US market structure negotiation heats up as clock counts down

Digital asset market structure legislation remains on the U.S. Senate’s Christmas wish list, but America’s banking and commodities regulators see no reason why their sectors shouldn’t just cannonball into this pool right now.

With less than two weeks until Congress heads home for the holidays, hopes that the Senate Banking Committee would be able to convene a markup session on bipartisan digital asset market structure legislation were fading fast. But signs of life are emerging as the committee’s Republican leadership belatedly realizes it needs to compromise to get Democratic members on board.

While the GOP has to date presented a ‘take it or leave it’ stance towards its market structure bill, Politico reported that Democrats “met behind closed doors Monday to discuss an offer for compromise legislation that they received last week from Senate Banking GOP negotiators.” Dems were said to be preparing “a potential counteroffer,” which Politico later reported was submitted Monday night, although its contents remain unknown.

On Tuesday, Politico released a copy of the GOP’s ‘comprehensive offer chart,’ a three-page list of 38 Dem-proposed changes to the most recent version of the GOP’s Responsible Financial Innovation Act (RFIA) that the GOP says it’s willing to accept.

As the quid to this quo, the document contains a second list of 32 aspects of RFIA that the GOP either wants the Dems to accept as written or make their own concessions on, “in order to reach a balanced, bipartisan market structure compromise.”

On Monday, Crypto in America’s Eleanor Terrett tweeted that one Banking Dem, Virginia’s Mark Warner, told her that a pre-holiday markup hearing will be “very hard” due to the White House stalling on delivering its official position on the “ethics and quorum” aspects of the bill. Warner said, “At some point our Republican colleagues are going to have to decide if this is a White House bill or a congressional call.”

The list of changes the GOP says it’s willing to incorporate includes “Quorum language that WH has signed off on” and “Ethics language that WH has signed off on.” Between the document and Warner’s comments, it wasn’t immediately clear whether the White House had actually signed off on anything or whether this language was still being discussed within 1600 Pennsylvania Avenue.

But speaking Tuesday at Day 2 of the Blockchain Association Policy Summit 2025 in Washington, DC, Banking member Cynthia Lummis (R-WY) said the White House had rejected ethics language she’d negotiated with fellow Banking member Ruben Gallego (D-AZ). Lummis said the White House told her “you can do better than this” and called the proposed language “unacceptable.” Lummis said she planned to “take another run at it” in follow-up meetings with Gallego.

The ‘ethics’ question involves the highly lucrative and ever-expanding list of crypto ventures linked to President Trump and his family, which have long been of concern to Democrats. Dems have also criticized the lack of similar concern expressed by their GOP counterparts over the president’s eagerness to profit off a sector he’s pushed Congress to deregulate.

The ‘quorum’ issue refers to ensuring bipartisan representations on federal agencies, including those tasked with digital asset oversight. Dems fear Trump is ignoring legal requirements to include at least two members of the minority party on five-member federal commissions.

Lummis said Tuesday that she plans to ask the White House to nominate Dems to both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) “as a show of good faith to the other party.”

However, the U.S. Supreme Court is currently weighing a case that could empower Trump to remove agency commissioners without cause, leaving open the possibility that Trump could nominate Dems and then fire them the minute a market structure bill is the law of the land.

Speaking to Decrypt on the sidelines of the same event, Banking member Cory Booker (D-NJ) was asked whether Trump’s word on this issue would be sufficient to garner his approval on a market structure bill. Booker replied: “No. Oh, my God, no.” (Despite these concerns, Booker told the Summit audience that he remained “bullish” that market structure will limp across the finish line, just perhaps not on the GOP’s or Trump’s timetable.)

The Dems have also made an issue of the GOP’s apparent desire to prioritize legal exemptions for decentralized finance (DeFi) developers over protecting consumers from DeFi shenanigans.

The DeFi developer protections in the RFIA are contained in Sec. 501, which is listed in the GOP ‘offer chart’ as one of the sections it seeks Dems to accept “with changes.” Those changes aren’t detailed, so we’re really no clearer on how this debate is playing out behind the scenes.

Banking member Bernie Moreno (R-OH) called the negotiations “decently frustrating” during his appearance on Monday at the Summit’s first day. However, Moreno claimed, “No deal is better than a bad deal,” and he doesn’t want to “promulgate a bad bill just to say that we passed something.”

Lummis took the opposite position, saying senatorial staffers were “exhausted” from negotiations and so “it’s better to go ahead with a product and mark it up next week and then give everybody a break over the Christmas break to catch their breath.” Lummis suggested that a new RFIA draft could be released “by the end of this week,” with a markup session to follow next week.

Lummis called this “prime time” and asked the industry members in the audience to “really, really comb through” the next draft and submit feedback ahead of any markup session.

Sen. Kirsten Gillibrand (D-NY) told the same audience that she was “very optimistic” regarding the bill’s future after a back-and-forth with her Republican colleagues this week. Gillibrand said more closed-door meetings would be held on Tuesday, but her view was “nothing is holding up this bill.”

(For those who prefer to hear these legislators in their own words/entirety, the Lummis-Gillibrand portion of Day 2’s Summit starts here. The Booker segment alongside Sen. Angela Alsobrooks (D-MD) starts here. Bernie Moreno’s Day 1 appearance starts here.)

Yet another potential fly in this ointment is the request by Banking members John Kennedy (R-LA) and John Reed (D-RI) to hold a public committee hearing on the subject of market structure before any markup session is conducted. Given the complexity and the impact of the RFIA, the bipartisan pair say “critical issues regarding investor protection, national security and regulatory certainty will remain unaddressed prior to asking members to cast their votes.”

There’s also yet to be any major update on the Senate Agriculture Committee’s progress on its market structure bill since its initial draft was released last month. That draft reflected the partisan split on numerous issues, leaving entire sections—including those devoted to DeFi—blank until something resembling consensus has been achieved.

Bankers incoming!

Meanwhile, Punchbowl News reported that the CEOs of Bank of America (NASDAQ: BAC), Citigroup (NASDAQ: C), and Wells Fargo (NASDAQ: WFC) are scheduled to hold meetings with senators from both parties on Thursday, December 11, to discuss items of concern in market structure legislation. The talks were organized by the Financial Services Forum, an advocacy group representing America’s eight largest financial institutions.

Bloomberg reported that the topics on the meeting’s agenda include banks’ ability to participate in America’s newly regulated digital asset market, as well as their desire to plug the so-called ‘yield v rewards’ loophole in the stablecoin-focused GENIUS Act that Trump signed into law this summer.

GENIUS prohibits stablecoin issuers from offering ‘yield’ to stablecoin holders, but digital asset exchanges like Coinbase (NASDAQ: COIN) and some DeFi platforms currently offer ‘rewards’ to customers for holding certain stablecoins. Banks have argued that a major expansion of this practice will result in significant withdrawals of banking deposits as customers chase higher returns from stablecoin rewards.

While banks continue to take steps to ensure their participation in the digital asset market, Fitch Ratings issued a note on Monday declaring that “U.S. banks with significant cryptocurrency exposure face growing risks.” Fitch warned of possible ratings downgrades due to “reputational, liquidity, operational and compliance risks, even when limited to relatively lower-risk businesses such as trust and custody services and cash management.”

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OCC clears banks to engage in ‘riskless’ crypto transactions

Assuming the bank does not enter into the transaction without also entering into an immediate offsetting transaction, the bank is “the legal and economic equivalent of a broker acting as agent.” Therefore, these transactions are “both the functional equivalent to recognized bank brokerage activities and are a logical outgrowth of crypto-asset custody activities.”

The day before this announcement, OCC chief Jonathan Gould gave an address to the D.C. Summit in which he criticized banks for objecting to the growing number of digital asset operators seeking national trust charters. The OCC has received 14 such applications this year, just shy of the number received in the previous four years combined.

Echoing comments he made in October after granting conditional approval of crypto-friendly Erebor Bank’s charter application, Gould said the increase in ‘de novo’ applications “signals healthy competition, a commitment to innovation, and should be encouraging to all of us.”

Gould said, “Despite recent assertions to the contrary, nonfiduciary activities—notably custody and safekeeping—have been fully within the scope of the authorized activities of national trust banks since the OCC began chartering them.”

Gould acknowledged that, while some of the new applicants have proposed activities that “could be viewed as new activities for a national trust bank, custody and safekeeping services have been happening electronically for decades.” As such, there’s “simply no justification for considering digital assets differently.”

Gould said banks have a responsibility to develop “new ways of conducting the very old business of banking.” Preventing national banks from “engaging in legally permissible activities simply because they are perceived to be new or different … would undercut this foundational premise.”

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CFTC welcomes digital assets as derivatives collateral

Risk is also not on the radar of Caroline Pham, acting chair of the CFTC, who announced Monday the launch of a new pilot program for ‘tokenized collateral in derivatives markets.’ The news follows the CFTC’s public consultation on allowing tokenized collateral, including stablecoins, that launched in September.

The announcement singled out specific digital assets—BTC, ETH, and the USDC stablecoin issued by Circle (NASDAQ: CRCL)—as eligible collateral in derivatives markets during the program’s first three months. Also included in the CFTC’s enlarged definition of collateral are tokenized versions of “a U.S. treasury or agency security, corporate bond, share in a money market fund, or equity security.”

Entities looking to take advantage of these relaxed restrictions will have to observe strict segregation, custody, and control requirements, calculate valuation standards and file weekly reports regarding the digital assets held as collateral.

The CFTC previously permitted only cash and U.S. Treasuries as margin collateral. But the CFTC has now withdrawn a 2020 staff advisory (20-34) that claimed virtual assets “present a degree of custodian risk that is beyond what is currently present with depositories, such as banks and trust companies.”

The announcement was accompanied by ringing endorsements from representatives of Circle, Coinbase, Ripple Labs, and Crypto.com, all of whom believe this step will bring swifter settlements, 24/7 access, and greater capital efficiency.

It’s perhaps worth noting that USDC made the CFTC’s collateral grade while USDT, the controversial market-leading stablecoin issued by Tether, did not. Tether CEO Paolo Ardoino had praised the CFTC’s September announcement and offered to “share our experience in this sector” with the CFTC.

It’s unclear whether Tether’s planned GENIUS-compliant stablecoin (USAT) might one day be granted these collateral privileges, or whether Tether will be able to use its significant influence in Trump’s cabinet to ensure USDT is included as the CFTC’s pilot passes its initial three-month phase.

Pham’s tenure as active chair has witnessed several crypto-friendly initiatives, including last week’s approval of crypto-based spot trades. But Pham’s grip on the CFTC’s steering wheel will be released once Michael Selig, Trump’s latest nominee for the full-time gig, receives his Senate confirmation. A procedural vote on Selig’s nomination was supposed to happen last week, but was pulled at the last minute due to matters unrelated to Selig.

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SEC lets Ondo off the hook, outgoing commissioner senses danger ahead

Over at the SEC, the agency’s ‘weapons down’ posture under new chair Paul Atkins has brought the end of yet another probe launched under his predecessor, Gary Gensler. This week, tokenization platform Ondo Finance announced that it had “received formal notice that a confidential, multi-year investigation … has been closed without any charges.”

The probe focused on whether Ondo’s tokenization of U.S. T-bills meant the company’s ONDO tokens were unregistered securities. Ondo said the probe’s closure represented “a meaningful milestone not just for Ondo, but for the broader tokenization industry.”

Under Atkins, the SEC has been racing to enact a framework that will ensure the tokenization of nearly everything. Atkins said last week that his promised ‘innovation exemptions,’ part of the SEC’s Project Crypto, were imminent, and he expounded on these plans at the Blockchain Summit on Tuesday.

Atkins has repeatedly expressed the view that the SEC really has very little to do when it comes to regulating digital assets, most of which he believes fall outside the agency’s purview. These include the initial coin offerings (ICOs) that wrought so much financial havoc in the second half of the previous decade.

Atkins doubled down on his ‘token taxonomy’ approach on Tuesday, saying numerous types of ICOs—those involving network tokens, digital collectibles, and digital tools—“would not fall, as we would define it, into the definition of a security.” Atkins said the SEC would let the CFTC “worry about” these ICOs, leaving the SEC to focus on “tokenized securities.”

Atkins also said he wants to “future-proof” the changes the SEC is making, “so that whatever happens down the road, we don’t have the pendulum swinging the other way and then having a lot of our efforts washed away.” And come the new year, “all the seeds that we’ve planted will be able to start seeding and sprouting. Then we’ll be able to harvest the fruit.”

But some worry the fruit on these trees could ultimately prove poisonous. Outgoing SEC commissioner Caroline Crenshaw—the SEC’s lone Dem-appointed member, whose renomination was blocked by Senate Republicans last December and now must leave by year’s end—apparently has no f**ks left to give regarding her view of the agency’s current posture.

In an exit interview with Politico, Crenshaw agreed that “the true advisability of all these policies will reveal themselves eventually.” However, Crenshaw said, “We are intent on repeating mistakes of the past,” and likened the current deregulatory push to “the period immediately prior to the stock market crash in 1929.”

Crenshaw’s issues with the SEC’s current approach aren’t limited to digital assets, but she said, “In the name of innovation, there is an attack on our fundamental legal structures. All innovation is not necessarily good … undermining the rules, rolling back all of them because they can’t move forward with certain [ones], that worries me.”

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