The path to clear cryptocurrency regulation in the United States just hit another legislative traffic jam. Ahead of a highly anticipated Thursday markup session, members of the US Senate Banking Committee have flooded the floor with over 100 proposed amendments to a landmark digital asset market structure bill. Politico has released an extensive list of proposals, many of which are being pushed for change by Democratic lawmakers, while Republicans are mostly looking for technical changes only. The sheer number of proposals in this case is indicative of some of the many complex issues lawmakers will have to deal with in order to get legislation passed by the Senate in its entirety.
The Fight Over Stablecoin Yields
One of the most fiercely debated provisions in the CLARITY Act, which originally passed the House in July, involves how stablecoins are managed and marketed. For months, banking and crypto lobbyists have been gridlocked over restrictions preventing third-party platforms, such as crypto exchanges, from offering interest-like yields on stablecoins. The current draft bans platforms from offering returns that are “functionally equivalent” to traditional bank deposits. Democratic Senators Jack Reed and Tina Smith disagree with this terminology and want to modify the measure through a stricter amendment that will include a new test for “substantially similar,” as they believe the current wording allows for a loophole for companies operating in cryptocurrency to avoid traditional banking regulation requirements.
Pushing for Stricter Ethical Boundaries
There are ongoing ethical issues that continue to cause hesitation for policymakers regarding the increasing political power of the cryptocurrency industry. One solution proposed by Senator Chris Van Hollen (D-MD) is an ethics amendment to limit how many of our leaders (President, V.P., senior federal officials, members of Congress, and their spouses/children) can possess or promote cryptocurrencies or own businesses connected to cryptocurrencies. The primary reasoning behind this proposal is to ensure that politicians cannot benefit monetarily from the very regulations they create pertaining to digital currencies.
Securing Safe Harbors for Code Creators
While certain amendments aim to limit the industry, others try to safeguard the technical innovators laying its groundwork. Senator Catherine Cortez Masto (D-Nev.) sponsors a critical amendment which will protect independent software developers. This amendment creates a legal safe harbor for coders and infrastructure providers, preventing them from facing criminal liability for not registering as money transmitters (so long as they don’t have direct control over or custody of consumer funds). Widespread support for the amendment has been received from crypto advocacy groups, as they argue that punishing developers solely for writing open source code would greatly hinder technological advancement within the United States.
Bringing Back Federal Enforcement
Security and regulatory oversight continue to be at the forefront of the amendment process. As the need for special law enforcement in this digital age continues to become recognized, a new legislative amendment has been introduced by State Senator Andy Kim (D) regarding the restoration of the National Cryptocurrency Enforcement Team which had been previously established by the U.S. Department of Justice (DOJ). This special unit was created to investigate the complex illicit financial networks and cybercrimes that exist within the Blockchain ecosystem and has since been dismantled in April of last year. Re-establishing this unit is considered by many as essential in assuring the integrity of our markets.
Navigating a Divided Senate
The markup deadline approaches quickly for the committee, presenting them with a fine line to walk to reach a successful agreement. Earlier this month, the Senate Banking Committee delayed a similar markup until further discussions could take place due to a lack of support from major industry participants (for example, Coinbase) who have subsequently opted out of supporting these types of initiatives at this time. Currently, the Republicans control both the Senate Banking Committee and the Senate in general; however, there are no guarantees that they will be able to pass the bill. There have been indications from prominent Republican leadership that they will not vote in favor of standing with the committee unless certain conditions are met. In addition, to avoid the threats associated with a possible filibuster and move the bill forward, the Republicans will need to obtain a total of three-fifths of the vote (60 total votes) to successfully pass the bill by bringing Democratic members on board with them to do so.
