The CLARITY Act Stalled. For Crypto Developers, the Legal Questions Did Not.
On September 15, 2026, the U.S. Senate failed to advance the Digital Asset Market Clarity Act, commonly known as the CLARITY Act, after a procedural vote fell short of the 60 votes required to move the legislation forward.
The vote does not necessarily mean the legislation is dead. Congress could reconsider the bill, and lawmakers have indicated that negotiations may continue.
For the digital asset industry, however, the immediate consequence is straightforward: the United States still lacks the comprehensive federal market-structure framework the CLARITY Act was intended to create.
That matters for exchanges, brokers, token issuers, DeFi businesses, and other digital-asset companies trying to determine which federal regulator governs their activities.
But another part of the stalled legislation deserves particular attention: developer protections.
The final Senate proposal incorporated provisions based on the Blockchain Regulatory Certainty Act (BRCA) that sought to clarify when developers of decentralized and non-custodial technology should, and should not, be treated as money transmitters.
Without those statutory protections, some of the most important boundaries governing decentralized software will continue to be developed through existing statutes, agency interpretations, enforcement actions, and federal court decisions.
Recent cases involving Samourai Wallet and Tornado Cash demonstrate why that distinction matters. Both cases highlight a fundamental question Hodder Law has examined throughout its coverage of crypto regulation and developer liability: when does building non-custodial software cross the line into operating a money transmitting business?
What the CLARITY Act Was Trying to Clarify
At its core, the Clarity Act sought to establish a federal regulatory structure for digital assets and clarify jurisdictional boundaries between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
The legislation addressed issues including digital-asset classifications, trading platforms, intermediaries, and regulatory oversight.
The final Senate draft also incorporated provisions designed to address a separate problem that has become increasingly important to blockchain developers: when does developing or maintaining software become regulated money transmission?
The Blockchain Regulatory Certainty Act provisions sought to establish federal protections for certain developers and infrastructure providers who do not control customer funds.
The proposal generally focused on a critical distinction:
Does the developer actually have the legal right or unilateral ability to control, initiate or effectuate transactions involving another person’s digital assets?
That distinction is particularly important for developers of:
- non-custodial wallets;
- decentralized protocols;
- open-source blockchain software;
- self-custody technology;
- distributed-ledger infrastructure; and
- other applications where users transact without turning custody of their assets over to the developer.
Had those provisions become law, they could have provided a clearer statutory boundary between building financial software and operating a money-transmission business.
For now, that boundary remains significantly more dependent on existing law and its interpretation.
When Congress Does Not Draw the Line, Courts Still Have To
The federal money-transmission laws being applied to decentralized technology were not written with smart contracts, decentralized protocols, or non-custodial wallets in mind.
Under federal regulations, a money transmitter generally includes a person who accepts currency, funds or other value that substitutes for currency from one person and transmits it to another person or location. See 31 C.F.R. § 1010.100(ff)(5).
Operating an unlicensed money transmitting business can also create criminal exposure under 18 U.S.C. § 1960.
For traditional financial intermediaries, concepts such as accepting, transmitting and controlling customer funds are comparatively familiar. Decentralized software complicates that analysis, leaving several questions unanswered:
- What happens when software facilitates a transaction but the developer never takes custody of the assets?
- What if a smart contract becomes immutable after deployment?
- What if developers maintain a website or user interface but cannot alter the underlying protocol?
- What if developers collect fees or hold governance tokens but cannot independently move users’ assets?
Congress has not yet supplied a comprehensive statutory answer to those questions.
As a result, the practical boundaries continue to emerge through a combination of FinCEN guidance, enforcement decisions, criminal prosecutions and federal court opinions. The Samourai Wallet and Tornado Cash cases mentioned above illustrate the stakes.
Samourai Wallet: Non-Custodial Does Not Automatically Mean Outside § 1960
The prosecution of Samourai Wallet founders Keonne Rodriguez and William Lonergan Hill demonstrated the government’s willingness to pursue criminal money-transmission charges involving non-custodial technology.
Rodriguez and Hill ultimately pleaded guilty to conspiracy to operate an unlicensed money transmitting business. In November 2025, Rodriguez was sentenced to five years in prison and Hill to four years.
According to the Department of Justice, the government alleged that Samourai was operated as a service that transmitted criminal proceeds and that its founders knew substantial illicit activity was moving through the platform.
Samourai’s facts are therefore important. It should not be reduced to the proposition that merely writing non-custodial software creates criminal liability.
But the prosecution also demonstrated a larger problem for developers: calling a product “non-custodial” does not, standing alone, resolve the federal money-transmission analysis.
Courts and prosecutors may examine the entire operation, including the software architecture, services maintained by the developers, revenue model, communications, knowledge of illicit activity, and the developers’ continuing role in making the system function.
For developers trying to determine where software development ends and financial intermediation begins, that standard is much less predictable than a statutory rule tied directly to custody or control.
Tornado Cash: The Same Technology Can Produce Very Different Legal Questions
The Tornado Cash litigation demonstrates the issue even more clearly.
Tornado Cash was designed as a decentralized cryptocurrency privacy protocol using smart contracts to obscure the connection between deposits and withdrawals. Its legal history has produced several different questions involving sanctions law, money transmission, and developer liability.
In Van Loon v. Department of the Treasury, the U.S. Court of Appeals for the Fifth Circuit held that OFAC exceeded its authority under the International Emergency Economic Powers Act by sanctioning Tornado Cash’s immutable smart contracts.
The court emphasized an unusual feature of the technology: once deployed, those smart contracts could not be owned, controlled, or modified, even by their creators.
That was an important limitation on the government’s sanctions authority. But it did not resolve the separate criminal case against Tornado Cash co-founder Roman Storm.
In August 2025, a federal jury convicted Storm of conspiracy to operate an unlicensed money transmitting business under 18 U.S.C. § 1960. The jury did not reach a verdict on separate money-laundering and sanctions-conspiracy charges.
Those unresolved charges remain the subject of continuing litigation, with a retrial currently scheduled for 2027. The distinction is important.
A court can conclude that immutable smart contracts are not sanctionable “property” under one federal statute while another court proceeding examines whether conduct surrounding the development and operation of the same broader protocol can create liability under a different statute.
That is precisely what regulatory uncertainty looks like in practice.
The Missing Developer Safe Harbor Matters
The developer provisions included in the proposed legislation were important because they attempted to move this analysis away from case-by-case interpretation and toward a clearer statutory rule.
The bipartisan Blockchain Regulatory Certainty Act introduced in 2026 proposed protections for developers and service providers who develop or maintain distributed-ledger technology but do not have the legal right or unilateral ability to control, initiate or effectuate transactions involving users’ digital assets.
The proposal identified activities such as developing and publishing software, maintaining blockchain networks, providing self-custody tools and supporting distributed-ledger infrastructure.
The final Clarity Act draft incorporated modified Blockchain Regulatory Certainty Act provisions intended to protect developers from certain money-transmission registration requirements and establish a civil safe harbor.
With the Clarity Act stalled, those protections have not become federal law. That does not mean every blockchain developer is suddenly a money transmitter.
It means the industry continues to operate under the existing framework, and businesses must analyze how that framework applies to their particular technology and transaction flow.
Control Is Becoming One of the Most Important Questions in Crypto Regulation
For developers and digital-asset businesses, one of the most important regulatory questions is increasingly simple to ask but difficult to answer:
Who actually controls the transaction?
A legal analysis should look beyond labels such as “decentralized,” “non-custodial” or “peer-to-peer.”
Relevant questions may include:
- Does the company ever receive customer funds or digital assets?
- Can the company initiate, redirect, block or reverse a transaction?
- Does the company control private keys?
- Can developers modify the protocol after deployment?
- Does the business operate infrastructure necessary for transactions to occur?
- What happens if the company shuts down its website or servers?
- Does the company charge transaction-based fees?
- What role do governance mechanisms play?
- What third-party intermediaries participate in the transaction?
- What knowledge or control does the operator have regarding potentially unlawful transactions?
These questions can affect not only federal MSB analysis, but also state money transmitter licensing, AML obligations, sanctions compliance and potential enforcement exposure.
Regulation Will Continue Even Without Comprehensive Legislation
The failure to advance the Clarity Act does not freeze cryptocurrency regulation in place. Quite the opposite.
Federal agencies will continue administering the statutes already within their authority. Courts will continue interpreting those statutes when disputes arise. Prosecutors will continue bringing cases they believe fall within existing criminal laws. And states will continue applying and amending their own money-transmission and digital-asset regimes.
That produces a fundamentally different form of regulatory development than a comprehensive act of Congress. Legislation can establish rules prospectively. Litigation generally answers narrower questions after a dispute has already occurred.
The result is that significant legal principles may emerge incrementally from cases involving particular defendants, technologies and fact patterns rather than from a single comprehensive statutory framework.
For emerging technologies, that can leave considerable space between what the technology technically does and how existing financial laws characterize the people who build and operate it.
What Digital-Asset Companies Should Do Now
Companies should not assume that the Clarity Act’s delay means they need to stop building.
But businesses should also be careful about designing products around protections that Congress has proposed but has not enacted.
Until the law changes, companies launching decentralized, non-custodial or other novel digital-asset products should evaluate their architecture under the rules that exist today.
That analysis should begin with the actual transaction:
- Who receives the asset?
- Who controls it?
- Who can move it?
- Who can stop it?
- And what role does the company continue to play after the software has been deployed?
For many crypto businesses, those facts will be more important than the terminology used to describe the product.
The Clarity Act may return. Its provisions may change. Congress may ultimately enact developer protections separately or as part of a broader market-structure package.
Until then, the line between developing software and operating a regulated financial service will continue to be shaped by existing statutes, regulators and courts.
For blockchain developers, that makes understanding the architecture of the product, and the legal significance of custody, control and transaction flow, more important than ever.
Legal References & Case Summary
Digital Asset Market Clarity Act / CLARITY Act & Senators Lummis, Boozman, and Scott unveiled the definitive legislative text for the CLARITY Act
The proposed federal market-structure legislation would establish a broader regulatory framework for digital assets, including jurisdictional rules affecting the SEC and CFTC. On September 15, 2026, the Senate failed to invoke cloture, with the legislation receiving 50 votes in favor and 49 against, short of the 60 votes necessary to advance. The procedural posture leaves open the possibility of reconsideration.
Lummis and Wyden, and the Blockchain Regulatory Certainty Act (BRCA)
In January 2026, Senators Cynthia Lummis and Ron Wyden introduced the bipartisan Blockchain Regulatory Certainty Act, which sought to clarify that software developers and infrastructure providers who do not control user funds are not money transmitters under federal law. The legislation would protect certain non-controlling developers and providers engaged in developing software, maintaining distributed ledgers, providing self-custody tools, and supporting blockchain infrastructure.
31 C.F.R. § 1010.100(ff)(5)
FinCEN’s federal regulatory definition of “money transmitter” generally addresses the acceptance of currency, funds or other value that substitutes for currency from one person and transmission of that value to another person or location, subject to applicable exclusions and the particular facts and circumstances.
18 U.S.C. § 1960
Federal criminal statute prohibiting knowingly conducting, controlling, managing, supervising, directing or owning all or part of an unlicensed money transmitting business under circumstances specified by the statute.
United States v. Rodriguez / Samourai Wallet
Samourai Wallet founders Keonne Rodriguez and William Lonergan Hill pleaded guilty to conspiracy to operate an unlicensed money transmitting business. In November 2025, Rodriguez was sentenced to five years’ imprisonment and Hill to four years. The case illustrates the importance of examining the complete operational and factual circumstances surrounding a purportedly non-custodial service rather than relying on the “non-custodial” label alone.
United States v. Storm / Tornado Cash
A federal jury convicted Tornado Cash co-founder Roman Storm in August 2025 of conspiracy to operate an unlicensed money transmitting business under 18 U.S.C. § 1960. The jury did not reach verdicts on separate money-laundering and sanctions-related conspiracy charges. Litigation concerning those unresolved charges remains ongoing.
Van Loon v. Department of the Treasury, No. 23-50669 (5th Cir. Nov. 26, 2024)
The Fifth Circuit held that Tornado Cash’s immutable smart contracts were not sanctionable “property” under the International Emergency Economic Powers Act and concluded that OFAC exceeded its statutory authority in sanctioning those smart contracts. The decision concerned OFAC’s statutory sanctions authority and should not be treated as resolving separate questions concerning money transmission or criminal liability.
Editorial Note
This article is provided by Hodder Law Firm, P.A. for general educational and informational purposes only. It does not constitute legal advice and does not create an attorney-client relationship. Digital-asset regulation is developing rapidly, and the application of federal or state law depends on the specific facts, technology and transaction structure involved.
If you are developing a cryptocurrency, Bitcoin, DeFi, non-custodial wallet, payment or other digital-asset product and need assistance evaluating FinCEN registration, money transmitter licensing, developer liability, AML obligations or the regulatory classification of your business model, contact Hodder Law to discuss your specific circumstances.
