H.R. 3633, the Digital Asset Market Clarity Act of 2025, presents a serious threat to the decentralized structure of the Lightning Network. While marketed as a bill to provide regulatory certainty for digital assets, its definition of a “Digital Commodity Broker” captures any Lightning node that earns routing fees—even in trivial amounts. This subjects small operators and hobbyists to burdensome CFTC registration, AML/KYC requirements, capital controls, and custodial segregation standards. The only legal escape is to disable fees entirely, but zero-fee nodes quickly become unbalanced and unusable, undermining their ability to participate in routing. As a result, the bill effectively forces reliable routing into the hands of large, centralized custodians who can absorb compliance costs—excluding grassroots operators and degrading the network’s decentralization, privacy, and resilience. LNBits operators, who provide lightweight custodial Lightning wallets for public use, are especially vulnerable under the Act. Without a carve-out for small-scale or hobbyist services, the bill threatens to shut down community-run Lightning infrastructure and replace it with heavily regulated, centralized hubs. H.R. 3633 is not neutral legislation—it’s a structural attack on Lightning’s open, peer-to-peer fabric. Without amendments to protect small operators, it risks centralizing the future of Bitcoin payments in the hands of a few gatekeepers.
The Digital Asset Market Clarity Act: A Hidden Attack on Lightning
When Congress passed H.R. 3633—the Digital Asset Market Clarity Act of 2025—it hailed the legislation as a long‑overdue framework to bring regulatory certainty to cryptocurrencies. In reality, its provisions threaten to hollow out the Lightning Network’s peer‑to‑peer ethos and force community‑run services like LNbits into compliance nightmares. Below, we unpack how this ostensibly protective law can be weaponized to squeeze out hobbyists, centralize routing infrastructure, and undermine the very decentralization it purports to safeguard.
1. The “Digital Commodity Broker” Catch
At its core, H.R. 3633 redefines any service that forwards crypto for a fee—even a single satoshi—as a Digital Commodity Broker (DCB). Under the Act, a DCB must register with the CFTC, build a full Bank Secrecy Act AML/KYC program, segregate user funds with a qualified custodian, and meet stringent capital and reporting requirements. While these burdens might be tolerable for large exchanges, they are categorically out of reach for hobbyists and grassroots operators.
The law draws no distinction for scale or intent. A local Bitcoin meetup running a small LNbits instance, or an individual routing a few payments on Lightning to help friends, would technically be “engaged in the business of effecting transactions for the account of others.” Without a de minimis carve‑out, regulators could bring enforcement actions against anyone who dares to earn even microscopic routing fees.
2. The Zero‑Fee Catch‑22
Faced with the threat of CFTC registration, hobbyists might consider disabling fees altogether. But this “workaround” quickly collapses under the network’s own economic logic. Lightning’s routing incentives depend on modest fees to rebalance channels and compensate for on‑chain costs. Zero‑fee channels bleed outbound liquidity, lead to HTLC timeouts, and are systematically bypassed by path‑finding algorithms in favor of healthier peers.
The upshot? A zero‑fee node remains legal—but functionally powerless. It cannot sustain reliable routing and is effectively exiled from the mesh of viable payment paths. The Act thus forces a brutal dilemma: either endure an impossible regulatory regime or become a ghost node with no routing relevance.
3. Centralization by Regulatory Design
As hobbyist and small‑scale operators exit the fray, routing power consolidates in the hands of well‑capitalized custodians and large exchanges. These entities can absorb compliance costs and maintain AML/KYC infrastructures, leaving them as the only legally viable gateways for Lightning traffic. With thousands of independent nodes sidelined, the network risks morphing into a hub‑and‑spoke model—exactly the opposite of its permissionless, censorship‑resistant promise.
This centralization has cascading consequences: reduced path diversity, heightened systemic risk if a major hub suffers downtime, and diminished privacy as fewer operators retain custody control. The resilience and trust-minimization that made Lightning attractive in the first place would be severely compromised.
4. LNbits Operators in the Crosshairs
LNbits—an open‑source wallet and routing portal beloved by hobbyists—becomes a poster child for the Act’s overreach. Any public LNbits instance that custodys or moves users’ funds automatically meets the DCB definition, regardless of fee structure. Operator-run instances face an impossible choice: implement full CFTC‑grade compliance or shutter their services. The result is a chilling effect on community innovation and a migration of wallet and routing services toward corporate or offshore providers.
5. Conclusion: Protecting the Network’s Soul
While H.R. 3633 offers clarity in name, its mechanics weaponize regulation to undercut grassroots participation in Lightning. By eliminating sustainable fee‑earning for small operators and leaving zero‑fee channels barren, the Act erodes the network’s open‑access fabric and shifts power to a handful of institutional hubs.