Negotiations among U.S. lawmakers over market structure legislation appear to be ongoing, but contentious.
You’re reading State of Crypto, a CoinDesk newsletter that examines the intersection of cryptocurrency and government. Click here to subscribe to future editions.
The story
Policy work around digital assets appears to be in limbo as the US government shutdown enters its second week. There are signs that lawmakers are continuing to work out the details of market structure legislation, something the industry desperately wants in hopes of solidifying the roles of the Securities and Exchange Commission and the Commodity Futures Trading Commission and establishing how the crypto industry will be treated by U.S. regulation. To that end, Democrats have proposed some rules regarding decentralized finance (DeFi) that members of the crypto industry quickly and loudly opposed.
Why it matters
The industry is still waiting to see what type of market structure legislation will ultimately be passed by Congress. Negotiations between senators appear to have gone bad — at least publicly — based on reporting this week.
Break it down
Some Senate Democrats have crafted a proposal to regulate decentralized finance (DeFi), essentially saying any project that operates with upstream clients would have to register with a federal regulator and be treated like a broker-dealer. Any DeFi project that is not geared towards generating revenue would be “sufficiently decentralized” and therefore not subject to regulatory oversight.
It also contains a provision that would state that developers have no legal responsibility for how their open source projects are used, as long as they do not profit from the technology.
The crypto industry has not been enthusiastic about this proposal. Executives, lawyers and lobbyists argued that the proposal would harm the DeFi segment of the crypto industry, immediately pushing back against it.
The proposed DeFi regulations, which were first reported by Punchbowl News and Politico, appear to mark another point of contention between Republicans and Democrats working on the bill. According to Politico, the parties appear to be far apart, with Senate Banking Committee Chairman Tim Scott pushing for Democrats to agree to a markup hearing before continuing to negotiate language, 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 came up with a list of priorities they want to see before supporting the legislation.
It is possible that the DeFi proposition is stronger than it should be as a trading tactic and could be watered down.
An increase had initially been tentatively scheduled for September 30 and was pushed back late last month to October 20, but it appears that this date may also be in doubt.
Several people I spoke with this week say they are more pessimistic that market structure legislation will pass before the spring, pointing to both the ongoing 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 or not this bill will pass in 2025.
Wednesday
THURSDAY
- DC Fintech Week, day 2 (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 comments you’d like to share, feel free to email me at nik@PK Press Club.com or find me on Bluesky @nikhileshde.bsky.social.
You can also join the group chat on Telegram.
See you next week!
