Negotiations with US lawmakers over market structure legislation appear to be ongoing but are contentious.
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the narrative
Policy work around digital assets appears to be in limbo as the US government shutdown extends into its second week. There are signs that lawmakers are continuing to work out details on market structure legislation, which the industry desperately wants in hopes of consolidating the functions of the Securities and Exchange Commission, the Commodity Futures Trading Commission, and establishing how U.S. regulations will treat the cryptocurrency industry. To that end, Democrats proposed certain rules around decentralized finance (DeFi) that were quickly and loudly opposed by members of the crypto industry.
Why is it important
The industry is still waiting to see what kind of market structure legislation finally comes out of Congress. The senators’ negotiations appear to have turned ugly, at least publicly, according to reports this week.
breaking it
Some Senate Democrats crafted a proposal to regulate decentralized finance (DeFi), essentially requiring that any project that works with customers from the start must register with a federal regulator and be treated as a broker. Any DeFi project that is not geared toward revenue generation would be “sufficiently decentralized” and therefore not subject to regulatory oversight.
It also contains a provision that would say that developers have no legal responsibility for how their open source projects are used, as long as they do not benefit from the technology.
The crypto industry was not enthusiastic about this proposal. Executives, lawyers and lobbyists argued that the proposal would harm the DeFi segment of the cryptocurrency industry, and they immediately rejected it.
The proposed regulations for DeFi, which were first reported by Punchbowl News and Politico, apparently mark another point of contention between Republicans and Democrats working on the bill. According to Politico, the parties appear far apart, with Senate Banking Committee Chairman Tim Scott pushing for Democrats to agree to a margin hearing before continuing to negotiate the text and Democrats wanting more input on the actual text of the legislation.
As a reminder, any market structure bill will need bipartisan support to pass the Senate, and last month a group of 12 Democrats most likely to vote for the bill presented a list of priorities they want to see before supporting the legislation.
It is possible that the DeFi proposition is stronger than necessary as a trading tactic and could be diluted.
A markup had originally been tentatively scheduled for September 30, and was pushed back late last month to October 20, but it appears this date may also be in doubt.
Several people I spoke to this week say they are more pessimistic that the market structure legislation can pass before the spring, pointing to both the current government shutdown and the lack of visible movement from lawmakers drafting the bill.
As CoinDesk reported last week, while the shutdown is not a good sign for market structure negotiations, there is still time before the industry really needs to worry about whether this bill will be implemented in 2025 or not.
Wednesday
Thursday
- Day 2 of DC Fintech Week (I’ll be moderating a panel – say hello if you’re there!)
- PGP DC Privacy Summit
If you have any ideas or questions about what I should discuss next week or any other feedback you would like to share, feel free to email me at [email protected] or find me on Bluesky @nikhileshde.bsky.social.
You can also join the group conversation on Telegram.
See you next week!
