CLARITY Act Closes Loophole, Protects Self-Custodied Crypto

The CLARITY Act is moving forward in the Senate, and it's bringing significant changes to the crypto industry. The bill places crypto exchanges, DeFi platforms, and ATMs under existing AML and sanctions regulations, closing the 'DINO' loophole that allowed some companies to claim decentralization while still holding operational control.

Senator Cynthia Lummis stated that the updated CLARITY Act brings every corner of the digital asset market inside the Bank Secrecy Act and sanctions framework. This means platforms can no longer hide from the law, according to Lummis.

A lesser-known provision in the bill protects self-custodied crypto from being considered abandoned property simply because a wallet goes unused. Alex Thorn, Head of Research at Galaxy Digital, pointed out this section, which provides federal preemption and trumps any state law that would have classified a self-custodied digital asset as abandoned due to inactivity.

The CLARITY Act is set for a potential vote on the Senate floor next week, with Goldman Sachs CEO David Solomon backing the bill. If passed, Circle and Coinbase could benefit from clearer jurisdiction rules and a federal stablecoin framework for USD Coin (USDC).