CLARITY Act Would Protect Customer Crypto From Exchange Bankruptcies, Senator Says

Senator Cynthia Lummis says the CLARITY Act would ensure customer-owned crypto remains customer property if an exchange fails, addressing a legal gap exposed by the bankruptcies of Celsius and Voyager while advancing broader U.S. crypto market rules.

Key Takeaways

• Senator Cynthia Lummis says the CLARITY Act would keep customer crypto separate from a failed company’s bankruptcy estate.
• The proposal responds to legal disputes that emerged during the Celsius and Voyager bankruptcies.
• Lummis argues the bill would pair stronger customer protections with clearer regulatory rules for the U.S. digital asset market.

CLARITY Act Seeks to Prevent Another Celsius-Style Bankruptcy Dispute

Senator Cynthia Lummis (R-WY) said the CLARITY Act would change how customer crypto is treated when a digital asset platform enters bankruptcy, arguing that assets belonging to customers should remain theirs instead of becoming part of the company’s bankruptcy estate.

“When Celsius and Voyager went bankrupt, customer deposits didn’t stay customer deposits,” Lummis wrote on X on July 20. “They became assets in a bankruptcy pool, fought over by creditors who had never even heard of the customers who owned them.” The lawmaker stressed:

“The CLARITY Act changes the rule so your crypto stays yours, even if the company fails.”

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.

Celsius and Voyager Bankruptcies Exposed Customer Ownership Risks

The bankruptcies of Celsius and Voyager exposed one of the biggest legal uncertainties in the crypto industry: whether customer deposits remained the property of users 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.

Customer Protections Are Part of a Broader Crypto Market Structure Bill

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 (SEC) and the Commodity Futures Trading Commission (CFTC), reducing uncertainty over which agency oversees different segments of the crypto market.

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.

Although the House approved the CLARITY Act, the legislation has yet to clear the Senate. 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. The next catalyst will be Senate consideration of the bill and whether lawmakers preserve the customer-property protections highlighted by Lummis.