The Breakdown - The Senate's Surprising Market Structure Bill

Episode Date: July 24, 2025

In today’s episode, NLW breaks down the newly released Senate draft of the crypto market structure bill—a shockingly slim but significant proposal that could redefine how digital assets are treated in U.S. law. From developer protections to a clean new definition of digital assets and a crypto-native disclosure regime, the Senate's version takes a very different approach than the House’s Clarity Act. NLW explores the bill’s core provisions, the implications for open-source developers, investor protections, and whether tokens are securities. He also covers reactions from legal experts, the next steps in Congress, and what the bill could mean for crypto’s regulatory future. Plus, JPMorgan’s move toward crypto-backed loans and Coinbase’s launch of regulated perpetual futures for U.S. traders. Brought to you by: Grayscale offers more than 20 different crypto investment products. Explore the full suite at grayscale.com. Invest in your share of the future. Investing involves risk and possible loss of principal. To learn more, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Grayscale.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ -- ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.grayscale.com//?utm_source=blockworks&utm_medium=paid-other&utm_campaign=brand&utm_id=&utm_term=&utm_content=audio-thebreakdown)⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ 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, July 23rd, and today we are talking about the market structure bill, the hugely important, I will say, 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 at the show notes or go to bit.ly slash breakdown pod. All right, friends, more DC shenanigans today. The Senate has released their discussion draft for the market structure bill, and frankly, it's surprisingly slim.

In the whirlwind of Crypto Week and the signing of the Genius Act, it got a little bit buried that the House had also passed the Clarity Act. The vote was also very bipartisan, 294 to 134. That forces the Senate to take the bill seriously and get moving on their counterpart bill. Now, traditionally, the way lawmaking works in Congress is that the House can pass whatever they want, and then the Senate will usually put their bills directly into the trash can. Final drafting typically happens in the Senate and then gets handed down to the House for a rubber stamp. Occasionally, there's a back and forth, but that usually means a bill is going nowhere due to the disagreement.

Some lawmakers even referenced this dynamic around the crypto bills with Warren Davidson mentioning last week. The House is kind of used to not really being given any difference when we send things to the Senate. I'm going in here to see what we can do from here. In that context, the Senate's draft companion bill is unusually brief. It weighs in at just 35 pages compared to the 236 of the Clarity Act. That doesn't mean, however, that it's absent of content. To the contrary, the Senate version of the bill adds some very important parts that were missing from the House version.

Most notably, it integrates developer protections contained in the Blockchain Regulatory Certainty Act, namely that open source developers are exempt from money transmission laws. That prevents things like KYC AML compliance and criminal liability attacks. to developers who just publish their code to the blockchain. This protection has been coin center's top priority in Congress and will give developers a clear safe harbor in the future so they can't be prosecuted just for writing code. Aside from that, the discussion draft hits the reset button on the security's definition of tokens. Rather than having a complicated system describing how a decentralized token can turn into a commodity, it simply defines a

digital asset as a representation of value on a blockchain. That definition excludes a tokenized representation of value that exists separate to a blockchain such as tokenized stocks. Paradigm VP of Regulatory Affairs, Justin Slaughter wrote, this is very straightforward and very clean. It's taking the idea that's been fought the most about, what are tokens at base, if not securities, and saying these are not securities. It's the equivalent of Alexander slicing through the Gordian not with his sword.

It's workable. The definition deals with the securities issue implicitly. Putting a traditional asset on the blockchain doesn't make it a non-security. But newly issued crypto tokens start off as their own thing. referred to as an ancillary asset. The sale of the tokens can have an investment contract attached, which is a regulated securities transaction. But unless the token itself represents a debt or equity interest in some corporate entity, it typically won't be a security. As Slaughter said, this is a very clean approach that would functionally codify the ripple decision into law.

Tokens generally aren't securities themselves, but the method of sales surrounding them can imply certain parts of the securities law. The bill leaves the finer points to SEC regulations, but it cements the idea that crypto tokens are a new and different type of assets as compared to stocks and bonds. The draft also sketches out a disclosure regime for issuing these ancillary assets. Any crypto that sells more than $5 million in an ICO or does more than $5 million daily spot market volume has to make SEC disclosures. So essentially every crypto token of note. The disclosures are custom built for crypto and include the basics like tokenomics, network functionality, and governance mechanisms. However, the disclosures also include prior experience

and token releases from the issuer, future plans for the token, asset and liability statement of the issuer, current legal proceedings against the issuer, list of related party transactions, list of previous sales over the past four years, and a statement of good faith from the company's CFO that the issuer has enough resources to operate the underlying business for 12 months. Essentially, the disclosure regime brings a lot of the insider games played in the crypto industry into the sunlight. Asset issuers can escape disclosure requirements by certifying that they're no longer participating in entrepreneurial or managerial efforts that helped determine the value of the token over the course of the past 12 months. The SEC can object to this certification, but if the token

issuer fails, the token doesn't become a security. This is probably the biggest difference between the two bills. Conceptually, the House bill is trying to define how a crypto token transitions from being a security to a commodity. The Senate bill scraps that concept, and instead it recognizes that crypto tokens are their own thing and defines a disclosure regime that makes sense for this new type of asset. There are many further details, which you can read in Justin Slaughter's or other people's threads, but the broad strokes is that this is a slim-down version of market structure. It doesn't give the SEC free reign, but it is less comprehensive than the Clarity Act, so a lot of details are left to the regulators. Slaughter summited up by saying, overall, it's a good bill, especially if your

primary complaint about clarity was the lack of SEC disclosures. The biggest issue with the bill is that it's missing the other half, the CFTC regulations. For that, we have to wait for an Agriculture committee discussion draft. I do think the clean rubric for digital assets via the ancillary asset section is a better, more workable approach than the maturity test of clarity. Above all else, this law has to be workable and simpler and cleaner is a better approach than anything complex. Only the lawyers benefit from complexity ultimately. Not everyone, however, is in support of this different approach. Crypto lawyer Gabriel Shapiro wrote, still exploring, but so far not very encouraged by the Senate's proposal on crypto market

structure. Rights are not a good policy dividing line as everything you can do. with rights and duties I can do with incentives and powers. Crypto has taught us this. Shapiro is pointing to the idea that stocks give a right to the profits of the company, while crypto tokens merely give an expectation of rewards based on tokenomics. He continued, something should not be regulated based on whether there is a right to a dividend. There may be a reasonable expectation of something almost exactly like a dividend, which places the expector in the exact same position from a policy perspective as someone who has a right. In fact, it places them in an even more vulnerable position than the person with a right, and therefore more in need of

protection, not less. That is the entire reason why the Howey test is built around reasonable expectations rather than rights. Things should be regulated based on the trust assumptions. If trust is mitigated by factors other than law and regulation, like the technological design of a system and how it's governed, then there is no need for law and regulation. Otherwise, there is. Now, this is certainly a valid critique. But there is a comprehensive disclosure regime introduced in this bill. Token holders still won't get anything analogous to shareholder rights, but I think it's probably too far to say that this bill, as written, would be a regulatory free pass to token issuers. Ultimately, the argument is probably about whether

the proposed disclosure regime gives enough investor protections or if tokens should be mostly dealt with by securities law, essentially whether the Howie Rule should be reformed to make room for crypto as an entirely new type of asset. Today's episode of The Breakdown is brought to you exclusively by Grayscale. Grayscale is almost certainly a name you know. They've been offering exposure to crypto for over a decade now and offer over 20 different crypto investment products ranging from single asset to diversified to thematic exposure to crypto and the broader crypto industry. They have long been innovators at the intersection of tradfi and crypto, and one of the benefits for a lot of us is that grayscale products are available right through your existing

brokerage or IRA. Now, of course, investing involves risk, including possible loss of principle. For more information and important disclosures, visit grayscale. Grayscale.com. Go to grayscale.com to explore their full suite of crypto investment products and invest in your share of the future. There are tradeoffs between the two market structure bills, but now one of the big questions will be how they get integrated. The Senate bill seems to build on the Lummis Gillibrand Responsible Financial Innovation Act proposal from 2022. The core components are incompatible with the House bill, which was the product of multiple years of bipartisan negotiations. Senate Banking Committee Chairman Tim Scott has said he's been working closely with House leadership on this legislation since the

beginning of the year, so it's interesting to see his name at the top of this discussion draft alongside Senator Lummis. Scott told the press, I'm grateful for the hard work of our House counterparts to craft smart bipartisan legislation, and I look forward to building on their work here in the Senate. Now, functionally, there is still a long way to go before this draft can come to a vote. We presumably have the other half of the bill to come from the Senate Ag Committee, dealing with the crypto commodities and the role of the CFTC. After that, we have the committee markup process. We'll then hopefully see a final bill come to a vote and get punted back to the House for a full. final rubber stamp. One big question will be whether the Senate is looking to override the House

or if this is just a trial balloon to see if there's support for a different approach. Right now, it seems to me that most lawmakers aren't all that attached to a particular form of a market structure bill. Instead, there's sort of just voting up or down on crypto regulation in general. And in that context, it's interesting to have two competing bills with different underlying philosophies and methods about crypto regulation. It is probably too much to ask for a rigorous debate around these approaches in Congress, but having two different bills on the docket allows the industry to discuss the tradeoffs and decide which makes the most sense. The issue, of course, is that the clock is ticking. A strong bipartisan vote in the House last week

was a good indicator that a market structure bill of some form can make it through Congress. The problem will come if revisions and debate slow momentum and ultimately make it impossible to get Democrat support in the Senate. For now, though, that's still getting a little ahead of the game. Momentum at the moment seems strong and senators are moving quickly to get their version of the bill together. Alongside the discussion draft, the sponsors have put out a request for input on more than 35 topics. So if you work in crypto policy or simply have strong views on how to go about regulation, it's time to get your submission in. Kara Calvert, the head of U.S. policy at Coinbase wrote, I know I sound like a broken record, but passing market structure legislation is the best way to

unlock innovation across the country and ensure consistent consumer protections for Americans no matter where they live. Now, that is by far the most interesting thing to me that's going on, but there were a couple market stories as well that are worth a mention before we get out of here. The first is that J.P. Morgan Chase is looking into crypto-backed loans as the latest sign that banks are rushing to integrate crypto. The Financial Times reports that JPMorgan may start lending directly against crypto, including Bitcoin and Ether, as soon as next year. Four went out for Jamie Diamond, who for more than a decade has been saying that Bitcoin is fraud, that's only useful in criminal enterprise. Soon his bank will be accepting Bitcoin as valuable collateral,

so he better hope his prediction that it will eventually blow up doesn't come true. jokes aside, the FT source noted that Diamond's aggressive comments against Bitcoin have become an increasingly large problem for the bank as the asset class matures. They wrote, Diamond's early comments about Bitcoin in which he also said that he would fire any trader who traded it, had alienated some prospective clients who had either made their money through crypto assets or were long-term believers in their potential. That was apparently the driver behind Diamond softening his tone this year. Basically, Bitcoin wealth is starting to become too big to ignore for America's largest bank. Now, when it comes to the potential impact of J.P. Morgan

writing loans against Bitcoin, it could obviously be gigantic. If Bitcoin is accepted as valid collateral at JPMorgan, that would be a cultural and policy change that would quickly ripple through the rest of the financial industry. BFT noted that there are a lot of technical issues to sort out before crypto lending could go live. Primarily, they asked how Bitcoin could be seized during a loan default, given that JPMorgan is probably going to outsource their custody. Then again, seems like a pretty low technical hurdle, given that every major crypto exchange figured out how to seize collateral a decade ago. Bitcoin historian Pete Rizzo stated the obvious posting, Bitcoin taking over Wall Street. It's happening. Lastly, Coinbase has launched perpetual futures for U.S. traders.

The exchange wrote, for years, U.S. crypto traders have looked on as their international counterparts utilized one of the most popular tools in the digital asset marketplace, perpetual futures. Due to a complex regulatory landscape, they remained just out of reach for traders in the U.S. until now. The platform is live with contracts for Bitcoin and Ethereum. Traders can access 10x leverage, which is frankly surprisingly high for a regulated retail-facing product. The announcement also suggested perps for gold and silver would soon become available for U.S. traders with up to 20x leverage.

Now, some feel that perps are the most important innovation from the crypto industry aside from Bitcoin. They allow derivatives trading without the issuance of contract expiry, removing the time element inherent in futures and options contracts. Instead, perps represent a way to express an immediate view on price movements. TradFi has experimented with a slightly different approach to this problem by pushing zero data to X-free options. Zero DTE options are wildly popular among retail, but they have the issue of expiring worthless more than half the time. Perps instead track the value of the underlying asset, so don't suffer from the same problem of going to zero if the target price level doesn't hit.

Importantly, much of the negative sentiment around perps is really just about the leverage that crypto venues have historically allowed. 10x leverage is pretty intense for a retail product, but crypto exchanges used to offer 100x leverage routinely. In addition to bringing regulated perps to the U.S., Coinbase has also partnered with PNC Bank to offer crypto services to their customers. In addition, PNC will provide selected banking services to the exchange. The companies frame the deal as a way to pair PNC's compliance and distribution footprint with Coinbase's crypto-native infrastructure. PNC is currently the eighth largest bank in the U.S.

One of the things to watch as major banks start adding crypto and stablecoins to their platforms is the choice between building their own stack and partnering with a crypto incumbent. PNC CEO William Demchak said, partnering with Coinbase accelerates our ability to bring innovative crypto financial solutions to our clients. And that's really the choice. Banks can partner to accelerate their crypto offerings and have some hope of coming to market this year, or they can elect to build their own from a standing start, maybe getting a product to market in a year or two's time if they're lucky. As CNBC put it, banking executives now face a choice, partner with Coinbase or try to compete,

and risk that their clients move to competitors and take their deposits with them. Super interesting times. That is where we will wrap today. Appreciate you listening as always, and until next time, be safe and take care of each other. Peace.