Crypto
Home›Crypto›Regulation›Lummis CLARITY Act would treat some crypto as customer…
Lummis CLARITY Act would treat some crypto as customer property in Chapter 7
Section 701 would apply in specified Chapter 7 liquidations for assets described as “held for customers,” but ownership protections could hinge on account terms and how tokens are classified in bankruptcy.
Sen. Cynthia Lummis is framing her CLARITY Act as a way to keep customer crypto “yours,” but a key provision would only protect certain qualifying digital assets under limited bankruptcy circumstances. CryptoSlate notes the push comes after customer losses tied to past failures, including Celsius, where Earn customers learned balances were treated as part of the bankruptcy estate rather than their own property.
CryptoSlate says Section 701 would shift elements of bankruptcy treatment by placing qualifying ancillary assets and “digital commodities” into federal “customer-property” rules when they are held for customers in specified Chapter 7 liquidations. The provision is designed to rewrite relevant definitions of customers, customer claims, and customer property for liquidating failed entities under Title 11.
The article adds that the protection is not automatic, because it depends on boundaries set in the bill and on asset classification. It also highlights that custody versus lending can matter, with the text reading more directly on tokens held in custody for customers, while the lending boundary appears left open for final legislation and future court decisions.
CryptoSlate further notes that other asset types would continue under different legal regimes, such as securities and cash for broker-dealers under the Securities Investor Protection Act, and bank deposits and commodity contracts under their applicable laws. It also points to a separate Section 804 approach for payment stablecoins, including disclosure requirements about how insolvency treatment may work for those instruments.