The Breakdown - Senate Democrats Unveil Competing Crypto Market Structure Bill

Episode Date: September 11, 2025

Senate Democrats have introduced their own framework for crypto market structure, setting up negotiations with Republicans and potentially clearing the way for bipartisan legislation. The proposal gives the CFTC new powers, pushes for exchange registration under the Bank Secrecy Act, flags DeFi for potential oversight, and seeks to ban stablecoin interest. It also takes political aim at Trump-era crypto projects and calls for stronger ethics rules. With both parties now at the table, the next few months could finally bring real progress on U.S. digital asset legislation, even as TradFi and crypto players race ahead with their own market structure experiments. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/@TheBreakdownBW Subscribe to the newsletter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://blockworks.co/newsletter/thebreakdown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownBW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Wednesday, September 10th, and today we are talking about the latest iteration of the market structure bill. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, Senate Democrats have unveiled their competing market structure framework. The Senate market structure bill is expected to be up for debate in the banking committee later this month, and Republicans led by Cynthia Lummis put forward their framework several months ago and published a full draft bill last week.

In a Tuesday notice, 12 Democrat senators wrote, We owe it to the millions of Americans who participate in this market to create clear rules of the road that protect consumers and safeguard our markets. We must also ensure that digital assets are not used to finance illicit activities or to line the pockets of politicians and their families. The list of participants is worth noting. The alternate framework is being put forward by Democrat senators including Ruben Gallego, Mark Warner, Kirsten Gillibrand, and Corey Booker. For lack of a better term, this is the pro-crypto coalition within the Democratic Party. Notably, absent from the proposal are Banking Committee ranking member Elizabeth Warren and Senate leader Chuck Schumer. The group of 12 includes several members of the Senate Banking Committee,

so they could form a viable group to negotiate a compromise. Presumably, this is also the group the Banking Committee Chairman Tim Scott referenced last month when he said that he has between 12 and 18 Democrats at least open to voting for market structure. Scott had mentioned that what he really needed was a group of Democrats to break ranks with Warren and signal their willingness to move a bill forward. That political chess game was generally more important than the actual contents of the counterproposal. Until now, Republicans were at an impasse and didn't have a hope of moving a bill forward. They needed a coherent group to compromise with if they wanted to make any progress at all. Now that that main blocker is cleared, we can analyze the gaps between the two approaches.

and see where the law is likely to end up. The core of the proposal remains the same. The Democrat group are satisfied with the concept of giving the CFTC new powers over the spot marketing commodity tokens, as well as developing a new process for determining which tokens are securities. This is the approach taken by the House bill, which Senator Lummis has said will likely become the core of the Senate version as well. The Democrat framework has several key differences. They note that crypto platforms should be forced to register with FinCEN as financial institutions, that would force exchanges, custodians, and other intermediaries to comply with the Bank Secrecy Act and anti-money laundering provisions. The framework flags Defi as a key vector for illicit

finance and calls for new oversight tools to prevent its misuse. It's not entirely clear if Democrats will go all the way and push for registration, KYC, and other compliance rules in Defi, which has been a major point of contention for years. But that is certainly a live issue based on this proposal. Democrats are also pushing for a prohibition on stable coin interest. The proposal would close loopholes that allow interest to be paid indirectly as rewards or provided through affiliates. This has been the big ask from the banking lobby. Senator Lummis has also flagged that amendments were not allowed in the Genius Act, so they were being considered as part of the market structure negotiation. There is a politically charged section on business ethics. Democrats are asking for a prohibition

on elected officials and their families launching or profiting from crypto projects while in office and mandating disclosure of their holdings. The framework alleges that President Trump, quote, turn to digital asset projects to enrich himself and his family, abusing his office for corruption with no modern precedent. Now, it's not clear that Congress can actually bind the president's business activities under the Constitution, so the proposal might fall short of its very clear target. In addition, the framework called for increased funding for financial regulators, as well as a guarantee of bipartisan representation in rulemaking. Currently, both the SECC and the CFTC are lacking Democrat members on the committee. There's been some suggestion the administration might simply

leave these seats open and refuse to appoint any Democrats. Now, with the Democrat framework on the record, negotiations can begin in earnest. One thing to note is that a great deal of horse trading is about to take place. Some of the Democrat proposals aren't necessarily where they hope to end up, but merely an opening gambit that can be negotiated down. Writing for Bitcoin magazine, Frank Corva gave the example of Defi compliance as one section which seems too onerous and too vaguely written. He commented, if Democrats are looking to engage in Bitcoin and crypto regulation in good faith,

they should be more specific about their intentions and include further details about how they plan to combat illicit finance while still preserving user privacy. Still, overall, most are taking this as a promising development. Senator Lummis thanked her colleagues across the aisle for coming to the table with a counterproposal, adding, Meaningful legislation takes intentional collaboration and discussion. This is a strong start, and I look forward to working together to secure America's financial future. Tim Hight, the head of policy at Exodus Wallet tweeted,

this is encouraging. It's clear that a lot of thought and coordination went into this framework, and hopefully it leads to good legislation. It is particularly welcoming to see a call for legislation to be, quote, guided by the values that have helped make the U.S. markets the strongest, most transparent, and most liquid in the world, including, quote, protecting financial privacy while denying bad actors access to the financial system. That said, I can't remember the last time legislation was passed that preserved or enhanced financial privacy. Maybe this time will be different. Remarking on the contents, Justin Slaughter, the VP of Regulatory Affairs, I Paradigm commented, these are strong principles. For the first time, I can see a path to bipartisan market structure legislation on crypto-pastroids.

passing the Senate. Also, Dems are smart to insist on requiring nomination, confirmation, and no arbitrary firings of CFTC and SEC Commissioners as part of the deal. Longtime crypto critic Todd Phillips tweeted, This is a very, very good start for a Democratic alternative to clarity or the Senate-R's discussion draft. It shows Dems want to play ball on market structure legislation without giving away the store. Basically, so far, it looks like a reasonable starting point that everyone can work from. A lot of work remains to be done, and congressional negotiations are always anything but smooth, but it's nice, if nothing else to see that Elizabeth Warren hasn't yet been able to stymie the process entirely. Now, while Democrats are finally coming to the table on market structure, the financial industry

is not waiting for legislation. Over the past six months, regulators have moved forward with a broad range of exemptions that allow crypto products to be offered in ways that weren't previously allowed. In a way, this approach has changed the negotiation position on market structure. If the Democrats fail to come to an agreement, the status quo is no longer that crypto is a gray market kept away from the financial system. Instead, financial institutions are starting to impose their own view of prudent market structure with the tacit approval of a permissive regulator. One of the big changes is the arrival of regulated perps. CBOE global markets has announced plans to introduce what they're calling continuous futures for Bitcoin and Ethereum.

They said in a statement, these contracts will be cash settled and aligned to real-time spot market prices through daily cash adjustments using a transparent and replicable funding rate methodology. The products will begin trading on November 10th pending regulator review. However, the CFTC has already indicated they're open to perps trading in the U.S. so that shouldn't be a major barrier. CBOE's Global Head of Derivatives, Catherine Clay commented, perpetual-style futures have gained strong adoption in offshore markets. Now CBOE is bringing the same utility to our U.S. regulated futures exchange and enabling U.S. traders to access these products with confidence in a trusted, transparent, and intermediated environment. She indicated that

these products will not just be targeted at institutional traders, but that the product would also appeal to a, quote, growing segment of retail traders seeking access to crypto derivatives. Coinbase and several other venues are already launching regulated perps for the U.S. market, but the CBOE will offer the product to an entirely different cohort of tradfied traders. Staying in exchange land, U.S. Stock Exchange NASDAQ is reportedly looking at making a strategic investment in Gemini. Reuters reports that NASDAQ has arranged to purchase 50 million in shares through Gemini's forthcoming IPO.

The investment is reportedly part of a strategic partnership that will allow NASDAQ to integrate Gemini's custody and staking. Gemini's institutional clients will also be able to use NASDAQ's platform to manage and track collateral. On Monday, NASDAQ announced plans to offer tokenized securities within the same order book as traditional electronic stocks. So this partnership could integrate crypto rails much more closely with traditional stock trading. The move could also prepare NASDAQ for being able to offer spot crypto trading. Last week, the SEC and the CFTC issued joint guidance, which stated that, quote, current law does not prohibit SEC or CFTC registered exchanges from facilitating

trading of these spot crypto asset products. None of the large traditional trading venues have taken advantage of the new guidance to date, but this partnership could allow. NASDAQ to list spot crypto markets much faster using Gemini's established infrastructure. Jamie Coutts the chief crypto analyst at Real Vision tweeted, NASDAQ investing in Gemini is just the start. Most global exchanges are fighting for relevance. Back of the envelope estimates show the combined revenues of centralized and decentralized crypto exchanges already rival trad-fi exchanges. Everything is moving on chain. Now, while spot crypto markets and tokenized stocks could be coming to stock exchanges soon,

the ETF markets are entering a full-blown alt season. Rex shares has announced they will debut a Dogecoin ETF on Thursday. Similar to their Solana ETF, the product uses a loophole in SEC rules to list the product directly without going through the usual regulatory approval process. Essentially, rec shares have established a listed shell company that will acquire Dogecoin rather than using the more typical trust structure. Fees associated with the structure are higher, but it allows Rex to skip the line and enter the market immediately. Bloomberg ETF analyst Eric Belcunis was amused, tweeting, memecoin ETF are about to kick off. It looks like pretty sure this is the first ever US ETF to hold something that has no utility on purpose. He also noted that there's still a gigantic

list of asset managers waiting on SEC approval for rival products. Their fate, however, is a little up in the air, as the SEC has continuously pushed back launch dates. The latest news is that all coin ETF applications from Bitwise and Greyscale have been delayed until November. There are over 90 products waiting in line. The SEC hasn't signaled when or if approvals will be forthcoming. The best guess at the moment is that the SEC is working on a generic listing standard that can be applied automatically to all applications. Some have suggested that market cap and liquidity standards could be codified, allowing for tokens in the top 10 or 20 to go live in a self-certified ETF wrapper. This is the general approach for most stock ETFs, even including some of the risky

leveraged and inverse products. Although some of their products were delayed on Tuesday, Grayscale filed a pile of new documents suggesting they're making progress with regulators. The asset manager updated their S-1 prospectus documents for Bitcoin Cash, Hedera, and like-coin Netifs. The filing stated, this prospectus has been prepared on the basis that the 19B4 application has been approved by the SEC or the SEC has otherwise approved generic listing standards, which would permit the listing of the trust shares on NYSE ARCA. This is either then a sign that approval is imminent or Grayscale trying to get all of their documents in line for whenever that day comes. Now, it's not just the Trad V players pushing forward with their own vision of market structure.

Coinbase has made another big acquisition in advance of their everything exchange vision. Coinbase has aqua-hire the two founders of yield-earning platform Sensible. This is Coinbase's seventh acquisition or aqua-hire so far this year, their most aggressive deal-making year ever. In a statement, Coinbase said, the pair bring unique expertise in building Defi-powered consumer applications and will lead key teams shaping our on-chain consumer strategy. Ombording more users to the on-chain economy requires simplifying access to Defi, and the team's experience will help strip complexities, elevate use cases, and make crypto that

much easier for our users. Sensible will shudder in October, but the founder will be a founder of the founder of the founder of intend to keep building similar products within Coinbase's ecosystem. Outlining their overall vision, Coinbase commented, at Coinbase, we believe the future of finance is on-chain. Our vision is clear. To make Coinbase and everything exchange, the gateway to a thriving on-chain economy, and the best place to grow your money and manage everyday finances. So, the Democrats are coming to the table, and it looks like we'll get a lively debate on market structure in Washington over the coming months. Meanwhile, TradFi and crypto companies are racing to take advantage of regulatory

carveouts and establish the market structure they want to see. Legislation will help cement these markets, but no one is waiting on Congress to give the stamp of approval. It seems in other words that the summer lull is over and everyone is ready to launch this fall. That's going to do it for today's breakdown. Appreciate you listening, as always, and until next time, be safe and take care of each other. Peace.