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CLARITY Act would grant crypto developers strongest protections

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Crypto Breaking News

U.S. Senator Cynthia Lummis has sharpened her defense of the Digital Asset Market Clarity Act (CLARITY), arguing that Title 3 would deliver the strongest protections yet for DeFi developers and non-custodial innovators. In recent remarks, she contended that bipartisan changes to the bill would fortify safeguards for DeFi insiders and urged lawmakers to advance CLARITY in order to unlock these protections under the BRCA framework.

The comments come as crypto-savvy lawyer Jake Chervinsky challenged the bill’s current design, arguing that Title 3 could undermine protections by imposing Know-Your-Customer obligations on non-custodial software developers. Lummis responded by asserting that the ongoing revisions to Title 3 are aimed at strengthening DeFi defenses, while noting that the latest draft text has not yet been released publicly.

“Don’t believe the FUD,” Lummis wrote in a Friday posting, adding, “We have worked on a bipartisan basis for the last few weeks to make changes to Title 3 that make this bill the strongest protection for DeFi and developers ever enacted. We have to pass the Clarity Act to get these protections.”

The precise revisions to CLARITY—described by Lummis as a path to stronger, clearer protections for DeFi—have not been published, leaving observers to await the official language.

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“Don’t believe the FUD. We have worked on a bipartisan basis for the last few weeks to make changes to Title 3 that make this bill the strongest protection for DeFi and developers ever enacted. We have to pass the Clarity Act to get these protections.”

Chervinsky has emphasized that DeFi protections in Title 3 have been overshadowed by attention to stablecoin-related provisions within CLARITY. His central concern is that the bill’s money transmitter definitions could still place many non-custodial DeFi builders at risk of liability, even as the BRCA’s Section 604 language clarifies that non-controlling developers and providers of non-custodial software should not be treated as financial institutions subject to Bank Secrecy Act KYC obligations.

The broader legal landscape isn’t lost on industry figures. The contrast between intent and enforcement risk is shaping the debate around what forms DeFi protection should take—whether liability shields should hinge on code architecture, custodial status, or the nature of on-chain activity.

The debate arrives amid a climate of high-profile regulatory pushback. In recent months, prosecutors have pursued crypto developers and platforms with renewed vigor, including the Tornado Cash case, where Roman Storm was convicted in August 2025 of conspiracy to operate an unlicensed money transmitting business. The outcome has underscored the urgency for clear, workable safeguards for builders who contribute to open-source or non-custodial tooling.

Legislative momentum around CLARITY appears to be advancing in tandem with broader efforts on stablecoins. U.S. lawmakers have signaled that CLARITY’s passage would be instrumental in delivering BRCA-backed protections for DeFi developers, with a Senate Banking Committee markup anticipated in April after progress on the stablecoin rewards provisions. The absence of publicly released text notwithstanding, supporters argue that the package’s architecture is designed to distinguish non-custodial code from regulated financial activity, reducing ambiguity for developers and users alike.

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As the clock ticks toward committee consideration, investors and builders will be watching closely how Title 3 evolves and whether the revisions address non-custodial liability concerns without undermining legitimate regulatory aims. The next updates from Congress will determine not only the fate of CLARITY but also the practical implications for DeFi development, funding, and broader market adoption.

Readers should stay tuned for the formal release of the revised draft and subsequent committee milestones, as the balance between protection and compliance continues to shape the trajectory of DeFi regulation in the United States.

Risk & affiliate notice: Crypto assets are volatile and capital is at risk. This article may contain affiliate links. Read full disclosure

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Crypto World

Aave’s TVL Falls $8B After $293M Kelp DAO Hack

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Aave’s TVL Falls $8B After $293M Kelp DAO Hack

Total value locked on decentralized lending protocol Aave dropped by nearly $8 billion over the weekend after hackers behind the $293 million Kelp DAO exploit borrowed funds on Aave, leaving roughly $195 million in “bad debt” on the protocol and triggering withdrawals.

Data from DeFiLlama shows that Aave’s TVL fell from about $26.4 billion to $18.6 billion by Sunday, losing the top spot as the largest DeFi protocol. 

Aave v3’s lending pools for USDt (USDT) and USDC (USDC) are now at 100% utilization, meaning that more than $5.1 billion worth of stablecoins cannot be withdrawn until new liquidity arrives or borrows are repaid. 

$2,540 is available to be withdrawn from the $2.87 billion USDT pool on Aave v3 at the time of writing. Source: Aave

Aave’s TVL fall shows how rapidly risk from a single security incident can spread throughout the broader, interconnected DeFi lending market, potentially leading to a severe liquidity crisis.

The incident began on Saturday when hackers stole 116,500 Kelp DAO Restaked ETH (rsETH) tokens worth about $293 million from Kelp DAO’s LayerZero-powered bridge and used them as collateral on Aave v3 to borrow wrapped Ether (wETH).

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Crypto analytics platform Lookonchain said the move created about $195 million in “bad debt” on Aave, which contributed to the Aave (AAVE) token tanking nearly 20% from $112 on Saturday at 6:00 pm UTC to $89.5 about 25 hours later. 

Lookonchain noted that some of the largest crypto whales to withdraw funds from Aave were the MEXC crypto exchange and Abraxas Capital at $431 million and $392 million, respectively.

Source: Grvt

Several crypto networks and protocols tied to rsETH or the LayerZero bridge have paused use of the bridge until the problem is resolved, including DeFi platform Curve Finance, stablecoin issuer Ethena and BitGo’s Wrapped Bitcoin (WBTC).

Aave has frozen several rsETH, wETH markets

Shortly after the Kelp DAO exploit, Aave said it froze the rsETH markets on both Aave v3 and v4 to prevent any suspicious borrowing and later stated that rsETH on Ethereum mainnet remains fully backed by underlying assets.

WETH reserves also remain frozen on Ethereum, Arbitrum, Base, Mantle and Linea, Aave said.

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This incident marks the first significant stress test of Aave’s “Umbrella” security model, which was introduced in June 2025 to provide automated protection against protocol bad debt while enabling users to earn rewards.

Related: Aave DAO backs V4 mainnet plan in near-unanimous vote

Earlier this month, the Bank of Canada found that Aave avoided bad debt in its v3 market by using overcollateralization, automated liquidations and other strategies that shifted risk to borrowers.

In comments to Cointelegraph, Aave defended its liquidation-based model, framing it as a core safety mechanism that protects lenders while limiting downside for borrowers.

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It comes as Aave parted ways with its longest-standing DeFi risk service provider, Chaos Labs, on April 6, following disagreements over the direction of Aave v4 and budget constraints.

Magazine: Are DeFi devs liable for the illegal activity of others on their platforms?