Senate Gives Crypto Developers Legal Shield in Bankruptcy Clash

The U.S. Senate has taken a major step toward clarifying the regulatory landscape for digital assets with the circulation of a new draft bill, which outlines protections for developers and sets guidelines for handling digital commodities in bankruptcy cases. This development follows the House's passage of the Digital Asset Market Clarity Act (H.R. 3633), which established a broad regulatory structure for crypto markets and passed with a 308-122 bipartisan vote in July 2025 [1]. The Senate's proposed legislation, however, introduces more detailed provisions, including legal safeguards for individuals involved in the development, administration, and maintenance of decentralized finance (DeFi) systems and distributed ledger technologies [1].

One of the most significant provisions in the new Senate draft pertains to the treatment of digital assets in bankruptcy. The bill amends existing laws to classify "ancillary assets" — which include digital commodities — as customer property during insolvency proceedings, ensuring they are not absorbed into the debtor's estate [1]. This clarification is expected to provide greater certainty for both issuers and users of digital assets in legal and financial distress scenarios.

The Senate's version of the market structure bill differs from the House's Clarity Act in several key areas, particularly in how it defines the transition of digital assets from securities to commodities and the allocation of oversight between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) [1]. The Senate Banking Committee, led by Republican Tim Scott, has pushed for a September 30 deadline for passage, but delays and political negotiations have caused uncertainty around the timeline. Democratic senators, including Elizabeth Warren, have raised concerns about consumer protections and the Trump administration’s involvement in crypto regulation [5].

The CLARITY Act, now in the Senate, has already garnered strong bipartisan support in the House, with 78 Democratic votes in its July passage. House Financial Services Committee Chairman French Hill has expressed optimism that the bill could be enacted within weeks, emphasizing its potential to resolve years of regulatory ambiguity and end jurisdictional conflicts between federal agencies [3]. The act formally assigns the CFTC as the lead regulator for digital commodities while maintaining the SEC’s oversight of securities, a move widely seen as a strategic shift from the enforcement-heavy approach under the Biden administration [3].

In parallel, the Senate is also navigating separate proposals, including a focus on protecting developers of non-custodial software from being subject to money transmission regulations. A coalition of over 100 crypto companies recently urged the Senate to include such exemptions in any final legislation, citing concerns raised by a recent New York jury’s conviction of a Tornado Cash developer for failure to register as a money service business [5]. These developments highlight ongoing tensions between regulatory clarity and innovation within the industry.

As the Senate considers these legislative proposals, it faces the challenge of balancing support from both parties. While the House's version of the bill cleared with relative ease, the Senate’s 60-vote threshold requires additional Democratic backing, which may necessitate further revisions to the bill [1]. With crypto policy continuing to gain prominence on the legislative agenda, the outcome of these discussions will shape the future of digital asset regulation in the United States.

Source:

[1] Legislation Steering U.S. Fate of Crypto Emerges in New Version in Senate (https://www.coindesk.com/policy/2025/09/05/legislation-steering-u-s-fate-of-crypto-emerges-in-new-version-in-senate)

[2] H.R. 3633: Digital Asset Market Clarity Act of 2025 (https://www.govtrack.us/congress/bills/119/hr3633)

[3] French Hill: CLARITY Act Bill Has Overwhelming Backing and Weeks to Passage (https://www.ccn.com/news/crypto/french-hill-clarity-act-crypto-market-structure-bill-passage-weeks-away/)

[4] Cryptocurrency Regulation: A Guide to U.S. & Global Policies (https://www.britannica.com/money/cryptocurrency-regulation)

[5] Crypto Regulatory Affairs: From China to Russia to South (https://www.elliptic.co/blog/crypto-regulatory-affairs-stablecoin-and-digital-payments-work-accelerates-following-us-genius-act)