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 ICO 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 all were. 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.
• Something like SKY (formerly MakerDAO's MKR), which serves as an economic backstop for the Sky Network stablecoin and lending protocol, would probably also be seen as intrinsic to that system.

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.

💭 Brady's 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.
• While there will assuredly be setbacks through the early fall, look for the president to get something to sign by the end of September, just like he got GENIUS.

When we talk about "regulation," we usually think of officials going in somewhere, and, for example, making sure a restaurant is clean; that is, setting parameters for what someone can or can't do.

The big picture: But regulation in the investment industry is focused more on disclosure, making sure potential or current investors have all the information they need.

• In other words, it's not about delineating what an entrepreneur can do, but just making sure they aren't hiding anything material from backers.

Zoom in: The Senate's version of market structure (and the House bill has similar language) outlines the disclosures required from organizations that issue so-called "ancillary assets" — tokens that are expected to eventually trade freely.

• It wants information on business processes like who runs the company, what's its game plan and how much money it has to execute.
• It requires disclosures for people who own more than 10% of the asset's supply. And it demands information on how the asset is used to compensate others — such as promoters or business partners — to grow the system or enhance its value.
• It also asks for a lot of details about the economy around a given token, such as its total supply, competitors and characteristics of the market it sits in.

These reports have to be made twice a year, until the asset graduates out of full SEC purview.

• So law firms shouldn't worry. They are still going to have plenty of work to do under this regime.

The intrigue: The House bill also includes a study provision (Section 506) to figure out what regular people need to know about these assets to make informed investment decisions.

🍬 Some things to keep in mind if you are tempted by altcoin season. (Axios)

🦹‍♂️ Cyber criminals are using the names of abandoned DeFi projects to trick people into turning their money over to them. (DL News)

👴 Another old wallet wakes up and moves a few hundred million in bitcoin. (The Block)

Federal prosecutors are expected to rest their case against Tornado Cash co-founder Roman Storm in Manhattan this week.

• If ever there has been a criminal cause célèbre in the blockchain industry, it's this one.

The big picture: The U.S. government sees Tornado Cash as a line in the sand over its ability to monitor the flow of funds as a means to stymie organized crime and terrorism financing.

• Open source developers see the project as a line in the sand over their right to create code, independent of how other people choose to use it.

The latest: The government — which charged Storm in 2023 over money laundering, operating an unlicensed money-transmitting business and U.S. sanctions violations — sought to prove that the funds from a pig-butchering case they highlighted flowed to Tornado Cash.

• The agent on the stand testified that he used the "last in, first out" accounting method.

Yes, but: Blockchain forensics experts dispute that the funds trace to Tornado Cash.

Between the lines: Accounting can be philosophically mind-bending in a criminal case.

• Think of it like this: Imagine you just poured a glass of water into a bucket of water.
• Then you pour out a little bit of the water from the bucket to the ground.
• Did you just pour out the water from the glass? Or did you pour out water that had already been in the bucket?

What we're watching: We'll expect the defense to call some of those blockchain experts to the stand, but the threat of a mistrial seems to have been averted.

The intrigue: Another witness for the government, Philip Werlau, of analytics firm AnChain.AI, testified that it would have been feasible for Tornado Cash to update its code to incorporate more anti-money laundering protections.

• It would have required a vote by token holders, though.

The bottom line: A crucial phase of this case is coming to its end.

• The defense will make its case soon.