Senator Cynthia Lummis introduced legislation that would segregate customer crypto holdings from an exchange's bankruptcy estate, treating digital assets the same way federal law protects securities when a brokerage fails.
The Clarity Act amends the Bankruptcy Code to classify customer digital assets as customer property rather than assets of the failed exchange, a mechanism that currently does not exist. Under present law, crypto held by platforms during insolvency, as happened with FTX, Celsius and BlockFi, enters the bankruptcy estate and becomes subject to creditor claims. Securities brokerage customers face no such risk; the Securities and Exchange Commission has established procedures to segregate and return customer securities without court involvement when a firm collapses.
Lummis, a Wyoming Republican and co-chair of the Congressional Blockchain Caucus, released updated bill text on July 23. The Senate floor vote is scheduled for the week of July 20. The bill defines digital assets subject to segregation as any asset issued or transferred using cryptographic or distributed ledger technology, with exceptions for assets deemed securities or commodity futures under existing federal definitions.
The segregation mechanism operates through Bankruptcy Code Section 1111, which currently applies only to securities brokers. Lummis's amendment would extend that framework to digital asset custodians, creating a statutory duty to maintain customer property separately from the firm's own assets and establishing a priority claim for customers in any insolvency proceeding. Customers would retain ownership rights rather than joining general creditors in a distribution based on available funds.
FTX's collapse in November 2022 left 8 million customers with frozen accounts totaling roughly $8 billion in missing or inaccessible crypto. The bankruptcy estate has recovered billions in cash and assets, but many customers still await distribution. Had segregation requirements existed, customer holdings would not have commingled with FTX's own trading positions or corporate debts, shortening recovery timelines significantly.
The bill also creates an SEC rulemaking process to define custody standards and segregation procedures, delegating operational details rather than mandating them in statute. This mirrors the approach taken for securities depositories, where the SEC sets baseline rules and institutions manage implementation. Industry groups including the Blockchain Association have expressed support for clear segregation rules, viewing statutory certainty as preferable to regulatory uncertainty.
Lummis has introduced segregation language in prior congressional sessions without floor votes. The timing of this version coincides with ongoing negotiations over broader digital asset regulation in the Senate Banking Committee, where segregation has emerged as a rare point of consensus between consumer protection advocates and industry representatives. If the amendment advances to a full Senate vote and passes, the House would need to align its version before any final bill reaches the President.
