CLARITY Act Faces New Hurdles as Law Enforcement Pushes Back on DeFi Provision

TLDR

• Senator Thom Tillis says law enforcement concerns over the DeFi provision must be addressed before the CLARITY Act can move forward
• Law enforcement groups argue the provision makes it harder to prosecute illicit finance cases
• Crypto stakeholders say the DeFi protection clause is non-negotiable
• Senator Cynthia Lummis says the issue is not a “big new hurdle” and is working on solutions
• The bill faces an August deadline, with Galaxy Digital giving it a 50% chance of passing this year

The CLARITY Act, a major piece of crypto market-structure legislation, is running into fresh opposition from law enforcement groups over a key provision protecting DeFi developers.

Senator Thom Tillis, a member of the Senate Banking Committee, said lawmakers must resolve these concerns before the bill can be marked up. A markup had been expected in May.

The provision at the center of the debate mirrors the Blockchain Regulatory Certainty Act. It shields DeFi developers from legal responsibility for illegal activity carried out by users on their platforms.

Law enforcement groups, including those representing police and prosecutors, say the clause would make it harder to pursue illicit finance cases. They want it removed or changed.

On the other side, crypto industry stakeholders say the provision is a top priority. Some have stated its inclusion is non-negotiable. The White House is also said to view it as a major priority.

Senator Tillis has made his position clear. He has said the bill must also include an ethics provision, and that he will vote against it if that is left out. His support is considered critical, especially if the Senate Banking Committee needs to advance the bill along party lines.

Lummis Pushes Back on Concerns

Senator Cynthia Lummis responded to the concerns in a post on X, saying it is not a “big new hurdle.” She stated she is working on the issue now.

Lummis had previously said at a Bitcoin conference that the markup would happen in May and that the bill would get across the finish line.

Multiple Issues Still Unresolved

The DeFi provision is not the only sticking point. Democrats are pushing for an ethics provision in the bill. There are also ongoing negotiations around stablecoin yield language, in which Tillis is directly involved.

SEC-related concerns are also in play. Democrats want bipartisan representation on the SEC, while Republicans currently hold three of the five seats.

The bill is under time pressure. The Senate is heading into a five-week recess before the midterm elections, creating an effective August deadline.

Galaxy Digital has put the odds of the bill passing this year at 50%. The firm warned those odds could fall further if the Senate Banking Committee does not act in May.

The CLARITY Act has stalled at the committee stage, with several unresolved issues still blocking progress.

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