<div id="readability-page-1" class="page"><div><div><p>US crypto regulation is at a critical crossroads.</p><p>Just as the market was anticipating that the Clarity Act for Digital Asset Markets would end the long-standing regulatory chaos in the crypto industry and become the first systemic crypto market structure bill in the US, a group of Democratic lawmakers suddenly submitted more than 100 amendments, at least 15 of which specifically target the DeFi (Decentralized Finance) sector, directly impacting its core ecosystem and developer community.</p><p>These amendments are not sporadic adjustments, but a systemic tightening of regulations, with core content touching on the very foundation of DeFi's survival: revoking the &#34;safe harbor&#34; protection for DeFi developers, including criminal liability for certain code development activities, expanding the Bank Secrecy Act (BSA) and AML/KYC compliance obligations, allowing direct sanctions against smart contracts, defining DeFi front-ends as &#34;financial institutions,&#34; and weakening or even deleting relevant protective clauses of the BRCA (Blockchain Regulatory Certainty Act).</p><p> <img src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7465783_watermarknone.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="600" height="335" original-src="https://imageproxy.pbkrs.com/https://img.jinse.com.cn/7465783_watermarknone.png"/></p><p>This regulatory adjustment has long transcended the conventional discussion of &#34;regulation and innovation,&#34; focusing instead on a direct clash between two core issues: Is open-source code truly a tool for crime? Can DeFi still be considered a neutral financial infrastructure? The answers to these two questions will directly determine the future of DeFi in the United States, and even reshape the underlying logic of global crypto regulation.</p><h2>The CLARITY Act was originally a &#34;definite hope&#34; for the crypto industry.</h2><p>The CLARITY Act was essentially created to address the regulatory chaos that had plagued the US crypto industry for years.</p><p>For the past few years, the regulatory boundaries for crypto assets by the U.S. SEC and CFTC (Commodity Futures Trading Commission) have remained ambiguous, with a series of core questions remaining unanswered: What are crypto securities? What are crypto commodities? Are DeFi protocols financial intermediaries? Should developers be held responsible for users' misconduct? This regulatory uncertainty has left crypto companies, developers, and investors in a long-term dilemma—they are hesitant to innovate due to concerns about compliance risks, yet struggle to gain mainstream acceptance due to the lack of clear rules. It is widely believed that the initial intention of the CLARITY Act was to establish a complete regulatory framework to end this chaos: clarifying the regulatory division of labor between the SEC and CFTC, establishing clear classification standards for digital assets, providing DeFi developers with limited &#34;safe harbor&#34; protection, recognizing the legality of self-custodied wallets, and allowing non-custodial protocols to obtain certain legal exemptions. Among these, the &#34;developer protection clauses&#34; for DeFi are considered paramount by the industry—they mean that DeFi is expected to escape the awkward situation of &#34;unregulated and unprotected&#34; and gain legitimate space for innovation. The core of the controversy: BRCA Safe Harbor, the &#34;protective umbrella&#34; for DeFi developers. The biggest controversy sparked by this amendment focuses on the BRCA (Blockchain Regulatory Certainty Act). Originally a separate act, the BRCA was later incorporated into the CLARITY Act. Its core logic is simple and clear: developers who do not control user funds should not be considered financial intermediaries. Specifically, the following four groups will be protected: developers who write open-source code, deployers of smart contracts, operators who maintain blockchain nodes, and technicians who develop non-custodial wallets. According to BRCA rules, these individuals will not automatically bear legal responsibility for &#34;illegal transfers&#34; or &#34;assisting in money laundering&#34; simply because others use their tools or protocols to engage in criminal activities. This logic essentially continues the &#34;platform neutrality&#34; principle of the internet age—just as Linux developers are not responsible for hackers using their systems for crimes, TCP/IP protocol authors are not responsible for online fraud, and browser developers are not responsible for illegal content on web pages, DeFi industry practitioners believe that smart contracts, as open-source tools, should also enjoy the same neutrality, and developers should not be held responsible for user abuse. The Democratic amendment, however, aims to overturn this core logic, which is why the industry is generally concerned. Why has the Democratic amendment caused widespread concern in the industry? According to the DeFi Education Fund and several crypto media outlets, each of the 15 amendments to the DeFi bill directly addresses pain points in the industry. Three core provisions pose significant challenges to the survival model of DeFi, particularly the provisions related to smart contract sanctions, which have become the focus of controversy. 1. Developing code may lead to criminal liability; the boundaries of &#34;code liability&#34; are once again under debate. Some amendments explicitly state that if the software or smart contracts released by developers &#34;facilitate&#34; money laundering, sanctions circumvention, or other illegal financial activities, the developers themselves may also bear criminal liability. This means that even if developers do not control user funds, and even if the protocol has achieved complete decentralization, developers may be held accountable if criminals use the protocol to engage in illegal activities. From an industry perspective, this regulation is very close to &#34;code is responsibility&#34;—developers are not only responsible for the technical security of their code, but also for all potential uses of the code, even those uses that are unforeseen and uncontrollable by the developers. For the open-source community, this uncertainty may stifle innovation, and many developers may reduce the development and deployment of open-source protocols due to concerns about legal risks. 2. DeFi front-ends may be included in financial institutions, significantly increasing compliance pressure on small and medium-sized projects. Another amendment attempts to expand the scope of the Bank Secrecy Act, directly including some digital asset companies, DeFi front-ends, and interface services in the category of &#34;financial institutions.&#34; Once implemented, compliance obligations such as AML (Anti-Money Laundering), KYC (Know Your Customer), suspicious transaction reporting, and sanctions list screening will become legal obligations for DeFi front-ends. The industry is concerned that many DeFi front-ends are merely web interfaces, not holding funds or participating in circulation, making it difficult for small and medium-sized projects to bear the high compliance costs, and they may choose to shut down their front-end services within the United States. 3. Smart Contracts Can Be Sanctioned by OFAC, Tornado Cash Controversy Escalates Again The most attention-grabbing aspect is an amendment proposed by Senator Jack Reed. This amendment is interpreted by the outside world as meaning that even if a smart contract has achieved complete autonomy and has no actual controller, it can still be sanctioned by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC). This essentially institutionalizes the logic of the 2022 Tornado Cash sanctions, an event that itself sparked huge controversy in the global crypto industry. In 2022, OFAC sanctioned the decentralized privacy protocol Tornado Cash, freezing its related addresses. The core controversy of this event far exceeded the sanctions themselves—it was the first time a U.S. regulatory agency attempted to sanction &#34;uncontrolled code.&#34; From the perspective of the crypto industry, as open-source code, protocols themselves do not possess malicious intent; sanctioning code essentially breaks the decades-long consensus of &#34;tool neutrality&#34; in the internet age. If the Jack Reed Amendment is implemented, institutionalizing this logic, then in the future, it may not just be the protocol operators that are subject to regulation, but the protocols themselves. As long as illicit funds flow through the protocol, regardless of whether the protocol is decentralized or whether the developers are controllable, it could be directly sanctioned, causing the protocol to crash, and users participating in the interaction could also be implicated. This also means that the &#34;permissionless finance&#34; concept, which DeFi has long emphasized, is facing a direct institutional challenge for the first time. It is worth noting that, in the view of those who support the amendment, the issue is not whether the code is neutral, but whether it should be completely free from financial regulation once the code has assumed financial functions. In their view, the decentralized nature of DeFi has become a &#34;safe haven&#34; for some illegal financial activities, and strengthening regulation is a necessary measure to prevent financial risks. Why did the Democrats suddenly become so hardline? The interplay of three deep-seated forces: On the surface, the Democratic Party's amendment aims to strengthen crypto regulation and prevent financial risks. However, external analysts believe it is actually the result of the combined efforts of three forces, reflecting the complex political, financial, and ideological game behind US crypto regulation. First: Washington's attitude towards DeFi continues to deteriorate. Over the past two years, a series of negative events have gradually worsened DeFi's political image in Washington. US regulators increasingly believe that DeFi has become a major channel for money laundering, sanctions circumvention, and terrorist financing, as well as a &#34;transfer station&#34; for North Korean hackers to transfer funds. Especially after the Tornado Cash sanctions case, the cross-chain bridge hack, and the North Korean Lazarus organization's use of DeFi for money laundering, regulators' acceptance of &#34;tool neutrality&#34; has continued to decline. Many officials believe that DeFi's decentralized nature is becoming a &#34;protective umbrella&#34; for illegal financial activities. Second: The Driving Force of Lobbying in Traditional Finance. The CLARITY Act is not merely a crypto industry bill; it essentially determines whether the future US financial infrastructure will allow for the existence of &#34;licenseless, intermediary-free&#34; DeFi systems. The core concept of DeFi inherently conflicts with the regulatory model and profit logic of traditional finance—the former pursues disintermediation and licenselessness, while the latter relies on license control and intermediary endorsement. This fundamental contradiction makes traditional finance always wary of DeFi expansion. It is widely believed that if DeFi receives excessive legal protection, the traditional banking AML system may be circumvented, the value of financial licenses will be significantly weakened, and the long-standing financial intermediation model will be impacted. Therefore, traditional financial institutions, through lobbying, are pushing the Democratic Party to strengthen DeFi regulation, essentially to maintain their market position and curb potential competitive threats. Third: The Impact of the 2026 Election Political Cycle. Cryptocurrency regulation has rapidly become an &#34;ideological battleground&#34; for the two major US political parties. With the start of the 2026 election cycle, the differences between the two parties on crypto policy are becoming increasingly apparent: Republicans tend to support open-source developer protection, uphold the legitimacy of self-hosting, and limit the SEC's regulatory power, advocating for a more relaxed environment for innovation in the crypto industry; while Democrats emphasize anti-money laundering, consumer protection, national security, and sanctions enforcement, believing that strong regulation is necessary to curb the risks in the crypto industry. DeFi, as the most &#34;decentralized&#34; sector within the crypto industry, has naturally become a focal point of the two parties' struggle—the Democrats' hardline tightening of DeFi regulation aligns with their own policy positions and is also seen as an attempt to gain support from traditional finance and regulatory bodies before the election. Where is the current legislation at? The long battle has only just begun. Currently, the CLARITY bill has passed the House of Representatives and officially entered the Senate debate phase. However, this is only the &#34;first step&#34; in the entire legislative process. Several key stages remain: review by the Senate Banking Committee, a full Senate vote, coordination with the Agriculture Committee version, unification with the House version, and finally, submission to the President for signature to become law. This amendment battle will directly determine the final direction of the CLARITY bill: will it become the long-awaited &#34;regulatory certainty bill&#34; for the crypto industry, defining clear boundaries for its development, or will it deviate from a &#34;DeFi full compliance bill,&#34; significantly tightening regulations on DeFi and thus impacting the industry's innovative vitality? Galaxy Research offers a pessimistic prediction: if the Senate cannot reach an agreement between the two parties, the CLARITY bill may be delayed until after 2030, and the US crypto industry will continue to struggle amidst regulatory chaos. What will happen if the amendments are implemented? If these amendments targeting DeFi are ultimately passed, the industry generally expects a series of real-world impacts, transforming ideological conflicts into actual industrial changes: First, many DeFi projects may choose to withdraw from the US market or cease providing services to US users to circumvent stringent compliance requirements; second, the trend of anonymization among open-source developers may intensify, with many developers reducing their public identities to mitigate legal risks; third, more DeFi protocols may shift to offshore operations, seeking locations with relatively relaxed regulatory environments; fourth, the US's leading position in DeFi innovation may decline, with some innovation resources shifting to countries and regions with more lenient regulations; fifth, compliant DeFi and &#34;underground DeFi&#34; will further diverge, with compliant projects focusing on the mainstream market, while non-compliant projects turn to the gray area, exacerbating industry fragmentation. The US is redefining financial infrastructure. Many believe that the biggest challenge facing DeFi is the increased regulation brought about by the Democratic amendments, but in fact, the deeper impact of this struggle goes far beyond that—the US is attempting to redefine the boundaries of financial infrastructure, a change that could have a profound impact on the entire digital finance world. For decades, there has been a default consensus in the internet world: code is a form of expression, protocols are neutral tools, and developers are not responsible for user misuse. This consensus is the foundation for the flourishing of open-source software and internet innovation. But now, US regulators are increasingly inclined to believe that if code has financial functions, then it is not merely code, but a &#34;financial instrument&#34; that needs to be strictly regulated. Once this logic becomes a consensus at the institutional level, it will affect more than just the DeFi industry. From wallet developers and privacy protocol developers to future AI agent developers, all creators involved in &#34;financialized code&#34; may be included in the financial regulatory system and bear stringent compliance obligations. This is essentially adjusting the innovation logic of the digital age and may also change the development direction of global financial infrastructure. The CLARITY Act, originally a long-awaited &#34;regulatory legitimacy&#34; for the US crypto industry, was a crucial opportunity for the industry to escape chaos and move towards the mainstream. However, it is now evolving into a deeper &#34;code war&#34;—the core of which is not the regulatory boundaries of cryptocurrencies, but the balance between financial functions and the tool-like nature of code, and even more so, the adaptation of traditional financial regulatory frameworks to digital financial infrastructure. What US regulators truly want to solve may never have been just cryptocurrencies themselves. When finance begins to become software, when code becomes the core carrier of financial transactions, how should the law regulate &#34;the code itself&#34;? How should innovation and risk be balanced? How should the boundaries of developers' responsibilities be defined? These questions will not only determine the future of DeFi in the US but will also influence the development direction of the global crypto industry, and even reshape the legal and technological boundaries of the entire digital age. This struggle surrounding the Clarity Act is just the beginning.</p></div></div></div>

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<p>The Clarity Act Amendments introduce over 100 changes targeting the DeFi sector, potentially revoking protections for developers and imposing criminal liabilities for code development. This shift raises concerns about the future of DeFi, questioning whether open-source code is a tool for crime and if DeFi can remain neutral. Originally intended to clarify crypto regulations, the amendments threaten to disrupt the balance between innovation and compliance, challenging the foundational principles of the DeFi ecosystem.</p>

Clarity Act Amendments: DeFi Faces a "Code War"