Senator Cynthia Lummis stated on July 20 that the CLARITY Act would keep customer cryptocurrency separate from a failed company's bankruptcy estate, responding to legal disputes that emerged during the Celsius and Voyager bankruptcies. The proposal would require digital asset intermediaries to treat customer cash and digital assets as customer property rather than corporate assets. The legislation aims to establish comprehensive federal rules for U.S. digital asset markets, clarifying regulatory roles between the Securities and Exchange Commission and the Commodity Futures Trading Commission while delivering regulatory certainty, stronger investor protections, and greater market integrity.
Celsius and Voyager Bankruptcies Established Customer Ownership Precedents
The bankruptcies of Celsius and Voyager exposed legal uncertainties regarding whether customer deposits remained user property or became part of a company's bankruptcy estate. In January 2023, U.S. Bankruptcy Judge Martin Glenn ruled that cryptocurrency deposited into Celsius' Earn accounts became property of the company under its terms of use. The decision covered approximately 600,000 Earn accounts holding about $4.2 billion in assets at the time Celsius filed for bankruptcy, leaving affected users as unsecured creditors instead of owners of specific digital assets. Voyager customers also became unsecured creditors after the lender entered bankruptcy, with their recoveries determined through the restructuring process rather than the automatic return of deposited crypto.
Lummis wrote on X on July 20: "When Celsius and Voyager went bankrupt, customer deposits didn't stay customer deposits. They became assets in a bankruptcy pool, fought over by creditors who had never even heard of the customers who owned them. The CLARITY Act changes the rule so your crypto stays yours, even if the company fails."
CLARITY Act Requires Asset Segregation and Prohibits Unauthorized Use
The proposal would require covered digital asset intermediaries to treat customer cash and digital assets as customer property rather than corporate assets. It would also require firms to segregate customer assets from company property and generally prohibit brokers, dealers and exchanges from using customer assets for their own benefit or for the benefit of another person without authorization. By establishing customer property protections in federal law, the legislation seeks to prevent disputes over ownership if a regulated crypto platform becomes insolvent.
Lummis has described the bankruptcy provisions as one part of a broader effort to establish comprehensive rules for U.S. digital asset markets. She has said the CLARITY Act is designed to deliver three core benefits: regulatory certainty for developers, stronger protections for investors and greater market integrity. The legislation would also clarify the respective roles of the Securities and Exchange Commission and the Commodity Futures Trading Commission, reducing uncertainty over which agency oversees different segments of the crypto market.
House Approved Bill While Senate Consideration Remains Pending
The House approved the CLARITY Act, but the legislation has yet to clear the Senate. According to Lummis, Senate lawmakers spent months negotiating their version of the legislation before preparing it for introduction. She has said the proposal includes enhanced anti-money laundering standards and additional consumer protections while creating a regulatory framework intended to keep crypto innovation and investment in the United States rather than pushing companies overseas.
Supporters argue the bill would complement existing stablecoin legislation by establishing a comprehensive federal framework for digital asset markets, while continued delays leave unresolved questions surrounding custody, market oversight and investor protections.
FAQ
What did Senator Lummis say the CLARITY Act would do on July 20?
Senator Lummis stated on July 20 that the CLARITY Act would keep customer cryptocurrency separate from a failed company's bankruptcy estate, changing the rule so customer crypto remains customer property even if the company fails.
How did the Celsius bankruptcy affect customer deposits in January 2023?
In January 2023, U.S. Bankruptcy Judge Martin Glenn ruled that cryptocurrency deposited into Celsius' Earn accounts became property of the company under its terms of use, covering approximately 600,000 Earn accounts holding about $4.2 billion in assets and leaving affected users as unsecured creditors.
What is the current legislative status of the CLARITY Act?
The House approved the CLARITY Act, but the legislation has yet to clear the Senate, leaving unresolved questions surrounding custody, market oversight and investor protections.
