linked to a distributed ledger system and that derives, or is reasonably expected to derive, its value from the use of such distributed ledger system.” An ancillary asset is “a network token, the value of which is dependent upon the entrepreneurial or managerial efforts of an ancillary asset originator or a related person.”
The distinction is the bill’s central mechanism: network tokens are treated as non-securities, while ancillary assets carry disclosure obligations until the originator’s efforts cease to drive value.
Regulation Crypto
Title I is formally titled the ‘Lummis-Gillibrand Responsible Financial Innovation Act of 2026’—Senator Kirsten Gillibrand’s name appearing on the securities title of a bill she has said will not move without an ethics provision.
Section 10103 directs the SEC to adopt rules “which shall be referred to collectively as ‘Regulation Crypto,'” creating an exemption from registration for offerings of investment contracts involving ancillary assets. The caps are specific: the greater of $50 million in gross proceeds per calendar year for up to four years, or 10% of the total dollar value of outstanding ancillary assets, with a $200 million lifetime limit per originator.
Disclosure obligations attach above modest thresholds. Originators are exempt if gross proceeds or average daily trading volume fall below $5 million; financial statements must be reviewed by an independent accountant below $25 million in proceeds and audited above it.
Coordinated control and insider selling
Section 10104 addresses when a network becomes genuinely decentralized. The SEC must define coordinated control, with the text supplying the criteria: whether the protocol and source code are publicly available, whether any party can censor or grant itself privileges, whether a person or group controls more than 49% of outstanding units or voting power, whether the system has reached an autonomous state, and whether value-accrual mechanisms are functional.
Related persons face holding periods on disposal—12 months before a network is certified as not under coordinated control and 6 months after, with post-certification sales capped at no less than 10% of outstanding units per 12-month period. Profits from violating sales “shall inure to, and be recoverable by, the holders of the ancillary asset.”
The related-person definition itself is granular: 4% beneficial ownership for founders, 10% for executives and directors, 10% for large holders, 2% for covered tokens.
The provisions nobody is discussing
Several sections have drawn little attention and deserve some.
Section 10906 — “Compliance with lawful orders requiring reissuance.” Circle told a Wisconsin court this month that it cannot invalidate and reissue frozen USDC held in third-party wallets, the defense at the center of a criminal contempt complaint against the company. The merged text contains a section addressing exactly that obligation.
Section 10305 provides for temporary holds on certain digital asset transactions. Section 10306 establishes a voluntary cybersecurity program for DeFi trading protocols. Section 10506 provides for voluntary adoption of NIST post-quantum cryptography standards—landing the same week nine institutions, including BlackRock and Fidelity, pledged $15 million to Bitcoin’s post-quantum development.
Elsewhere: Section 10205 covers digital asset kiosks, Section 11004 makes technical corrections to the GENIUS Act, Section 10501 creates a CFTC-SEC micro-innovation sandbox, and Sections 20209 and 20216 mirror the developer and self-custody protections on the CFTC side.
2. The Five Fights
| Issue | Position Before the Merge | What the Merged Text Does | Status |
|---|---|---|---|
| Ethics rules | Deadlocked; merged draft expected without ethics language | Adds Division C: bans covered officials and spouses from issuing or sponsoring digital assets, DOJ enforcement, $250K daily penalties, 2029 sunset | Contested—seven Democrats say it falls short |
| Stablecoin yield | 78 banking groups sought four specific narrowings to Section 404 on July 13 | Section 10404 carries the Tillis-Alsobrooks compromise forward unchanged | Resolved—against the banks |
| Developer protections | Law enforcement groups pressing to narrow Section 604 | Sections 10604 and 10605 retain BRCA and Keep Your Coins in full | Resolved—for industry |
| SEC/CFTC vacancies | Democrats demanded two minority nominees at each agency | “Sense of Congress” that two commissioners at each be nominated in consultation with the minority party | Partially addressed—non-binding |
| Federal preemption | States sought to retain enforcement authority | Section 20109 preempts for registration and core market structure; states keep anti-fraud and consumer protection | Resolved—split the difference |
The pattern is worth stating plainly. Of the five, three are settled in the industry’s favor, one is gestural, and the one that decides the bill remains open.
Analyses of the text indicate that only two elements are genuinely new relative to the May committee draft: the ethics division and a law enforcement section carrying investigative funding and stablecoin seizure powers. Developer protections, the yield compromise, and the bankruptcy safeguards carried over intact.
3. Winners and Losers
Clear winners
Open-source developers. Section 10604 provides that a non-controlling developer “shall not be treated as a money transmitting business” solely for creating or publishing software, providing self-custody tools, or supplying infrastructure support. The protection survived sustained law enforcement objection.
Staking protocols, including liquid staking. The gratuitous distribution provisions are the most underreported win in the bill.
Circle and stablecoin distributors. The yield carve-out survived. For a company deriving over 95% of revenue from interest on USDC reserves, and for Coinbase as its distribution partner, this was the provision that mattered most.
Self-custody advocates. Section 10605, the Keep Your Coins Act, states that “a Federal agency may not prohibit, restrict, or otherwise impair the ability of a covered user to self-custody digital assets.”
The CFTC. Division B hands it primary authority over digital commodity exchanges, brokers, dealers and custodians.
Institutional participants. Title VII treats customer digital assets as customer property in bankruptcy — a direct answer to the FTX and Celsius experience.
Mixed
Traditional banks. This is the category most coverage gets wrong. Banks won the headline prohibition on deposit-equivalent yield, which they had sought since the GENIUS Act. But the 78 banking organizations that wrote to Senate leadership on July 13 asked for four specific narrowings—striking “solely” from 404(c)(1)(A), deleting references in (1)(B), replacing “economically or functionally equivalent” with “substantially similar,” and removing the balance-and-duration language entirely. None was adopted. They won the principle and lost the fight over the exception.
Under pressure
Platforms built on passive stablecoin yield. Section 10404’s prohibition is unambiguous where the reward functions as deposit interest.
Centralized DeFi front-ends. The text draws a sharper line between genuinely decentralized systems and those retaining control, with higher compliance expectations for the latter.
State regulators. Preemption limits their ability to impose conflicting registration requirements, though anti-fraud authority survives.
Officials with crypto holdings. Division C creates compliance obligations reaching spouses.
4. The Ethics Division, in Detail
Section 30101 provides that a covered individual “shall not, in exchange for consideration,” issue or sponsor a digital asset. The prohibition reaches the president, vice president, members of Congress, federal judges, and other covered officials and employees during their service—and their spouses. A companion clause bars listing any digital asset issued in violation.
Enforcement sits with the Department of Justice. Penalties reach $250,000 per day. A safe harbor protects officials who place prior crypto interests in qualified blind trusts or divest them. Division C also mandates a GAO report (30103), sets an effective date (30104), sunsets in 2029 (30105), and includes a severability clause (30106).
The provision was negotiated between the White House and Republican Senators Lummis and Bernie Moreno, with President Trump signing off personally. A White House official described it as “the most comprehensive and wide-ranging ethics provision in history.” Lummis wrote that “history will remember this as the moment a president chose a higher standard of ethics than the law required of him.”
Why it hasn’t settled anything
The objection is not that the ban is too narrow. It is who enforces it.
Democrats want state attorneys general empowered to bring cases. Lummis has said that was a “red line” for Republican negotiators. Senator Angela Alsobrooks, one of only two Democrats to advance the bill out of the Banking Committee in May, gave her reasoning to reporters at the Capitol in five words: “Look at this Department of Justice.”
The structural problem is straightforward. A provision governing the president’s conduct, enforced by a department whose leadership serves at the president’s pleasure, recreates the conflict it exists to resolve. That is why the dispute has not yielded to compromise language — the two positions are mutually exclusive by design.
Seven Democrats—Alsobrooks, Cory Booker, Catherine Cortez Masto, Ruben Gallego, John Hickenlooper, Mark Warner, and Raphael Warnock—said the text “falls short” on ethics, consumer protection, illicit finance, conflicts of interest, and market integrity, while committing to continue negotiating. Alsobrooks and Gallego, the bill’s only Democratic committee votes, now both oppose it.
The 2029 sunset is a second point of exposure: the restrictions expire, and the expiry date falls after the current presidential term.
5. What It Means for DeFi, Stablecoins, and Developers
Staking receives explicit statutory protection
The most consequential provision for DeFi is one that has gone largely unremarked. Section 4B(a)(5) creates a presumption that gratuitous distributions are not securities offerings and enumerates what qualifies:
- Self-staking
- Self-custodial staking with a third party, where the operator does not take custody
- Liquid staking—the issuance, transfer, or redemption of liquid staking tokens representing a pro rata interest in staked tokens, provided they are administrative receipts without discretionary management authority
- Custodial and ancillary staking services that are exclusively administrative or ministerial
- Programmatic and automated distributions — airdrops meeting transparency and proportionality conditions
- A technology-neutral catch-all covering mechanisms that do not yet exist
Liquid staking receiving named statutory protection is a significant outcome for Lido, Rocket Pool, Jito, and every protocol issuing an LST. The airdrop conditions are also concrete: distributions must follow public, permissionless, rules-based parameters, be proportionate to verifiable participation, derive value from network use rather than discretionary action, and permit no unilateral authority to alter issuance.
Stablecoins
Section 10404 prohibits covered parties from paying interest or yield to a restricted recipient “solely in connection with the holding of the payment stablecoins” or “in a manner that is economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit.” Rewards based on “bona fide activities or bona fide transactions” that fail that equivalence test remain permitted.
Two features matter beyond the headline. The prohibition binds not only issuers but also the digital asset service providers working with them—closing the gap in the GENIUS Act, which reached issuers alone. And the boundary between a lawful activity reward and an unlawful interest equivalent falls to joint SEC, CFTC, and Treasury rulemaking within one year of enactment.
That means the passage does not resolve the question. It relocates it from Congress to a rulemaking process, and the companies whose revenue depends on the answer will spend that year lobbying agencies rather than senators.
Developers
Title VI is the strongest federal protection for software developers in US crypto legislation to date. Section 10604 shields non-controlling developers from money-transmitter classification for publishing code, providing self-custody tools or maintaining infrastructure. Section 10605 bars federal agencies from impairing self-custody. Sections 20209 and 20216 mirror the developer and self-custody protections on the CFTC side.
The practical effect is to remove the legal theory under which developers have faced prosecution for writing software they do not control.
What Happens Next
Majority Leader John Thune must file a motion to proceed, and the bill requires 60 votes to overcome a filibuster. The Senate leaves after August 7, with other legislation competing for floor time.
New fronts are still opening. Twelve Senate Democrats are pressing for limits on prediction markets in the bill. Illicit finance provisions remain under negotiation. The Senate Judiciary, Ethics, and Intelligence Committees all contributed to the current text.
The merged draft settles most of what negotiators could settle. On the question of who enforces a ban on the president profiting from crypto, it settles nothing—and that is the question the next two weeks will answer.
