CLARITY Act Cracks Down on Decentralized Crypto Platforms

The revised Digital Asset Market Clarity Act (CLARITY Act) has been updated to include provisions that target crypto platforms claiming to be decentralized but still holding operational control. This move is seen as a crackdown on 'Decentralized In Name Only' (DINO) platforms, which have been exploiting loopholes to avoid anti-money laundering rules and sanctions.

Senator Cynthia Lummis stated that the updated bill brings every corner of the digital asset market inside the Bank Secrecy Act and sanctions framework. This means that crypto exchanges, DeFi platforms, and crypto ATMs will no longer be able to claim decentralization to avoid regulations.

A lesser-known provision in the bill protects self-custodied crypto from being considered abandoned property just because a wallet goes unused. This provision, known as section 20216 of the CLARITY Act, provides federal preemption and trumps any state law that would have classified a self-custodied digital asset as abandoned due to inactivity.

The bill's passage could benefit firms like Coinbase and Circle by providing more clarity from the federal government on digital assets and stablecoins. If passed, Circle could gain a federal stablecoin framework for its USD Coin (USDC), while Coinbase could gain clearer jurisdiction rules that would allow it to list more digital assets with regulatory certainty.