Senator Lummis says with CLARITY “your crypto stays yours” – but bankruptcy shields have limits

An important story is making waves across the blockchain ecosystem. When Celsius collapsed, its Earn customers learned that the crypto in their accounts belonged to the bankruptcy estate, not to them. Cynthia Lummis cast the CLARITY Act as a fix on July 20, boiling its promise down to four words. “Your crypto stays yours.

” Cynthia Lummis Member, U. Senator for Wyoming U. Senate Share on View Profile Her X post, which had drawn a lot of attention, said the CLARITY Act would change the outcome she associated with the failures of Celsius and Voyager.

Market Dynamics

Celsius is probably the best legal example because a federal court ruled directly on ownership of its Earn balances. The May 12 Senate Banking manager’s substitute supports the direction of Lummis’s claim while attaching several conditions. Section 701 would put qualifying ancillary assets and digital commodities into federal customer-property rules when they are “held for customers” in specified Chapter 7 liquidations.

The protection may not apply if the asset, account terms, or bankruptcy process falls outside the bill’s boundaries. A qualifying token held in custody for a customer fits the language more naturally than a balance created after the customer lends an asset or transfers title to the platform. The text leaves that lending boundary open for final legislation and future courts.

Related Reading Celsius wants to return $210 million worth of custody assets The firm has filed a petition to allow eligible customers to withdraw assets from its custody program and Withhold accounts. Sep 1, 2022 Monika Ghosh Where Section 701 draws the line Section 701 will rewrite the bankruptcy rules for liquidating failed stockbrokers. It adds ancillary assets and digital commodities to relevant definitions of customers, customer claims, and customer property.

Market Impact

It also directs liquidations under subchapters III or IV of Chapter 7 to treat those assets as customer property when held for customers and to distribute them under Title 11. The official section-by-section summary describes Section 701 as defining ancillary assets and digital commodities as customer property under Chapter 7. The operative text supplies the boundaries behind that summary.

The bill’s protection also depends on how the asset is classified. Section 701 names ancillary assets and digital commodities. Securities and cash held by a broker-dealer remain governed by the Securities Investor Protection Act.

Bank deposits and commodity contracts remain under their other applicable laws. Payment stablecoins appear separately in Section 804, which would require broker-dealer disclosures about the insolvency treatment of payment stablecoins, digital commodities, and a security involving a unit of a digital commodity. That structure leaves Section 701 unable, by itself, to support one rule for every stablecoin balance.

This shift continues to shape the digital-asset landscape, with analysts examining its near-term effects.