A significant step has been taken towards the long-discussed regulation of the crypto market in the US. Twelve Democratic senators announced a comprehensive framework consisting of seven topics on September 9th. The framework focuses on investor protection, market transparency, and the division of responsibilities among regulatory agencies. This move by Democrats is seen as an alternative to the Republicans' Clarity Act.
The senators emphasize that the approximately $4 trillion global crypto market cannot remain in limbo. The framework grants the CFTC greater authority over the spot market for non-securities tokens and stipulates that the SEC will oversee securities-qualified digital assets. It also highlights disclosure requirements for token companies and specific rules for exchanges and custodians.
DeFi and stablecoin proposals have been submitted.
The group, including Senators Ruben Gallego, Mark Warner, Kirsten Gillibrand, and Cory Booker, emphasized that the global crypto market, approaching $4 trillion, cannot remain in a "regulatory vacuum."
The framework focuses on investor protections, transparency, and anti-manipulation measures. The CFTC is expected to be given greater authority over the spot market for tokens that are not considered securities.
The SEC will also be involved in tokens that are considered securities
It also details disclosure obligations for token issuers, special rules for exchanges and custodians, and AML and sanctions compliance.
One of the most prominent topics in the bill is decentralized finance (DeFi). Democrats, stating that they consider the DeFi space risky for money laundering and sanctions evasion, are proposing new oversight mechanisms. However, it is not yet clear whether this oversight will extend to protocol developers.
A notable provision in the stablecoin regulations prohibits issuers from offering direct interest or returns. This approach differs from the more flexible Republican stance, aiming to impose tighter control on the stablecoin market.
Ethics and political aspects are on the agenda
The most controversial aspect of the framework is ethics regulations. Democratic senators are proposing to ban incumbent politicians and their families from profiting from crypto projects. It also requires politicians to transparently declare their digital asset holdings.
This section specifically addresses the cryptocurrency initiatives of US President Donald Trump and his family. Democrats argue that these activities lead to an erosion of trust. Republicans, however, distance themselves from the ethics aspect and emphasize the need for a swift completion of the process.
What will happen next?
The Democrats' proposal has been brought to the Senate floor following the passage of the Clarity Act in the House of Representatives. Both bills share common ground regarding token classification and the jurisdiction of regulatory bodies. However, the approach to DeFi, ethical rules, and the pace of the legislative process are dividing the two sides.
Intense negotiations between the parties are expected in the Senate Banking Committee in the coming weeks. If a compromise can be reached, the US crypto market could achieve clearer rules, closing a years-long regulatory gap.
