Blockchain Association disputes DeFi claims in Clarity Act

The Blockchain Association has urged Senate leaders to reject law-enforcement concerns that the Clarity Act would create broad exemptions for decentralized finance, arguing that the bill preserves anti-money-laundering obligations for financial intermediaries while protecting software developers that do not control customer funds. The dispute has added another obstacle to Senate action before lawmakers leave for their August recess.

In a letter sent Monday to Senate Majority Leader John Thune and Senate Minority Leader Chuck Schumer, the industry group challenged objections raised last week by the National Sheriffs’ Association. The sheriffs’ organization warned that provisions affecting DeFi could weaken enforcement of anti-money-laundering rules, sanctions requirements and know-your-customer obligations if they were interpreted too broadly.

The Blockchain Association said that criticism misreads how the legislation distinguishes between developers of non-custodial technology and businesses that actually conduct financial transactions for users. Its response arrives while Democratic and Republican negotiators remain divided over ethics provisions connected to President Donald Trump’s crypto-related business interests, leaving the path to a Senate procedural vote uncertain.

Dispute centers on developer safe harbor

The sharpest disagreement concerns Section 10604 of the proposal, known as the Blockchain Regulatory Certainty Act. The provision would establish that developers of non-custodial blockchain infrastructure are not automatically treated as money transmitters under federal law.

A non-custodial service allows users to retain control of their own digital assets and private keys, rather than placing assets with a company that holds them on the user’s behalf. The distinction has become central to the policy debate around DeFi, where automated software can facilitate token swaps, lending or other activity without operating like a conventional brokerage or bank.

The National Sheriffs’ Association asked senators to delete or narrow the section, warning against what it described as a “blanket exemption” for DeFi-related activity. The group represents more than 3,000 sheriffs and 10,000 public safety officials, according to the material provided.

The Blockchain Association countered that Section 10604 does not exempt criminal conduct or remove anti-money-laundering enforcement from parties that function as financial intermediaries. The organization argued that the language is designed to prevent software creators from being regulated as money transmitters simply because others use their code.

That position reflects a long-running legal question in Washington: when a blockchain protocol operates through publicly available code, which participants, if any, carry the compliance duties normally imposed on a financial institution? The answer can vary sharply depending on whether a party controls customer assets, can block transactions, collects fees, manages governance decisions, or retains practical authority over the protocol.

Bill targets control, association says

The Blockchain Association said the Clarity Act maintains a boundary between building software and operating a financial service. It also argued that the framework would address projects whose operators exercise control while presenting their systems as decentralized.

That distinction could determine the bill’s practical reach. A developer publishing code without taking custody of funds would receive the protection contemplated by Section 10604, according to the association’s reading. A person or entity controlling a protocol’s operation could face a different regulatory treatment, particularly where that control resembles the role performed by an intermediary.

The association also cited provisions directing the Securities and Exchange Commission to begin developing rules under the proposed framework. Those rulemaking requirements suggest that some of the most difficult questions surrounding DeFi oversight would remain subject to agency interpretation rather than being resolved entirely by the statute itself.

Supporters of the legislation have framed such protections as necessary to prevent U.S. developers from facing compliance duties that they cannot practically meet when they do not control users’ wallets or transactions. Critics, including the sheriffs’ group, are focused on whether actors behind supposedly decentralized platforms could invoke the same protections while retaining meaningful influence.

The Blockchain Association bolstered its argument by pointing to a separate letter sent last month by 160 former law-enforcement and national intelligence officials. That group urged Thune and Schumer to advance the Clarity Act, giving the industry association a counterweight to the sheriffs’ concerns from within the public-safety community.

Recess deadline narrows Senate options

Thune had not scheduled a procedural vote as of Monday. Such a vote would be needed before the Senate could move toward consideration of the measure, and the chamber is expected to begin its August recess on Friday.

Thune told Bloomberg on Monday that he still expected the Senate to hold an initial vote before the recess. Whether that timetable can hold depends partly on negotiations over Democratic demands for ethics language involving Trump’s crypto interests.

Democrats have sought provisions addressing potential conflicts involving the president’s financial ties to cryptocurrency ventures, including a memecoin launched before Inauguration Day and the Trump family’s involvement in World Liberty Financial. Financial disclosures released last month included income connected to World Liberty Financial, according to the supplied material.

New bipartisan ethics language was sent to the White House last week, but negotiators had not reached an agreement by Monday afternoon. The unresolved language has linked a market-structure bill intended to establish rules for digital assets with a politically charged debate over presidential financial interests.

That pairing complicates the legislative calendar. Senate floor time is scarce before a recess, and a procedural vote generally requires broader support than a simple party-line measure. Republicans would need Democratic backing to reach the 60-vote threshold commonly required to overcome a filibuster and advance major legislation.

Market-structure debate remains unfinished

The Clarity Act is part of a wider effort to define federal oversight of digital-asset markets and clarify where responsibilities fall among regulators, companies and decentralized networks. The current Senate fight shows that DeFi remains one of the least settled parts of that effort.

Law-enforcement groups are pressing lawmakers to ensure that decentralized systems cannot become shelters from sanctions or anti-money-laundering obligations. Industry advocates are warning that rules aimed at custodians and financial intermediaries could sweep in open-source developers whose tools do not give them control over funds or transactions.

With no final ethics agreement and no procedural vote scheduled as of Monday, the Senate’s opportunity to address those competing concerns before the recess is narrowing. If the chamber leaves without acting, negotiations over both DeFi safeguards and the Trump-related ethics language would likely resume only after senators return.