The CLARITY Act just picked up a second major nod from law enforcement, and Congress tends to notice that kind of thing fast. But the bill still has plenty of loose ends, especially around DeFi and developer protections, so this is far from a done deal.
- FLEOA backed H.R. 3633 with conditions on DeFi and enforcement powers
- Section 604 remains a fault line for developers and non-custodial services
- The Senate calendar is tight before the August state work period
- Bipartisan support is still required to clear the 60-vote threshold
The Digital Asset Market Clarity Act, or the CLARITY Act, filed as H.R. 3633, picked up support from the Federal Law Enforcement Officers Association (FLEOA) in a July 10 statement. That matters because law enforcement backing can push lawmakers to treat crypto market structure as a public-safety issue, not just a pet project for industry lobbyists and their favorite compliance PowerPoint deck.
FLEOA says it represents more than 34, 000 active and retired federal officers across over 65 agencies. In its statement, the group said the bill “represents meaningful progress” toward balancing digital asset development with public safety.
That is not a blank check. FLEOA wants lawmakers to tighten the bill’s treatment of decentralized finance, or DeFi, and to make sure accountability still exists when a service is decentralized in name only.
DeFi, for readers new to the term, refers to financial services built on blockchain systems that can automate trading, lending, and borrowing without a traditional bank or broker in the middle. In practice, though, plenty of “decentralized” systems still have front-end operators, governance teams, or admin keys. Sometimes “decentralized” is real. Sometimes it is just a fresh coat of paint on a centrally managed product. Crypto has a few of those, because of course it does.
FLEOA also wants Congress to make clear that the bill does not strip federal agencies of their ability to pursue criminal cases, anti-money laundering rules, sanctions, and counterterrorism financing. Mathew Silverman, FLEOA National President, said officers need tools to investigate complex financial crimes. That is a fair point. Crypto can be a tool for open finance and self-custody, but it is also used by fraudsters, ransomware crews, and every bored scammer with a Telegram account.
The biggest fight still centers on Section 604. According to the reporting behind this measure, that section would protect some software developers and non-custodial service providers from being treated as money transmitters when they do not control customer funds.
That distinction matters. A non-custodial service does not hold your assets for you. You keep control of the funds yourself. Money transmission rules usually target entities that move or hold money on behalf of others. If Congress applies those rules too broadly, it risks dragging software builders and infrastructure providers into a compliance regime built for financial intermediaries. That would be absurd, expensive, and deeply anti-innovation.
At the same time, law enforcement groups worry that broad protections could make some crypto crime investigations harder. Four law enforcement groups warned that the language could create gaps in enforcement. The Department of Justice later challenged parts of those warnings, saying some claims about lost enforcement power were inaccurate. That is the real heart of the matter: where do you draw the line between protecting open-source development and preserving the ability to chase real bad actors?
The Major County Sheriffs of America also moved from opposition to a neutral position after further talks over Section 604. Neutral is not a love letter. It usually means the draft stopped being offensive enough to fight, but not polished enough to cheer for either.
The broader bill is not a regulatory free-for-all. Congress.gov describes H.R. 3633 as creating a framework for digital commodities and placing most digital commodity transactions under the Commodity Futures Trading Commission (CFTC), while preserving some authority for the Securities and Exchange Commission (SEC).
That split matters for a simple reason: the CFTC and SEC are not interchangeable. SEC oversight usually means a heavier disclosure-and-issuer model. CFTC oversight is generally more market-based and commodity-focused. For crypto, that difference is huge. It can decide whether a project is treated like a commodity market, a securities issuer, or a regulatory punching bag.
The bill also includes requirements around trade monitoring, recordkeeping, customer asset commingling, and anti-money laundering. So no, this is not “crypto gets a free pass.” It is closer to “crypto gets a rulebook, but Congress is still arguing over which agency holds the pen.”
The clock is the other problem. The Senate’s published schedule leaves Aug. 7 as the final scheduled session day before its Aug. 10 through Sept. 11 state work period. As of July 14, the public floor schedule did not list a vote on the CLARITY Act.
That leaves a narrow window for staff to align language from the Banking and Agriculture Committee drafts before any final floor action. And even if the text is settled, the bill still needs bipartisan support to clear the Senate’s 60-vote threshold. In other words: a long list of unresolved policy questions, a short calendar, and a chamber that requires more than just vibes and a few press releases.
President Donald Trump urged the Senate on July 13 to pass the measure, linking the appeal to the late Senator Lindsey Graham. Senator Cynthia Lummis sharpened the urgency on July 8, saying:
“This is likely our last chance to get real legislation for digital assets on the books before 2030.”
That warning may sound dramatic, but the point is familiar. If Congress keeps stalling, other countries will keep writing the rules while the U.S. keeps holding committee meetings about semantics. That is not a great strategy if the goal is to keep American markets competitive and stop builders from packing their bags for friendlier jurisdictions.
Ji Kim, CEO of the Crypto Council for Innovation, said FLEOA’s position showed the measure is strong on consumer protection and law enforcement. Supporters want to sell the CLARITY Act as a practical compromise: give digital asset markets a legal framework, preserve investigative authority, and stop forcing every crypto company into the same regulatory box.
The skeptical view matters just as much. If Congress gets too cute with exemptions, bad actors will exploit them. If it goes too hard on control language, it can smother the builders who are actually trying to create open systems. That tension is exactly why this bill is dragging on. The easy answer is always either “regulate everything” or “regulate nothing.” The hard part is drawing a line that does not collapse the first time somebody files a clever memo.
For Bitcoin, the lesson is unchanged: the protocol does not need Washington’s permission to exist. But the rails around it, exchanges, wallets, DeFi front ends, and the software layers that move value, do need legal clarity if the U.S. wants innovation without inviting a parade of scams and enforcement nightmares.
Key questions and takeaways
-
Why does FLEOA’s support matter?
Because backing from a large federal law enforcement group gives the CLARITY Act more credibility with lawmakers who care about crime, sanctions evasion, and money laundering. It helps, but it does not guarantee passage. -
What is Section 604 about?
It is meant to protect some software developers and non-custodial service providers from being treated as money transmitters when they do not control customer funds. Critics worry it could be written too broadly and complicate investigations. -
Why is DeFi such a problem for lawmakers?
Because some DeFi systems are genuinely decentralized, while others are centrally controlled products pretending to be decentralized. Congress is trying to separate real protocol-based automation from marketing fluff and loophole hunting. -
Does the bill eliminate enforcement powers?
No. The bill still includes AML, recordkeeping, and monitoring requirements, and FLEOA specifically wants lawmakers to preserve criminal, sanctions, and counterterrorism-finance authority. -
Why does the CFTC vs. SEC split matter?
Because those agencies regulate markets differently. A CFTC-led framework is generally viewed as more commodity-style and less disclosure-heavy than SEC oversight, which is why the jurisdiction fight is such a big deal. -
Can the CLARITY Act pass the Senate soon?
It is possible, but not close to guaranteed. The bill still needs bipartisan support to reach the 60-vote threshold, and the Senate calendar leaves very little room before the August state work period. -
Why do non-custodial providers care so much?
Because they do not hold customer funds, and many believe they should not be regulated like financial intermediaries that actually control money. If Congress blurs that line, it could punish software builders for not being banks.
The bottom line is simple: the CLARITY Act Stalls Over Trump Ethics Fight and Section 604 is still alive, still controversial, and still stuck between two competing impulses, protect innovation, or tighten the screws until the whole thing squeaks. The next Senate moves will tell everyone which instinct is winning.
Further reading
A few primary and related resources for readers tracking the CLARITY Act’s next moves.
