A newly revised draft of the Clear Act, spearheaded by U.S. Senator Cynthia Lummis, has been released, with the central dispute revolving around a significant contraction in the scope of protections for decentralized finance (DeFi). This version does not simply carry forward the market structure from the July draft; instead, it introduces a stringent "control standard test" designed to draw a distinct line between autonomously operating software code and financial platforms controlled by specific individuals. Lummis noted that this adjustment aims to balance the innovation freedom of code developers with regulators' need to manage substantive financial risks, while also incorporating over 100 amendments proposed by Democrats to ease concerns over jurisdictional conflicts. However, this compromise has not eliminated the uncertainty surrounding the legislation's prospects, with a procedural vote on September 15 set to be a pivotal moment in determining whether the bill can secure sufficient political backing. If it fails to cross the 60-vote threshold, the broader effort to restructure the digital asset regulatory framework could face a standstill.

In reworking the regulatory logic, the new draft substantially modifies Section 20209, tightening the previously broad protective umbrella to entities that meet specific technical characteristics. According to compiled data, the new rules establish three hard criteria for determining "non-decentralization": first, the existence of an individual or coordinated group with the power to materially alter the protocol's operational methods or consensus mechanism rules; second, the system not relying entirely on pre-set, publicly transparent on-chain code for operation; and third, the ability of someone to restrict, censor, or prohibit the use of the protocol. This standard completely abandons the practice of using the "decentralized" label as a basis for exemption, shifting focus to the actual locus of power. Even if a platform calls itself decentralized, it cannot enjoy special legal treatment if a company, foundation, or coordinated group can intervene in its operations or block user access.

Notably, meeting the control standard does not directly trigger registration obligations but initiates a public rulemaking process involving the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), and the Treasury Department. Under this framework, controlling parties engaged in brokerage services, trade execution, clearing, and custody would be treated as regulated entities similar to traditional market intermediaries. Concurrently, the Treasury will separately prescribe how Bank Secrecy Act and anti-money laundering obligations apply to controlling parties upon registration, ensuring an effective extension of the existing financial compliance system. The bill explicitly rules out regulatory assumptions for mere software developers, governance participants, and protocol operators, emphasizing that the targets of regulation are the persons controlling regulated activities, not the code itself or the distributed ledger system.

The narrowing of DeFi protections is the most strategically significant adjustment in this revision, directly responding to the intense debates over prediction markets. The July draft had used broader Commodity Exchange Act language, preserving anti-fraud and anti-manipulation measures while offering relatively comprehensive protections for various DeFi activities. The new draft strictly differentiates general software development from business operations involving DeFi trading protocols, limiting the protection scope to cash and spot transactions in digital commodities, rather than covering the entire sweep of the Commodity Exchange Act. This change poses a major challenge to prediction markets, as contracts in such venues are fundamentally derivatives, not spot assets. Consequently, prediction platforms in the DeFi space can no longer leverage the spot market protections of Section 20209 to circumvent regulatory requirements for event contracts. Previously, a dozen Democratic senators had expressed strong concerns about prediction markets resembling sports betting or casino games, arguing that excessive federal protection could enable these platforms to bypass state oversight, infringe on tribal gaming rights, and violate the Indian Gaming Regulatory Act. Limiting DeFi protections to spot markets is precisely intended to close this potential loophole and prevent prediction platforms from using DeFi exemptions to dodge derivatives regulation.

However, this modification has not fully satisfied Democratic demands. The bill neither includes a special exemption for the Indian Gaming Regulatory Act nor prohibits platforms already registered with the CFTC from offering sports-betting-like contracts, meaning the broader jurisdictional disputes remain fundamentally unresolved. Regarding emergency powers exceptions and state-level regulatory preservation, the new draft provides more detailed operational guidance to balance security needs with decentralization principles. The revised text clarifies that merely participating in a security committee does not automatically constitute control over a protocol, unless the committee is exercising predetermined and temporary emergency powers set forth to address documented cybersecurity incidents or imminent threats. Such powers must be exercised through publicly disclosed on-chain authorization rules, with strict limits on scope and duration. No individual may hold unilateral control, and these powers cannot be used for purposes unrelated to protocol upgrades, governance decisions, or economic changes. If a committee holds broader or permanent authority, it may still be deemed the actual controlling party.

On the division of federal and state oversight, the draft grants the CFTC exclusive regulatory authority over registered digital commodity intermediaries engaging in federally regulated activities but retains space for state and local regulation. States may hold registered entities accountable for fraud, misrepresentation, manipulation, and violations of the Commodity Exchange Act, and may apply consumer protection laws, banking regulations, payment rules, property laws, contract laws, and criminal statutes to unregistered entities. While certain protected software and DeFi activities are exempt from state securities, commodity, and digital asset-related laws, state anti-money laundering, anti-fraud, and anti-manipulation rules remain in effect. This arrangement ensures uniformity in the federal regulatory framework while respecting the traditional jurisdiction of state laws in consumer protection and criminal enforcement.

The September 15 vote is not merely a procedural step but a decisive battle determining the fate of the Clear Act. To pass, the bill needs 60 votes in the Senate, meaning Republicans must secure support from a sufficient number of Democrats, even before considering amendments or final passage. Prior analysis of the vote math has highlighted the difficulty of reaching this threshold. While Lummis emphasizes that the new draft incorporates over 100 Democratic suggestions, showing efforts by negotiating parties to seek compromise, this does not guarantee final support. Even if the procedural vote succeeds, the bill must still undergo further Senate debate and passage, as well as House approval or reconciliation of the two chambers' versions.

This revision offers clearer language on controlled DeFi, prediction markets, and regulatory responsibility, but it does not replace the broader regulatory framework proposed in the July draft. The bill still divides regulatory duties between the SEC and the CFTC, establishes federal registration categories for digital commodity exchanges and brokers, and sets rules for custody, disclosure, and customer protection. The new version focuses on clarifying how the regulatory framework applies to DeFi projects with identifiable controlling parties, rather than creating a separate registration system for blockchain or software developers. This marks yet another attempt by the U.S. Congress, following multiple legislative efforts, to strike a balance between innovation incentives and risk management, with the outcome set to profoundly influence the regulatory direction of global digital asset markets.