1/ The Senate Agriculture Committee (@SenateAgDems & @SenateAgGOP) held an important hearing today on the Digital Commodities Consumer Protection Act (DCCPA), a bill to regulate crypto spot markets.
It's a good bill, but it needs some work. Here's why. 🧵
2/ What is the DCCPA?
The heart of the bill is a grant of exclusive jurisdiction over crypto spot markets to the CFTC.
This reflects a bipartisan, bicameral consensus that the CFTC is the right regulator for crypto. @CFTCbehnam made clear today that the CFTC is up to the task.
3/ The DCCPA gives the CFTC authority to regulate trades in a new asset type, a “digital commodity.”
It also gives the CFTC authority to regulate a new entity category, a “digital commodity platform,” including:
4/ @BlockchainAssn fully supports granting the CFTC exclusive jurisdiction over crypto spot markets & we applaud @SenStabenow, @JohnBoozman, & their talented staff for moving this proposal forward.
5/ But, like all early drafts of significant legislation, the DCCPA has some issues that Senate Ag members should address before voting the bill out of committee, or else it might end up doing more harm than good.
Here are the top five issues we see in the current draft:
6/ First, the bill’s “digital commodity” definition is too narrow & vague.
The biggest unresolved question plaguing crypto now is whether a given asset is a security or commodity. Any legislation on crypto spot regulation must draw a clear dividing line between the CFTC & SEC.
7/ The DCCPA’s digital commodity definition fails to resolve that harmful uncertainty.
The bill has a blanket carveout for "securities," so the SEC can still claim authority over any asset that it wants to accuse of being a security, which under this SEC is basically everything.
8/ The bill also gives two examples of digital commodities: BTC & ETH.
Yes, we all agree those two are commodities (not securities), but including only those two implies a much narrower jurisdictional scope for the CFTC than it should have & makes an agency turf war more likely.
9/ Second, the bill could be interpreted as a ban on DeFi.
The “digital commodity platform” definitions are all designed for centralized custodial markets. Yet, as @SenGillibrand sharply pointed out, they also might capture DeFi protocols—no more than code—which can't comply.
10/ For example, one entity type is a “digital commodity trading facility.”
The definition goes way beyond custodial exchanges: a “group of persons that constitutes, maintains, or provides a...system in which multiple participants have the ability to execute...transactions....”
11/ There’s a bit more nuance here, but not much.
As @sheila_warren testified, the bill is "unworkable" for DeFi: it says trading facilities “shall provide a centralized market for executing transactions.”
What does that mean for DeFi protocols? Wallets? Apps? Users? Unclear.
12/ Similarly, another entity type is a “digital commodity dealer.”
That definition is also extremely broad: "a person that makes a market in a digital commodity."
Does that mean every liquidity provider in an AMM DEX protocol has to register with the CFTC? That just can't be.
13/ To be clear, I'm confident that banning DeFi isn't the goal here.
But it could be an unintended result of applying the same rules to both centralized intermediaries & decentralized protocols.
Regulation should be tailored to risk, but the bill isn't tailored to DeFi at all.
14/ Third, other “digital commodity platform” definitions are too broad.
The bill imposes onerous requirements on some firms that aren’t justified by the minimal degree of risk they pose.
For example, brokers & dealers that only work with large institutional counterparties…
15/ …or custodians that are already licensed & overseen by other prudential regulators.
As I said above, regulation should be tailored to risk. For these brokers, dealers, & custodians, the DCCPA overshoots the mark, requiring registration where it isn't necessary or helpful.
16/ Fourth, the bill gives the CFTC wide extraterritorial jurisdiction, allowing it to regulate transactions that take place entirely outside the United States.
That’s a mistake. US regulators should focus on US activities & prioritize international cooperation for all the rest.
17/ Dodd-Frank gave the CFTC similarly wide extraterritorial jurisdiction for swaps markets & it didn't go well, leading to years of contested rulemaking & litigation.
This could be even worse for crypto, given the inherently global nature of the technology & thus the markets.
18/ Fifth, the bill threatens financial privacy by forcing all "digital commodity platforms" to conduct warrantless surveillance under the Bank Secrecy Act.
19/ There are other areas for improvement in the DCCPA as well, but I’ll leave the critique there for now.
Despite these issues, it’s exciting to see Congress move forward on a crypto bill that gets so much right.
There’s nothing here that can’t be fixed with a few good tweaks.
20/ It’s also worth recognizing the excellent process that Senate Ag has run so far.
Instead of trying to rush something into law quickly (as sometimes happens), the bill’s sponsors are taking their time to understand the issues. Today's hearing was another solid step forward.
21/ @BlockchainAssn appreciates that committee staff have been so open to dialogue over the last few months.
It's very rare for a federal circuit court to find that an agency has violated the APA by acting arbitrarily and capriciously.
The DC Circuit just delivered a huge embarrassment for the SEC.
But the ETF isn't approved yet 🧵
2/ The DC Circuit soundly rejected the SEC's view that Grayscale's ETF proposal was not "designed to prevent fraudulent and manipulative acts and practices."
The SEC has spent a full decade denying spot bitcoin ETF proposals under this reasoning. That era has now come to an end.
3/ But the court didn't order the SEC to approve Grayscale's ETF proposal. It just said the SEC's analysis on the "fraud and manipulation" issue was wrong.
Now, the SEC has to go back and review Grayscale's proposal again, with the court's ruling in mind.
2/ Every SEC enforcement action must follow the “Wells process.”
In that process, the SEC Commissioners are meant to act as neutral arbiters, impartially weighing the evidence and arguments presented by SEC staff (the prosecutors) and the enforcement target (the defendant).
3/ When it comes to digital assets, Chair Gensler is far from a neutral arbiter.
Since his appointment, he has repeatedly stated his view that all digital assets other than bitcoin are securities, end of story.
1/ Today, @BlockchainAssn sent FOIA requests to the Fed, FDIC, and OCC, demanding information about the unlawful debanking of crypto companies.
We are also collecting evidence of debanking. Share your story with us:
debanked@theblockchainassociation.org
Here's the situation 🧵
2/ There are troubling reports of crypto companies having their bank accounts closed, often with no notice and no explanation. They've struggled to open new accounts too.
This disturbing trend suggests that regulators are trying to cut crypto entirely out of the banking system.
3/ These reports are especially concerning this month after the failures of Silvergate, Silicon Valley Bank, and Signature Bank.
Those banks had many crypto companies as customers, who are now rushing to open new accounts elsewhere to make payroll and stay in business.
2/ In the letter, we explain what stablecoins are and why they represent such a categorical improvement on legacy payment infrastructure.
We also explain how important stablecoins are for the US dollar's status as global reserve currency, given China's focus on the digital yuan.
3/ We also outline five fundamental principles that are crucial for good stablecoin legislation.
First: Congress should focus on "custodial" stablecoins, meaning those issued and redeemed by firms holding assets backing the stablecoins in a bank or other financial institution.
Today, the SEC proposed changes to the investment adviser custody rule that seem designed to prohibit US firms from investing in US crypto companies.
This proposal would flagrantly violate the SEC's mission by making investors *less* safe and by *discouraging* capital formation.
Commissioner Uyeda explains:
"This approach to custody appears to mask a policy decision to block access to crypto as an asset class. It deviates from the Commission’s long-standing position of neutrality on the merits of investments." sec.gov/news/statement…
Commissioner Peirce writes sharply, as always:
"[T]he sweeping 'just about every crypto asset is a security' statements also seem to be part of a broader strategy of wishing complete jurisdiction over crypto into existence." sec.gov/news/statement…