Judicial Committee joins opposition to Section 604 of the CLARITY Act: escalation of conflict between developer protection and regulatory authority

The U.S. Senate Judiciary Committee suddenly voiced opposition to Section 604 of the CLARITY Act on January 17. This is not just a technical policy disagreement but a direct confrontation over federal regulatory authority. In the context where Coinbase has already withdrawn support and the Senate Banking Committee has postponed deliberation, this opposition letter signals that the highly anticipated crypto regulation bill is falling into deeper trouble.

Why did the Judiciary Committee suddenly speak out?

The essence of the power struggle

According to the latest news, Senate Judiciary Committee Chairman Chuck Grassley ® and lead Democrat Dick Durbin explicitly stated in a letter to the Senate Banking Committee that Section 604 would “undermine” federal laws concerning unlicensed money transfer businesses. This is not merely a policy suggestion but a direct assertion of the Judiciary Committee’s authority.

The Judiciary Committee emphasized a key procedural issue in the letter: they hold jurisdiction over Title 18 of the U.S. Code, but they “were not consulted, nor were they given the opportunity for substantive review of the proposed changes in advance.” This indicates that the Banking Committee bypassed the proper cross-committee consultation process in drafting the bill.

The specific controversy over Section 604

The original intent of Section 604 appears reasonable—protect software developers from criminal liability due to third-party misuse of their products. However, the Judiciary Committee’s opposition is well-founded: this clause would weaken the government’s ability to hold unlicensed money transfer businesses accountable.

In the letter, the Judiciary Committee cited an important case: the DOJ’s prosecution of Tornado Cash developer Roman Storm. They believe this case demonstrates the importance of current regulations in holding accountable those involved in unlicensed money transfer activities. In other words, if Section 604 passes, cases like Roman Storm’s could face legal obstacles.

From single opposition to systemic deadlock

The CLARITY Act was initially seen by the market as a “milestone in compliance,” but now it faces a multi-party confrontation:

• Judiciary Committee: defending criminal regulatory authority
• Exchanges like Coinbase: opposing restrictions on stablecoin yields
• Traditional banks: pushing for stricter DeFi regulation
• Democratic lawmakers: attempting to include ethical standards for government officials

Consequences of procedural complexity

What does the Judiciary Committee’s opposition mean? According to the latest reports, if Section 604 remains in the bill, the Judiciary Committee (which handles legal matters) will need to sign off on the entire package as a third committee. This directly prolongs the legislative process and increases coordination difficulties.

DeFi advocates are also applying pressure. They insist that without specific protections like Section 604, they might withdraw support for the entire bill. This signals another difficult deadlock—regardless of the Judiciary Committee’s choice, it will anger at least one side.

Fundamental conflict between developer protection and regulatory enforcement

Behind this dispute lies a deeper question: how much responsibility should developers bear in the crypto ecosystem?

The Judiciary Committee’s stance is: if a tool created by a developer is used for unlicensed money transfer (which is a crime under federal law), the developer should not automatically be exempt. They cite the Roman Storm case, arguing that current regulations are sufficient to distinguish between “unintentional misuse” and “deliberate assistance.”

However, DeFi advocates believe that excessive developer liability would stifle innovation and ultimately harm the entire ecosystem. Section 604 aims to strike a balance between these two concerns.

Future outlook

The Senate Banking Committee was scheduled to vote on the bill this Thursday (January 15), but canceled the agenda after facing increasing opposition on Wednesday evening. Industry insiders like Eleanor Terrett have noted that if banks, Coinbase, and Democratic lawmakers can agree on yield terms, the bill could still move forward, with new developments expected by the end of the month.

But now, the Judiciary Committee’s intervention makes this process more uncertain. To advance, at least three major disagreements must be resolved: stablecoin yield, DeFi regulation, and the balance between developer protection and enforcement.

Summary

The Judiciary Committee’s opposition letter exposes the fundamental dilemma facing the CLARITY Act: this is not just an internal crypto industry dispute but a collision involving multiple federal agencies, differing political stances, and core legal principles.

The controversy over Section 604 essentially reflects an unavoidable question—how should the government balance protecting developer innovation and preventing legal abuse? The Judiciary Committee’s position represents traditional regulatory agencies’ insistence on enforcement capability, while DeFi advocates embody the desire for innovation space.

In the short term, the bill’s progress will likely be further delayed. In the long run, the final shape of the U.S. crypto regulatory framework may need to find some compromise amid these fundamental conflicts—but how difficult that will be is now clearly evident.