The Week

Congress

Senate Banking Hearing: The Senate Banking Committee held a hearing on market structure, covering regulatory clarity, critiques of the CLARITY Act, illicit finance, developer protections, and President Trump’s crypto ties. Next week, Senate market structure bill text may become public, and the Senate Agriculture Committee will host its own hearing on the oversight of digital commodities. Full summary of Senate Banking hearing in Pro.

House Rules Committee: Before major legislation reaches the House floor, the House Rules Committee generally meets to determine the terms of debate, including which amendments may receive votes. Yesterday, House Rules announced they will meet at 4pm on Monday, July 14 to consider the CLARITY Act, the GENIUS Act, the Anti-CBDC Surveillance State Act, and a defense appropriations bill.

CLARITY Act Amendments: Rules Committee requested that all proposed amendments to CLARITY be filed by this Wednesday (July 9) at 5pm. Amendments filed can be found here. While many are Democratic amendments similar to those offered during the HFSC markup, House Ag Chair Glenn Thompson (R-PA) and House Financial Services Chair French Hill (R-AR) filed a manager’s amendment making a few line edits. For example, it includes refinements to the list of DeFi activities exempted from the Commodity Exchange Act’s requirements. Full summary in Pro (including updated memo summarizing CLARITY in full).

GENIUS Act Amendments: The House is expected to pass a clean GENIUS Act (i.e., no amendments), which would send the bill directly the President. Notably, the latest text of the CLARITY Act (Section 512) includes amendments to GENIUS’s monthly reserve reporting requirements, prohibitions against non-financial company issuers, and adds protections for self-custody and issuing certain commodity-backed payment stablecoins. If the House passes CLARITY, the bill would head to the Senate, so these changes would not amend GENIUS unless and until approved by the Senate.

Senator Lummis Crypto Tax Bill: Last week, Senator Cynthia Lummis (R-WY) introduced crypto tax legislation covering de minimis exemptions for personal transactions, wash sales, lending agreements, mining and staking rewards, and charitable donations. Press release; Text. More detailed summary in Pro.

Promoting Resilient Supply Chains Act: Last week, the House received the Senate’s Promoting Resilient Supply Chains Act—a bill aimed at bolstering U.S. supply chain resiliency and securing American leadership in emerging technologies—after it passed the Senate by unanimous consent. The Senate bill is substantively similar to its companion, H.R. 2444, which the House passed by voice vote earlier this year.

Senate Confirms Gould to Head OCC: The Senate confirmed Jonathan Gould to become the next Comptroller of the Currency in a 50-45 vote. Previously, Gould was a partner at Jones Day, Chief Legal Officer at Bitfury, and Senior Deputy Comptroller and Chief Counsel at the OCC.

Admin

DeFi Broker Rule Officially Dead: Treasury officially removed the DeFi Broker Rule from the Code of Federal Regulations.

SEC Statements on ETPs & Tokenization: The SEC published guidance for crypto ETP disclosure requirements, while Commissioner Peirce reminded market participants to adhere to federal securities laws when transacting in tokenized securities.

Courts

Industry Amicus Brief: A coalition of crypto advocacy groups and companies filed an amicus brief in support of Michael Lewellen’s case challenging the DOJ’s interpretation of federal money transmission laws as applied to non-custodial software developers.

Tornado Cash: The Court of Appeals for the Eleventh Circuit granted a joint request to dismiss Coin Center’s appeal of OFAC’s sanctioning of Tornado Cash. Coin Center’s Peter Van Valkenburgh commented on the ruling in an X post: “This is the official end to our court battle over the statutory authority behind the TC sanctions. The government was not interested in moving forward and defending their dangerously overbroad interpretation of sanctions laws.”

Markets

• ​CoreWeave to acquire bitcoin miner Core Scientific in all stock deal (Blockworks).

• ​Truth Social filed S-1 for Crypto Blue Chip ETF tracking top assets (Cointelegraph).

Look Ahead

Crypto Week!

• ​House Rules Meeting - Monday, July 14 at 4PM ET.

• House floor votes on GENIUS, CLARITY, and the Anti-CBDC Surveillance State Act are expected later in the week.

Hearings

• Tuesday - 3pm: Senate Agriculture hearing on market structure: “Hearing to examine stakeholder perspectives on Federal oversight of digital commodities.”

• Wednesday - 9am: House Ways & Means hearing on crypto tax issues: “Making America the Crypto Capital of the World: Ensuring Digital Asset Policy Built for the 21st Century.”

Courts

Roman Storm’s criminal trial begins on Monday, July 14 in the Southern District of New York.

Trivia

This Week’s Q: Who was the longest-serving chairman of the House Rules Committee?

Thanks for reading and enjoy your weekend.

-GSL

Q & A

Intro & Background on Brogan Law

Q1: To start, what is Brogan Law and what motivated you to launch your own boutique firm focused on crypto and emerging technologies?

A1: First of all, thank you George for having me on. I’m a big fan of what you do here so it is an honor. Like you, I was in Big Law before I started my business. Started my career at Weil Gotshal and then I was the first hire into McDermott Will & Emery’s blockchain group. I did a lot of really interesting, high leverage legal work there for some of the largest entities in the cryptocurrency industry. But, as it goes, after a few years our group had grown and I wanted to do my own thing, so I left and started Brogan Law.

My thesis when I started the firm was that I could provide elite-quality legal services at half the price of BigLaw. Something I observed as a young lawyer was that small, inventive startups often had some of the most interesting legal problems, but the BigLaw system is not designed to serve them. I knew I could provide the highest quality work, so I thought it would be a compelling product. We’ve proven that thesis.

Q2: What’s been the biggest challenge in building your firm?

A2: When I started, I thought I was one of the best so-called “crypto lawyers” in the country, but nobody knew who I was. So I spent a huge amount of energy building brand reputation through writing and speaking. That got me clients, but then comes the problem of recruiting high quality attorneys to service those clients. I lead all my cases, but I can’t do it alone. Essentially, as the founder of a firm, you are the fuse sitting between two highly sophisticated, discerning groups of people. On one side, the founders and business owners who need legal services, and on the other, elite legal talent. And you have to bring these two groups together seamlessly and hold them together while either one, by virtue of their status, has a dozen other options they could choose. BigLaw gives you resources to manage this problem, but all I have is force of will, and it’s hard.

But the challenge is what makes it fun!

(By the way, if it is not clear, we’re hiring.)

Q3: What are some of the most common legal issues or pain points your crypto clients face?

A3: Every business is different. Even now, the law makes it difficult to operate a cryptocurrency business in the United States. I think the first points I would highlight is (i) many DeFi products face difficult paths to domestic legality, particularly to the extent their products are colorable as “derivatives.” Crypto people prefer the CFTC to the SEC as an industry regulator, but the CEA is unforgiving. This has been changing a little bit, you saw former CFTC commissioner Summer Mersinger talk about forging a path for crypto darling perpetual swaps (perps) before she joined the Blockchain Association. Since then, Acting Chair Caroline Pham has gone even further, saying that perps are already legal. Bitnomial actually self-certified a product of this kind in April, and Coinbase has announced its own. But the truth is, while perps may be breaking through, the paths to offer any derivative as an unregistered entity is extremely difficult, and will continue to be so going forward.

Second (ii), tokenization and RWAs have treacherous paths to domestic use. This is something we wrote an SEC comment letter on recently with our client Etherfuse. The big issue in the space is that tokenization platforms tend to meet the criteria of investment companies under the Investment Company Act of 1940, and that means they either must register (generally infeasible) or rely on a couple of exemptions that are highly limiting to selling these tokens domestically. There are other limits that tend to make these tokens illiquid on secondary markets as well. My view, this makes no sense. We should foster this market and modernize domestic capital markets, and that is why I do so much writing and policy advocacy on this issue. But the pending Clarity Act (“CLARITY”), if anything, will make this problem worse by creating “digital commodity exchanges” that exclude these assets, and I expect this to be a difficult issue going forward.

Q4: How interested are your clients in U.S. policy developments? Have you seen a shift in interest since the new Congress and Administration were sworn in? If so, how?

A4: My clients are all extremely interested in U.S. policy developments, because their business models are completely exposed to the laws of the United States. They ask me to keep them updated on developments in Washington, and that is part of the reason I cover these topics so often on my newsletter and hired the (excellent) reporter Veronica Irwin to supplement that coverage.

While the anxieties are probably a little different today than in October 2024, the core dynamic hasn’t changed. Most of my clients live in the United States and want to do business here, and the disposition of that pursuit rests in D.C.’s swampy hands. I’m just a guy, but I try to influence that process in my client’s favor to the extent I can, by working with industry groups, stakeholders, regulators, and politicians, because I think getting these laws right is more important to the sustainability of my clients’ businesses than any discrete piece of advice I can give them.

Legislation & Regulation

Q5: If you could get one amendment adopted to the GENIUS Act, what would it be and why?

A5: I mean, the prohibition on yield is obviously a ludicrous scam against the American people. If I could get it out I would, but I suspect I’d need a few trillion dollars more.

Another thing that I don’t see people talk about is the requirement to maintain collateral reserves on a 1-1 basis. Full collateralization made sense when stablecoins were an outlaw industry, but if we’re coming in and and getting regulated, we don’t need it. Deposit insurance was invented almost a hundred years ago and has successfully prevented any runs on American retail banks (while earning U.S. taxpayers a profit). This model has been pressure tested and proven, there is no reason to regress to the narrow banking like we’re the Hamburger Bank in 1619.

Fractional reserve banking models are integral to the global economy, by, yes, facilitating lending, but also by creating the money supply. If we migrate a meaningful portion of deposit banking to stablecoin models, it will collapse that money supply and precipitate crisis.

I think the 1-1 collateral model for regulated stablecoins is driven by nothing but path dependence and anchoring, and everyone involved will come to regret consecrating this into law in the years ahead.

Q6: Do you think CLARITY will lead to more crypto projects launching and raising capital in the U.S.? What are one or two changes you would like to see to make it more founder-friendly or innovation-forward?

A6: I am not sure whether it will or not. There are certainly plenty of projects launching right now in the United States, but there is no doubt that the lack of legal clarity makes their path to success more difficult. CLARITY will give a clear path to legality, but it requires a type of “maturity” to get there that, frankly, not one of my clients would choose on their own. The law requires that a blockchain system “is not controlled by any person or group of persons under common control,” and this may surprise you George, founders tend to want to be in control of the projects they build.

So, will projects contort themselves to conform to this law’s vision to operate legally? I’m sure many will. But huge swaths of the industry — anyone who wants to build RWAs, anyone who wants to maintain long term control of their project, anyone building more sophisticated derivative tokens, will be left out in the cold.

Since cryptocurrency exchanges will convert into “digital commodity exchanges” and will be prohibited from listing any of these verboten tokens without dual registration, I think the law could have a chilling effect on the growth of these segments in the United States. I don’t know what happens to something like PAXG in a CLARITY world, for example.

I understand that Democrats won’t play ball with a less restrictive law, and as painful as that is for the people who have invested time in this bill, maybe it is a blessing in disguise. As I’ve become more deeply involved in this process, I’ve come to think that no law at all, and instead exemptive rulemaking at the agency level, might be a better path forward.

Q7: Stablecoins and market structure legislation have taken center stage these last few months. What are some other crypto-related policy issues you’d like to see get more attention—either from Congress or the Administration?

A7: Well, I mentioned before the comment letter we wrote with Etherfuse. What we proposed to the SEC, basically, was a series of exemptive relief. The securities laws include these clauses that allow the SEC to make exemptions from them “to the extent that such exemption is necessary or appropriate in the public interest and is consistent with the protection of investors.”

Commissioner Hester Peirce has proposed a Rule 195 Safe Harbor, that I think could be a good start by basically doing most of what CLARITY does but without itself being a law that is next to impossible to change. But I think we can get much more creative and more aggressive with it. This relief is conditional, so you can really imagine any regime you want (subject to certain limitations) within these rules. This is what I think the industry should pursue, and I think they will if CLARITY starts to look dead in the water.

Q8: Moving legislation through the House and Senate is never easy. What are some actions you’d like to see regulators take to provide crypto market participants clarity while Congress continues to work through the lawmaking process?

A8: A couple months ago, I wrote about the accredited investor rule with my friend and colleague Matt Homer from The Venture Dept. Last year, Tim Scott introduced legislation to open up the rule and implement a commonsense test to allow more Americans to make private investments. I read the securities laws closely, and I think the SEC could implement these reforms through rulemaking alone. No law needed. This would be an incredible crypto policy because projects could sell through existing exemptions like Reg D, and with a broader (and fairer — the current rule is based on income alone) base of accredited investors, there would be a credible opportunity for those assets to trade through something like an ATS.

Closing

Q9: If you could offer one piece of advice to a crypto founder building in the U.S. today, what would it be?

A9: Founding a business is choosing to be a sponge for pain. The benefit is that you get control, freedom — you take an idea in your mind and make real things happen in the world with it. That is beautiful and intoxicating. But the downside is that once the ropes are cut away, it is on you, and only you, to make this thing work. That means constant failure, worry, and discomfort.

I read Shoe Dog last month and I was struck by something Phil Knight said at the end.

“The cowards never started, and the weak died along the way. That leaves us.”

You can reach me at aaron@broganlaw.xyz. Thanks for having me on George.

****

If you enjoyed this Q & A and want more of Aaron’s analysis on crypto law and policy, check out the Brogan Law newsletter here.

Thanks for reading and enjoy your weekend.

-GSL

The Week

Congress

Senate Moves Forward on GENIUS: Yesterday, 67 Senators, including 16 Democrats, voted to limit debate on passing the GENIUS Act, as amended, paving the way for a vote on final passage—likely next Tuesday.

Committees Markup CLARITY Act: On Tuesday, House Financial Services and Agriculture Committees advanced market structure legislation. House Financial Services advanced the bill by a 32-19 vote, with two Democrats joining Republicans in voting yes. House Agriculture advanced the bill by a 47-6 vote, with 18 Democrats joining Republicans in supporting the bill.

Senate Ag Hearing: The Senate Agriculture Committee held Brian Quintenz’s nomination hearing, a first step towards confirming the nominee as the next CFTC Chairman. Senators and Quintenz discussed his tech-forward approach to regulation, the importance of bipartisanship at the CFTC, prediction markets, and the CFTC staying focused on its core mission.

Senate Finance & Reconciliation: Senate Finance Committee may include crypto-related tax provisions in its reconciliation bill. CahillNXT tax partner Jason Schwartz breaks down the potential provisions and related concerns here:

CryptoTaxGuy

@CryptoTaxGuyETH

THE ONE BIG BEAUTIFUL (CRYPTO TAX) BILL

Last night, I reviewed not-yet-public crypto legislation slated for inclusion in the Trump megabill. The legislation is promising, but requires clarifications in some respects. Here’s a summary thread that includes my observations (1/24).

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4:08 PM • Jun 9, 2025

Codifying A Crypto Executive Order: Rep. Tim Burchett (R-TN) introduced legislation to codify President Trump’s Executive Order 14233 to establish a strategic Bitcoin reserve and a digital asset stockpile.

Dark Web Interdiction Act: Senators Maggie Hassan (D-NH) and John Cornyn (R-TX) reintroduced legislation to combat drug trafficking on the dark web involving virtual currencies.

Staking & Mining Rewards: Reps. Zach Nunn (R-IA), Tom Emmer (R-MN), Bryan Steil (R-WI), and Byron Donalds (R-FL) sent a letter to the Treasury Secretary and IRS Commissioner, urging the IRS to update tax guidance to ensure digital asset rewards are taxable only when an individual or business sells or exchanges them.

SEC

Rule Withdrawals: On Thursday, the SEC withdrew a series of proposed rules under Chair Gensler’s tenure that were never finalized, including proposals to expand the definition of exchange and custody rules.

DeFi Roundtable: On Monday, the SEC held a roundtable on DeFi. Here are key points from SEC Chair Paul Atkins’ remarks.

U.S. Securities and Exchange Commission

@SECGov

Key points from Chairman Paul Atkins’ remarks today at “DeFi and the American Spirit,” SEC’s Crypto Task Force Roundtable on Decentralized Finance – a

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2:08 PM • Jun 9, 2025

Courts

Tornado Cash: The DeFi Education Fund and Coin Center teamed up in filing an expert opinion in a Tornado Cash developer’s trial.

Look Ahead

Senate

• A Senate vote on passing the GENIUS Act is expected for Tuesday.

PGP

• ​PGP for Crypto - Breakfast & Roundtable: Tuesday, June 17 - 9AM-11:30AM.

Trivia

Last Week’s A: The first company listed on the New York Stock Exchange was the Bank of New York.

This Week’s Q: Who leads the all-time Congressional Baseball Game series?

Thanks for reading, and enjoy your weekend.

-GSL

P.S. Sign up for Pro for legislative tracking and in-depth analysis.

In Pro this week: Analysis of recent updates to GENIUS; revised side-by-side memo comparing and contrasting STABLE and GENIUS; analysis of House CLARITY markups; full summary of Senate Ag nomination hearing.

In the interview below, Julie Stitzel—Senior Vice President of Policy for DCG—unpacks decentralized AI, how crypto ties in, and related policy considerations.

Q&A

Background/Decentralized AI 101

Q1: For readers who may be unfamiliar, could you provide some background on DCG?

A1: DCG was founded in 2015 by Barry Silbert. Barry played a key role in the development of the Bitcoin ecosystem, which has evolved into the nearly $3 trillion digital assets industry today. Over the years, DCG has built a reputation for uncovering early-stage ideas with massive potential, which has positioned us to become the most active investor in the digital assets space and expand across all blockchain technologies, including decentralized AI (“deAI”). At its core, DCG is a global investor, builder, and incubator advancing decentralized technologies, with a portfolio of 200+ crypto and blockchain startups, in addition to its five subsidiaries: Grayscale, Yuma, Luno, Foundry, and Fortitude Mining.

Q2: How is DCG involved in decentralized AI, and what are one or two projects you are particularly excited about?

A2: Much like our early engagement in the digital assets ecosystem, DCG has high conviction in decentralized AI, specifically the Bittensor network. Last November, we launched our new deAI-focused subsidiary, Yuma, which is also led by Barry Silbert as CEO, and focuses on accelerating Bittensor’s growth and development. Much like the internet opened access to knowledge and removed barriers to its development, Bittensor and deAI aim to democratize access to intelligence, unlocking the computing power of AI by making it community-owned and driven.

We see Bittensor as the “World Wide Web” of information: a platform for innovators to freely contribute and connect. Individuals can build projects on the network known as subnets and be rewarded for the quality of their contributions. As a subnet accelerator, Yuma provides access to necessary infrastructure and support for entrepreneurs, helping to bring world-changing ideas to life.

In addition to our work on Yuma and DCG’s direct investment in $TAO, Bittensor’s native token, DCG’s venture team also actively seeks other deAI opportunities and made 33% of their Q1 investments into deAI projects such as Masa. Masa facilitates AI development by transforming fragmented data into a unified access layer, providing permissionless access to quality AI training data while ensuring fair data attribution and compensation. Additionally, Masa has launched two Yuma-incubated subnets on Bittensor.

Q3: What are the fundamental differences between decentralized AI models, like the Bittensor network, and centralized models, like OpenAI?

A3: Decentralized AI models, like Bittensor, distribute model training, inference, and governance across a peer-to-peer network, whereas centralized models like OpenAI rely on centralized infrastructure and decision-making to control their models. The key differences lie in the accessibility, incentivization, and architecture of the models. Centralized AI models are typically constructed by a single organization that oversees all steps of the process, from training to deployment, and encompasses all the various inputs and outputs. These organizations determine who can access the models, how they are utilized, and what data they are trained on, thereby creating a closed ecosystem with limited transparency and participation.
​
Decentralized AI models enable open and transparent contributions, where anyone can contribute compute resources or machine learning models and receive rewards for their contributions. This creates a permissionless system in which value is distributed based on performance and utility, where users directly benefit from their data and contributions, rather than being monopolized.

Q4: How does crypto tie in? In other words, how does crypto enable or strengthen decentralized AI models?

A4: The incorporation of crypto is what differentiates Bittensor from some of the other decentralized protocols. Crypto is the incentivization mechanism that powers decentralized AI models to encourage participation; in Bittensor’s case, the platform incentivizes high-quality contributions and efficient applications by rewarding them with its native token, $TAO. As opposed to traditional centralized AI that is controlled by a single overarching company, Bittensor eradicates the need for a centralized power, using TAO to foster a competitive environment where better models receive better rewards. Anyone can join the network, train models, and earn TAO. In this case, crypto is what aligns incentives, opens access, and drives collaboration at scale.

Q5: What do you see as the main benefits of decentralizing AI development and infrastructure?

A5: Decentralizing this technology challenges the monopolies we see in AI’s current status quo and opens the door for researchers, academics, developers, and entrepreneurs to participate with lower barriers to entry. Currently, a select few dominate the space due to their access to data, compute, and proprietary models. Democratizing and decentralizing AI make it more resilient, in addition to distributing the benefits of AI more widely than centralized models.

Additionally, decentralization is a solution to consumers’ concerns about data privacy and security in AI. DCG’s recent survey, conducted in collaboration with The Harris Poll, found that 74% of consumers agree they’d be more comfortable using AI if they knew they could benefit from the use of their personal data. deAI addresses this concern by allowing users to retain control over and benefit from their own data and contributions.

Policy

Q6: What are the most pressing policy issues for AI today? Are there any specific bills or regulations you would like to see enacted (or not enacted)?

A6: One of the most critical issues for AI today is ensuring that it serves the public and not just the powerful, and this is where the regulatory framework plays a role. Like most things tech-related, it is essential to strike the correct balance between fostering innovation and protecting users. The current Administration has taken a refreshingly pragmatic approach to AI by prioritizing innovation and American competitiveness over heavy-handed regulation, and we urge Congress to do the same.

A federal framework that supports private sector leadership and decentralized development is crucial for building an open and resilient future for AI. This federal framework should incentivize innovation in open, decentralized ecosystems, empower individuals to benefit from their data, avoid codifying Big Tech’s dominance, and mitigate a fragmented, state-by-state patchwork of rules. Clear guidance will remain at the core of supporting a competitive and open AI ecosystem in the U.S.

Q7: In crypto policy, we’ve seen proposals in the past that risked undermining decentralization by attempting to apply rules designed for centralized intermediaries to decentralized networks.

Are there similar concerns with AI policy? In other words, what are some key considerations policymakers should keep in mind when crafting rules for centralized AI to avoid stifling decentralized innovation?

A7: There is definitely overlap between these concerns in terms of crypto and AI policy. Similarly to crypto, decentralized AI systems rely on incentives, open participation, and community governance. If policymakers apply uniform regulations to fit centralized players, these decentralized systems could be pushed out of compliance or innovation could be severely dampened. Key considerations should include distinguishing between centralized and decentralized architectures, preserving space for open-source development, and ensuring that compliance pathways exist.

Q8: Right now, many in the crypto policy community are primarily focused on market structure and stablecoin legislation. How, if it all, do you see these bills directly or indirectly impacting the future of decentralized AI?

A8: Although market structure and stablecoin legislation do not directly target decentralized AI, there are implications for systems such as Bittensor that utilize cryptocurrencies as incentives and are built on the same principles of distribution and decentralization that crypto is. It’s imperative for the future of both decentralized AI development and the digital asset space that clear regulatory guidelines are in place for protection without stifling innovation.

Q9: What resources do you recommend for readers who want to better understand decentralized AI?

A9: DCG and its subsidiaries have put together a variety of resources on deAI and Bittensor including DCG’s educational one-pager on deAI, information about Bittensor on Yuma’s website, and Grayscale’s research on Bittensor and the $TAO token. Additionally, Bittensor’s website outlines the project’s initial foundation and its implications for the world of AI.

***

Thank you for reading, and see you next Friday.
​
-GSL

Top Points

• After two bipartisan supermajority votes on procedural motions, the Senate is poised to consider the GENIUS Act when it returns from Memorial Day recess, with Senators already filing a range of amendments addressing ethics, illicit finance, and consumer protections.

• The House Financial Services Committee advanced a bill to prohibit federal banking agencies from considering “reputational risk” when supervising, examining, or regulating depository institutions, in a slightly bipartisan 33-19 vote.

• A House Appropriations subcommittee discussed crypto regulations, SEC funding, and conflicts-of-interest concerns with SEC Chair Paul Atkins.

• GOP Majority Whip Tom Emmer (R-MN) and Rep. Ritchie Torres (D-NY) introduced a bill to clarify that blockchain developers and service providers are not required to register as money transmitters if they do not take control of users’ digital assets.

• An exclusive dinner for $TRUMP memecoin holders triggered further outcry from Democrats on Capitol Hill, including a new bill from Rep. Maxine Waters (D-CA) and a letter from 35 Democrats calling for a DOJ investigation.

The Week

Congress

GENIUS Act Update: On Monday, the Senate invoked cloture on the motion to proceed to the GENIUS Act by a 66-32 vote. This limited debate on the motion to proceed, paving the way for Wednesday’s vote. On Wednesday, the Senate voted to adopt the motion to proceed by a 69-31 vote. Now, GENIUS itself is ripe for consideration, though timing remains unclear. Rather than turning to consideration of amendments, the Senate pivoted to consideration of a series of Congressional Review Act resolutions and executive nominations to close out the week. Senators have already filed dozens of amendments, including measures addressing ethics rules, consumer protections, illicit finance, and more. More detailed analysis of votes, process, and amendments in Pro.

HFSC Advances Debanking Bill: On Wednesday, the House Financial Services Committee advanced H.R. 2702, the FIRM Act in a slightly bipartisan 33-19 vote. The bill would prohibit federal banking agencies from considering “reputational risk” when supervising, examining, or regulating depository institutions.

SEC Chair Atkins Testifies on Hill: On Tuesday, SEC Chair Paul Atkins testified before the House Appropriations Subcommittee on Financial Services and General Government. The hearing featured significant discussion of digital assets, with Subcommittee Chair Dave Joyce (R-OH) emphasizing the importance of regulatory clarity for crypto and Democrats flagging President Trump’s ties to crypto. Full summary in Pro.
​
​Blockchain Regulatory Certainty Act: On Wednesday, GOP Whip Tom Emmer (R-MN) and Ritchie Torres (D-NY) introduced the Blockchain Regulatory Certainty Act. The bill would clarify that blockchain developers and blockchain service providers are not required to register as a money transmitter business if they do not control users’ digital assets in the regular course of business.

Letter to DOJ re $TRUMP: Rep. Sean Casten (D-IL) led a group of 35 Democratic Congressmen in a letter to the head of the DOJ’s Public Integrity Section, calling for an immediate investigation into President Trump’s offer for the top investors in his $TRUMP memecoin to attend a private dinner.

Stop TRUMP In Crypto Act: Rep. Maxine Waters (D-CA) and 11 cosponsors introduced the Stop Trading, Retention, and Unfair Market Payoffs in Crypto Act, a bill to bar covered officials and their families from receiving compensation tied to digital assets.

Senate Resolutions re: “Financial Entanglements”: Senator Richard Blumenthal (D-CT) introduced two resolutions condemning President Trump’s crypto ties: (1) S. Res. 243: A resolution condemning the financial entanglements of World Liberty Financial, Inc. with President Donald J. Trump, the Trump family, and the Trump Administration; and (2) S. Res. 245: A resolution condemning the financial entanglements of President Donald J. Trump with the $TRUMP memecoin.

Administration

SEC Charges Unicoin: The SEC charged Unicoin and top executives with making false and misleading statements in connection with an offering of certificates that purportedly conveyed rights to receive Unicoin tokens and an offering of Unicoin, Inc.’s common stock.

CFTC Commissioners to Depart: CFTC Acting-Chair Caroline Pham will return to the private sector after Brian Quintenz is confirmed as the new Chairman. Commissioner Kristin Johnson also plans to step down.

Interpretive Letter re: Susquehanna Crypto: The CFTC published an interpretive letter finding Susquehanna Crypto is a non-U.S. person under the Commodity Exchange Act and regulations issued thereunder.

Courts

Privacy/Fourth Amendment: A federal district court in Texas granted a preliminary injunction against Treasury’s enforcement of a Geographic Targeting Order (“GTO”) requiring money services businesses located near the southwest border to file Currency Transaction Reports with FinCEN at a $200 threshold, rather than historic threshold of $10,000, citing in part a likely Fourth Amendment violation.

Look Ahead

• The House and Senate are in a Memorial Day recess.

• The House is scheduled to return on Tuesday, June 3, the Senate on Monday, June 2.

• A House hearing on market structure is scheduled for June 4 at 10am.

Trivia

Last Week’s A: William T. Bagley was the first Chairman of the CFTC.

This Week’s Q: Since 1948, the Tomb of the Unknown Soldier at Arlington National Cemetery has been guarded 24/7 by soldiers of which U.S. Army Infantry Regiment, also known as “The Old Guard”?

****
Hope you enjoy a restful Memorial Day weekend, and a special thank you to all who served our country in uniform.

-GSL

P.S. You are reading a free version of the Cap Hill Crypto Pro Newsletter. Learn more about resources available to Pro subscribers here.

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Top Points

• An updated GENIUS Act includes language to ensure ethics laws apply to special government employees, place restrictions on Big Tech issuers, and strengthen consumer protection and illicit finance safeguards.

• Senator Elizabeth Warren (D-MA) led two letters this week flagging President Trump’s ties to World Liberty Financial:

  • (1) One letter asks World Liberty Financial to preserve all records of communication between the company and federal government officials regarding its stablecoin; and

  • (2) The other requests information about Binance founder Changpeng Zhao’s request for a pardon.

• Senators Cynthia Lummis (R-WY) and Bernie Moreno (R-OH) sent a letter asking Treasury to amend a tax rule that could inadvertently force companies holding digital assets to pay tax on unrealized gains.

• The SEC Division of Trading and Markets published guidance on “Crypto Asset Activities and Distributed Ledger Technology.”

• SEC Chair Paul Atkins is scheduled to testify before a House Appropriations subcommittee next week for an annual oversight hearing.

The Week

Senate GENIUS Act Updates: Senate Majority Leader John Thune (R-SD) filed cloture on the motion to proceed to S. 1582, the GENIUS Act, paving the way for another cloture vote as early as Monday, May 19. If at least 60 Senators vote yes on cloture, debate on the motion to proceed will be limited to up to 30 hours. Prior to Senator Thune filing cloture, Senate offices circulated proposed updates to the GENIUS Act resulting from further negotiations since last week’s cloture vote. Proposed updates include language ensuring ethics laws apply to special government employees, placing restrictions on Big Tech issuers, and strengthening consumer protection and illicit finance safeguards. Summary & analysis of changes and process in Pro.

Senator Warren Voices Opposition: Senator Elizabeth Warren (D-MA), the top Democrat on Senate Banking, is opposing the bill. Here’s the Senate Banking Committee’ Democratic Staff’s analysis on the latest draft.

Stand With Crypto Supports GENIUS: Stand with Crypto is rallying crypto advocates to urge their Senator to support the GENIUS Act next week.

Stand With Crypto🛡️

@standwithcrypto

The Senate is voting on stablecoin legislation next week. Emailing your senator to support this bill is a GENIUS idea!

It takes one minute - click here:

standwithcrypto.org

Stand With Crypto

Stand With Crypto Alliance is a non-profit organization dedicated to uniting global crypto advocates.

398

6:24 PM • May 15, 2025

Senator Warren Letters Re: World Liberty Financial: Citing a recent announcement that Binance, Emirati firm MGX, and World Liberty Financial (“WLF”) agreed to a $2 billion deal involving WLF’s stablecoin USD1, Senator Warren led two letters this week to White House officials: (1) a letter seeking information about WLF’s communications with federal agencies regarding its stablecoin and (2) a letter asking for information about Binance CEO Changpeng Zhao’s request for a pardon.

Senators Lummis & Moreno Letter: On Monday, Senators Cynthia Lummis (R-WY) and Bernie Moreno (R-OH) sent a letter asking Treasury Secretary Scott Bessent to modify a tax rule that could inadvertently force certain companies holding significant amounts of digital assets to pay tax on unrealized gains.

Senator Cynthia Lummis

@SenLummis

Our edge in digital finance is at risk if U.S. companies are taxed more than foreign competitors. @berniemoreno & I urged the @USTreasury to lift an unintended tax burden on U.S. digital asset companies. To lead the world in digital assets, we need a level playing field.

2,882

1:26 PM • May 13, 2025

Proposed Remittance Tax: House Ways & Means Committee advanced a reconciliation measure, which included a tax on certain remittance payments. Coin Center published a blog unpacking “What the Proposed Remittance Tax Means for Crypto Users.”

Administration

New SEC Guidance: The SEC’s Division of Trading and Markets published an FAQ on “Crypto Asset Activities and Distributed Ledger Technologies.” FAQ; ​Commissioner Peirce Statement.

SEC Tokenization Roundtable: On Monday, panelists from TradFi and crypto shared their views on how the SEC should proceed with rules impacting tokenization. A helpful summary by Ledger Insights here.

CFTC Commissioner to BA: CFTC Commissioner Summer Mersinger will leave the CFTC to become the Blockchain Association’s new CEO. While a CFTC Commissioner, Mersinger dissented from enforcement actions against DeFi protocols, urging the CFTC to lead with rulemaking rather than enforcement (See, e.g., Ooki Dao dissent). BA Press Release.

Courts

Tornado Cash Founder Trial: The DOJ will continue prosecuting Roman Storm, a co-developer of Tornado Cash, after finding prosecution is consistent with Deputy Attorney General Blanche’s memo from earlier this year announcing a shift in DOJ prosecutions of digital asset cases.

Look Ahead

In addition to likely votes on the GENIUS Act, there are a few hearings and events next week before the House and Senate are scheduled to break on Friday for a one-week recess.

Hearings

Appropriations

• Tuesday – 10AM: SEC Chair Paul Atkins is slated to testify before House Appropriations for an oversight hearing.

AI

• Wednesday - 10:15AM: House E&C hearing on AI Regulation and the Future of US Leadership.

• Thursday - 2:30PM: Senate Judiciary - Hearing to examine AI-generated deepfakes.

DC Crypto Policy & Law Events

• Wednesday - 9AM-11:30AM: PGP for Crypto Briefings and Roundtable Discussion.

• Wednesday - 5pm-8pm: DC Farcaster Law & Policy Happy Hour.

Trivia

Last Week’s A: Pope Francis was the first Pope to address a joint session of Congress.

This Week’s Q: Who was the first Chairman of the CFTC?

***

Thanks for reading, and let's go Celts!

-GSL

P.S. For more detailed summaries and analysis of the week in crypto policy, learn more about CHC Policy Pro offerings.

Top Points

• Sponsors of the GENIUS Act introduced an updated bill yesterday, with a Senate floor vote expected before the Memorial Day recess.

• The House passed a bill to strengthen U.S. supply chain resiliency, including provisions to encourage the onshore development of critical and emerging technologies, like blockchain.

• The Senate Commerce Committee advanced the Deploying American Blockchains Act, a bill to establish a working group dedicated to promoting U.S. leadership in blockchain.

• A House Financial Services subcommittee briefly discussed ways to address debanking at a recent hearing, including two legislative proposals to remove subjective criteria from bank supervision.

• After the Federal Reserve Board withdrew crypto guidance last week, Senator Cynthia Lummis (R-WY) took to X to urge the Fed to do more to allow innovation in the banking system, describing the Fed’s actions as “lip service.”

• A federal district court ordered Treasury to delist Tornado Cash’s immutable smart contracts from its sanctions list.

You are reading the free Cap Hill Crypto Newsletter. For detailed summaries, analysis, and forward-looking insights of the bills, hearings, and regulations discussed herein, sign up for CHC Policy Pro.

The Week

Congress

Updated GENIUS Act: Yesterday, Senate GENIUS Act sponsors introduced an updated bill on the Senate floor. In general, the bill’s core framework remains intact, with major updates addressing the certification of a states’ stablecoin regulatory regimes, enforcement against foreign payment stablecoin issuers, and illicit finance.

Promoting Resilient Supply Chains Act: On Monday, the House passed a series of bills under suspension of the rules, including the Promoting Resilient Supply Chains Act, by voice vote. The bill is broadly aimed at strengthening U.S. manufacturing and supply chains, including by promoting the development of critical and emerging technologies, like blockchain, in the U.S.

Deploying American Blockchains Act: On Wednesday, the Senate Commerce Committee marked up various bipartisan bills, including S. 1492, the Deploying Americans Blockchains Act. The committee ordered the bill be reported favorably by voice vote, alongside several other bipartisan bills that were considered en bloc.

HFSC Subcommittee Hearing: On Tuesday, the House Financial Services subcommittee on financial institutions held a hearing focused on legislative proposals to reduce and tailor regulatory burdens, particularly with respect to small to medium sized banks. Two bills noticed for the hearing focused on narrowing banking regulator’s discretionary authority: (1) the FIRM Act and (2) the CAMELS Rating Modernization Act of 2025 (discussion draft).

Senator Lummis Presses FRB: On Friday, Senator Cynthia Lummis (R-WY) posted a thread explaining why the Federal Reserve needs to do more to allow innovation in the banking system.

Senator Cynthia Lummis

@SenLummis

(1/5) The Federal Reserve’s actions yesterday withdrawing crypto guidance are just lip service. Here’s why:

5,382

10:41 AM • Apr 25, 2025

PELOSI Act: Senator Josh Hawley (R-MO) introduced the Preventing Elected Leaders from Owning Securities and Investments Act or “PELOSI Act.” The bill would amend the Ethics in Government Act to prohibit Members of Congress and their spouses from owning, buying, or selling stocks or commodities while serving in office.

HFSC Reconciliation Markup: The House Financial Services Committee marked up reconciliation legislation, which included language to limit funding for the CFPB and fold the PCAOB into the SEC.

Congressional Letters

Trump Media ETF: Senator Elizabeth Warren (D-MA) - the top Democrat on Senate Banking – is asking the SEC to respond to concerns regarding Trump Media and Technology Group’s deal with Crypto.com to launch ETFs later this year.

$TRUMP Meme Coin: Senators Elizabeth Warren (D-MA) and Adam Schiff (D-CA) sent a letter to the U.S. Office of Government Ethics requesting an investigation into President Trump’s dinner for top holders of the $TRUMP meme coin.

Stacey Daniels

@staceydanielsDC

.@LeaderJohnThune continues delivering on @realDonaldTrump's campaign promises.

Today, he announced the Senate will proceed to the GENIUS Act this work period.

82

3:48 PM • May 1, 2025

Industry & Administration

Treasury & Stablecoins: Treasury published a detailed report on stablecoins and their potential impact on bank deposits, U.S. Treasuries, monetary supply, and existing market structures.

DeFi Letter to Crypto Czar: The DeFi Education Fund is leading a letter to White House AI and Crypto Czar David Sacks, urging the Trump administration to:

• (1) Discontinue the DOJ’s campaign to criminalize open-source software development and

• (2) End the prosecution of Roman Storm.

• You can read and sign the Letter here.

Staking Letter to SEC: The Proof of Stake Alliance submitted an industry coalition letter to the SEC’s Crypto Task Force, urging the agency to clarify that staking is a technical process, not a securities activity.

Tokenization Letter to SEC: The Solana Policy Institute, Superstate, Orca Creative, and Lowenstein Sandler LLP submitted a proposed framework to the SEC’s Crypto Task Force, asking the agency to exercise its exemptive authority and publish guidance permitting the issuance and trading of equity securities on public blockchain networks.

• “Project Open”

Bitcoin Mining Letter to Treasury & IRS: The Digital Power Network sent a letter asking the IRS to clarify that mining income should not be taxed until the assets are sold or exchanged.

Coinbase Letter to OGE & SEC: Coinbase sent letters to the Office of Government Ethics and the SEC, urging the recipients to amend and rescind ​Legal Advisory 22-04, which restricts federal agency employees from working on crypto policy if they own crypto assets​.

• “To regulate technology, you need to understand it. To understand technology, you need to use it.”

Courts

Tornado Cash: On Monday, a federal district court ordered Treasury to delist Tornado Cash’s immutable smart contracts from its sanctions list, as the Fifth Circuit instructed and plaintiff’s had requested.

Privacy: Coinbase filed an amicus brief urging the Supreme Court to restore limitations to the third-party doctrine and protect Americans’ privacy interests in digital information stored by third-party service providers.

Look Ahead

Joint Market Structure Hearing & Legislative Text

​Tuesday - 10AM - HFSC & House Ag: American Innovation and the Future of Digital Assets: A Blueprint for the 21st Century.

• Legislative text for market structure is expected to be released prior to the hearing.

Treasury Secretary Oversight Hearings

​Wednesday - 10AM - HFSC: The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System.

AI

​Thursday - 10AM - Senate Commerce: Hearings to examine winning the AI race, focusing on strengthening United States capabilities in computing and innovation.

Stablecoin Vote

Senate Majority Leader John Thune (R-ID) announced the Senate will vote on stablecoin legislation before Memorial Day.

Trivia

Last Week’s A: The youngest person to become president was Theodore Roosevelt (42 & 10 months), succeeding William McKinley (assassinated). The youngest president to be elected President was John F. Kennedy (43).

This Week’s Q: Who was the oldest person elected President?

Thanks for reading and enjoy your weekend.

-GSL

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Interview - The Rage

Crypto & Independent Media

Q1: What is the The Rage and why do you think it’s important to have a publication uniquely focused on financial surveillance?

A1: Financial surveillance – or financial privacy, rather – is in so far important as that our finances form a virtual, real-time biography of our lives. From our medical histories to our political affiliations and our sexual orientation, from the people we spend time with to the places we frequent, all of this is available to someone that has access to our financial records. Seen from this point of view, financial privacy is really the pillar on which many other rights rest upon.

The Rage is an independent publication aimed at challenging the often celebratory tenor in the industry as it relates to new policy and technologies. Having worked for several large publications in the space, I was frustrated that coverage often appeared to be guided by investor or advertising interests, as well as by the need to retain friendly relations with potential sources in office.

In contrast, our editorial policy is not contingent on exclusive interviews with members of Congress or investors and advertisers. Instead, we primarily work with public information and expert analysis, which allows us to step on toes when necessary.

Q2: Why did you choose to fund your work through crypto donations? What are some of the benefits and challenges with this approach?

A2: Honestly, convenience. By accepting cryptocurrencies – mainly Bitcoin – we were able to accept donations instantly instead of needing to work our way through the financial system, saving us time and account fees often invoked by banks. It also allows our donors to retain their privacy as we cannot associate transactions with clear names, and pay international freelancers without having to go through SWIFT. All in all, it saves us a great amount of time and money.

Challenges mainly occur when we do need to interface with the banking system, but also when having to deal with centralized exchanges. This money was donated to us by an anon on the Internet is generally not a source of income compliance officers tend to accept, which has led to issues in the past.

Q3: How do you see crypto reshaping journalism and media models in the coming years? For example, do you see crypto helping more independent or niche publications break through?

A3: On the one hand, I think that cryptocurrency allows journalists to finance their work who may not have access to traditional funding systems, like PayPal or GoFundMe, which in turn fosters a more diverse set of voices. On the other, it allows those who may be financially censored to continue their operations – we saw this early on with Wikileaks utilizing Bitcoin after facing a banking blockade. In my opinion, when a currency is censorship resistant like Bitcoin is, we can see a future where the ability to practice free speech is increased, while more independent publications can flourish due to the ease of access to monetization.

Tornado Cash & Roman Storm

Q4: On March 21, Treasury’s Office of Foreign Assets Control removed Tornado Cash from its list of sanctioned entities. As someone who has closely covered the Tornado Cash sanctions and related litigation, could you explain why this delisting is not the end of the Tornado Cash story?

A4: OFAC’s Tornado Cash delisting is interesting as its ramifications are rather implied than explicit. The Treasury did delist Tornado Cash following a Fifth Circuit ruling, but is currently trying to prevent a Texas District Court from issuing a ruling on the matter. By effectively arguing that the problem is solved because Tornado Cash isn’t on the list anymore, the Department is seemingly attempting to retain the power to put Tornado Cash back on OFAC’s SDN list and sanction other software like it. Until the Texas District Court’s ruling is issued, nothing prevents the Treasury from continuing to criminalize software; in addition to Tornado Cash developer Roman Semenov still being OFAC sanctioned for writing code.

The Treasury’s press release that accompanied the Tornado Cash delisting did not really help clarify the Department’s stance on privacy services either in my opinion, in which Treasury Secretary Bessent issued what I felt was a fairly stark warning for users of privacy software like Tornado Cash to exercise caution when accessing services used by illicit actors. To me, it continues to feel very opaque as to what the Treasury’s policy on privacy services is going to be going forward, despite Tornado Cash being delisted.

Q5: The Rage has also closely followed the Justice Department’s prosecution of Roman Storm, one of the developers behind Tornado Cash. Where does the case stand procedurally today, and what are the key legal issues at the center of this case?

A5: Roman Storm is mainly being prosecuted under US Money Service Business registration laws. The main question in his case is whether developers of non-custodial software, who do not hold control over or access to user funds, can be held liable for the actions of their users. As such, the case could set dangerous precedents for the development of software overall.

The US is the only country I am aware of in which writing code is understood to be protected as free speech. If Roman can be held liable for what others do with his software, nothing stops the DOJ from holding the developers of Signal or WhatsApp accountable when criminals use it. The ramifications of his conviction would not just be detrimental to the right to privacy, but also to the US software industry as a whole. I find it interesting that the current administration, which has explicitly stated that fostering local innovation was one of its goals, would allow a case that could potentially threaten to overturn Bernstein v. US to proceed – a landmark decision that has arguably helped turn the US into the tech powerhouse it is today.

The irony of it all is that Roman Storm came to the US from Russia to exercise and further the freedoms that the United States are built upon – the freedom to build cutting edge technology, as well as the freedom for anyone to exercise their right to free speech without fear of prosecution. I can’t think of anything more patriotic than that. Instead, he is now facing decades in prison. His trial is set for July 14th.

Financial Privacy Policy

Q6: Last week, the Department of Justice published a memo outlining a shift in its enforcement priorities around digital assets. What do you think this memo got right? What further actions would you like to see DoJ take to ensure that developers of non-custodial software aren’t held criminally liable for how third-parties use their code?

A6: I was super excited when I read the memo. It seemed that the DAG had hit the nail on the head: software developers should not be held liable for what others do with their software. However, when delving into the details, it quickly became clear that the memo made a range of exceptions to its alleged new stance that it can hardly be seen as anything more than lip service. For example, the DAG specifically excluded 18 U.S.C. §1960 subsection (B)(1)(c) that is currently being used to prosecute Roman Storm, as well as William Hill and Keonne Rodriguez, the developers of the non-custodial privacy wallet Samourai Wallet. It also appeared to directly avoid the term non-custodial – or “unhosted”, as it’s more widely used in policy circles – likely to refrain from setting new guidance. In my opinion, the memo does little to establish the much needed clarity.

To foster innovation and protect developers, the DOJ should drop the charges against Samourai Wallet and Tornado Cash developers, and FinCEN should clarify that non-custodial services are exempt from MSB statutes.

Q7: When debating crypto legislation, lawmakers on both sides of the aisle often agree that public, transparent blockchains can help law enforcement trace and recover illicit funds— especially compared to cash. At the same time, there’s bipartisan concern about the use of mixers and other privacy-enhancing tools by bad actors, like North Korean hackers, to launder illicit proceeds.

How would you respond to these concerns? How can Congress address illicit finance risks while still preserving individuals’ ability to use privacy tools for lawful purposes?

A7: I would respond with data. In 2023, FinCEN received over 27M reports, of which 372 resulted in criminal investigations through the IRS. That’s a success rate of 0.001%; if we can even call it a success rate, as not all criminal investigations result in criminal convictions.

These numbers then map onto what we can observe in AML/CFT success rates around the world. In the EU, Europol estimates that current frameworks enable the confiscation of less than 0.1% of illicit proceeds. Globally, scholars place the effectiveness of AML/CFT frameworks at 0.02%, while finding that we spend 507x as much money on compliance programs as we are able to recover through them.

The suggestion to “address illicit finance”, i.e. implement reporting requirements or similar traceability frameworks on digital assets, results out of the assumption that total financial surveillance actually works to stop crime, whereas the data overwhelmingly suggests that this is not, in fact, the case.

With lawmakers contemplating how we can balance law enforcement’s legitimate need to identify criminal actors with the public’s likewise legitimate right to privacy, we are currently rehashing a decades old debate in which the Government runs the risk of attempting to exempt certain groups from their constitutionally protected, inalienable rights. Just like we can only have freedom of speech when we all have freedom of speech can we only have the right to privacy when we all have privacy – that includes privacy from the Government as well as privacy for criminals, as much as that may be a bitter pill to swallow.

In my opinion, to address this issue sensibly, we need to drastically rethink how AML/CFT frameworks are designed. We should focus on making our platforms more secure, not further erode the very principles the US rightfully prides itself on.

Q8: What are one or two crypto-related bills or policies you would like to see enacted this year?

A8: First, Majority Whip Emmer’s Blockchain Regulatory Certainty Act, which would protect software developers from being held accountable for the actions of their users. Only when we are able to keep the brightest minds in software development on shore will we be able to guarantee that criminal actors, such as the DPRK, have less of a chance exploiting our systems, even if they may utilize such technologies themselves.

Second, and this is a big favorite of mine, Sen. Mike Lee’s Saving Privacy Act, which essentially sets out to reform the Bank Secrecy Act by repealing Suspicious Activity- and Currency Transaction Reporting requirements while strengthening Fourth Amendment protections.

The BSA is not only “deeply unconstitutional,” as Sen. Lee has phrased it, by subjecting all US Americans to total surveillance without so much as needing to accuse them of a crime. It also stifles competition, innovation, and financial inclusion: for many, the costs of such compliance programs are simply too much to bear, causing banks to terminate or reject customers that may cause heightened compliance checks.

****

You can learn more about The Rage and follow their coverage of financial privacy issues here: TheRage.Co.

Have a great weekend and see you next Friday when we’ll return to our traditional weekly briefing format.

-GSL

P.S. Was this free newsletter forwarded to you? Sign up.

In the Pro Newsletter this week:

• Fair Taxation of Digital Assets in Puerto Rico Act of 2025

• Updates from the FRB, Executive Branch, and States

• Preview of the weeks ahead

• ​CHC Policy Pro - About.

*All information contained in this newsletter is for informational purposes only and should not be considered legal or financial advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. The author may own cryptocurrencies discussed herein.

Intro

Decentralized science, or “DeSci,” uses blockchain technology to reimagine how scientific research is funded, conducted, reviewed, shared, and owned.

In today’s interview, Andrew Hemingway - Founder and Policy Head of the DeSci Alliance - explains the value proposition behind DeSci, highlights a few exciting projects, and discusses key policy and legal issues facing the community.

Q & A

Q1: For someone new to the space, how would you explain DeSci? How does DeSci differ from—or aim to improve upon—the traditional scientific research model?

A1: DeSci frees the first principles of science to flourish, speeding breakthroughs and sharing the upside with everyone involved.

DeSci is what happens when the core ideas of blockchain—open access, immutability, and community funding—are applied to research. Instead of scientists spending half of their week chasing grants, they can raise capital directly from supporters through on‑chain crowdfunding and research DAOs. Every experiment, data set, and lab note is immutably timestamped, ensuring the grad student who makes the discovery actually gets the credit and the results stay tamper‑proof. Because data, peer reviews, and methods live in the open, anyone can audit, replicate, or build on the work—no gatekeepers or paywalls.

Q2: Can you share one or two examples of ongoing research projects that are following the DeSci model?

A2: Two live DeSci efforts worth watching:

(1) Curetopia – a patient‑led BioDAO that just raised $1.77 million on Solana to fast‑track treatments for ultra‑rare metabolic diseases. By crowdsourcing capital and running high‑throughput yeast screens, the team has already surfaced two repurposed‑drug candidates for AARS2 deficiency and is gearing up for parallel N‑of‑1 trials—work that would normally take traditional labs years and a far larger budget.

(2) PeptideDAO – a fledgling research collective bootstrapping open, on‑chain studies of performance‑ and longevity‑oriented peptides. It funds early‑stage experiments that Big Pharma overlooks, publishes data and protocols openly, and lets token‑holders vote on what compounds move down the pipeline, keeping IP and incentives in the community’s hands.

Q3: What is the DeSci Alliance, and what role does it play in the ecosystem?

A3: The DeSci Alliance is the gathering spot for founders, funders, and friends of decentralized science—part amplifier, part town square. With roughly a thousand members, it sparks introductions across labs, projects,DAOs, and tooling teams so ideas, capital, and talent flow faster.

On the policy front, the Alliance serves as a daily help desk: pointing projects to practical regulatory resources, coordinating comment letters, and nudging every member to speak up when new rules are drafted. By turning that collective know‑how into a unified voice, the Alliance is steadily giving DeSci a seat at the table where research and innovation policy get set.

Q4: What are some of the key challenges builders and researches in DeSci are facing? Are there any common legal or regulatory roadblocks they run into?

A4: Builders and researchers in DeSci still hit a few stubborn walls: sustainable lab funding, wet‑lab access, IP management, and, most of all, murky rules. On the legal side, tokens that finance projects can look like unregistered securities, exposing founders (and even passive backers) to liability—recent U.S. court rulings are treating some DAOs as general partnerships and dragging investors in as well.

Once a project moves from benchtop data to human testing, it must thread the same FDA or EMA hoops as traditional biotech, and fresh guidance on decentralized clinical trials still demands IRB oversight, rigorous informed‑consent tracking, and compliant data handling.

Add in privacy laws like HIPAA/GDPR for patient data and unresolved IP ownership questions around on‑chain research objects, and you get a regulatory maze that can slow even the most agile project.

In short, the tech is permissionless, but the path to market definitely isn’t—navigating securities, clinical‑trial, and data‑privacy regimes remain the greatest challenges for DeSci teams.

Q5: How do you envision the DeSci space evolving over the next few years? For example, what types of individuals and/or institutions do you see gravitating towards the space now and in the next 2-3 years?

A5: Here’s how I see the next stretch playing out. First in the door will be the scrappy AI‑drug‑discovery and longevity founders who’ve watched BioDAOs like VitaDAO raise lab budgets in a weekend—those folks can smell momentum. Hot on their heels come the rare‑disease patient groups; they don’t have five years to wait for an NIH grant, so token‑funded N‑of‑1 trials look like a lifeline. The third wave is the “grown‑ups”: mid‑tier pharma, CROs, and university tech‑transfer teams who realize on‑chain IP deals and open data can shave months (and lawyers) off a licensing cycle. That mix drags in the supporting cast—reg‑savvy attorneys, data‑privacy pros, and policy analysts—who’ll iron out the securities, FDA, and GDPR wrinkles while keeping the permissionless spirit alive.

Q6: What policy areas are most important to the DeSci community right now? Are there any specific reforms or proposals the community would like to see?

A6: Policy chatter in DeSci keeps circling the same three pressure points. First, securities law clarity: a project’s tokens fund research but can look like unregistered securities, so builders are pushing the SEC for a “token‑safe‑harbor” rule that treats early‑stage utility tokens like Kickstarter perks instead of shares.

Second, clinical‑trial rules: once lab work reaches patients, everything passes through FDA—and the community wants the agency’s new decentralized‑clinical‑trial guidance to explicitly cover token‑funded N‑of‑1 studies and remote data capture so small DAOs aren’t forced into big‑pharma budgeting.

Third, data and IP: HIPAA/GDPR compliance and patent ownership for on‑chain IP‑NFTs still live in gray zones, so folks are drafting open‑license templates and lobbying for a sandbox where privacy‑preserving storage can be deemed compliant by default.

Q7: If you could leave policymakers and their staff with one key takeaway about why DeSci matters, what would it be?

A7: DeSci is science, unleashed. For too long discovery has been captive to grant panels and paywalled journals; now the tools of funding, data‑sharing, and collaboration flow directly to the public. By opening the purse strings and the lab notebooks at the same time, DeSci restores science’s original magic—curiosity that anyone can act on, innovation that doesn’t wait for institutional permission. Give that model room to grow and you’ll see faster cures, cleaner tech, and a citizenry re‑engaged in the wonder of finding things out.

Policy ask: carve out a clear token‑funding safe harbor and streamlined rules for decentralized trials so these community‑driven labs can operate compliantly and at full speed.

Q8: For readers looking to learn more about DeSci and use cases, what are some helpful resources to help them get up to speed? Any projects, platforms, or communities you recommend they check out?

A8: If you’re ready to dig in, start with DeSci Alliance—its X community give newcomers a one‑stop orientation and a direct line to builders, funders, and policy chatter.

Next, explore DeSci World: a live, crowdsourced map of the entire ecosystem that lets you filter by research focus, tooling layer, or open‑roles and see where your interests fit desci.world. For concrete use‑case inspiration, check out Circular Protocol, a purpose‑built Layer‑1 that’s securing clinical data and HIPAA/GDPR‑compliant health records on‑chain circularprotocol.org, and Causality Network, a dApp that proves the authenticity of IoT‑generated lab data with secure‑enclave signatures and zero‑knowledge storage—tackling reproducibility head‑on https://www.causality.network.

Those four stops—the Alliance hub, the ecosystem map, and two very different project blueprints—will bring any policy watcher or curious researcher up to speed fast. But most of all simply engage, ask questions, and reach out.

****

Look Ahead

Congress

Congress is in recess next week.

PGP for Crypto

• Wednesday, April 23 - Crypto Briefings and Roundtable Discussions.

SEC Roundtable

• Friday, April 25 - Know Your Custodian: Key Considerations for Crypto Custody.

Quick Hits

House E&C Moves Blockchain Bills: Last week, House Energy & Commerce advanced the Deploying American Blockchains Act of 2025 (Voice Vote) and Promoting Resilient Supply Chains Act (50-1). Full summary in Pro Newsletter.​

PROOF Act: Senators Thom Tillis (R-NC) and John Hickenlooper (D-CO) reintroduced legislation to prohibit crypto exchanges from commingling customer and company funds, and to require crypto exchanges and custodians to obtain monthly proof-of-reserves attestations from an independent third party. Full summary in Pro Newsletter.

DoJ Pushback: In a recent letter to the Deputy Attorney General, six Democratic Senators urged the DOJ to reconsider its recently announced shift in priorities when it comes to prosecuting cases involving digital assets.

Debanking: In a new article, Nic Carter catalogs the lead up to the collapse of Signature Bank, offering up evidence that the “FDIC seized Signature bank to invoke the Systemic Risk Exception, which would allow uninsured depositors at SVB and other banks to be made whole, even though Signature was solvent.”

• Full Article in Pirate Wires: “Signature Didn’t Have to Die, Either”

Trivia

Last Week’s A: Rep. Rick Allen represents Augusta, Georgia, home to the Augusta National Golf Club.

This Week’s Q: Which President started the first official White House Easter Egg Roll?

-GSL

• The House Financial Services Committee advanced the STABLE Act in a bipartisan 32-17 vote.

• The Senate Banking Committee advanced the nominations of Paul Atkins to be SEC Chair, Jonathan Gould to be Comptroller of the Currency, and Luke Pettit to be Assistant Secretary of the Treasury for Financial Institutions.

• Members of Congress introduced news bills to:

  • Clarify that crypto assets may be included in certain 401(k) plans;

  • Establish a tax incentive for digital asset miners using flared natural gas; and

  • Prohibit the CFTC from registering crypto platforms owned by foreign adversaries.

• A House Financial Services subcommittee discussed crypto-related scams and blockchain analytics at a recent hearing.

• Senator Elizabeth Warren (D-MA) and Rep. Maxine Waters (D-CA) are asking SEC Acting Chair Uyeda for more information about President Trump’s family ties to crypto, citing serious conflicts of interest concerns.

STABLE Act: On Wednesday night, the House Financial Services Committee (“HFSC”) passed the STABLE Act by a bipartisan 32-17 vote.

• Vote Breakdown: 26 Republicans & 6 Democrats voted Yes.

• Democrats voting Yes: Reps. Gregory Meeks (NY), Jim Himes (CT), Josh Gottheimer (NJ), Ritchie Torres (NY), Janelle Bynum (OR), Sam Liccardo (CA).

• Rep. Davidson was the only Republican to vote no.

Financial Technology Protection Act: HFSC also passed Rep. Zach Nunn’s (R-IA) Financial Technology Protection Act by a 49-0 vote. The bill would establish a working group focused on (1) researching illicit uses of digital assets and related emerging technologies and (2) developing policy proposals for combatting those uses.

No U.S. CBDC: HFSC also passed the Anti-CBDC Surveillance State Act, which would broadly prohibit the creation of a U.S. CBDC, by a 27-22 vote.

Financial Freedom Act of 2025: Rep. Byron Donalds (R-FL) and Senator Tommy Tuberville (R-AL) introduced the Financial Freedom Act of 2025. At a high-level, the bill would prohibit the Department of Labor from restricting the type and range of investment options that may be offered in certain self-directed retirement accounts.

FLARE Act: Senator Ted Cruz (R-TX) introduced the FLARE Act, which would allow companies to immediately deduct 100% of the cost of equipment used in flare gas mitigation systems, including systems used to power digital asset mining.

Senator Ted Cruz

@SenTedCruz

My legislation, the FLARE Act, incentivizes entrepreneurs and crypto miners to utilize natural gas that would otherwise be stranded.

cruz.senate.gov/newsroom/press…

278

1:32 PM • Apr 1, 2025

CFTC Registration: Senator Tommy Tuberville (R-AL) introduced the Prohibiting Foreign Adversary Interference in Cryptocurrency Markets Act. The bill would prohibit the CFTC from registering a digital commodity platform that is owned by an entity organized in a foreign adversarial nation.

Financial Fraud Hearing: On Tuesday, the House Financial Service Subcommittee on National Security, Illicit Finance, and International Financial Institutions held a hearing generally focused on combatting financial fraud. The hearing featured discussions of how to combat financial fraud involving crypto, including by leveraging blockchain analytics tools.

Senate Banking: The Senate Banking Committee advanced the following nominations out committee to the Senate floor:

• Paul Atkins to be SEC Chair by a 13-11 vote.

• Jonathan Gould to be Comptroller of Currency by a 13-11 vote.

• Luke Pettit to be Assistant Secretary of the Treasury by a 19-5 vote.

• Senator Elizabeth Warren (D-MA) and Rep. Maxine Waters (D-CA) sent a letter to SEC Acting Chair Mark Uyeda, asking for more information about President Trump’s family ties to World Liberty Financial.

• ​Letter.

FDIC: On Friday, March 28, the FDIC rescinded Financial Institution Letter 16-2022, clarifying that FDIC-supervised institutions may engage in permissible crypto-related activities without receiving prior FDIC approval.

DeFi Broker Rule Repeal

• H.J. Res. 25 - the DeFi broker rule repeal resolution - was officially presented to the President on April 1, so it could be signed into law any day.

Market Structure Hearings

• House Financial Services:

  • Wednesday - 10AM: “American Innovation and the Future of Digital Assets: Aligning the U.S. Securities Laws for the Digital Age.”

• House Ag:

  • Wednesday - 2pm: “American Innovation and the Future of Digital Assets: On-Chain Tools for an Off-Chain World.”

Nomination Hearing

• Senate Banking:

  • Thursday - 10AM: Hearing to examine several nominations, including Michelle Bowman to be Vice Chairman for Supervision of the Federal Reserve System.

SEC Roundtable

• Friday, April 11 - 1PM - 5pm: “Crypto Task Force Roundtable: Between a Block and a Hard Place: Tailoring Regulation for Crypto Trading.”

Last Week’s A: Senators Chuck Grassley (R-IA), Mitch McConnell (R-KY), and Patty Murray (D-WA) have casted over 10,000 votes.

This Week’s Q: Which former Vice President holds the record for casting the most tie-breaking votes?

-GSL

P.S. You are reading the free version of a Pro Newsletter. For more in-depth analysis of the week in crypto policy and real-time legislative tracking, learn more about CHC Policy Pro.

• Rep. Bryan Steil (R-WI) officially introduced the STABLE Act with 11 cosponsors, including three Democrats.

• House Republican Whip Tom Emmer (R-MN) and Rep. Darren Soto (D-FL) introduced the Securities Clarity Act.

• Reps. Zach Nunn (R-IA) and Jim Himes (D-CT) introduced the Financial Technology Protection Act.

• The Senate passed a resolution to repeal the IRS’s DeFi broker rule.

• The House Agriculture Committee held a hearing on the CFTC.

• The Senate Banking Committee questioned President Trump’s picks to lead the SEC and OCC.

• The FDIC is joining the OCC in removing “reputational risk” from bank examination materials.

House STABLE Act: On Wednesday, Rep. Bryan Steil (R-WI) officially introduced the “Stablecoin Transparency and Accountability for a Better Ledger Economy Act of 2025” or “STABLE Act” along with 11 cosponsors.

• ​Text.

• Cosponsors: Reps. French Hill (R-AR), Ritchie Torres (D-NY), Tom Emmer (R-MN), Bill Huizenga (R-MI), Dan Meuser (R-PA), Young Kim (R-CA), Tim Moore (R-NC), Troy Downing (R-MT), Josh Gottheimer (D-NJ), Mike Haridopolos (R-FL), and Sam Liccardo (D-CA)

• Detailed summary in Pro Newsletter along with comparisons to GENIUS.

Securities Clarity Act: Reps. Tom Emmer (R-MN) and Darren Soto (D-FL) introduced the Securities Clarity Act, a bill to clarify that a crypto asset sold as part of an investment contract is not necessarily itself a security.

Tom Emmer

@GOPMajorityWhip

Today, @RepDarrenSoto and I reintroduced the bipartisan Securities Clarity Act to codify, once and for all, that, like the orange groves in SEC v. W. J. Howey Co., a digital asset is separate and distinct from an investment contract through which it may be offered.

American

433

1:37 PM • Mar 26, 2025

​Financial Technology Protection Act: Reps. Zach Nunn (R-IA) and Jim Himes (D-CT) introduced the Financial Technology Protection Act. The bill would establish a working group tasked with (i) researching the illicit use of emerging financial technologies and (ii) developing policy proposals to improve AML and CFT efforts in the U.S.

Pro-Blockchain Resolution: Reps. Gabe Amo (D-RI) and Young Kim (R-CA) introduced a resolution urging federal agencies to explore and support ways blockchain technology can strengthen democracy, transparency, and human rights.

DeFi Broker Rule Repeal: On Wednesday, the Senate voted 70-28 to pass H.J. Res. 25, a Congressional Review Act resolution to repeal the IRS’s DeFi Broker Rule, sending the bill to President Trump. Roll Call. Full summary in Pro Newsletter.

OSTP Head Confirmation: The Senate confirmed Michael Kratsios to head the White House Office of Science and Technology Policy by a 74-25 vote.

Senate Banking Noms: The Senate Banking Committee held a nomination hearing, including President Trump’s picks to head the SEC (Paul Atkins) and OCC (Jonathan Gould). Senators questioned witnesses on debanking, promoting innovation, SBF’s parents, and the Consolidated Audit Trail. Full summary in Pro Newsletter.

House Ag Hearing: The House Agriculture Committee held a hearing on the CFTC’s track record of overseeing commodity futures markets, which included discussion of market structure, self-regulatory organizations, and cybersecurity. Full summary in Pro Newsletter.

Senator Cruz - Crypto in 401(k) Plans: Senator Ted Cruz (R-TX) sent a letter asking GAO to review whether Department of Labor guidance issued under the Biden Administration is a rule under the Congressional Review Act.

Senator Ted Cruz

@SenTedCruz

In 2022, the Biden Department of Labor issued Compliance Assistance Release No. 2022-01 to target crypto and restrict investment choices 401(k) plans—bypassing congressional oversight in the process.

Today, I asked the GAO to determine whether this guidance qualifies as a rule

314

8:27 PM • Mar 27, 2025

​Protecting Non-Custodial Software Developers: On Wednesday, the DeFi Education Fund led a broad industry coalition in a letter urging Congress to correct the DoJ’s “overly expansive” interpretation of an “unlicensed money transmitting business” so it does not expose non-custodial software developers to potential criminal liability.

• ​The Letter.

Debanking: The FDIC will no longer use “reputational risk” as a component of bank supervision.

David Sacks

@davidsacks47

Big win for crypto: @FDICgov is following @USOCC's lead in removing “reputational risk” as a factor in bank supervision. “Reputational risk” may sound good in theory, but it was defined as “the potential that negative publicity regarding an institution’s business practices,

U.S. Senate Banking Committee GOP

@BankingGOP

NEWS: The @FDICgov is going to eliminate the use of reputational risk as a component of bank supervision.
 
This follows the Committee’s passage of @SenatorTimScott’s FIRM Act, which would codify the elimination of reputational risk across all federal banking regulators.

3,079

10:28 AM • Mar 25, 2025

​Hester Peirce Remarks: In remarks to The Digital Chamber’s DC Blockchain Summit, SEC Commissioner Hester Peirce shared her personal thoughts on market structure, including strong support for protecting peer-to-peer transactions and decentralization.

Tornado Cash Delisting: Last Friday, Treasury delisted the Tornado Cash website and a series of related Ethereum addresses, but it remains unclear to what extent Treasury will keep Tornado Cash delisted. More background on the ongoing Tornado Cash case in The Rage here.

The House and Senate are in session.

Hearings Next Week

Tuesday

• 10AM - Illicit Finance Hearing: HFS subcommittee hearing on “Following the Money: Tools and Techniques to Combat Fraud.”

• 10AM - AI & Data Centers Hearing: House Oversight and Government Reform Committee hearing on “America’s AI Moonshot: The Economics of AI, Data Centers, and Power Consumption.”

Wednesday

• 10AM - Stablecoin Markup: The House Financial Services Committee is expected to markup the STABLE Act.

DC Events

• SEC Roundtables: The SEC announced four new roundtables, including one on April 11 from 1PM-5pm entitled: “Between a Block and a Hard Place: Tailoring Regulation for Crypto Trading Intermediaries.”

Stablecoins Make Headlines

• Trump-Backed Stablecoin: ​“Trump-Backed World Liberty Financial Confirms Dollar Stablecoin Plans With BitGo​” (CoinDesk).

• Tokenized Dollar Deposits: ​“Custodia and Vantage Bank partner for ‘first bank-issued stablecoin’” ​(Cointelegraph).

• Fidelity Tests Stablecoin: “Fidelity Testing Its Own Stablecoin as Firm Expands Crypto Efforts” (Decrypt).

• Creator Economy: ​“Rumble’s crypto wallet to use USDT, Bitcoin to ‘monetize creators better than advertisers’”​(CryptoSlate).

Last Week’s A: Senator John Thune played basketball at Biola University.

This Week’s Q: How many sitting U.S. Senators have cast over 10,000 votes?

Thanks for reading and enjoy your weekend.

-GSL

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Looking for more substantive summaries & analyses of the week in crypto policy?

Learn more about CHC Policy Pro.

• President Trump signed an executive order to create: (i) a Strategic Bitcoin Reserve and (ii) a U.S. Digital Asset Stockpile.

• The Senate voted 70-27 to pass Senator Ted Cruz’s (R-TX) resolution to repeal an IRS rule threatening DeFi in the U.S.

• House Energy and Commerce Committee advanced Rep. Darren Soto’s (D-FL) Consumer Safety Technology Act out of committee by voice vote, and Rep. Kat Cammack (R-FL) joined Rep. Soto in reintroducing the Deploying American Blockchains Act.

• Senate Banking Chairman Tim Scott (R-SC) introduced a bill to prohibit federal banking agencies from considering “reputational risk” when evaluating a bank’s safety and soundness.

• Rep. Sam Liccardo (D-CA) introduced the “MEME Act,” a bill to prohibit senior government officials from benefitting financially from issuing, sponsoring, or promoting certain assets, including memecoins and other digital assets.

• Senator Mike Lee (R-UT) introduced the Saving Privacy Act, which includes language prohibiting federal regulators from restricting an individual’s ability to transact with digital assets using a self-hosted wallet.

• House Rules Committee will meet at 4pm on Monday, March 10 to consider Rep. Mike Carey's resolution to repeal the IRS's DeFi broker rule.

On Thursday night, President Trump signed an executive order (the “EO”) to create a Strategic Bitcoin Reserve and U.S. Digital Asset Stockpile.

• “Establishment of of the Strategic Bitcoin Reserve and United States Digital Asset Stockpile”

• ​Fact Sheet.

Bitcoin Reserve

The Strategic Bitcoin Reserve (“SBR”) will be capitalized with bitcoin finally forfeited to the federal government as a result of criminal or civil asset forfeiture proceedings. § 3.

In addition, the Secretaries of Treasury and Commerce shall develop budget-neutral strategies for acquiring additional bitcoin, provided the strategies are “budget neutral and do not impose incremental costs on United States taxpayers.” § 3(c).

Bitcoin deposited into the SBR shall not be sold and shall be maintained as a reserve asset. § 3(b). However, Section 3(d) provides certain limited exceptions for release, such as when required by law or when digital assets should be returned to victims of a crime.

Digital Asset Stockpile

Like the SBR, the U.S. Digital Asset Stockpile will also be capitalized with digital assets forfeited to the federal government.

But unlike the SBR, the federal government will not acquire additional digital assets outside of those obtained through forfeiture or civil penalties, and Treasury may sell stockpile assets in accordance with strategies developed by the Treasury Secretary for the “responsible stewardship” of the stockpile. §§ 3(b)-(d).

Rationale

Section 1 provides background on why the White House believes this EO is good policy.

On Tuesday, the Senate passed Senator Ted Cruz’s (R-TX) resolution to repeal the IRS’s DeFi broker rule by a 70-27 vote. All voting Senate Republicans voted yes. 18 Senate Democrats—including Senate Minority Leader Chuck Schumer (D-NY)—and 1 Independent also voted yes. See ​Roll Call.

On Tuesday, the House Energy and Commerce Committee marked up twelve bills, including Rep. Darren Soto’s (D-FL) Consumer Safety Technology Act (“CSTA”), which passed by voice vote. The CSTA would direct the Department of Commerce and the Federal Trade Commission to study and report to Congress on how blockchain technology could be used to protect consumers, including by mitigating fraud and other deceptive practices. ​Text. Cosponsors: Rep. Kathy Castor (D-FL), Lori Trahan (D-MA).

On Wednesday, Reps. Kat Cammack (R-FL) and Darren Soto (D-FL) unveiled their “Deploying American Blockchains Act.” The bill aims to promote the deployment, use, application, and competitiveness of blockchain technology in the U.S. by directing the Secretary of Commerce to: (1) serve as the President’s principal advisor on blockchain-related matters, and (2) support U.S. leadership in blockchain technology, blockchain-based apps, tokens, and tokenization. ​Text.

Last week, Rep. Sam Liccardo (D-CA) introduced the Modern Emoluments and Malfeasance Enforcement Act or “MEME Act.” The Meme Act would prohibit senior federal government employees and their families from engaging in or benefitting from a “prohibited financial transaction.” A prohibited financial transaction would include issuing, sponsoring, or promoting certain investment assets—including digital assets, meme coins, coins, tokens, or NFTs—for pecuniary gain. ​Text; Cosponsors: 18 (all Democrats); Press Release.

On Thursday, Senator Tim Scott (R-SC) introduced the Financial Integrity and Regulation Management Act or FIRM Act. The bill aims to combat politically-motivated debanking by prohibiting federal banking agencies from considering “reputational risk” when evaluating a depository institution’s safety and soundness. ​Text; Cosponsors: All Senate Banking Republicans.

Please note: This is a free weekly newsletter. If you're looking for more detailed summaries and real-time tracking of legislation, check out the CHC Policy Pro content offerings here.

• Friday - 1:30PM-5:30PM: The White House will host a crypto summit convening industry CEOs and senior government officials.

• DeFi Broker Repeal: House Rules will meet on Monday at 4pm to consider Rep. Mike Carey’s (R-OH) CRA resolution to repeal the DeFi broker rule.

• Government Funding Watch: Congress needs to pass a government funding bill by Friday, March 14.

• Bitcoin:

Congressman Nick Begich

@RepNickBegich

It’s time for America to become the first BITCOIN superpower.

I am working on something ₿ig with @SenLummis

Stay tuned for next Tuesday. @btcpolicyorg

7,947

8:34 PM • Mar 6, 2025

​

House Financial Services - Tuesday, March 11 - 10AM

• ​Navigating the Digital Payments Ecosystem: Examining a Federal Framework for Payment Stablecoins and Consequences of a U.S. Central Bank Digital Currency.​

Senate Banking

Senate Banking is reportedly considering marking up stablecoin legislation as early as next week.

• Once scheduled, the markup will be noticed here.

Congress

• Stablecoins: Senator Elizabeth Warren (D-MA) previewed her criticisms of the Senate GENIUS Act in a floor speech this week, which include concerns Elon Musk could create his own stablecoin.

• No CBDC: House Majority Whip Tom Emmer (R-MN) led 100 cosponsors in reintroducing the Anti-CBDC Surveillance State Act.

• Privacy & Self Custody: Senator Mike Lee introduced the Saving Privacy Act, which includes language to protect the rights to self-custody and to transact with cryptocurrency.

• CFPB Payments Rule: The Senate voted 51-47 to repeal the CFPB’s final rule regarding supervision of large digital payment providers.

• Congressional Crypto Caucus: House Majority Whip Tom Emmer (R-MN) and Ritchie Torres (D-NY) launched a Congressional Crypto Caucus focused on advancing bipartisan crypto legislation through the House.

  • Op-Ed in CoinDesk: Beyond Party Lines: Securing America’s Crypto Innovation Edge.

SEC

• Enforcement: The SEC agreed to dismiss its cases against Kraken and Cumberland DRW.

• FOIA: History Associates, on behalf of Coinbase, filed a FOIA request seeking to uncover how much money the SEC has spent on investigations and enforcement actions involving issues related to digital asset sales, staking, and lending.

Last Week’s A: The state capitols of Minnesota and Rhode Island have the second and fourth largest self-supporting marble domes in the world, respectively.

This Week’s Q: Which two states do not observe daylight savings time?

-GSL

****

Good morning and happy Friday. This week, we dive into a new stablecoin bill and lawsuit against the SEC.​

• Senator Bill Hagerty (R-TN) unveiled a draft bill to establish a regulatory framework for stablecoin issuers, drawing heavily on Chairman McHenry's Clarity for Payment Stablecoins Act.

• Crypto.com is asking a federal district court in Texas to set aside the SEC's “de facto rule” that treats virtually all digital assets sales as securities, and declare the platform is not acting as an unregistered securities broker-dealer or clearing agency.

On Thursday, Senator Bill Hagerty (R-TN) unveiled a discussion draft for the Clarity for Payment Stablecoins Act of 2024.

• ​Text.

Similar to Chair Patrick McHenry's bill, Senator Hagerty's bill would establish reserve, disclosure, and redemption requirements for issuers, create pathways for bank and nonbank issuers, and delineate supervisory and enforcement roles for federal and state regulators.

Here's a high-level overview of key provisions:

Who may issue?

• Subsidiaries of insured depository institutions

• Nonbank entities

• State-qualified issuers, if:

  • Approved by a state regulator,

  • Issues stablecoins in compliance with minimum federal regulatory requirements, and

  • Has a market cap of $10 billion or less (though the issuer may ask for a waiver) See §§ 1, 3, 14.

More specifically, an issuer may opt for a state-level regulatory regime if:

What are the regulatory requirements?

In general, all issuers must:

• Back stablecoins on a 1:1 basis with certain reserve assets (e.g., U.S. coins and currency; funds held as demand deposits at banks; Treasury bills, notes, or bonds with a maturity of 93 days or less; certain money market funds; and more) (See full list in § 4(a)(1)(A)).

• Establish procedures for timely redemption and publicly disclose redemption policies.

• Disclose monthly composition of reserve assets on their website, and have this information examined by a registered public accounting firm & certified by the issuer’s CEO and CFO.

• Not rehypothecate reserve assets.

• Limit activities to those directly supporting the work of issuing and redeeming stablecoins.

• Comply with the Bank Secrecy Act. § 4.

In addition, all issuers must comply with capital, liquidity, and risk-management rules to be issued jointly by federal regulators. State regulators may also issue rules. § 4(a)(4).

How does an issuer get approved?

In the case of subsidiaries of insured depository institutions and nonbank issuers, the OCC would evaluate applicants based on the following factors:

• The ability of the applicant to meet the regulatory requirements outlined above based on the applicant's financial condition and resources.

• The general character and fitness of the applicant’s management.

• The risks presented by the applicant and benefits provided to consumers. § 5.

In general, the OCC would have 120 days to render a decision on a completed application or the application would be deemed approved. Id.

Denial of an application would require a written explanation and an opportunity for hearing. Id.

Who gets supervisory and enforcement authority?

For federally-approved issuers, federal banking regulators would have supervisory and enforcement authority, with the OCC having supervisory authority over nonbank entities. See § 6.

For state-qualified issuers, state regulators would have supervisory, examination, and enforcement authority. § 7(a).

However, in exigent circumstances (to be defined by rulemaking), the Fed could bring certain enforcement actions against a state-qualified issuer. See § 7(e).

Other Noteworthy Provisions

Customer Protection:

• Any person providing custodial or safekeeping services for stablecoins or private keys of stablecoins must: (a) be subject to Federal or state regulatory supervision, (b) segregate customer property, and (c) submit information to the Fed on their business operations and how they protect customer assets. § 8.

  • Note: Persons providing hardware or software to facilitate a customer’s self-custody are excluded from this section. § 8(e).

• Commingling of customer property with funds of the issuer or a custodian would also be generally prohibited. § 8(c).

Interoperability: Section 9 would direct federal stablecoin regulators to prescribe standards for issuers to promote interoperability.

Algos: Section 10 would place a 2-year moratorium on issuing “endogenously collateralized” (i.e. algorithmic) stablecoins that are not in existences on the date of enactment. During this period, Treasury would study endogenously collateralized stablecoins and report back to Congress.

Not Securities: Section 13 would clarify that payment stablecoins are not securities.

What's Next?

​In a press release announcing the draft, Senator Hagerty asks for feedback on the bill by November 1st.

It remains to be seen whether Congressional Democrats, Republicans, and the White House can reach an agreement in the lame duck. But as further evidence there's interest in finalizing a deal, Axios reported earlier this week that Rep. Maxine Waters (D-CA) floated her own updated stablecoin proposal to HFSC Chairman Patrick McHenry (R-NC).

On Tuesday, Crypto.Com filed suit against the SEC in the Eastern District of Texas.

In short, Crypto.com is asking the court to:

• Set aside the SEC’s “unlawful de facto rule” of treating nearly all digital assets as “crypto asset securities;”

• Stop the SEC from enforcing this de facto rule against Crypto.com;

• Declare that secondary-market transactions in digital assets on its platform are not securities transactions, and that Crypto.com is not required to register as a securities broker-dealer or clearing agency. See Complaint at 45.

The SEC sent Crypto.com a Wells notice in September. Id. at 15.

Crypto.com's preemptive suit allows the trading platform to frame the narrative first and choose a preferred venue (i.e., the Fifth Circuit).

De Facto Rule

Crypto.Com’s argues the SEC's asserted authority over secondary-market sales of crypto assets relies on an “unlawful de facto rule:” namely, that nearly all crypto assets and transactions involving them are securities (the “Rule”). Id. at 1.

Crypto.com points to various enforcement actions, proposed rules, final rules, orders, and statements by Chair Gensler advancing this theory as proof the SEC has, in effect, adopted the Rule. See id. at 27-29.

According to Crypto.com, the court must set aside the Rule under the Declaratory Judgement Act and/or the Administrative Procedures Act because the Rule:

• (i) is unlawful and exceeds the SEC's statutory authority,

• (ii) is arbitrary and capricious, and

• (iii) didn't go through the APA’s notice-and-comment process.

Here’s a closer look:

(i) The Rule is Unlawful

Crypto.com argues the Rule is outside of the SEC's statutory authority because secondary-market sales of digital asset tokens are not investment contract securities under the Securities Act of 1933 or Securities Exchange Act of 1934.

• Note: Crypto.com keys its analysis on “Targeted Network Tokens”: SOL, ADA, BNB, FIL, FLOW, ICP, ATOM, ALGO, NEAR, and DASH (tokens the SEC has designated as “Crypto Asset Securities” in prior actions).

For example, Crypto.com argues Targeted Network Token sales on Crypto.com are not securities under the Howey test because:

• Targeted Network Tokens do not appear in any statutory definition of security and do not share characteristics commonly associated with securities (e.g., profit-sharing, dividends, risk of loss).

• There’s no relationship between Crypto.com and issuers of Targeted Network Tokens.

• Crypto.com makes no representations and has no ongoing obligations to deliver future value or commitments to buyers.

• The buyer from Crypto.com does not invest in a common enterprise. See Complaint at 19-21.

Additionally, Crypto.com cites cases like SEC v. Binance and SEC v. Ripple Labs where courts have held that digital assets were not themselves investment contracts and certain secondary-market sales were not investment contracts. In particular, the Complaint drills down on the Binance court's rejection of the SEC's “embodiment theory” (i.e., that a digital asset is an investment contract because it can “embody” the promises and obligations made by the issuer to the initial buyer). Id. at 33-35.

The Complaint also flags recent bipartisan Congressional efforts (e.g., FIT 21, DCCPA) to regulate crypto markets as proof Congress has not granted the SEC the authority it asserts. See id. at 35-38.

(ii) The Rule is Arbitrary and Capricious

Crypto.com argues the Rule must be invalidated as arbitrary and capricious because the SEC treats Targeted Network Tokens differently than similarly situated assets: bitcoin and ether.

• “[T]he Targeted Network Tokens are similarly situated to bitcoin and ether because they are functionally identical and sold in the secondary-market to customers in an identical manner on the Platform.” See id. at 41-43.

Yet, “the SEC has never provided a reasoned explanation” as to why bitcoin and ether sales are not treated as securities transactions, but sales of Targeted Network Tokens are. Id. at 41-43.

(iii) The Rule Violated the APA’s Notice and Comment Requirements

Crypto.com also argues the Rule must be set aside because the SEC adopted the Rule without following the APA’s required process for notice-and-comment. Id. at 43-44.

What's Next?

Awaiting an SEC response in the form of an answer or motion to dismiss.

Crypto.com also filed a petition asking the SEC and CFTC to confirm that certain crypto derivative products are solely regulated by the CFTC.

The petition was filed pursuant to joint rules issued under the Dodd-Frank Act, which allow market participants to ask the CFTC and SEC whether a product is a “swap,” “security-based swap,” or “mixed swap.”

• See Joint Rules.

• See also Crypto.Com Press Release.

A Message from the Coinbase Institute

Join us for the DC Privacy Summit!

Explore the future of privacy online with leading technologists, privacy advocates, and policy-minded professionals.

Thursday - October 24, 2024

USC Capital Campus - Washington, D.C.

Please note: RSVP Required!

Courts

SEC v. Ripple Labs

• ​Ripple Labs files cross-appeal.

• ​Docket.

SEC v. Cumberland

• The SEC charged Cumberland DRW LLC with operating as an unregistered dealer in more than $2 billion of crypto assets offered and sold as securities.

  • ​SEC Press Release & Complaint.

  • ​Cumberland responds:

Operation Token Mirror

• U.S. Attorneys in the District of Massachusetts and the SEC charged individuals and market makers with criminal and civil charges related to allegations of widespread fraud and securities market manipulation via wash trading.

  • ​USAO Massachusetts Press Release.

  • ​SEC Press Release.

Tornado Cash

• Coin Center analyzes Judge Failla's recent decision to allow charges against Roman Storm to go to trial:

  • “The disappointing denial of Tornado dev's motion to dismiss.”

Tax

• Josh Jarret is challenging the IRS's taxation of block rewards.

  • ​Complaint & Coin Center Blog.

Administration

Operation ChokePoint 2.0

• ​In an article for Unchained, Veronica Irwin explores reports that the Fed and FDIC have told banks to cap deposits from crypto companies, and examines whether these charges violate the APA.

Last Week's A: The first vice-presidential debate was held on Oct. 15, 1976 between Walter Mondale and Bob Dole.

This Week's Q: When was the last time Congress passed all 12 appropriations bills via regular order on time?

Thanks for reading,

-GSL

• Senators Mike Lee (R-UT) and Rick Scott (R-FL) introduced the Saving Privacy Act - a bill to drastically reduce federal agencies' access to Americans' financial information without first obtaining a warrant.

• SEC Enforcement Director Gurbir Grewal is leaving the agency on October 11.

On September 25th, Senators Mike Lee (R-UT) and Rick Scott (R-FL) introduced the “Saving Privacy Act.”

• ​Text.

• ​One Pager.

In short, the bill would significantly limit federal agencies’ access to Americans’ personal financial information by amending the Right to Financial Privacy Act of 1978 and the Bank Secrecy Act.

For example, the bill would:

• Repeal various reporting provisions under the Bank Secrecy Act, including Suspicious Activity Reports and Currency Transaction Reports, while keeping certain recordkeeping requirements. See § 101(b)(3) (striking 31 U.S.C. §§ 5313, 5314, 5315, 5316, 5317, 5318A, 5324, 5326, 5331, 5332, and 5336).

• Amend the Right to Financial Privacy Act to narrow circumstances under which federal agencies can access U.S. citizens' financial information without a warrant. See §§ 101(a), 201.

• Repeal the Corporate Transparency Act, which requires businesses to report information about their ownership to FinCEN. § 101.

• Repeal the SEC’s Consolidated Audit Trail database, which has already sparked privacy concerns and a legal challenge from the DeFi Education Fund and Blockchain Association. § 301.

• Prohibit federal agencies from creating a database of personally identifiable information of U.S. citizens in the future without clear Congressional authorization. Id.

• Impose penalties on federal employees who illegally seek constitutionally protected financial information. Title VI.

As for CBDCs, the bill would:

• Prohibit the Fed, Treasury, or any other agency from minting or issuing a CBDC directly to individuals or indirectly through an intermediary. § 401.

The bill also aims to broadly rein in federal agencies' power by:

• Requiring Congressional review and approval of any regulations determined to be a major rule, and an opportunity for Congress to disapprove of any non-major rules. § 502.

  • Major rules would be those likely to result in an annual economic impact of $100 million or more; a major increase in costs/prices for consumers, industries, or governments; significant adverse effects on U.S. businesses; or an increase in mandatory vaccinations.

So What?

The bill has been referred to the Senate Committee on Homeland Security and Governmental Affairs.

It is unlikely to move this year, but serves as a marker of financial privacy advocates' priorities/wish list heading into next Congress.

On Wednesday, the SEC announced that Gurbir Grewal, the Director of Enforcement, is leaving the SEC on October 11.

​Sanjay Wadhwa will replace Grewal by serving as Acting Director.

​In its press release announcing the sudden departure (less than two weeks notice), the SEC specifically recognized Grewal's “leadership” on recommending over 100 enforcement actions in the crypto space, citing ongoing cases against Binance and Coinbase:

Chair Gensler's statement:

U.S. Securities and Exchange Commission

@SECGov

Today we announced that Gurbir S. Grewal, Director of the Division of Enforcement, will depart the agency, effective Oct. 11, 2024. sec.gov/newsroom/press…

437

2:38 PM • Oct 2, 2024

Members of Congress react:

​House Republican Whip Tom Emmer (R-MN)

Rep. French Hill (R-AR) - HFSC Digital Asset Subcomm Chair

A message from the Coinbase Institute

Join us for the DC Privacy Summit!

Explore the future of privacy online with leading technologists, privacy advocates, and policy-minded professionals.

Thursday - October 24, 2024

USC Capital Campus - Washington, D.C.

- RSVP Required -

​Produced by the journalism team at Project Glitch and presented by PGP* for Crypto, this first-of-its kind privacy summit brings together an elite lineup of technologists, researchers, and policy experts to explore the intersection of decentralized networks, advanced cryptography, and the law.

• Election: Tuesday, November 5.

• Congress returns: November 12.

Congress

Bring Tigran Home

• Rep. Rich McCormick (R-GA) and Tigran's wife, Yuki, joined the “Designated” podcast to discuss efforts to bring Tigran home and the devastating impact his detention is having on his wife and young kids (ages 5 & 10).

  • ​Tigran Gambaryan has been detained since February, reportedly without adequate medical care.

  • According to Rep. McCormick:

    • “This is an obvious case of holding somebody hostage to punish a business they have a problem with. He's just being treated absolutely horribly and he is an American citizen, and that should be taken very seriously by our government.”

  • ​Podcast.

  • Recap by Coin Desk's Amitoj Singh: “Is Daddy on the Airplane? Jailed Binance Exec Tigran Gambaryan Family's Ordeal in New Podcast”

Strategic Bitcoin Reserve

• Rep. Ro Khanna (D-CA) embraces idea of a strategic bitcoin reserve, telling Sam Lyman of Forbes:

  • “[B]itcoin that has been seized by the U.S. government should be used as a strategic reserve asset given its potential for appreciation.”

  • Full Forbes Article by Lyman here: “Bipartisan Support Builds For Strategic Bitcoin Reserve.”

GOP Majority Whip Tom Emmer

• Republican Whip Tom Emmer tells Mainnet crowd that Republicans would push to cut SEC funding if they control the House next Congress.

• ​Whip Emmer also tells Decrypt that aspects of FIT 21 could get included in a year-end spending bill.

DePIN Fly In

• Blockchain Association hosted a fly in focused on educating Hill staffers on decentralized physical infrastructure networks (DePIN).

  • Industry participants included: Helium, Filecoin Foundation, GEODNET, CESS Network, Hivemapper, Multicoin Capital, Coin Fund, and Storj.

2024 Election

Polling

• Grayscale, Coinbase, and Consensys partnered with pollsters to survey the potential impact of crypto owners on the 2024 election.

• Key Takeaways: Crypto owners may comprise a significant enough voting bloc to impact elections in battleground states, represent a diverse cross-section of the population, and are pretty much evenly spread amongst the Republican and Democratic parties.

  • ​Grayscale & The Harris Poll - “Election 2024: The Role of Crypto”

    • 1 Key Finding: More than three quarters (77%) of voters agree that “Presidential candidates should have an informed perspective on innovative technology, like AI or crypto.”

  • ​Coinbase & Morning Consult: “10 Things You Should Know About the Crypto Voter”

    • 1 Key Finding: “There are more than sixteen times the number of crypto owners in the seven key battleground states than the vote differential combined in these states in the 2020 Presidential election.”

  • ​Consensys & Harris X: “Crypto Voters and the 2024 Election”

    • 1 Key Finding: 40% of all voters are more likely to consider voting for the other party’s candidate if the candidate is pro-crypto.

    • See also Op-Ed by Bill Hughes, Consensys' Senior Counsel and Director of Global Regulatory Matters: “Kamala Harris knows crypto voters are up for grabs: New polls confirm.”

Articles

• ​Stand With Crypto Endorses 20 Republicans and 19 Democrats, but stays clear of Senate races in Michigan, Arizona, and Ohio (Sander Lutz; Decrypt).

• ​Senate Republican Challengers Make Case For Light-Touch Crypto Regulation at Mainnet (Brady Dale; Axios).

SEC

• The SEC will appeal Judge Torres's final judgement in SEC v. Ripple Labs; precise issues to be appealed tbd.

  • ​Notice of Appeal​.​

  • ​Docket.

Bitcoin Mining

• The U.S. Energy Information Administration published a report examining energy demand by data centers and cryptocurrency miners in Texas.

  • ​Report.

Digital Energy Council

@DigitalEnergyUS

1/Today @EIAgov released a report focused on Data Centers and #Crypto mining driving demand growth in Texas.

Areas of focus:
Uncertainty of large-load demand

How large flexible load sources could affect power generation

Impact of large-load demand on wholesale power prices

8

6:40 PM • Oct 3, 2024

Combatting Illicit Finance

• Meredith Fitzpatrick, Director of Cryptocurrency Investigations at the Forensic Risk Alliance, breaks down asset recovery in the context of custodial and non-custodial cryptocurrency wallets.

  • “Understanding Asset Recovery And Cryptocurrency Wallets”

Geofencing

• “A Practical Guide to Geofencing” by Variant Fund's Jake Chervinsky (Chief Legal Officer) and & Daniel Barabander (Deputy General Counsel.

Last Week's A: Nebraska and Maine do not follow a winner-take-all electoral college model. Instead:

• Maine allocates two electoral votes to the statewide winner and one electoral vote to the winner of each congressional district.

• Nebraska also allocates two electoral votes to the statewide winner and one electoral vote to the winner of each of its three congressional districts.

This Week's Q: The first vice-presidential debate was held between which two candidates?

Thanks for reading,

-GSL

• The House Financial Services subcommittee on digital assets held a hearing where Members debated the merits of the SEC's current regulation-by-enforcement approach and whether new rules tailored for digital assets would better protect consumers and innovation in the U.S.

• Rep. Zach Nunn (R-IA) introduced a bill to combat pig-butchering and financial fraud by clarifying that the federal government may help state and local law enforcement use blockchain tracing tools.

• House Majority Whip Tom Emmer (R-MN) and HFSC Chairman Patrick McHenry (R-NC) are asking the SEC to clarify the SEC's position on digital asset distributions via airdrops.

• President Trump used bitcoin to purchase cheeseburgers at the Bitcoin-themed PubKey bar in New York City.

On Wednesday, the House Financial Services subcommittee on digital assets held a hearing on “Breaking Down the SEC’s Politicized Approach to Digital Assets.”

• ​Hearing, committee memo, and witness testimony.

At a high-level, the hearing centered around whether the SEC should continue applying existing securities laws to bring enforcement actions against crypto market participants—or shift its focus to creating new rules better suited for the unique nature of digital assets, issuers, and intermediaries to better protect customers and innovation in the U.S.

The Rules Are Working

On one side of the debate, Democrats like Ranking Member Waters (D-CA), Stephen Lynch (D-MA) (Digital Asset Subcommittee Ranking Member), Brad Sherman (D-CA) and witness Lee Reiners (Lecturing Fellow at Duke University) echoed SEC Chair Gensler’s position that investors are best protected under the “long-standing” protections embedded in existing securities law. Creating new “light touch” regulations would only undermine such protections, they argued.

In support, they cited SEC successes in enforcement cases (e.g., LBRY) and rampant fraud in the industry. Reiners argued that passing bespoke laws for crypto would provide a “veneer of legitimacy” to the industry, which would ultimately hurt a greater number of retail investors.

The Rules Are Not Working / Could Be Improved

On the other side, committee Republicans, Democratic Reps. Ritchie Torres (D-NY) and Wiley Nickel (D-NC), and the majority of witnesses argued that updated rules are necessary, and would ultimately better protect customers while keeping innovation in America.

Here are some specific examples raised throughout the hearing as to why they believe the current regime isn’t working:

Intermediaries Struggle to Register

According to Robinhood’s CLO, Dan Gallagher, existing registration rules:

• (1) do not accommodate blockchain technology and

• (2) prohibit firms, like Robinhood, from listing non-security digital assets alongside digital asset securities.

Robinhood tried to heed Chair Gensler's call to “come in and register,” but to no avail. Gallagher said his team worked with SEC staff for months on developing a workable framework before receiving notice, without explanation, that talks would go no further. Months after that, Robinhood received a Wells notice.

Interestingly, this seemed to surprise even Rep. Maxine Waters, who replied “that’s odd,” after learning of Robinhood’s inability to register.

As a potential solution to registration roadblocks (absent legislation), Gallagher suggested the SEC could rely on its exemptive authority under Section 36 of the Exchange Act to work with market participants on tailoring frameworks.

What's a Digital Asset Security? / Disclosures

Members and witnesses also highlighted confusion around the threshold issue of determining when the SEC thinks a digital asset is a security or is offered/sold as a security.

For example, Rep. Torres noted that the term “digital asset security” is not defined in securities laws or any rules issued thereunder.

​Rep. Torres also highlighted the fundamental differences between traditional securities like apple stock – whose value is primarily determined by a centralized issuer (Apple corp.) – and certain decentralized digital assets, like a Pokemon card tokenized on a blockchain - whose value is not primarily determined by any centralized corporation.

Given such differences, Rep. Bryan Steil (R-WI), Jennifer Schulp (Cato), and Michael Liftik (Quinn Emmanuel) explained why they believe disclosure requirements for traditional securities don’t always make sense for digital assets. For example, current disclosure requirements may mislead investors by suggesting a connection between an issuer and a digital asset which may not, in fact, exist. In addition, the existing disclosure framework fails to contemplate information likely to be of high-importance to a digital asset investor (e.g., tokenomics).

Other

• Reps. Torres, Nickel, and others criticized SAB 121 and the SEC’s opaque process for granting relief (see, e.g., non-binding staff remarks last week);

• ​Teddy Fusaro (Bitwise Asset Management) explained how existing SEC rules increase costs for Bitcoin Spot ETPs by effectively prohibiting in-kind redemptions;

• Reps. Lynch and Casten flagged Trump’s son’s DeFi project, World Liberty Financial, as a serious conflict-of-interest concern.

Legislation

Throughout the hearing, there were calls for Congress to pass bipartisan market structure legislation like FIT 21 to address the issues outlined above.

There were also five pieces of draft legislation noticed for the hearing:

1. H.R. 5741 – The “Uniform Treatment of Custodial Assets Act” would effectively codify the repeal of SAB 121.

2. Rep. Timmon’s “New Frontiers in Technology Act” (Draft) would clarify that certain NFTs, like a collectible work of art, and transactions in those NFTs are not subject to securities laws.

3. Rep. Lucas’s “Securing Innovation in Financial Regulation Act” (Draft) would codify the Strategic Hub for Innovation and Fin Tech at the SEC and LabCFTC at the CFTC.

4. Rep. John Rose’s “BRIDGE Digital Assets Act” would establish a joint advisory committee on digital assets to advise the SEC and CFTC and harmonize digital asset policy.

5. A discussion draft bill would codify criteria for a securities broker or dealer to register as a “special purpose broker dealer” with the SEC.

It would seem unlikely these bills could become law this year given the extremely limited time remaining in the 118th Congress (though a SAB 121 repeal may have a chance), but they still offer a glimpse into how members are thinking about digital asset policy.

On Wednesday, Rep. Zach Nunn (R-IA) introduced H.R. 9480, the Empowering Law Enforcement to Combat Financial Fraud Act.

• ​Text.

• Cosponsors: Josh Gottheimer (D-NJ), Scott Fitzgerald (R-WI), and Brittany Pettersen (D-CO).

In short, the bill would:

• (1) Permit state, local and Tribal law enforcement agencies to use Federal grant funds to investigate financial frauds like “pig-butchering,” including by using blockchain intelligence tools. § 3.

• (2) Clarify that Federal law enforcement may assist state, local, and Tribal law enforcement in using blockchain tracing tools. § 5.

Pig-butchering is defined as:

• “a confidence and investment fraud in which the victim is gradually lured into making increasing monetary contributions, generally in the form of cryptocurrency, to a seemingly sound investment before the scammer disappears with the contributed monies.”

Background

Pig-butchering and the use of cryptocurrency to facilitate financial fraud, particularly against seniors, has increasingly come under lawmakers' scrutiny.

Last week, Senate Banking held a hearing on financial fraud targeting seniors, and the CFTC announced a joint initiative with federal agencies aimed at educating the public on pig butchering and “cryptocurrency romance scams.”

On Wednesday, an HFSC subcommittee held a hearing on the “Romance Confidence Scam Industry.” H.R. 9480 was one of three bills noticed for that hearing.

A message from Coinbase Institute

Join us for the DC Privacy Summit!

Explore the future of privacy online with leading technologists, privacy advocates, and policy-minded professionals.

Thursday - October 24, 2024

USC Capital Campus - Washington, D.C.

Please note registration is required!

Learn more about this groundbreaking event exploring the intersection of decentralized networks, advanced cryptography, and the law here.

Hearings

House Financial Services

• Tuesday, Sept. 24 - 10AM - 2128 Rayburn

  • ​SEC oversight hearing, all five SEC Commissioners are expected to testify.

Senate Banking

• Wednesday, Sept. 25 - 10AM - Dirksen 538

  • ​SEC oversight hearing with SEC Chair Gensler.

Movie Night?

• Screening of Dirty Coin: The Bitcoin Mining Documentary, Monday, September 23, 6pm @ Miracle Theatre DC. (Discount Code: Web3dc.)

Congress

Letters

• GOP Majority Whip Tom Emmer (R-MN) and HFSC Chairman Patrick McHenry (R-NC) sent a letter to SEC Chair Gary Gensler seeking clarification on the SEC's regulatory treatment of digital asset airdrops.

  • ​Letter.

SEC

Consensys

• A federal district court granted the SEC's motion to dismiss Consensys's lawsuit filed in April.

  • ​Order by Judge Reed O'Conner, N.D. Tex.

• Consensys had sought declaratory judgments that ETH is not a security and that transactions in ETH are not securities transactions (Counts I, II, III).

  • The Court dismissed these “ETH claims” as moot:

  • “Plaintiff concedes the ETH claims are now moot because of the ETH investigation termination and the SEC staff’s refusal to recommend an enforcement action.” Order at 4.

• Consensys had also sought a declaratory judgement preventing the SEC from subjecting Consensys to any unlawful investigation or enforcement action related to Consensys's MetaMask Swaps and Staking products (Count IV).

  • The Court dismissed this claim as unripe, finding “Plaintiff failed to identify final agency action that would render the claim fit for judicial review,” and “withholding consideration subjects Plaintiff to scant, if any, hardship.” Order at 6-9.

• Consensys statement in X Post (click for full statement):

• Note: Consensys is still facing SEC charges in the Eastern District of New York, where the SEC charged the software company with operating its MetaMask swap service as an unregistered broker and offering unregistered securities through MetaMask staking.

NFTs

• The SEC charged Flyfish Club, LLC with offering unregistered securities via its sale of 1,600 Flyfish NFTs.

• According to the Complaint, Flyfish marketed the NFTs, which could be used to gain access to a private dinner club, as an investment.

  • Flyfish agreed to pay a $750,000 civil penalty to settle the charges.

  • ​Press Release & Order.

  • ​Commissioners Peirce, Uyeda Dissent.

  • “The securities laws are not needed here, and their application is harmful both in the present case and as future precedent. The Flyfish NFTs were simply a different way to sell memberships. Why shouldn’t a chef be able to sell memberships to eat at her kitchen table and to collect royalties on resales of those memberships?”

DeFi

• The SEC charged DeFi platform, Rari Capital, and its founders with misleading investors and acting as unregistered brokers.

  • ​Press Release, Order, & Complaint.

2024 Election

• Former President Trump used Bitcoin to purchase cheeseburgers at PubKey, a Bitcoin-themed bar in NYC.

  • ​Video.

  • ​Article by Frank Corva, Bitcoin Magazine.

Creator Economy

• a16z, Stand With Crypto, and Open Sea launched the Creator Defense Fund, a “legal defense fund for creators using blockchain technology to connect with fans, monetize their work, and bring more creativity to the world.”

Last Week's A: John Quincy Adams (1824), Rutherford B. Hayes (1876), Benjamin Harrison (1888), George W. Bush (2000), and Donald Trump (2016) won the Electoral College but lost the popular vote.

This Week's Q: Which four U.S. states use the designation of “commonwealth” in their official title?

Thanks for reading and have a great weekend.

-GSL

September 13, 2024

Presented by the DC Privacy Summit​

Good morning and happy Friday. This week we dive into a DeFi hearing, agency updates, and a new legislative proposal.

• A House Financial Services subcommittee held a hearing squarely focused on DeFi, where Members explored potential benefits and ways to enhance consumer protections and mitigate illicit finance risks.

• Rep. John Rose (R-TN) introduced a bill to establish a joint advisory committee on digital assets dedicated to advising the CFTC and SEC on digital asset regulations and harmonizing agency policies.

• Twelve Republicans sent a letter to SEC Enforcement Director Gurbir Grewal, urging the SEC to reconsider its enforcement approach and focus on fair and transparent rulemaking.

• The SEC approved tZERO Digital Asset Securities as a special purpose broker dealer, clarified the staff's views on SAB 121 remain unchanged, settled securities registration violation charges against eToro, and stated crypto assets themselves are not securities in its amended complaint against Binance.

• The IRS published instructions for how brokers should fill out the 1099-DA tax form when reporting certain digital asset transactions that take place beginning in 2025.

On Tuesday, the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion hosted a hearing exclusively focused on DeFi: “Decoding DeFi: Breaking Down the Future of Decentralized Finance.”

• Full hearing, committee memo, and witness statements here.

• Republicans & Rep. Wiley Nickel (D-NC) painted DeFi as a nonpartisan tech issue, largely focusing on the technology’s potential to empower individuals, eliminate middlemen, expand access to financial services, and drive economic growth, while also looking for ways to mitigate risks related to hacks, scams, and illicit finance.

• Democrats, including Ranking Member Maxine Waters (D-CA) and Subcommittee Ranking Member Stephen Lynch (D-MA), were more skeptical, often focusing on illicit finance and consumer protection risks rather than benefits, and at times questioning whether DeFi was truly decentralized and warranted tailored rules.

• Many Members showed a nuanced understanding and interest in DeFi, with questions covering wide-ranging issues, from information asymmetries between DeFi project leads and protocol users, to DAO governance, quantum computing, use cases, and more.

Here's a closer look at some of the key recurring issues.

Risks: Consumer Protection & Illicit Finance

In general, both Republicans and Democrats wanted to know how to address risks relating to hacks, scams, and security vulnerabilities.

Throughout the hearing, witnesses responded by highlighting ongoing industry efforts to:

• Partner with law enforcement to identify and stop bad actors

• Incentivize reporting of incidents, vulnerabilities, or other security issues (see, e.g., Security Alliance)

• Improve consumer education efforts

• Train developers how to build safer ecosystems & appropriate systems management.

Rep. Stephen Lynch (D-MA) (Subcommittee Ranking Member), Rep. Bill Foster (D-IL), and Rep. Sean Casten (D-IL) all drilled down on illicit finance risks.

For example, after flagging the billions of dollars in crypto assets that were lost on DeFi platforms over the last few years due to “hacks, theft, or exploits,” Rep. Lynch (D-MA) questioned how bad actors would benefit if KYC/AML requirements did not apply to DeFi, and whether projects were actually decentralized.

• In response, witness Mark Hays (Americans for Financial Reform) suggested that bad actors would likely seek to exploit any regulatory gaps between TradFi and DeFi, while agreeing with the notion that not all DeFi projects are truly decentralized.

• Hays also advocated for improving disclosures and avoiding rug pulls (e.g., by standardizing white papers and making it so retail doesn't have to read code to understand project vulnerabilities).

Rep. Foster (D-IL) raised concerns that law enforcement is unable to identify and capture every bad actor who accesses DeFi through anonymous self-hosted wallets.

• ​Rebecca Rettig (Polygon Labs) explained that law enforcement can often trace illicit funds on a public blockchain faster than funds moving through traditional financial institutions, and that illicit finance detection in TradFi is also less than 100%.

• Later in the hearing, Rep. Warren Davidson (R-OH) & Peter Van Valkenburgh (Coin Center) pushed back against the notion that the government should have 100% surveillance and control capabilities over individuals' financial transactions, arguing financial privacy is an American value - and a Constitutional right.

  • See Rep. Davidson's clip here & Valkenburgh's clip here.

Rep. Casten (D-IL) argued there should be legal liability for people who create and maintain DeFi protocols, if the protocols are found to be violating AML laws.

• ​Amanda Tuminelli (DeFi Education Fund) countered that bad actors should be liable, not the developers, adding: “If I make a neutral tool that somebody uses to commit a crime, I should not be held liable for that person's conduct.”

• Rep. Casten wasn't happy with the response, calling it “bizarre” and characterizing developing a tool used to commit a crime as “aiding and abetting the commission of a felony.”

• See clip of exchange here.

Use Cases

Blockchain based use cases – particularly non-financial ones - were top of mind for several members, including Reps. Frank Lucas (R-OK), Brian Steil (R-WI), and Mike Flood (R-NE).

At a high-level, industry witnesses highlighted ways DeFi empowers individuals by mitigating or eliminating the need to trust or rely on third-parties, bolsters transparency via public blockchains, and expands financial inclusion through permissionless networks.

As specific examples, industry witnesses cited the California DMV digitizing 43 million car tiles to smooth the title transfer process, the delivery of humanitarian aid to Venezuela and Ukraine, and how decentralized blockchains can help content creators own their own data and IP without having to rely on a Big Tech third-party.

• Rettig also directed lawmakers to a use case database: “The Value Prop.”

Global Competitiveness

Several Members - including, Reps. Wiley Nickel (D-NC), William Timmons (R-SC), and Mike Flood (R-NE) - voiced concern that the current state of regulatory uncertainty is causing the U.S. to lose talent, entrepreneurs, and economic growth to foreign jurisdictions.

On this point, industry witnesses urged lawmakers to look to the examples of foreign jurisdictions, like the EU and Singapore, which have established rules for centralized crypto actors, while carving out DeFi to allow more time to study the issue and develop fit-for-purpose rules.

Legislation

There were two pieces of draft legislation noticed for the hearing.

First, the Evaluating DeFi Opportunities Act would direct the SEC, CFTC, Treasury, and the GAO to jointly study the potential benefits and risks of DeFi and report back to Congress.

• ​Text.

Second, another draft bill would direct Treasury to study privacy-preserving technologies used in connection with digital asset transactions and report back to Congress.

• ​Text.

A message from the Coinbase Institute

Join us for the DC Privacy Summit!

Explore the future of privacy online with leading technologists, privacy advocates, and policy-minded professionals.

Thursday - October 24, 2024

USC Capital Campus - Washington, D.C.

Please note registration is required!

Learn more about this groundbreaking event exploring the intersection of decentralized networks, advanced cryptography, and the law here.

House

• House Financial Services Digital Assets Subcomm.:

  • Weds. - 10AM - Dazed & Confused: Breaking Down the SEC's Politicized Approach to Digital Assets - 2128 Rayburn.

• HFS Nat. Security, Illicit Finance, and International Financial. Inst. Subcomm:

  • Weds. - 2PM - Protecting Americans' Savings: Examining the Economics of Multi-Billion Dollar Romance Confidence Scam Industry - 2128 Rayburn.

Senate

• Senate Judiciary Privacy, Tech, & Law Subcomm:

  • Tuesday - 2PM - An oversight hearing to examine AI, focusing on insiders' perspectives - 226 Dirksen.

• Senate Banking (not yet confirmed, per Politico):

  • Tuesday - Committee vote on FDIC Chair nominee Christi Goldsmith Romero.

Congress

Legislation

• ​Rep. John Rose (R-TN) introduced a bill to direct the SEC and CFTC to establish a “Joint Advisory Committee on Digital Assets” to advise the commissions on digital asset regulations and harmonize agency policies.

  • The joint committee would include at least 20 nongovernmental stakeholders (issuers, registrants, academics, and users).

  • Text: BRIDGE Digital Assets Act.

Letter

• 12 Republicans sent a letter to the SEC's Director of Enforcement, Gurbir Grewal, urging him to reconsider his current enforcement approach and the agency to refocus efforts towards fair and transparent rulemaking.

  • ​Letter.

SEC

New SPBD License

• tZERO Group announced the SEC and FINRA approved tZERO Digital Asset Securities as a new Special Purpose Broker-Dealer for digital asset securities custody, making it the second regulated broker-dealer digital asset security custodian (Prometheum being the first).

  • tZERO Press Release.

  • Look ahead: Keeping eyes out for how Congress and industry respond given the difficulty other market participants have faced when attempting to register with the SEC and uncertainty around which digital assets are considered securities and when.

SAB 121

• The SEC's Chief Accountant, Paul Munter, delivered remarks on “Accounting for Crypto-Asset Safeguarding Obligations” in which he clarified the staff's views in SAB 121 remain unchanged.

  • “In summary, the staff’s views in SAB 121 remain unchanged, and absent particular mitigating facts and circumstances, the staff believes an entity should record a liability on its balance sheet to reflect its obligation to safeguard crypto-assets held for others. I believe that such financial reporting provides relevant, timely information that investors need to assess the unique risks and uncertainties related to safeguarding crypto-assets for others.”

  • However, the remarks did offer specific fact patterns where the SEC has found an entity's safeguarding arrangements not within SAB 121's scope.

  • Fact patterns included cases involving a bank holding company, certain registered broker-dealers, and where entities used blockchain to facilitate certain types of tokenized transactions.

    • ​Full Remarks.

Enforcement

• eToro and the SEC settled charges that the firm operated as an unregistered securities broker and clearing agency.

  • eToro will pay $1.5 million to settle and remove most crypto assets from its platform, but the SEC will allow eToro to continue listing Bitcoin, Bitcoin Cash, and Ether.

  • ​Press Release & Order.

• ​In its amended complaint against Binance, the SEC said it's arguing that crypto assets are the subject of an investment contract, not the investment contract itself, despite having used the term “crypto asset securities” throughout its original complaint.

CFTC

• The CFTC's Office of Customer Outreach & Education is partnering with federal agencies (e.g., SEC, FBI, DHS), FINRA, and the American Bankers Association Foundation to combat pig-butchering scams, which they describe as “cryptocurrency relationship investment scams.”

  • The groups will distribute infographics outlining warning signs, protection methods, and what to do if you've been victimized.

  • ​CFTC Press Release & Infographic.

Tax

• The IRS published instructions for filling out Form 1099-DA - the form for brokers to report certain sale and exchange transactions of digital assets that take place beginning in 2025.

  • ​Form 1099-DA Instructions.

2024 Presidential

• VP candidate JD Vance cites crypto & AI as potential drivers of economic growth while appearing on the “All In” podcast:

  • “I think you could get a lot more growth...just by massively reducing the amount of regulatory burden in the real economy. And again, I'm an optimist, I'm fundamentally an optimist on both crypto, blockchain, web3 stuff, but also on AI. And you know, the way out of this may very well be to radically open up the way technological innovation drives things in the United States.”

  • ​See clip.

Op-Ed

• Former Senator Pat Toomey pens Op-Ed in The Hill:

  • “Congress needs to enact framework for sensible regulation of crypto.”

Stablecoins

• Castle Island Ventures and Brevan Howard Digital published a whitepaper investigating stablecoin usage in five emerging markets.

  • ​Stablecoins: The Emerging Market Story.

  • ​Here's a Nic Carter thread breaking down key findings.

Last Week's A: President Grover Cleveland signed a law establishing Labor Day as a federal holiday.

This Week's Q: Which five Presidents have won the electoral college despite losing the popular vote?

Thank you for reading and enjoy your weekend.

-GSL

• While votes on crypto legislation are likely on pause until after the election, September is expected to include Congressional hearings on DeFi, SEC oversight, and possibly more crypto-related issues.

• Uniswap Labs settled CFTC charges that it illegally offered leveraged or margined retail digital commodity transactions via a decentralized trading protocol, though two commissioners issued strongly worded dissents against the CFTC's action.

• The Federal Reserve is ordering United Texas Bank to strengthen its anti-money laundering compliance programs, after identifying “significant deficiencies” related to the bank's virtual currency customers and foreign correspondent bank accounts.

• Rep. French Hill (R-AR) once again called on the Nigerian government to release Tigran Gambaryan - a U.S. citizen, Binance executive, and former IRS employee - who is reportedly being denied medical care while being detained on money laundering charges that some U.S. lawmakers have described as “fabricated.”

After a long August recess, Congress returns next week. Here's a look at what to expect on the legislative front during the final four months of the 118th Congress.

Legislation

Pre-Election

The ​House​ and ​Senate​ are slated for session from September 9th to September 27th before breaking for an election recess until November 12.

Most pressingly, Congress needs to pass a government funding ​bill by September 30​.

On ​government funding​, there are two open questions. First, for how long will funding get extended: through December, setting up another year-end must-pass bill? Or through the start of the next Congress (March 2025)?

Second, what, if any, riders will get attached? The House is reportedly considering attaching the ​SAVE Act​ - a bill that would require proof-of-citizenship to register to vote, but the Senate and White House are expected to oppose the measure, potentially setting up a government shutdown fight.

Aside from government funding, the House and Senate are expected to focus floor time on ​political messaging​ bills they believe could help their Members (or hurt opponents), rather than bipartisan bills of substance.

In other words, it is unlikely any crypto legislation sees floor time before the election.

Post-Election

After the election, Congress has roughly five weeks of session left in the 118th Congress – often referred to as the “lame duck.” During a lame duck session, there is often a flurry of deal making as Members look to attach bills they’ve been working on for the last two years to “must-pass” bills before a new Congress gets sworn in and the legislative process begins anew.

“Must-pass” bills this year include the National Defense Authorization Act, Intelligence Authorization Act (which will likely get rolled into NDAA), and a debt limit increase (January 1 deadline).

• Helpful & handy guide of upcoming fiscal policy deadlines by Committee for a Responsible Federal Budget ​here.​

If crypto legislation passes this Congress, it would likely be during the lame duck via amendments to a must-pass bill.

Any final deal on legislation will likely depend in part on election results, and the expected balance of power next year. For example, if Republicans win the Senate, do they compromise with Democrats on market structure, or hold off until Senator Tim Scott (R-SC) and Senator John Boozman (R-AR) have more influence heading up Senate Banking and Senate Ag? Or, if Democrats take back the House, does now-Ranking Member Maxine Waters urge Democrats to hold off on crypto legislation until she is once again Chairwoman of HFSC and has more leverage crafting policies to her liking?

With these high-level considerations in mind, here's a closer look at what to watch for on some specific crypto policy issues:

Stablecoins

On stablecoins, there has been bipartisan support for legislation aimed at establishing clear rules for issuers, protecting customers, and improving transparency (e.g., establishing minimum reserve & disclosure requirements for issuers).

In the House, HFSC advanced Chairman McHenry’s ​Clarity for Payment Stablecoins Act​ last year by a 34-16 vote. In the Senate, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) proposed their ​own framework​ earlier this year, though that ​bill​ remains stalled in Senate Banking.

At a high-level, the House, Senate, and White House still need to hash out two key issues:

• (1) who should be permitted to issue stablecoins (e.g., only depository institutions?) and

• (2) to what extent should federal regulators have power over state qualified issuers (e.g., should the Federal Reserve have veto-power over approving state issuers?).

Market Structure

On market structure, Senate Majority Leader Chuck Schumer (D-NY) has voiced support for getting something done and bringing legislation to the floor in the lame duck. However, Senate Ag Chairwoman Debbie Stabenow (D-MI) is still working on her bill to regulate the digital commodities market. Chair Stabenow’s bill text has yet to go public, and plans to markup the bill before August recess were punted, ​with Stabenow pointing to a lack of Republican support​.

Of course, the House passed its own market structure bill – ​FIT 21​ – earlier this year with strong bipartisan support (​279-136​). So, even if Senate Rs and Ds get on the same page, they also have to work out a deal with Chair McHenry and House leaders to reconcile differences between House and Senate frameworks.

Notably, Chair Stabenow and Chair McHenry are both retiring this year – perhaps adding further incentive for both parties to reach a deal by year end.

Illicit Finance

On illicit finance, the House passed the ​Financial Technology Protection Act​ (“FTPA”) by voice vote under suspension of the rules earlier this year. (Notably, prior to the House floor vote, HFSC voted 50-0 to advance it out of committee).

The FTPA would create a working group tasked with studying and developing legislative and regulatory proposals to combat illicit financial transactions involving new technologies, including digital assets.

While more aggressive illicit finance proposals have been floated in the Senate (see, e.g., ​DAAMLA​; ​Terrorist Financing Prevention Act​), the lowest common denominator of bipartisan, bicameral support appears centered around a “study first” approach, similar to what’s included in the FTPA.

SAB 121 Repeal

Perhaps because this issue unites TradFi and crypto alike, few issues have garnered as much bipartisan attention as SAB 121. While the veto override vote fell short of the 2/3 threshold, the initial SAB 121 repeal resolution had a bipartisan majority in the House and a 60 vote (filibuster proof) majority in the Senate. Thus, it’s possible Congress has the votes to include a SAB 121 repeal bill in a must-pass bill, forcing the White House's hand.

Commerce

​The House passed three bipartisan bills focused on commerce-based use cases​ under suspension of the rules earlier this year. Given the bipartisan votes, perhaps at least one of these bills can make it across the finish line.

Of particular note, Rep. Darren Soto’s (D-FL) ​Consumer Safety Technology Act​ passed by voice vote on the House floor, signaling extremely broad bipartisan support.

The Consumer Safety Technology Act would:

• Direct the Department of Commerce and the Federal Trade Commission (“FTC”) to study how blockchain technology may limit fraud and other unfair or deceptive practices in commerce.

• Direct the FTC to study and report to Congress on FTC actions and recommendations for protecting consumers from unfair or deceptive practices involving digital asset tokens.

• Express numerous pro-blockchain findings, such as “tokens and blockchain technology are driving innovation and providing consumers with increased choice and convenience.”

Hearings

Despite slim chances of crypto legislation moving before election day, there's still plenty to watch for on the hearings front in September.

Schedules are still being finalized, but here’s a quick look at what could be ahead:

House Financial Services

Locked In:

• Tuesday, Sept. 10 - 10 AM - ​Decoding DeFi: Breaking Down the Future of Decentralized Finance.​

​Tentative (per Coin Desk)​:

• Wednesday, Sept. 18 – Two hearings: one on SEC enforcement practices & another on “pig butchering”

• Wednesday, Sept. 23 – SEC oversight hearing - including Chair Gensler and the full five-member commission.

Senate Banking

• Senate Banking could hold a committee vote to advance nominations of SEC Commissioner Caroline Crenshaw to serve another term and CFTC Commissioner Christy Goldsmith Romero to become Chair of the FDIC.

• ​Senate Banking may also be holding its own SEC oversight hearing​ with Chair Gensler in September.

Senate Ag Committee

• If Senator Stabenow is able to get bipartisan support for a market structure bill, perhaps Senate Ag tries to markup the bill before the end of September.

Presidential Debate

• First Presidential debate between VP Harris and Former President Trump is next Tuesday at 9pm on ABC news.

Tigran Gambaryan

• Tigran Gambaryan - a U.S. citizen (Georgia resident), Binance's head of financial crime compliance, and a former IRS agent - remains detained in Nigerian prison on charges related to money laundering.

  • According to a spokesperson and his wife, Yuri, Gambaryan is being denied access to medical care that could lead to permanent damage, as well as proper access to his lawyers and U.S. embassy staff.

  • In July, Reps. French Hill (R-AR) and Rich McCormick (R-GA), introduced a resolution urging Nigeria to immediately release Tigran, describing the charges against him as “​fabricated​.”

    • ​Resolution​.

    • Reps. Chrissy Houlahan (D-PA) and Tom McClintock (R-CA) are cosponsors.

    • Article with more background on case and Gambaryan's medical situation ​here​.

  • On Wednesday, Rep. French Hill (R-AR) once again urged the Nigerian government to release Tigran.

Enforcement

CFTC

• The CFTC filed and settled charges against Uniswap Labs, alleging Uniswap Labs illegally offered leveraged or margined retail commodity transactions involving bitcoin and ether via a decentralized digital asset trading protocol.

• CFTC Press Release & Order

• Uniswap Labs agreed to pay $175,000 to settle charges

• ​Commissioner Summer K. Mersinger Dissents

• Commissioner Caroline D. Pham Dissents

• Uniswap CLO post on X:

Katherine Minarik

@MinarikLaw

Today Uniswap Labs resolved a CFTC matter, about a fraction of a percent of trading through our interface of a handful of tokens, for a $175k fine in a standard no admit-no deny settlement. We are glad to put this to rest and stay focused on building the future of DeFi for all.

383

12:08 PM • Sep 4, 2024

SEC

• The SEC filed and settled charges against Galois Capital Management LLC for alleged violations of the Investment Advisers Act, including failing to keep clients' crypto assets with a “Qualified Custodian” and permitting certain clients to redeem fund assets on shorter notice than required by the firm's disclosed policy.

  • ​SEC Press Release & Order.

  • Galois will pay $225,000 to settle.

  • ​Galois statement responding to the charges and settlement

    

    Federal Reserve

    • The Federal Reserve and Texas Department of Banking issued a cease & desist order requiring United Texas Bank to improve its board oversight, corporate governance, BSA/AML compliance program, customer due diligence, suspicious activity monitoring and reporting, and OFAC compliance.

      • According to the order, bank examiners identified “significant deficiencies related to foreign correspondent banking and virtual currency customers,” specifically regarding risk management and BSA/AML compliance. Order at 1-2.

      • ​Order Text.

    Presidential Election

    • ​In a speech at the Economic Club of New York, Former President Trump once again appealed to the crypto voter, stating:

      • “Instead of attacking industries of the future, we will embrace them, including making America the world capital for crypto and Bitcoin.”

    Trivia

    Last Week's A: In the 1972 Presidential election, Robert Sargent Shriver replaced Thomas Eagleton as George McGovern's Vice Presidential nominee.

    This Week's Q: Which President signed into law a congressional act making Labor Day a federal holiday?

    ​

    Thank you for reading.

    And go BC .
    

Nic Carter is a Founding Partner at Castle Island Ventures – a venture capital firm focused exclusively on public blockchains.

Prior to Castle Island Ventures, Nic worked at Fidelity as a crypto asset investment research analyst before building Coin Metrics.

The interview below aims to shed light on how an entrepreneur and investor is viewing the state of crypto and policy in the U.S. The Q & A that follows has been edited lightly for clarity, with certain sections emphasized in bold.

Question 1: How did you first become interested in blockchain technology and what gave you the conviction to build you own business and investment firm in this space?

A1: I started mining DOGE on my gaming rig in college. I just thought it was interesting and fun. Later, I became focused on Bitcoin, especially the emerging ideology underpinning the network. Around 2015/16, I became convinced that I wanted to pivot my career to focus entirely on Bitcoin. I went to business school, started a project called Coin Metrics, and wrote my dissertation on cryptoasset governance. Through that, I was lucky enough to get connected to the early crypto team at Fidelity, and then ended up leaving and starting Castle Island. From what I recall, there was never any real question as to whether I wanted to work in crypto – I was just totally consumed with it and knew 100% that that’s what I wanted to do with my career. I couldn’t imagine doing anything else. I’ve always been entrepreneurial and knew I wanted to start a business, although I didn’t at the start realize it would take the form of being a VC.

Question 2: Where do you think blockchain is in terms of its long-term adoption potential by main street and wall street? (e.g., early innings?)

A2: Bitcoin – mature. It’s almost fully integrated into the mainstream plumbing of finance and asset management.

DeFi – very immature. Unclear whether it comports with the current paradigm of financial surveillance, KYC, etc.

Tokenized RWAs– still early on the journey, but promising signs this year.

Stablecoins – getting there! Seeing extremely fast adoption of stablecoins among major payment networks, banks (ex-US).

Question 3: What are some projects you are most interested in at this time and why?

A3: Bitcoin of course, and the emerging L2 ecosystem on Bitcoin. Hoping we see “true” rollups on Bitcoin sometime in the next 12 months, tracking BitVM v2 closely as an enabler there. Restaking on Bitcoin which can share [Proof-of-Work] security for [Proof-of-Stake] chains (like Babylon – full disclosure, we are investors) is also exciting.

In terms of DeFi, Solana is my main ecosystem focus. The monolithic viewpoint seems to be winning out, and most founders we talk to that are building crypto-native companies are opting for Solana (and other newer high-throughput blockchains like Monad).

And all things stablecoins. They’re about 80% of my focus at the moment. In particular I’m interested in fintech adoption of stablecoins, especially in emerging markets. This is a domain where crypto is making a real, tangible impact on people’s lives. We don’t have to talk in circles and be abstract – stablecoins simply make transacting cheaper, faster, and more efficient, especially in cases where payment networks are sclerotic or inefficient. In terms of specific projects I am particularly interested in the emerging cohort of natively interest-bearing stablecoins.

Question 4: To what extent does the current lack of regulatory clarity at the federal level affect your team’s decision making when it comes to when and where to make investments?

A4: It’s paramount. We of course invest through the cycles regardless, but the lack of clarity – and of course, the open hostility to crypto in Washington – is a significant barrier to founders starting and growing their businesses, and general adoption. We increasingly look abroad for deals although we would prefer to invest in the U.S. The lack of clarity makes investing in tokens tricky, as current interpretations of securities law force founders to make their tokens empty husks instead of actually useful financial products with cash flows and meaningful governance.

And of course regulatory policy in this country is holding back crypto adoption via banks, both through initiatives like Operation Choke Point 2.0 and bad rules like SAB121.

Stablecoins are also still in the wilderness due to a lack of legislation. We believe that the crypto industry would be significantly more vibrant and founder-friendly if Washington could pass any rules whatsoever.

Question 5: Drilling down on more specific policy issues, you’ve written about the advantages of private, permissionless stablecoins. As Congress continues to debate stablecoin legislation this year, what key principles would you like to see in any bill that could get signed into law?

A5: Without commenting on the particulars of the draft bill(s), the most important thing is upholding the cash-like properties of stablecoins. This means maintaining the status quo of stablecoins which some have dubbed ‘permissioned pseudonymity’ – that is, issuers know who is creating and redeeming stables, but [peer-2-peer] transactions on the blockchain are largely private and unrestricted. This is analogous to how physical cash works. Note that this paradigm is compatible with financial enforcement needs, as major stablecoin issuers do have freeze and seize functions which they use to combat illicit finance.

It’s vitally important that as finance is digitized, we retain the ability to make cash-like transactions. This has largely been lost since the 70s due to developments like the Third Party Doctrine and the [Bank Secrecy Act]. Stablecoins are our best bet to bring back the important qualities of cash in the digital world.

Other than that, I would hope to see a state path for chartering stablecoin issuers. Fully federalizing stablecoins is unnecessary and marginalizes the important role the states have played in banking regulation in this country. And lastly, I would hope that any such legislation would not erect any insurmountable barriers to entry for new issuers. The worst case would be a coronation of incumbents which would reduce the vibrancy and competitiveness of the sector.

Question 6: Combatting illicit finance transactions that involve digital assets is an issue that has been top of mind for many Members of Congress. What are some ways policymakers could address these concerns without unduly stifling financial privacy and innovation in the U.S.?

A6: Crypto comports well with the need to combat illicit finance. Blockchain transactions are indelible and highly legible. Companies like TRM and Chainalysis have developed sophisticated tools to combat illicit flows on-chain. Compared with illicit flows via banks or cash networks, crypto offers a better experience for law enforcement. This fact pattern is quite well established at this point in my opinion.

Question 7: You’ve also written about “Operation Chokepoint 2.0” (See “Operation Choke Point 2.0 Is Underway, And Crypto Is In Its Crosshairs” article from Feb. 8, 2023). Do you think there is still a coordinated effort by banking regulators to deny crypto firms access to banking? Why or why not?

A7: Yes, this is still very much ongoing, and it’s broadened beyond just crypto towards embedded finance, fintech, and really any banks that support or sponsor technologically-enabled banking. Banks that serve these kinds of partners face a significantly higher risk of FDIC examinations or recriminations from the Fed and other financial regulators.

Gruenberg, who presided over OCP 1.0 and 2.0, is still the chair of the FDIC despite his pending resignation, and banks are still faced with deposit caps for crypto-focused clients. This is a huge headwind holding back the industry, and a very regrettable one. From the perspective of a VC this is the number one issue holding back our [portfolio companies] – it just makes building a crypto business in the US much more capital intensive, especially if they depend on any kind of transactional banking.

Question 8: Some in the crypto community are hopeful that if Vice President Kamala Harris becomes President, there would be a “reset” in the current Administration’s posture towards crypto. Do you see this as a likely possibility? Why or why not?

A8: I think that’s incredibly unlikely. VP Harris hasn’t herself made any comments about crypto. All we’ve heard are musings from her aides that there could be a rapprochement. Harris was the most liberal member of the Senate under her tenure, and even though she has made noises about moving to the center with her platform generally, I don’t think she changes her stripes that easily. The fact that Ramamurti (an infamous Warrenite and a noted crypto skeptic) is advising her campaign is also troubling. I see no reason to assume that a Harris admin would be any warmer towards crypto (ultimately, crypto itself is generally at odds with the progressive viewpoint, in my opinion). I think the notion of a reset is wishful thinking on the part of Democrats that work in the crypto space.

Question 9: Others in the community are concerned that while Former President Trump has promised to be a strong crypto-ally on the campaign trail, he may be merely paying lip service to the crypto community to garner the crypto vote and campaign donations. Do you share these concerns? Why or why not?

A9: I think this is silly. First of all, under Trump, crypto policy was considerably better (Brian Brooks passed the Fair Access rule prohibiting Choke Point style behavior for instance). And the Republicans have made a full commitment to the values of crypto as part of their platform. Trump of course has explicitly endorsed crypto and made very specific promises to the crypto cohort. His VP JD Vance is a Bitcoin holder and clearly very aligned. Other folks in his circle like Ramaswamy are also authentically pro crypto. Trump and his family are active crypto entrepreneurs even, via his NFT project and his son’s DeFi project. Trump couldn’t be more pro-crypto if he tried.

And there’s the matter of the Senate. If Republicans carry the Senate, it’s virtually guaranteed that we get meaningful clarifying legislation – and even in the case of a Harris victory, the Genslers of the world would not be confirmed.

Question 10: What resources would you recommend to individuals who want to know where candidates for House, Senate, and White House stand on crypto policy ahead of the 2024 election?

A10: I like Coinbase’s Stand With Crypto database which has ratings to see where various politicians stand on crypto. Although it’s worth noting that political views on crypto are fluid and some may be opportunistic. Generally, my view is that we should first and foremost support the industry champions that have a multi-year track record defending the industry and writing legislation that will help it thrive domestically.

******

Thank you for reading. Enjoy your Labor Day weekend!

-GSL

• Treasury has officially withdrawn a rule first proposed under the Trump Administration that would have expanded Bank Secrecy Act reporting requirements to transactions involving crypto and self-custody wallets.

• Prometheum Capital, a FINRA approved special purpose broker dealer, told Coin Desk that it plans to custody UNI and ARB for customers, despite regulatory guidance from the SEC suggesting that SPBDs may only custody digital assets that are securities and no clear legal indication that UNI and ARB are securities.

• Brian Nelson, a campaign advisor to VP Harris, told Bloomberg News that Harris “is going to support policies that ensure that emerging technology and that sort of industry can continue to grow,” when asked about the VP's engagement with the crypto community.

• Senator Tim Scott (R-SC) said he would establish a digital asset subcommittee within Senate Banking if Republicans control the Senate and he is Chairman next Congress.

Withdrawal

Treasury has withdrawn a proposed rule that would have required banks and money service businesses to apply recordkeeping and reporting requirements under the Bank Secrecy Act to certain transactions involving crypto assets held in unhosted wallets.

The announcement was published in the Federal Register as part of Treasury’s semiannual update on the agency’s regulatory agenda.

• The semiannual update was issued pursuant to Section 602 of the Regulatory Flexibility Act, which directs federal agencies to describe the status of regulatory actions under development, if they will have a significant economic impact on a substantial number of small entities.

Proposed Rule Background

The draft wallet rule was initially proposed under President Trump by Treasury Secretary Steve Mnuchin in December 2020 (i.e., right before the Trump Administration ended).

Per the Notice of Proposed Rulemaking published at the time, Treasury would have required banks and money services businesses (e.g., exchanges) to submit reports, keep records, and verify customers’ identity in relation to transactions above certain thresholds if the transactions involved convertible virtual currency and an unhosted wallet (or wallets hosted in jurisdictions identified by FinCEN as having deficient crypto AML regulations (e.g., North Korea, Iran)).

From the outset, industry strongly condemned the proposal as rushed (initially only allowed for a 15 day comment period) and anti-innovation.

• See, e.g., Coin Center Blog (Dec. 18, 2020) “A Midnight Rule for Cryptocurrency Transaction Reports:”

  • “[T]his rulemaking takes a bulk warrantless surveillance regime and applies it to an innovative technology with little opportunity for public comment. This is especially problematic given the complicated implications of the proposed recordkeeping requirements which may, as described in the next section, meaningfully stymie innovation.”

The rule was never finalized.

So What?

The notice published in the federal register provides a sense of finality to a rule that had been pending in limbo for years. In theory, an administration could propose a similar rule in the future, but Treasury would have to start the rulemaking process anew (e.g., issue a new notice of proposed rulemaking, allow for a public comment period, etc.).

Overview

​According to a new story by CoinDesk's Jesse Hamilton, Prometheum Capital - an SEC and FINRA approved special purpose broker dealer (“SPBD”) focusing its business on digital assets - is planning to provide custody services to institutional customers for the Uniswap (“UNI”) and Arbitrum (“ARB”) tokens.

The move may draw Congressional and regulatory scrutiny, as current SEC guidance suggests SPBDs may only custody digital asset securities that are registered or qualify for an exemption under securities laws.

Background

FINRA approved Prometheum Capital as an SPBD on May 17, 2023.

• ​SPBDs are broker-dealers that operate within the securities industry and have been authorized to engage in specific activities or cater to specific securities, in this case, digital asset securities.

In December 2020, the SEC published guidance (“SPBD Guidance”) setting forth conditions under which an SPBD could custody digital asset securities without fear of an enforcement action relating to certain violations of the SEC’s Customer Protection Rule.

• Note: The guidance was issued as a “Commission statement” and “request for comment,” so it is technically not a rule, and expires in five years from its effective date.

More specifically, the Customer Protection Rule requires a broker-dealer to promptly obtain and maintain physical possession or control of securities they are holding for customers. The SEC, then chaired by Jay Clayton, issued the SBPD Guidance to address concerns that this requirement posed unique challenges in the context of custodying digital assets.

Crucially, to qualify for the enforcement action relief under the SPBD Guidance, a broker-dealer must limit its activities to those involving digital asset securities.

• See SPBD Guidance Introduction (stating: “[T]he Commission's position in this statement is premised on a broker-dealer limiting its business to digital asset securities to isolate risk…”); See also SPBD Guidance at PDF pg. 5 (listing as a minimum requirement: “The broker-dealer limits its business to dealing in, effecting transactions in, maintaining custody of, and/or operating an alternative trading system for digital asset securities.”)(emphasis added).

Another minimum requirement is that: “The broker-dealer establishes, maintains, and enforces reasonably designed written policies and procedures to conduct and document an analysis of whether a particular digital asset is a security offered and sold pursuant to an effective registration statement or an available exemption from registration[.]” SPBD Guidance at PDF pg. 5 (minimum requirement number three).

Tie to Congress

Prometheum has already drawn Congress's attention on multiple occasions.

In June 2023, Prometheum Co-Founder Aaron Kaplan testified at a HFSC hearing on the “future of digital assets,” giving rise to a debate on the workability of existing registration requirements. On the one hand, Ranking Member Maxine Waters (D-CA), Rep. Stephen Lynch (D-MA), and Kaplan pointed to Prometheum’s SPBD license as a counter to industry arguments that it’s impossible for crypto firms to comply with existing securities laws.

On the other hand, Members like Rep. Mike Flood (R-NE) and hearing witnesses argued Prometheum has not actually shown it operates a viable business, and cannot, because of the lack of regulatory clarity around which digital assets are securities.

Shortly after the hearing, Rep. Ritchie Torres (D-NY) called for two investigations into the SEC’s decision to grant Prometheum an SPBD license stating:

• “Prometheum appears to be nothing more than a Potemkin platform, operating as a timely talking point for crypto critics rather than a true trading platform for crypto customers.”

​Senator Tommy Tuberville (R-AL) also led a letter to Attorney General Merrick Garland raising concerns about inconsistencies between Kaplan’s HFSC hearing testimony and SEC filings with respect to Prometheum’s relationship with two Chinese firms.

Most recently, when Prometheum Capital announced it would custody ETH earlier this year, House Financial Services Chairman Patrick McHenry (R-NC) and House Ag Chairman Glenn Thompson (R-PA) led 48 Republicans in a letter to SEC Chair Gensler seeking clarity on the SEC's position regarding an SPBD's ability to custody non-security digital assets and the regulatory classification of ETH.

• ​Letter (March 26, 2024).

What’s Next?

Given all of the above, perhaps another Congressional letter is on the way, this time seeking clarification as to whether the SEC thinks ARB and UNI are securities and shared that view with Prometheum, whether Prometheum still plans to custody ETH despite the SEC now having recognized ETH is a commodity by approving a spot Ether ETP, and whether Prometheum could remain in compliance with existing SPBD Guidance by taking custody of any customer's digital assets.

​Congress returns to session on September 9th.

• Congress needs to pass a funding bill by September 30th.

Congress

• Senator Tim Scott (R-SC) told an audience at the Wyoming Blockchain Symposium that he would establish a digital asset subcommittee within the Senate Banking Committee if Republicans control the Senate next Congress. Senator Cynthia Lummis (R-WY) would chair the committee, which would be the first of its kind in the Senate.

  • As of this morning, Polymarket odds put GOP control of the Senate next Congress at 72%.

  • More on Senator Scott's and Senator Lummis's panel, including discussion of how crypto legislation might be able to pass in the lame duck, by CoinDesk's Nikhilesh De here.

Campaign/Finance

Democratic Convention

• On Wednesday, Vice President Kamala Harris's campaign advisor Brian Nelson told Bloomberg News at a roundtable event:

  • “She's going to support policies that ensure that emerging technology and that sort of industry can continue to grow,” when asked about the VPs efforts to engage the crypto community. See full story in Bloomberg by Hadriana Lowenkron (paywalled).

• The Democratic Party officially adopted its “Party Platform,” but there was no mention of crypto.

Former President Trump

• Former President Trump shared a post on Truth Social promoting a telegram channel linked to his sons' forthcoming DeFi project.

Campaign Finance

• ​Public Citizen published a report raising concerns with the amount of money “Big Crypto” has spent on federal elections.

  • Report: “Big Crypto, Big Spending”

  • According to the report relying on data from Open Secrets, crypto corporations have poured in over $119 million into federal elections, accounting for “nearly half (48%) of all corporate money contributed during this year’s elections.”

• “Dem megadonor abandons crypto super PACs” - (Eleanor Mueller; Politico)

• U.S. Attorneys in S.D.N.Y. are charging former Congressional Candidate Michelle Bond with violating campaign finance laws, alleging she illegally financed her campaign by arranging a “sham $400,000 payment” from FTX.

  • ​Indictment.

SEC

ETPs

• ​The SEC reportedly rejected filings for a Solana spot ETP - (Tim Copeland; The Block)

Consolidated Audit Trail

• The Blockchain Association and DeFi Education Fund filed an amicus brief in support of a challenge to the SEC's Consolidated Audit Trail, arguing it undermines privacy and personal freedom.

  • ​Amicus Brief.

  • Thread breaking down the arguments:

Amanda Tuminelli

@amandatums

Today @fund_defi and the @blockchainassn filed an amicus brief in support of a challenge to the SEC’s Consolidated Audit Trail (CAT), arguing that the CAT, especially when it pertains to the digital asset sector, “unacceptably undermines privacy and personal freedom.” …

50

3:35 PM • Aug 22, 2024

Last Week's A: Woodrow Wilson signed the Federal Reserve Act into law in 1913.

This Week's Q: In the 1972 Presidential election, a Vice Presidential candidate of a major political party was pulled from the ticket in July. Who was it? Bonus: Who was his replacement?

Thanks for reading Trivia

Last Week's A: Woodrow Wilson signed the Federal Reserve Act into law in 1913.

This Week's Q: In the 1972 Presidential election, a Vice Presidential candidate of a major political party was pulled from the ticket in July. Who was it? Bonus: Who was his replacement?

Thanks for reading

• Rep. Gary Palmer (R-AL) introduced a resolution to rescind Treasury's final rule establishing tax reporting requirements for certain custodial digital asset brokers.

• Senator Ted Budd (R-NC) introduced a bill to create a de minimis tax exemption for small, personal cryptocurrency transactions.

• The Federal Reserve Bank of Philadelphia will require Customers Bank to bolster its risk-management and illicit finance programs, after the Fed identified “significant deficiencies” and flagged concerns with the bank's “digital asset strategy.”

• Judge Torres issued a final judgment in SEC v. Ripple, enjoining Ripple from further violations of securities laws and imposing a civil penalty of $125 million.

CRA Resolution

On Friday, August 2, Rep. Gary Palmer (R-AL) introduced H.J. Res. 198, a resolution to repeal Treasury’s “Final Rule” relating to digital asset broker reporting requirements.

• ​Text.

Under the Congressional Review Act, Congress can nullify agency rules through a joint resolution of disapproval. The measure would need to pass the House and Senate by a simple majority vote and garner President Biden’s signature, which is unlikely this Congress.

The bill has been referred to the House Ways & Means committee. As of writing, it has zero cosponsors.

The Final Rule

In July, Treasury published the Final Rule relating to tax reporting requirements for certain digital asset brokers.

• ​Final Rule Text (89 Fed. Reg. 56480).

• Officially titled: “Gross Proceeds and Basis Reporting by Brokers and Determination of Amount Realized and Basis for Digital Asset Transactions.”

The Final Rule provides information reporting requirements for “custodial digital asset brokers.”

• Custodial digital asset brokers include brokers who take possession of their customers' digital assets, and include centralized trading platforms, hosted wallet providers, digital asset kiosks, and certain processors of digital asset payments.

The IRS plans to issue reporting requirements for “non-custodial digital asset brokers” at a later date.

• Non-custodial digital asset brokers do not take possession of customers' assets and include decentralized exchanges and unhosted wallet providers.

While the originally proposed rule would have applied to custodial and non-custodial brokers, the IRS stated in a press release accompanying the Final Rule that the agency and Treasury needed “more time to consider the nuances of transactions involving non-custodial and decentralized brokers.”

Reporting Requirements & Effective Dates

Custodial brokers will have to report information on customers’ digital asset sales or exchanges that occur on or after January 1, 2025.

Information to be reported to the IRS and customers will include:

• Name, address, and taxpayer ID number

• Name and number of units of the digital asset sold

• Sale date

• Gross proceeds amount

• Whether the sale was for cash stored-value cards, or in exchange for services or other property, and more. See PDF pg. 83 for more detailed list.

More specific reporting requirements will be published in a yet-to-be finalized Form 1099-DA.

Custodial digital asset brokers will also have to report cost basis for certain digital asset sales and exchanges that occur on or after January 1, 2026.

Reportable Digital Asset Transactions

Digital assets are defined as “any digital representation of value that is recorded on a cryptographically secured distributed ledger (or any similar technology)” without regard to whether the transaction is actually recorded on a ledger. § 1.6045-1(a)(19).

Digital assets include cryptocurrencies, stablecoins, NFTs, and certain tokenized assets.

However, the Final Rule allows for a de minimis reporting threshold of $10,000 for transactions involving certain qualifying stablecoins, and a $600 de minimis threshold for transactions involving certain NFTs. See PDF pgs. 25-29.

Further, Notice 2024-57, issued alongside the Final Rule, provides that brokers do not have to report information for the following transactions under Section 6045:

• Wrapping and unwrapping transactions

• Liquidity provider transactions

• Staking transactions

• Lending of digital assets

• Short sales of digital assets

• Notional principal contract transactions.

But note: Notice 2024-57 also states that the guidance does not address the substantive tax treatment of the above transactions, nor does it create an inference that they do not have to be reported under another provision of the tax code. See Notice at 4-5.

What’s Next?

Keeping an eye out for the IRS to finalize rules for non-custodial digital asset brokers and a 1099-DA form.

On July 25th, Senators Ted Budd (R-NC), Kyrsten Sinema (I-AZ), Cynthia Lummis (R-WY), and Kirsten Gillibrand (D-NY) introduced the Virtual Currency Tax Fairness Act.

• ​Text.

The bill would exempt from gross income gains or losses that come from the sale or exchange of virtual currencies in certain small, personal transactions. See § 2.

Specifically, gross income would not include gains or losses from personal virtual currency transactions in which:

• the total value of the sale or exchange is $200 or less, or

• the total gain or loss arising from the sale or exchange is $200 or less. Id.

The $200 threshold would be adjusted annually for inflation.

The exemption would not apply if the transaction involves:

• Cash or cash equivalents,

• Property used in a trade or business, or

• Property held for income production. Id.

What's Next?

The bill has been referred to the Senate Finance Committee, where its future prospects remain uncertain.

​Here's a blog post (snip below) by Coin Center's Landon Zinda explaining the bill's potential impact on cryptocurrency users.

Democratic National Convention

• Monday August 19 - Thursday, August 22.

Enforcement

Federal Reserve Bank of Philadelphia v. Customers Bank

• Yesterday, the Federal Reserve Bank of Philadelphia executed an enforcement action against Customers Bank.

• Per the Written Agreement, Customers Bank must develop, implement, and get Fed approval for, improved risk-management and illicit finance programs, after the Fed identified “significant deficiencies.”

  • The Written Agreement homes in on Fed concerns with Customers Bank's “digital asset strategy” (offering banking services to digital asset customers) and “dollar token activities” (operating instant payments platform that allows clients to make tokenized payments over a blockchain to other bank clients). See pgs. 1, 3-4, 9-10.

  • For example, Customers Bank will have to provide the Philly Fed with 30 days written notice prior to engaging in:

    • (1) any new strategic initiative, product, service, or relationship related to a digital asset strategy; or

    • (2) the creation, testing, or launching of a new intra- or interbank instant payments platform or network other than the existing Customers Bank Instant Token network. Pgs. 9-10.

SEC v. Ripple

• Judge Analisa Torres issued a final judgment in SEC v. Ripple, enjoining Ripple from future violations of securities laws and imposing a civil penalty of $125 million dollars.

  • The SEC had sought a civil penalty of $876 million, disgorgement of $876 million and $198 million in prejudgement interest.

  • Ripple sought to pay a civil penalty of $10 million.

  • ​Order.​

CFTC v. FTX

• ​CFTC obtains $12.7 billion judgment against FTX and Alameda.

White House

• “Crypto executives clash with Democratic leaders in heated Zoom meeting” (Eleanor Terrett; Fox Business). Snip from article:

Election 2024

Presidential

• VP Kamala Harris selected Minnesota Governor Tim Walz as her running mate.

• Governor Walz's views on crypto are unknown.

  • Interestingly, he doesn't own any stocks, mutual funds, bonds, or crypto.

  • Axios's Mike Allen & Jim VandeHei floated potential cabinet officials in a Harris administration, suggesting Commerce Secretary Gina Raimondo or Deputy Treasury Secretary Wally Adeyemo could serve as Treasury Secretary.

Congress

• ​Fairshake pledged $25 million to support nine Democrats and nine Republicans running for Congress this November (Liz Napolitano; Decrypt).

Prediction Markets

• Senator Jeff Merkley (D-OR) led a letter to the CFTC urging the agency to finalize a rule to prohibit event contracts concerning the outcome of U.S. elections.

  • Cosigns: Senators Sheldon Whitehouse (D-RI), Elizabeth Warren (D-MA), Chris Van Hollen (D-MD), Richard Blumenthal (D-CT); Reps. Jamie Raskin (D-MD), John Sarbanes (D-MD), Eleanor Holmes Norton (D-DC),

  • ​Letter.

  • ​CFTC's Proposed Rule (Comment period closed on August 8, 2024).

Op-Ed

• “Blockchains Against Corruption:” Paul Brody, head of blockchain at EY, pens Op-Ed in CoinDesk, arguing decentralized tech can address unforeseen macro threats from currency risks to judicial risks.

Last Week's A: Former Senators Wendell Anderson (D-MN) (Hockey), Bill Bradley (D-NJ) (Basketball), and Ben Campbell (D, R-CO) (Judo) all participated in the Olympic games.

This Week's Q: Which U.S. President signed into law the Federal Reserve Act, creating the Federal Reserve System?

Thanks for reading and have a great weekend!

-GSL