Senate Confirms Kevin Warsh as Fed Chair as CLARITY Act Defines Decentralization Criteria

Senate Approves Warsh as Federal Reserve Chair in Historic Vote

The U.S. Senate has confirmed Kevin Warsh as the next Federal Reserve Chair in what has become the most contentious Fed chair confirmation in history. The vote split almost exclusively along party lines, underscoring the deep political divisions surrounding monetary policy leadership at a critical juncture for the American economy.

Democrats Target DeFi with CLARITY Act Amendments

Critics have identified 15 amendments to the CLARITY Act specifically targeting DeFi developers. These proposed changes include BRCA rollbacks, provisions for criminal liability for code, and smart contract sanctions. The amendments represent a significant challenge to the decentralized finance sector as lawmakers continue debating the bill's final form.

Ledger Abandons IPO Plans

French hardware wallet manufacturer Ledger has shelved its initial public offering (IPO) ambitions, citing unfavorable market conditions, according to CoinDesk. The company had previously been reported as pursuing a $4 billion IPO on the New York Stock Exchange.

CLARITY Act Establishes Binary Decentralization Framework

The latest draft of the CLARITY Act introduces a comprehensive framework for determining whether crypto systems qualify as decentralized. The legislation uses the concept of "coordinated control" to benchmark whether insiders under common control can still direct or influence a crypto system. This creates a binary classification: projects are either under coordinated control or they are not.

Projects demonstrating independence from coordinated control can seek SEC certification of that status. Those that remain centralized must operate within a disclosure-and-restriction regime designed to monitor insider activities.

Five Core Criteria for Decentralization

The SEC would evaluate projects based on five primary criteria:

Open Code: Protocol or application code must be publicly available for inspection, review, and audit.

Permissionless Participation: No person or group under common control can block, censor, or limit system access. The code cannot grant insiders special privileges.

Ownership and Voting Concentration: No person or group under common control may own more than 49% of token supply or governance voting power.

Unilateral Authority: The system must reach an autonomous state where no coordinated group can unilaterally change its operation or consensus mechanisms.

Functional Value Mechanics: Token value must derive from active network usage rather than promised future features.

Related Person Classification and Disclosure Requirements

The draft establishes thresholds for identifying "related persons" subject to special disclosure and resale obligations. Holders who acquired tokens directly from creators become related persons at 2% or more of supply. For open market purchasers, the threshold rises to 10% of supply.

Notably, decentralized autonomous organizations (DAOs) are not automatically classified as entities under common control, provided they avoid centralized management structures.

Emergency Override Provisions

Projects can maintain emergency security mechanisms without losing decentralized status under strict conditions. Such failsafes must be predefined, temporary, used only for documented cybersecurity incidents or imminent threats, authorized through publicly disclosed onchain mechanisms, and narrowly scoped. No single person can control these emergency functions unilaterally.

SEC Certification Process

Projects meeting decentralization criteria can file for SEC certification. Certification becomes effective if the SEC declines to object or if 90 days pass without denial. To deny certification, the agency must provide 10 days' notice, hold a hearing, and vote on findings.

Centralized Project Requirements

Projects not yet decentralized must comply with disclosure obligations covering corporate information, insider ownership, financial statements, governance structures, consensus mechanisms, source code, and control dependencies. Disclosures must specify if, how, and when the system expects to achieve decentralization.

Insiders face resale restrictions: they can only sell covered tokens if disclosures are current, tokens have been held for at least 12 months, and sales remain under SEC-set limits. After certification, the holding period drops to 6 months.

Projects raising $5 million or less in gross proceeds within 12 months of first distribution, or averaging $5 million or less in daily U.S. spot-market trading volume over 12 months, are exempt from disclosure requirements.