The US Senate's revised Digital Asset Market Clarity Act (CLARITY Act) has closed the so-called DINO loophole and introduced federal protections for self-custodied crypto assets.
The updated bill extends beyond establishing market structure rules for digital assets. It targets platforms that describe themselves as decentralised while retaining operational control, and, for the first time, sets out federal legal protection for digital assets held in self-custody wallets that have gone unused.
The revised legislation closes what has become known as the 'DINO loophole', short for Decentralised In Name Only. According to Senator Cynthia Lummis (R-WY), the loophole had allowed crypto exchanges, decentralised finance (DeFi) platforms, and crypto ATMs to claim decentralised status in order to avoid AML obligations and sanctions compliance, even in cases where operators maintained control over the platform. Lummis said the bill brings every part of the digital asset market within the scope of the Bank Secrecy Act and the sanctions framework, adding that platforms would no longer be able to avoid these obligations.
A provision on self-custody
A separate section of the bill, identified as section 20216, has drawn attention from Galaxy Digital's head of research. The provision states that inactivity, dormancy, or an absence of engagement by the owner of a digital asset lawfully held in self-custody cannot be treated as grounds for classifying that asset as abandoned, unclaimed, or subject to forfeiture under any federal, state, or local law.
The clause provides for federal preemption, meaning it overrides state laws that might otherwise classify a dormant self-custodied digital asset as abandoned property. Galaxy Digital's research lead described the section as significant, noting that it protects long-term holders from having their crypto seized under state escheat or abandoned-property statutes solely because a wallet has not recorded transactions.
The provision emerges against a backdrop of consolidation in the crypto exchange sector. BitMart became the third centralised exchange to announce a shutdown this month, following AscendEX and BitMEX. More than 30 crypto projects have closed in 2026 to date.
Legislative timeline and industry reaction
The CLARITY Act is heading towards a potential vote on the Senate floor next week. Goldman Sachs CEO David Solomon has voiced support for the bill, while Coinbase CEO Brian Armstrong described it as being at the 'one-yard line' of passage.
Passage of the bill could benefit both Circle and Coinbase. Circle would gain a federal framework governing stablecoins, relevant to its USD Coin (USDC), while Coinbase would gain clearer jurisdictional rules, potentially allowing it to list additional digital assets with greater regulatory certainty.
