Senate Dems submit crypto market structure proposal, world ends

A market structure proposal by Senate Democrats has the crypto sector baying for blood, while state gaming regulators are spoiling for a fight over prediction markets horning in on their sports betting turf.

The U.S. government shutdown shows no signs of ending anytime soon, but while work on the Senate Banking committee’s 
digital asset market structure legislation—the Responsible Financial Innovation Act (RFIA)—may have slowed, it hasn’t stopped. At least, not completely.

On October 8, Rep. Bryan Steil (R-WI), one of the prime movers who helped pass the House of Representatives’ market structure bill (the CLARITY Act) this summer, told CNBC that he thinks that if senators “choose to use the House text as their base text, I think what we have is an opportunity to get this bill still done, signed into law by the end of the year.”

That said, given that the Banking committee has already pushed back its original timeline for marking up RFIA by three weeks (to the week of October 20), and the Agriculture committee has yet to release its market structure discussion draft, it’s unclear whether such optimism is warranted.

And if deliberations stretch into 2026, the midterm elections will further complicate this process. Steil said “it gets harder and harder to get legislation all the way across the line as you approach an election … every day that goes by is a missed opportunity.” 

The RFIA builds on CLARITY’s content but contains significant diversions, and there’s no shortage of cooks in this kitchen seeking to modify the recipe to fit their particular tastes.

On October 8, Block (NASDAQ: SQ) founder Jack Dorsey tweeted his desire for “a de minimis tax exemption for everyday bitcoin transactions.” Dorsey’s tweet brought a reply from Sen. Cynthia Lummis (R-WY), a major crypto proponent, saying she is “[w]orking on it.”

Lummis has teamed up with Sen. Steve Daines (R-MT) on new digital asset tax legislation that would include aspects of the tax bill Lummis introduced earlier this year. Rep. Max Miller (R-OH) is reportedly working on companion legislation that will be introduced in the House over the coming weeks.

Dorsey’s desire for tax-free BTC transactions stems from Block’s announcement this week of Square Bitcoin, “the first fully integrated bitcoin payments and wallet solution—built for local businesses of all sizes.” The product will allow U.S. retailers to accept payments in BTC without paying any fees for the first year, after which Block will take 1% of the transaction total.

Block claims that “with adoption and utility growing, bitcoin continues to become a larger portion of everyday commerce.” However, a recent survey by the Federal Reserve Bank of Kansas City found that less than 2% of U.S. consumers used any kind of ‘crypto’ for payments last year, down from 2.7% in 2022. The number of consumers who used crypto for actual purchases was even lower at 1.1%, effectively unchanged from 2022.

A separate survey from the Atlanta Fed found that as of 2024, 7.7% of consumers either have owned or currently own ‘cryptocurrency,’ down from 8.6% in 2023 and from 9.6% in 2022. Obviously, a new level of crypto enthusiasm has been attained following President Trump’s return to the White House this year, but whether that’s moving any of these public participation needles remains to be seen.

Dems v DeFi: wanna start something?

Late Thursday, word broke that Senate Democrats—who have been pleading to be allowed greater input into RFIA’s final text—had put forth a proposal regarding the bill’s decentralized finance (DeFi) language that apparently so annoyed their Republican counterparts that bipartisan discussions have been cancelled until further notice.

Punchbowl News quoted an email in which a staff director for Banking committee chair Tim Scott (R-SC) replied to the Dem proposal by saying the GOP committee leaders had concluded that “until we have an agreed upon date for markup we are going to pause any further meetings.”

A committee spokesperson told The Block that the proposal the Dems sent “was not a legislative offer; the document was not written in legislative text, included multiple incoherent policy ideas, and was not a good-faith effort to engage on market structure.”

While the Dems’ proposal has yet to be released publicly, crypto attorney Jake Chervinsky tweeted that it is “deeply unserious” and amounts to “basically a crypto ban.”

CLARITY offered DeFi developers certain protections from legal blowback if the tools they designed were used for illicit purposes. Basically, it promised absolution from the kind of responsibility that led to the conviction this summer of Roman Storm, co-founder of Tornado Cash, a coin mixing service popular with criminals and hackers looking to obfuscate the digital trail of their illicit proceeds.

The RFIA sought to expand on these protections, but Chervinsky claims the Dems’ proposal “makes everyone in crypto an intermediary,” regardless of whether or not they actually take custody of the tokens flowing through their platforms.

It would also force “front-end providers to [know your customer] users,” while giving the Treasury Department the authority to regulate anyone with “sufficient influence” in a DeFi protocol, with ‘sufficient’ defined by the Treasury as they go.

Chervinsky’s take doesn’t spare the hyperbole, calling the Dems’ proposal “less a regulatory framework and more an unprecedented, unconstitutional government takeover of an entire industry.” Crypto attorney Zack Shapiro tweeted his own equally critical view of the proposal, saying it “expands administrative authority over code itself—a direct threat to civil and economic liberty.”

We’re apparently on the brink of mass hysteria and dogs and cats living together, rather than watching two political factions negotiate the language of a piece of legislation. We’ll follow up later, assuming the world still exists.

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Banks get some senatorial support in stablecoin ‘yield/rewards’ squabble

Another contentious point of the Senate’s market structure push is the effort by traditional banks to use the RFIA to close the ‘yield’ loophole in the stablecoin-focused GENIUS Act that Trump signed into law this summer. 

GENIUS prohibits stablecoin issuers from offering ‘yield’ to customers, but nothing prevents non-issuers like the 
Coinbase (NASDAQ: COIN) digital asset exchange from offering ‘rewards’ to users who deposit stablecoins on these platforms. Banks fear that their customers will withdraw their deposits en masse to reinvest in stablecoins and generate higher interest/yield/rewards/goodies via crypto exchanges.

Coinbase has launched a PR campaign claiming that the banks’ efforts to revise GENIUS amount to a ‘bailout,’ and the exchange’s astroturf/grassroots group Stand with Crypto led a ‘contact your senator’ push to bring this message to Congress. Stand with Crypto claims over 250,000 of its members have clicked the button to send a form letter to their respective senators.

But banks have allies in the Senate, including Mike Rounds (R-SD), a senior member of the Banking Committee. This week, Rounds told Politico that operators like Coinbase appear to be taking “an end-run” around GENIUS by offering these stablecoin rewards. “So I’ve got concerns with that.”

Rounds didn’t take a stand on whether the RFIA was the correct vehicle for addressing this end-run, rhetorically asking “do you allow Treasury to write the rules or do you try to do it statutorily? I don’t have an answer to that yet, I’m open.”

Another Banking Committee member, Sen. Kevin Cramer (R-ND), said he was “somewhat sympathetic” to the banks’ concerns, but said he wouldn’t “let that be the end-all, be all.” He did say “we have to deal with that yield-bearing issue a little more, refine it some way.”

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Coinbase limits rewards, gets New York staking okay, preps Base token

Coinbase makes a significant chunk of its revenue from USDC, the stablecoin issued by Circle (NASDAQ: CRCL), in which Coinbase holds significant equity. But Coinbase informed customers this week that USDC rewards would now be paid exclusively to members of Coinbase One, its subscription service that carries a $50 annual fee for its ‘Basic’ plan.

Harris’s tenure was noted for the strict attention to detail the NYDFS paid towards all things crypto and the companies fortunate enough to have been awarded a BitLicense. That included Coinbase, which the NYDFS hit with a $100 million penalty in January 2023 after uncovering “wide-ranging and long-standing failures” in the company’s anti-money laundering, ‘know your customer’ due diligence, and suspicious activity reporting systems.

At any rate, the NYDFS approval leaves just four U.S. states (California, New Jersey, Maryland and Wisconsin) in which Coinbase’s staking programs are legally unwelcome.

Clearly feeling its oats, Coinbase announced this week that all memecoins currently issued on its Ethereum ‘Layer-2’ network Base would now be available for trading on Coinbase. For the record, there is a near infinite number of worthless memecoins on Base, and Coinbase has become addicted to the revenue generated from trading these digital Beanie Babies.

There will soon be one more Base token up for grabs, only this one will be issued by the network itself. After two years of teasing a Base-native token, Base developer Jesse Pollak tweeted a request for feedback on “our exploration of a @base token.” Pollak qualified that a token launch is “definitely not going to happen in 2025,” but the company has posted a job opening for a “token governance research specialist.”

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Prediction market free ride annoying state gaming regulators

Also mulling a bespoke token is the prediction market platform Polymarket. On October 8, CEO Shayne Coplan—who became the youngest self-made billionaire following this week’s $2 billion investment in Polymarket by the parent company of the New York Stock Exchange—tweeted a list of prominent tokens followed by “$POLY” and a quizzical emoji. 

As Polymarket preps its triumphant return to the U.S. market after a four-year absence, it’s striking partnerships that will bring its pseudo-betting products to an even wider audience. On October 8, the MetaMask digital wallet announced that it was “the first wallet to natively integrate Prediction Markets through an exclusive partnership with Polymarket.”

The integration will happen “later this year, in permitted regions,” and will allow MetaMask users to “trade across a wide range of verticals, including sports, crypto, and politics,” all without having to leave the MetaMask platform.

The inclusion of ‘sports’ in that mix isn’t sitting well with many traditional U.S.-licensed sports betting operators, including some of the most well-known American casino operators. Polymarket rival Kalshi, for example, offers sports ‘markets’ to customers in all 50 states, despite online betting being illegal in 20 of those states.

Earlier this year, Nevada gaming regulators issued a cease-and-desist order against Kalshi, which is licensed by the Commodity Futures Trading Commission (CFTC), for offering bets to state residents without a gaming license.

But in April, U.S. District Judge Andrew Gordon granted Kalshi a preliminary injunction against this order. Gordon ruled that Congress had granted the CFTC “exclusive jurisdiction” over contracts traded on what the CFTC calls ‘designated contract markets.’ As such, Nevada’s state-level regulatory agencies “cannot pursue civil or criminal liability against Kalshi for offering those contracts.”

Nevada has appealed the order and the matter will be addressed in court next month. Regulators in half a dozen other states have filed their own C&Ds against Kalshi, some of which have gone the state’s way, others in Kalshi’s favor, while others are pending.

Last week saw Judge Gordon deny a similar preliminary injunction sought by the digital asset exchange Crypto.com, which in September partnered with fantasy sports/gaming operator Underdog Sports to offer prediction markets via the exchange.

Gordon determined (according to gaming lawyer Daniel Wallach) that, unlike Kalshi’s offering, Crypto.com’s sports markets were based on the ‘outcomes’ of sporting events rather than the ‘occurrence’ or ‘non-occurrence’ of a result. As such, 
Crypto.com’s markets don’t qualify as ‘swaps’ under the Commodity Exchange Act, and the Nevada regulators have the authority to prohibit their availability.

This distinction is as clear as mud to many, making these cases a dead certainty for appeals up the federal court food chain. But the CFTC’s willingness to allow its licensees to run riot in states in which online betting is only allowed by state-approved sportsbooks isn’t sitting well with some U.S. senators, who are asking acting CFTC chair Caroline Pham to explain what the hell is going on.

In a September 30 letter to Pham, seven senators, including all four members of Nevada’s and California’s senatorial delegations, expressed their concern that the CFTC is “implicitly permitting sports gaming products that are regulated by states and tribes, not the CFTC.”

The senators called out the CFTC’s “unwillingness to stop” these prediction markets marketing their wares to customers in all 50 states, which they claim “contradicts both the letter and the intent” of the laws giving states and tribes authority over sports betting. The letter asks Pham to submit her response by October 30.

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North Dakota joins state-issued stablecoin parade

Finally, on October 8, U.S. fintech firm Fiserv (NASDAQ: FI) announced a partnership with the Bank of North Dakota to issue Roughrider coin, the state’s first stablecoin, at some point next year. The dollar-denominated Roughrider will launch on Fiserv’s Solana-based stablecoin-issuing platform, which the company previewed in June alongside its own FIUSD stablecoin.

The Roughrider token’s name is intended as a tribute to Theodore ‘Teddy’ Roosevelt, who, before becoming America’s 26th president, led a military unit of the same name in the Spanish-American War. In 1884, Roosevelt moved to what was then known as the Dakota Territory after hunting bison, although he left the state several years later after a severe winter killed all his cattle. (Pick which omens ye may from this rich menu.)

The token’s launch is intended to “increase bank-to-bank transactions, encourage global money movement, and drive merchant adoption.” Bank of North Dakota CEO Don Morgan said Roughrider reflects the bank’s 106-year history in the state, “capitalizes on recent changes in federal law, and ensures the continued health, resilience, and relevancy of the North Dakota financial industry for its citizens.”

The state’s governor Kelly Armstrong was equally ebullient, saying the state was “taking a cutting-edge approach to creating a secure and efficient financial ecosystem for our citizens.”

The launch also got a shout-out from the North Dakota Industrial Commission, the government agency that oversees the bank’s operations. The Commission believes Roughrider will improve “efficiency and quality control in the banking sector, a direct benefit for our residents.”

North Dakota follows in the footsteps of Wyoming, which launched its Frontier Stable Token (FRNT) in August via a partnership with LayerZero, the omnichain interoperability protocol and the state’s ‘token issuance partner.’ Originally deployed on seven different blockchains, the Wyoming Stable Token Commission announced last month that FRNT would soon be available on the Hedera public network.

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