On crypto market structure, the Senate keeps it simple
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Illustration: Annelise Capossela/Axios
The Senate has circulated a draft of its version of market structure legislation, and it is markedly different than what the House offered — largely because there is so much less there.
Why it matters: These two versions need to become one, setting up a clash of regulatory philosophies and strategic priorities — the House's broad framework that goes heavy on the details, or the Senate's that seems more designed to get passed.
The big picture: Since the initial coin offering frenzy of 2017, the lingering question has been: Which blockchain assets count as securities, and which don't?
- This is important, because securities that haven't been approved for trading on public markets have hefty limitations on who can hold them and how they can change hands.
- For a long time, the nation's securities regulator felt they were all securities. The crypto industry disagreed, and the courts turned out to be divided on the point.
- Now Congress is stepping in.
Zoom in: The House and Senate bills both start by declaring that certain digital assets will always be treated as securities. But both provide a path for other coins to shed those restrictions.
- They use different terminology, but they both seek to make clear that if a coin mainly exists to use and keep running some blockchain protocol, then it's not, on its own, something for the SEC to deal with.
Case in point: Ether and bitcoin are what keep the Ethereum and Bitcoin protocols running. They offer financial rewards that motivate a distributed array of unrelated people to keep the systems operational.
Both bills require certification for a new token with the SEC, making clear — with evidence — that the projects have made something that doesn't fit under a securities rubric.
- Regulators can object, and then a back and forth can begin. If they don't, the asset graduates out of the agency's purview.
Reality check: The House bill gets in the weeds on some things, though.
- For example, it has definitions for "decentralized finance messaging systems," "decentralized finance trading protocol" and "associated person of a digital commodity broker."
- The Senate's bill cedes many of those details to regulators, leaving them to work out needed details later when it writes specific rules.
My thought bubble: It might change a lot, but it would make sense for CLARITY, the House bill, to remain the vehicle for final passage — that way the House can say it did a bill and the Senate can say it did one.
- And, honestly, these two versions of market structure don't look that difficult to harmonize.
