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On Monday, the U.S. Senate Banking Committee advanced a revised version of the Digital Asset Market Clarity Act that expands the Securities and Exchange Commission’s authority to regulate protocols that claim to be decentralized but may in fact be centrally controlled. The amendment, which removes earlier protections for non‑controlling blockchain developers, has prompted alarm in the defi community. At the same time, the SEC is reportedly moving toward allowing third‑party platforms to tokenize stocks without issuer consent, a shift that could open a $30 billion tokenized securities market.

Background

The Digital Asset Market Clarity Act, part of a broader effort to bring clarity to the U.S. digital‑asset regulatory landscape, was introduced to define when a protocol is “decentralized” and when it should be subject to securities law. A key protection in earlier drafts was the Blockchain Regulatory Certainty Act (BRCA), which shields software developers who do not control users’ funds from being treated as money transmitters. The BRCA survived the latest markup, but the new language on “arrangements or understandings” to control a protocol could bring many projects under SEC scrutiny.

Separately, the SEC’s January 28 guidance had drawn a strict line between issuer‑approved tokenization and third‑party tokenized products, treating the latter as synthetic exposure. Bloomberg Law reports that the agency is now leaning toward allowing third‑party platforms to issue tokenized equities without issuer consent, a reversal that could unlock a new model for tokenized securities.

What Happened

During the Senate Banking Committee hearing, two Democrats joined the bill’s advocates and secured a narrow bipartisan majority. Republican Senator Cynthia Lummis praised the move as a “historic step forward” for the industry, but her office did not address the amendment that broadens the SEC’s regulatory reach. The amendment removes language that previously protected non‑controlling blockchain developers, allowing the SEC to classify them as securities intermediaries if they can be shown to have some level of control over a protocol. The clause defines control as “acting pursuant to an agreement, arrangement, or understanding” to manage the protocol, a standard that could encompass governance token holders who coordinate voting.

Industry insiders suggest that the new wording could be interpreted to include developers who collaborate on protocol upgrades, even if they do not control users’ assets. Bill Hughes, senior counsel for a DeFi advocacy group, said the flexibility granted to the SEC and Treasury “was clearly what certain Democrats were demanding.”

Meanwhile, the SEC’s potential shift on tokenized stocks would allow third‑party platforms such as Kraken’s xStocks, Robinhood’s Arbitrum‑based tokenized equities, and OKX’s private company perpetuals to offer tokenized stock exposure without waiting for issuer participation. The change would move away from the January framework that required companies to integrate blockchain into official shareholder records, a requirement that DTCC has been preparing to launch in July.

Market & Industry Implications

The DeFi clause could lead to increased regulatory scrutiny of protocols that rely on governance token holders for decision making. If the SEC interprets “arrangement or understanding” broadly, projects that maintain a decentralized architecture but have coordinated governance could be reclassified as securities intermediaries, potentially subjecting them to registration, disclosure, and compliance obligations. This could slow innovation and increase compliance costs for developers who previously operated under the BRCA shield.

On the tokenized equities front, the SEC’s potential approval of third‑party tokenization could unlock a market that has grown 200% year‑over‑year to $30 billion. Major asset managers, including DTCC, BlackRock, JPMorgan, and Franklin Templeton, have already filed or launched tokenized products in the past month. If the SEC greenlights the new model, platforms that currently operate in a legal gray zone could begin offering genuine equity ownership to investors, potentially expanding liquidity and access to public markets.

Both regulatory shifts could have ripple effects on market sentiment. The DeFi clause may dampen enthusiasm for new decentralized protocols, while the tokenized stock shift could attract institutional capital to crypto‑based equity products. The market’s reaction to the SEC’s stance was reflected in the price of Hyperliquid, which rose to a new local high of $48 after the announcement.

What to Watch

  • Senate Banking Committee’s final markup of the Clarity Act, including any further amendments that could tighten or loosen the SEC’s definition of control.
  • SEC’s formal statement or rulemaking on third‑party tokenized equities, expected to be released in the coming weeks.
  • DTCC’s planned July launch of blockchain‑integrated shareholder records, which could become the benchmark for issuer‑approved tokenization.
  • Market developments in the tokenized securities space, such as new product launches by major asset managers.
  • Any court challenges or industry lobbying efforts that may influence the interpretation of the “arrangement or understanding” clause.