DeFi showdown at Senate Ag

Oct 21, 2022

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The crypto industry is at war with itself over a Senate Agriculture Committee bill that would give the Commodity Futures Trading Commission oversight of Bitcoin and Ether markets.

"It doesn't seem to be totally ready for primetime yet," said Blockchain Association Executive Director Kristin Smith in an interview.

Simmering tensions over the bipartisan bill, which was introduced by Chair Debbie Stabenow (D-Mich.) and Sen. John Boozman (R-Ark.) earlier this year, spilled into the open this week after crypto attorney Gabriel Shapiro posted draft language suggesting possible changes that could affect how decentralized finance developers register with the CFTC.

"Discussions are ongoing and any bill language that [is] circulating is from working drafts," said Patrick Creamer, a Republican Senate Ag spokesperson.

The possible changes landed in the aftermath of a story from the Block that said another amendment might give the SEC more say in determining which digital assets are securities or commodities (SEC Chair Gary Gensler has said that the overwhelming majority of crypto tokens should register with his agency).

This ticked a lot of people off for two reasons.

The first one is simple. Most crypto execs want to keep Gensler as far away as possible from their industry because they view SEC oversight as onerous, impossible, expensive or some combination thereof.

The second is only slightly more nuanced. While setting rules for centralized exchanges like Coinbase and FTX has been at the core of the industry's policy battles, many of crypto's true believers are more concerned about protecting DeFi trading and payment systems that mimic — but are not specifically controlled by – a centralized exchange or brokerage.

As introduced, the Stabenow-Boozman bill appeared to prioritize the needs of the former over the latter. It's something DeFi partisans have quietly bristled over for months as larger groups like FTX threw their weight behind a bill that would — at least in their view — further entrench the industry's biggest players at the expense of smaller DeFi projects. Framework Ventures co-founder Vance Spencer went so far as to claim the legislation was the product of a " shadow cabal that is trying to make it a reality ."

FTX founder Sam Bankman-Fried, who's championed the bill, sought to dispel those concerns in a lengthy blog post and tweets on Wednesday evening, arguing that "we should make sure that code, peer to peer transfers, validators, etc. are free while also ensuring that retail-facing platforms and marketing build in customer protection."

But here's the thing: Elements of the draft posted by Shapiro would actually make it easier for DeFi developers to avoid CFTC registration. And that could come with its own set of headaches.

One reason why Stabenow-Boozman is viewed as a potential lame duck bill is because it was backed by the Center for American Progress — a rare progressive endorsement that was intended to draw support from crypto-skeptic Democrats. If DeFi services don't have to meet the same standards as their centralized counterparts, Stabenow and Boozman could have trouble from the left flank.

"If the final DCCPA text exempts or creates substantively different rules for DeFi (compared to CeFi) I will change my position on the bill and work to defeat it," CAP's Todd Phillips tweeted .

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Driving The Day

Chicago Fed President Charles Evans speaks at a joint regulatory symposium on the economy at 9:30 a.m. … Fiscal 2022 Treasury statement released at 10:30 a.m. … Index of common inflation expectations released at 12 p.m.

FEEL THE EARTH MOVE — From our Declan Harty: "Senate Democrats are privately urging SEC Chair Gary Gensler to slow work and take more time for feedback on a slew of regulations rattling Wall Street, as tensions surrounding the agency's Biden-era agenda reach a boiling point. In a previously unreported letter, a dozen Democrats led by Sen. Jon Tester of Montana asked Gensler to give corporate America and the broader public more time to weigh in on the raft of rules the agency is proposing."

CLIMATE IN THE NEW YEAR — Also from Declan: The SEC will not vote on a final version of its widely watched climate risk disclosure rule in 2022, a person familiar with the regulator's rule-making process told POLITICO. With upwards of 15,000 comments received, SEC staff is still sifting through the feedback and has yet to draw up the final rule text, said the person.

– Semafor's Liz Hoffman reported that the SEC was "considering dropping the most controversial provision on carbon emissions from its much-anticipated rule on corporate climate disclosures."

FALLOUT — Our Katy O'Donnell: "A court ruling that found the CFPB's funding source to be unconstitutional has cast doubt on the financial regulator's rules and energized a partisan fight over its structure, threatening to curtail the agency's power in the years to come … The decision is poised to upend a decade's worth of work by the CFPB , which Democrats established in the 2010 Dodd-Frank law to rein in abusive lending."

FED TROUBLE — Another embarrassing ethics headline for the Federal Reserve Thursday: NYT's Jeanna Smialek reported St. Louis Fed President Jim Bullard spoke at an invite-only, off-the-record event hosted by Citigroup on the sidelines of the IMF-World Bank meetings.

"This clearly gave a prestige advantage to Citi," former Fed adviser and Dartmouth professor Andrew Levin told Bloomberg's Steve Matthews , saying it appears to violate the Fed's ethics rules. "This gave the appearance of privileged access, even if there was no substantive information provided."

The St. Louis Fed in a statement Thursday afternoon said "we are listening to the commentary around this and will think differently about this in the future." They also shared a link to the full transcript of Bullard's comments here .

The story followed news last week that Atlanta Fed President Raphael Bostic reported that he had failed to disclose certain financial transactions on ethics forms, including ones that ran afoul of Fed ethics rules. At the very least, the incidents provide terrible optics for the central bank as it works to restore credibility and faith in its ability to tame inflation.

CFTC — The CFTC filed 82 enforcement actions and imposed penalties totalling more than $2.5 billion during the previous fiscal year, according to the agency's annual enforcement report .

Economy

DOWN BAD — WSJ's Nicole Friedman: "U.S. existing home sales fell for an eighth straight month in September."

THIS, STILL? — Our Tanya Snyder: "Railroads are refusing to provide workers with seven paid sick days … It's the latest flare up in the years-long contract dispute and comes just weeks after a broader White House-brokered deal between freight carriers and unions appeared to head off the threat of a potentially crippling nationwide strike."

ROOM TO MANEUVER — WSJ's David Luhnow, Paul Hannon and Chelsey Dulaney: "U.K. Prime Minister Liz Truss's resignation is a stark reminder of how high inflation and rising interest rates have changed the game for politicians and narrowed their room to maneuver."

RASKIN ON RISKS — Reuters' Michael Derby: "As the Federal Reserve pushes forward with aggressive rate rises to bring down surging inflation it may unintentionally break something in the financial sector , a risk it may not be thinking enough about," former Fed governor and deputy Treasury secretary Sarah Bloom Raskin said Thursday.

HERE COMES THE DENOMINATOR EFFECT — WSJ's Miriam Gottfried: "Blackstone Inc.'s net income plummeted in the third quarter as the value of its private-equity portfolio declined."

Crypto

SHADOW BANKS ON THE HORIZON — From Sam: "Acting FDIC Chair Marty Gruenberg on Thursday warned that nonbank stablecoins used for payments could pose a serious risk to lenders , and he called for caution on regulations that could lead to a new generation of shadow banks."

BINANCE — WSJ's Vicky Ge Huang: "The U.S. arm of Binance, the world's largest cryptocurrency exchange by trading volume, has hired former FBI agent BJ Kang as its first head of investigations."

Jobs Report

Dina Powell McCormick has been named chair of the Robin Hood Foundation. McCormick is head of sustainability and inclusive growth at Goldman Sachs as well as the global head of the firm's sovereign business.

Josh Wilsusen has been appointed executive vice president of advocacy at SIFMA. The former Republican House Financial Services aide joins SIFMA from Ally Financial, where he led its Washington office as deputy general counsel and head of government relations.

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Fly Around

Former U.K. Treasury chief Rishi Sunak—who lost this summer's Tory leadership contest to Liz Truss after saying her tax and spending plans were too risky—is leading the field to succeed her as the Conservative Party prepares to choose its fourth new leader in three years. — WSJ's Max Colchester

Whirlpool Corp. reported lower-than-expected sales and earnings for the third quarter and cut its outlook for the year, citing softening demand and rising inflation into 2023 . — Bloomberg's Daniela Sirtori-Cortina

The head of the US Navy has warned that the American military must be prepared for the possibility of a Chinese invasion of Taiwan before 2024 , as Washington grows increasingly alarmed about the threat to the island. — FT's Demetri Sevastopulo

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