Shall We Expect CLARITY in DeFi in 2026?

By Yuriy Brisov, Partner at Digital & Analogue Partners

For years, DeFi has occupied a peculiar legal position. It is simultaneously everywhere and nowhere — billions of dollars locked in protocols that no single person controls, governed by code that no jurisdiction has agreed to claim. In 2025, that ambiguity began to narrow. The question for 2026 is whether it will close entirely.

The Digital Asset Market Clarity Act of 2025 — the CLARITY Act (House bill number — H.R. 3633) passed the U.S. House of Representatives on 17 July 2025 by a vote of 294 to 134.1 It is now making its way through the Senate, where two parallel drafts are being reconciled: the Senate Banking Committee’s Responsible Financial Innovation Act (RFIA), released on 5 September 2025 and amended on 12 January 2026,2 and the Senate Agriculture Committee’s bipartisan discussion draft, released on 10 November 2025, with updated legislative text on 21 January 2026.3 If enacted, the CLARITY Act will represent the most comprehensive attempt to impose federal regulatory order on digital asset markets — including, critically, on decentralised finance.

But the word “clarity” is easier to put in a title than to deliver in practice. DeFi, by its architecture, resists the categories that regulators rely on: issuer, intermediary, exchange, broker, custodian. When a protocol has no board of directors, no registered office, and no employees, the traditional machinery of financial regulation struggles to find purchase. The CLARITY Act tries. Whether it succeeds is another matter.

I. What the CLARITY Act Actually Says About DeFi

The CLARITY Act addresses DeFi in two principal provisions. Section 309 creates an exclusion for “decentralised finance activities,” and Section 109 provides protections for “certain non-controlling blockchain developers.”4 The logic is straightforward: if a person merely writes open-source code that others deploy, that person should not bear the regulatory obligations — or the liability — of a financial intermediary.

This is not a radical idea. It mirrors a well-established principle in internet law: the developer of a tool is not, without more, responsible for every use to which that tool is put. But in financial regulation, where the concept of an “intermediary” has always carried specific obligations (registration, disclosure, recordkeeping, anti-money laundering compliance), the question of when a DeFi protocol crosses from “tool” to “intermediary” is far from settled.

The Senate versions complicate matters further. The Senate Agriculture Committee’s November 2025 discussion draft left key definitions relating to blockchain systems and decentralised finance in square brackets — the legislative equivalent of a shrug.5 Its January 2026 updated text adopted the CLARITY Act’s definitions for blockchain and decentralised finance, but still left open the treatment of decentralised trading protocols.6 The Senate Banking Committee’s bill takes a somewhat different approach, including exclusions for persons participating in “decentralised governance systems,” provided those systems operate without “centralised management.”7

These are not merely technical drafting questions. They determine whether a liquidity provider on Uniswap is a market-maker subject to SEC registration, whether a validator on a proof-of-stake network is performing a regulated function, and whether the developers of Aave or Compound can be held personally liable for losses suffered by users of their protocols.

II. The Real Situation in DeFi

It is worth pausing to consider what DeFi actually looks like in practice, because the legislative debate sometimes proceeds as though DeFi were a single, uniform phenomenon. It is not.

At one end of the spectrum sit fully decentralised protocols — autonomous smart contracts deployed on public blockchains, with no upgradeability, no admin keys, and no governing entity. At the other end sit protocols that call themselves “decentralised” but maintain admin keys held by a small team, operate through a foundation registered in the Cayman Islands, and generate revenue through fee switches controlled by governance token holders who are, in economic substance, equity investors. The gap between these two poles is enormous, and any regulation that treats them identically will either be too lax for the latter or too burdensome for the former.

The numbers are considerable. By early 2026, total value locked in DeFi protocols will soon exceed $100 billion. Daily trading volumes on decentralised exchanges regularly surpass those of mid-tier centralised exchanges. And the composition of DeFi activity is shifting. Where DeFi once meant token swaps and yield farming, it now includes tokenised equities, real-world asset lending, prediction markets, and cross-chain bridges that handle billions in daily volume. Each of these activities engages different regulatory frameworks and different risks.

A January 2026 white paper submitted to the SEC Crypto Task Force by Dr James Overdahl examined on-chain trading of tokenised U.S. equities through DeFi protocols and identified structural concerns that traditional securities regulation was designed to address: gas fees and failed-transaction costs that degrade execution quality; publicly visible liquidation levels that enable predatory “stop hunting”; blockchain congestion during market stress that can prevent timely collateral adjustments; and the presence of de facto intermediaries — front-end interfaces, order-routing tools, liquidity providers, validators, and sequencers — that may constitute brokers, dealers, or exchanges under the Securities Exchange Act of 1934.8 SIFMA’s December 2025 submission to the same Task Force was more direct: tokenised equities traded through DeFi protocols should not be exempt from core securities market rules.9

The tension is clear. DeFi’s proponents argue that code replaces intermediaries, reducing costs and eliminating rent-seekers. DeFi’s critics argue that what appears to be disintermediation is often re-intermediation through less transparent channels, where risks are borne by retail users who lack the protections they would enjoy in a regulated market.

III. How DeFi Is Regulated Across Jurisdictions

The CLARITY Act does not exist in a vacuum. It arrives at a time when other jurisdictions have already begun imposing their own frameworks on DeFi, which differ from the American approach in fundamental ways.

The European Union: MiCA and DAC8

Europe has moved faster than the United States and in a different direction. The Markets in Crypto-Assets Regulation (MiCA), which became fully applicable by mid-2025 with enforcement staggered through July 2026, establishes a licensing and supervision framework for crypto-asset service providers (CASPs) across all 27 EU Member States.10 MiCA’s scope is broad: it captures any entity providing crypto-asset services, including — and this is the critical point — certain DeFi platforms that facilitate transactions on behalf of users.

Running in parallel with MiCA is the Eighth Directive on Administrative Cooperation (DAC8), adopted by the Council of the EU on 17 October 2023.11 EU Member States were required to transpose DAC8 into national law by 31 December 2025, and its provisions took effect on 1 January 2026.12 DAC8 imposes reporting and due diligence obligations on Reporting Crypto-Asset Service Providers (RCASPs) — a category that explicitly includes both centralised and decentralised platforms.13 The first reporting year is 2026, with the first automatic exchanges of information due by 30 September 2027.

DAC8 carries three features that have no equivalent in U.S. law. First, it has extraterritorial reach: any platform with EU users falls within its jurisdiction, regardless of where the company is headquartered.14 A DeFi protocol operated from a server in Singapore that serves users in Berlin is caught. Second, DAC8 imposes a 60-day blocking requirement: if a user does not provide a valid self-certification after two reminders, the RCASP must block the user from completing any further reportable transactions.15 Third, non-compliance with DAC8 can trigger the revocation of MiCA passporting rights, making tax compliance a condition for operating in Europe.16 In certain Member States, penalties can reach €150,000 per violation.17

The practical consequence is that DAC8 collapses the distinction between “centralised” and “decentralised” for reporting purposes. If a protocol facilitates transactions involving EU tax residents, it must identify those users, tag their tax residence, and report their activity — regardless of how many governance tokens have been distributed or how many admin keys have been burned.

The OECD: CARF

DAC8 is, in substance, the EU’s implementation of the OECD’s Crypto-Asset Reporting Framework (CARF), introduced in June 2023 and modelled on the Common Reporting Standard (CRS) for traditional financial accounts.18 Under CARF, every RCASP must identify users, determine their tax residence, and report crypto-asset transactions to competent tax authorities, which then exchange that data automatically under the CARF Multilateral Competent Authority Agreement (CARF-MCAA).19

As of late 2025, 76 jurisdictions have committed to implementing CARF, including historically crypto-friendly jurisdictions such as the Cayman Islands, Gibraltar, Guernsey, the Isle of Man, Jersey, Singapore, and the United Arab Emirates.20 First exchanges are expected in 2027, with a second wave — including the Bahamas and the British Virgin Islands — in 2028.21

The implications for DeFi are significant. CARF defines RCASPs broadly enough to capture platforms that facilitate exchange transactions, and the OECD has signalled that decentralised platforms that facilitate transactions fall within the scope. The old assumption that “offshore” means “silent” is outdated as of 2026. The governments have built the pipe.

The United States: A Different Path

By contrast, the CLARITY Act does not impose a comprehensive reporting or recordkeeping regime comparable to MiCA, DAC8, or CARF. Its focus is on market structure — what is regulated and by whom — rather than on tax transparency or cross-border information exchange. The IRS has its own broker reporting rules for digital assets, but these have been delayed and do not yet approach the scope of DAC8.22

This creates a practical gap. U.S.-based DeFi platforms serving international users will need to comply with DAC8 and CARF regardless of what the CLARITY Act provides domestically. The CLARITY Act may exempt a protocol from SEC registration, but it cannot exempt the same protocol from a European reporting obligation triggered by a single user in Lisbon.

IV. Can a DeFi Project Be Exempt from Liability?

This is the question that founders, developers, and investors most urgently want answered. The CLARITY Act offers a partial answer.

Section 109 provides that “non-controlling blockchain developers” — those who write open-source code but do not control or direct the operation of a DeFi protocol — shall be treated as separate persons from the decentralised governance system itself.23 The Senate Banking Committee’s bill reinforces this with a provision that a “decentralised governance system” and persons participating in it are treated as separate legal persons unless they are under common control or acting in concert.24 The delegation of “ministerial or administrative authority” at the direction of participants is not, on its own, treated as “centralised management.” 25

These protections are meaningful, but they are not absolute. They apply only where the system is genuinely decentralised — and the line between genuine decentralisation and cosmetic decentralisation is one that regulators, particularly in the European context, will draw with increasing precision.

Consider the common pattern. A team develops a protocol. They launch a governance token. They transfer admin keys to a multi-signature wallet controlled by five people, three of whom are members of the founding team. They establish a foundation in the Cayman Islands to coordinate grant and development activities. They retain a fee switch that, if activated, would direct protocol revenue to token holders. Under the CLARITY Act’s framework, the critical question is whether this arrangement constitutes “centralised management.” If it does, the developer safe harbour falls away, and the protocol may be treated as a financial intermediary subject to the full weight of SEC or CFTC regulation.

Chairman Atkins’ “Project Crypto” initiative has added another dimension. On 30 January 2026, SEC Chair Paul Atkins and CFTC Chair Michael Selig announced that Project Crypto would proceed as a joint inter-agency initiative, with a focus on developing a clearer crypto-asset taxonomy and reducing duplicative compliance requirements.26 Atkins has directed staff to consider a “conditional exemptive relief framework” — an “innovation exemption” — that would allow registrants and non-registrants to bring on-chain products and services to market.27 However, the World Federation of Exchanges has cautioned against exemptions that “dilute” core securities law protections,28 and the precise scope of any innovation exemption remains unclear.

The honest answer, then, is this: a DeFi project can be exempt from certain U.S. regulatory obligations under the CLARITY Act, provided it meets the criteria for genuine decentralisation. However, an exemption under U.S. law does not confer an exemption under European law, OECD reporting standards, or the laws of any other jurisdiction where users reside. The regulatory perimeter is not set solely by the protocol’s architecture; the users’ location determines it.

V. The Path Ahead

The CLARITY Act has genuine momentum. It has bipartisan House support, a White House Statement of Administration Policy,29 and alignment between the two agency heads who will implement it.30 The GENIUS Act’s passage in July 2025 — the first-ever federal legislation on digital assets — demonstrated that Congress can move when the political will exists.31

However, the Senate phase introduces friction. The stablecoin rewards controversy — whether exchanges can offer yield-like incentives on stablecoin holdings, a question implicating $6 billion in annual revenue32 — has split the crypto-banking coalition.33 Senate Democrats have conditioned their cooperation on filling commissioner vacancies at the SEC and CFTC, arguing that all-Republican agencies cannot provide credible oversight.34 And the treatment of DeFi remains the most technically difficult drafting challenge in the bill, with the Senate Agriculture Committee’s January 2026 text still leaving decentralised trading protocols unresolved.35

A realistic timeline suggests final passage in mid-to-late 2026, with implementation phased over 12 to 18 months thereafter. That timeline may slip if political disruptions — such as a government shutdown or a shift in legislative priorities — intervene.

For DeFi, the takeaway is twofold. First, the direction of travel is towards regulation, not away from it. The U.S., the EU, and the OECD are all moving — at different speeds, with different tools, but towards the same destination: a world in which DeFi protocols that facilitate financial transactions are subject to identifiable obligations. Second, the details matter enormously. The difference between a DeFi protocol that qualifies for the CLARITY Act’s developer safe harbour and one that does not may come down to a single admin key, a single fee switch, or a single revenue-sharing agreement with a foundation.

The old crypto adage — “code is law” — was always more aspiration than description. In 2026, the law is catching up with the code.

* * *

Notes

1 H.R. 3633, Digital Asset Market Clarity Act of 2025, 119th Congress (2025); Roll Call Vote, U.S. House of Representatives (17 July 2025).

2 S. Banking Comm., Responsible Financial Innovation Act of 2025, Discussion Draft (5 September 2025); S. Banking Comm., Digital Asset Market Clarity Act, Amendment to the RFIA (12 January 2026).

3 S. Comm. on Agric., Nutrition & Forestry, Bipartisan Discussion Draft on Crypto Market Structure (10 November 2025); Updated Legislative Text (21 January 2026).

4 CLARITY Act, supra note 1, §§ 109, 309.

5 Davis Wright Tremaine, “Analysis: How Does the Senate Agriculture Committee’s Bipartisan Crypto Market Structure Discussion Draft Build on the CLARITY Act?” (December 2025).

6 Davis Wright Tremaine, “Senate Ag Committee Releases Updated Crypto Market Structure Legislative Text” (January 2026).

7 S. Banking Comm., RFIA Amendment, supra note 2, Title I (definitions of “decentralised governance system” and “centralised management”).

8 James Overdahl, “Tokenised U.S. Equities, DeFi Trading, and the SEC’s Exemptive Authority,” White Paper Submitted to the SEC Crypto Task Force (22 January 2026).

9 SIFMA, “Ensuring Core U.S. Securities Laws Apply to the Trading of Tokenised Securities,” Letter to SEC Crypto Task Force (16 December 2025).

10 Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on Markets in Crypto-Assets (MiCA).

11 Council Directive (EU) 2023/2226 of 17 October 2023 amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC8).

12 Id.European Commission, DAC8 — Taxation and Customs Union (2025).

13 RSM US, “DAC8 and CARF Present Extensive Reporting Challenges for Crypto Platforms” (2025).

14 Microblink, “DAC8 Explained: EU Crypto & Marketplace Compliance Guide” (November 2025).

15 DAC8, supra note 11, Art. 8ac(3); TaxDo, “EU (DAC8) — Day1 Compliance Under CRS 2.0 & CARF” (2025).

16 TaxDo, supra note 15.

17Id.

18 OECD, International Standards for Automatic Exchange of Information in Tax Matters: Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard (2023).

19Id.; Regnology, “Crypto-Asset Reporting Framework (CARF/DAC8)” (August 2025).

20 OECD, Report on Implementation of CARF (December 2025); CoinGeek, “EU Kicks Off 2026 with New Digital Asset Tax Reporting Rules” (January 2026).

21 Coincub, “Your Exchange Will Tell On You: CARF & DAC8 End Crypto Secrecy” (November 2025).

22See 26 U.S.C. § 6045 (as amended); IRS Final Rule on Digital Asset Broker Reporting (delayed implementation).

23 CLARITY Act, supra note 1, § 109.

24 S. Banking Comm., RFIA Amendment, supra note 2, § 104 (definition of “decentralised governance system”).

25Id. (“the delegation of ministerial or administrative authority at the direction of the participants in a decentralised governance system shall not be construed to be centralised management”).

26 Morrison Foerster, “SEC and CFTC Announce Joint’ Project Crypto’ Initiative and Signal Coordinated Regulatory Push for Digital Asset Markets” (30 January 2026).

27 SEC Chairman Paul S. Atkins, “Remarks at the Crypto Task Force Roundtable on Decentralised Finance” (9 June 2025).

28 Benesch Friedlander, “December 2025 Crypto Update: New Changes and Challenges in U.S. Regulation of Digital Assets” (December 2025).

29 White House Office of Management and Budget, Statement of Administration Policy on H.R. 3633 (July 2025).

30See Baker McKenzie, “SEC–CFTC Crypto Coordination Meeting: Background, Substance, and Implications” (5 February 2026).

31 Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 (GENIUS Act), Pub. L. №119–27, 139 Stat. 419 (signed 18 July 2025).

32 CryptoSlate, “The U.S. Senate Could Wipe Out $6 Billion in Crypto Rewards This Week by Closing One Specific Loophole” (13 January 2026).

33 Fortune, “The Most Significant Wedge Issue Going Into Thursday Remains the Battle Over Stablecoin Yields” (14 January 2026).

34 CoinDesk, “A Few Republicans Have Crypto’s Destiny in Their Hands at the SEC, CFTC” (5 January 2026).

35 Davis Wright Tremaine, supra note

Shall We Expect CLARITY in DeFi in 2026? was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.