CLARITY Act Revamp Targets Centralized DeFi Businesses

The revised CLARITY Act includes new rules for decentralized finance (DeFi) platforms that describe themselves as decentralized but are actually controlled by a company or individual. The bill aims to distinguish between genuinely decentralized DeFi and centralized businesses operating under DeFi branding.

Under the updated language, a protocol would be considered non-decentralized if it allows a person or group acting together to control or materially alter its functionality, operations, or rules. This creates a 'control test' rather than simply determining if software runs through smart contracts.

The bill's effect on genuinely decentralized DeFi is more nuanced, preserving protections for non-custodial software development and self-custody while trying to draw a clearer line between autonomous protocols and centralized businesses operating under DeFi branding.