Senator Cynthia Lummis introduced the CLARITY Act this week, a bill that would make it harder for bankrupt crypto platforms to claim customer assets as their own. The legislation's core provision, Section 701, would treat certain digital assets as customer property in Chapter 7 liquidations — but only when the platform holds them in a custody arrangement, not when customers hand over title through lending or yield products.
The Celsius precedent
The bill is a direct response to the Celsius bankruptcy. In January 2023, the U.S. Bankruptcy Court for the Southern District of New York ruled that roughly $4.2 billion in Earn account assets belonged to Celsius's bankruptcy estate, not to customers. The reason: the contract gave Celsius 'all right and title' to the crypto. Customers became unsecured creditors. The CLARITY Act aims to prevent that outcome for future cases — but only for accounts structured as custody.
What Section 701 does and doesn't cover
Section 701 applies to qualifying ancillary assets and digital commodities that are 'held for customers' in Chapter 7 proceedings. The protection is limited to custody arrangements. If a customer transfers title to the platform — say, through a lending or staking product — the assets stay in the estate. The bill also depends on asset classification, account terms, and whether the intermediary falls within its definitions. It does not cover securities, bank deposits, or commodity contracts already governed by other laws like SIPA or banking regulations.
The Celsius case illustrates the ownership question but doesn't show how Section 701 would apply to a similar yield product. That ambiguity remains.
Stablecoin disclosure requirement
Separately, Section 804 of the CLARITY Act targets payment stablecoins. It would require broker-dealers to disclose how those stablecoins, along with digital commodities and related securities, would be treated in an insolvency. The provision doesn't change the legal outcome — it just forces platforms to tell customers upfront what they're signing up for.
Self-custody protections
Section 605 of the act protects lawful self-custody for defined covered users. The language is meant to ensure that individuals who hold their own crypto aren't forced to give it up in a bankruptcy proceeding involving a third party. The details of who qualifies as a 'covered user' will matter when the bill moves through committee.
The CLARITY Act now heads to the Senate Banking Committee. No markup date has been set. For customers burned by the Celsius ruling, the bill offers a potential fix — but only if they stick to custody accounts and steer clear of yield products that transfer title.
