Senator Cynthia Lummis is making another push for the CLARITY Act, a bill designed to keep customer crypto assets safe during exchange bankruptcies. The renewed effort comes in the wake of the Terra collapse, which left thousands of investors in legal limbo. The legislation also includes $150 million to fight crypto-related scams.
Why the Terra collapse matters
The Terra ecosystem's implosion in 2022 exposed a glaring gap in U.S. law. When exchanges go under, customer crypto often gets treated as part of the bankruptcy estate — meaning investors can wait years for pennies on the dollar. Lummis has pointed to that disaster as the reason the CLARITY Act is needed now. The bill aims to ensure that customer assets are segregated and returned, not pooled with company funds.
What the CLARITY Act does
The legislation would require exchanges to hold customer crypto in separate accounts, clearly marked as belonging to users. In a bankruptcy, those assets would be off-limits to creditors. That's a direct response to the legal mess that followed Terra's collapse, where retail investors fought for months just to get basic information about their holdings. The bill also sets rules for how exchanges disclose their custody arrangements.
The $150 million scam-fighting fund
Beyond bankruptcy protection, the CLARITY Act carves out $150 million specifically for combating crypto scams. That money would go to law enforcement and regulatory agencies — the SEC, the CFTC, the Justice Department — to investigate and prosecute fraud. It's a recognition that the same technical complexity that makes crypto innovative also makes it a playground for bad actors. The fund is meant to level the playing field for victims.
Lummis is expected to reintroduce the CLARITY Act in the current session. The bill has bipartisan co-sponsors but faces headwinds from industry groups that argue the custody rules are too strict. A markup in the Senate Banking Committee could come as early as next month. For now, the Terra collapse remains the clearest argument for why the law needs to change.
