Update on US Market Structure Bill

Hi, this is Charles Hoskinson broadcasting live from warm, sunny Colorado. It's always warm and always sunny here. Sometimes Colorado, it is good to be home. I was on the Asia tour and I'm still trying to recover a little bit from it. I'm a little jetlagged and a little tired, but I can't leave all of you guys alone.

I always have things to say and things to do. I had a lovely time in Mongolia, Vietnam, Korea, Singapore, and Japan. That side of the world—crypto is big, crypto is good. But let's talk today about what's going on with the market structure bill. there's always a fire, especially when you just come back.

Wow. For months and months, we asked the Senate Democrats to give us their conditions for the market structure bill, the Clarity Act, which is the big thing. Is it a security? Is it a commodity? It's the "make Gary Gensler go away" bill.

Finally, the Senate Democrats have decided to issue their counter proposal. I'll just go ahead and read this off and show you a few articles about what's going on. Senate Democrats recently introduced a counter proposal for crypto market structure regulation that marks a strong departure from previous bipartisan efforts and existing Republican proposals. Their proposal focuses heavily on decentralized finance and is notable for several restrictive measures aimed at increasing "accountability" and curbing illicit activity in the sector. The plan would grant the Treasury Department the power to create a restricted list of DeFi protocols considered excessively risky and could force an immediate halt to bipartisan negotiations on overall crypto market structure.

So basically, they have a kill switch, and anything they don’t like is instantly dead. No judge, jury, or appeals process. They’re judge, jury, and executioner. The proposal also opposes mandatory know-your-customer rules for cryptocurrency application frontends, including non-custodial wallet interfaces, potentially covering a wide range of operators and services. In other words, every single wallet is basically illegal if it has a mobile client and a creator.

All your browser wallets would be illegal. Thanks, Democrats. Developer protections would be removed. Anyone designing, deploying, or operating a front-end service for a DeFi protocol or financially benefiting from such a protocol may be classified as a regulated intermediary, meaning every single person building DeFi applications is now a criminal. Congratulations.

This would also apply to those materially earning from the restricted protocols, even potentially targeting U.S. users with recurring revenue. So if you have an app and a token with that app, and that token has a revenue stream including staking, it would be classified as basically a financial intermediary. You would, by definition, not have the license.

You would be a criminal. Thanks, Senate Democrats. The draft language grants the Treasury and regulatory agencies discretion to decide when a person or group has control or significant influence over a protocol or whether a protocol is genuinely decentralized. By the way, there’s no oversight to that. They would be judge, jury, and executioner.

The proposal emphasizes investor protections and regulatory oversight over promoting market structure. Let’s go ahead and read the Coindesk article that just came out. Senate Democrats leak crypto position would strangle DeFi industry, insiders say. The language is said to be a Democratic proposal on handling decentralized finance as part of the wider effort towards regulating crypto in the United States. The proposal, a detailed outline describing an approach to DeFi, was first reported by Politico.

It suggests that a firm or individual that handles customer needs on the front end of a DeFi operation should have to register with the Securities Exchange Commission or CFTC and be regulated as a broker. So if you make wallets, you’re a broker. If you make a front end for any DeFi application, including just a website, you’re a broker. You’re not handling any customer money. You’re not in a privileged position of information.

You’re just building a front end. You don’t control the private keys, but you’re a broker. According to the Democrats, the language defining would rope everyone in crypto into regulations as intermediaries. According to a position on the site from Jake Chavinsky, the chief legal officer of Variant, many aspects of the proposal are fundamentally broken and unworkable. He argued this is not the first offer in negotiations; the listed demands appear designed to kill the bill.

Summer Minger, who runs the Blockchain Association and was recently a commissioner at the CFTC, says the proposal would effectively ban decentralized finance, wallet development, and other applications in the United States. The language is written in a way that is impossible to comply with and would drive responsible developers overseas. Minger said in a statement, "We urge our policymakers to stay at the table for the Senate's crypto market structure work." This fell into the shadow of the ongoing negotiation to reopen the federal government. Senate Democrats and Republicans were circling over each other’s legislative language and seemed to be in range of making progress on a final combined bill.

We absolutely were, and there was a lot of good faith and great conversations there. But the industry is bracing itself in August for an expected pushback from Democratic Senator Mark Warner, a key lawmaker on national security issues who raised concerns about illicit finance in crypto. They’ve never found a law they don’t like. This latest proposal seemingly seeks to allow the Treasury Department, market regulators, and the Federal Reserve to squeeze bad actors by letting government agencies identify those they can hold accountable for DeFi activity, described loosely as "anyone designing, deploying, operating, or profiting from the DeFi front end." However, it holds that pure DeFi protocols that aren’t making money can be defined as sufficiently decentralized to be outside of the regulatory perimeter, which is absurd—absolutely absurd—because it’s ambiguous.

Meaning if they don’t you, you’re not decentralized, and they throw you in prison. The proposal also seeks to free software developers from legal liability for their open-source creations as long as they don’t make money from running the technology, which is again absurd. This liability question has been among the core concerns in the DeFi space. Meanwhile, lawmakers in the House of Representatives for the market structure have already passed by a wide margin and have been calling for the Senate to just go ahead and use the Digital Market Asset Clarity Act as a template instead of starting over. We certainly aren’t starting over.

There are a lot of open questions. Let’s go to Jake’s comments on this. Jake is a very good lawyer, a smart guy. Senate Democrats are trying to kill market structure. A group just sent a counter proposal to the RFIA, and it is deeply unserious.

These senators claim to be pro-crypto, but what they propose is basically a crypto ban. It’s hard to imagine a good deal happening right now. If you haven’t been following the market structure bill, this action is in the Senate. Recall the House passed its version, the Clarity Act, in July by a wide margin of 294 to 134. A lot of Democrats voted for that.

The Senate decided to write its own version of the bill, which needs 60 votes to pass. The Senate banking Republicans have been hard at work on the securities half of the bill, the Responsible Financial Innovation Act, and have published two drafts for public discourse. The September 9th draft was very strong and worth moving forward in the process. It was a lot of work, guys—an enormous amount of work. The RAFA draft got a few key insights right.

Most critically, it protects software developers from unjust regulation and criminal prosecution, preventing future administrations from returning to the era of Gary Gensler. Without this, there is no bill. A group of Democrats just wrote what they’re calling a "regulatory framework for decentralized finance platforms." It’s so bad it doesn’t regulate crypto; it bans crypto. It reads like Gary Gensler even though it came from self-described crypto supporters.

Many aspects of the proposal are fundamentally broken and unworkable. This is not a "first offer" in negotiation. The list of demands appears designed to kill the bill. Here are a few examples: it makes everyone in crypto an intermediary. So all of you, you’re an intermediary.

It says anyone who deploys or benefits from a DeFi protocol is an intermediary, even if the protocol is fully decentralized. Even if compliance is impossible, all U.S. developers go offshore and have their projects die at home. It forces front-end providers to KYC users.

By the way, how do we do that? How is that even possible? It explicitly says control of funds is irrelevant for all front ends, including non-custodial wallets. All you Lace users, your Roy users, everybody—if this got in, you would have to KYC. Must collect sensitive personal information and conduct warrantless surveillance to "prevent illicit finance.

" It gives agencies unchecked power for selective regulation. Let Treasury regulate anyone with sufficient influence in a DeFi protocol—again, not defined at all in their proposal. However, it pleases token voters, liquidity providers, oracle networks—everyone’s in scope. Chainlink guys, Link Marines, you’re in scope. All of you are in scope.

Uniswap, you’re in scope. It authorizes Treasury to ban anything in DeFi. It creates a restricted list for protocols and front ends that Treasury thinks are too risky, which, by the way, can be anything. Gary Gensler can just wake up and check the box all the way down and then make it a crime for anyone to use them. There’s no limiting principle, defense, or recourse.

Treasury is all-powerful. This proposal is less a regulatory framework and more an unprecedented unconstitutional government takeover of an entire industry. It’s not just anti-crypto; it’s anti-innovation and a dangerous precedent for the entire tech sector. It’s hard to believe Democrats really want any of this. It strikes like politics, not policy.

The proposal might say, "We want these changes," but it seems to mean, "We want to vote against market structure, and we aren’t willing to engage in good faith at this time." For shame. In short, these senators need to wake up and start taking this process seriously. If they want to keep claiming they are pro-crypto, let them know. This is the nature of politics in the United States.

You can spend an enormous amount of time working with people, and you have ups and downs and setbacks. It’s been challenging. We got to a point where everybody was at the table—Mark and Dreeson were at the table, and Kraken was at the table, and Coinbase was at the table, and all the big guys. The Democrats were given every opportunity to be at the table, and they decided to be at the table in the House. Then here in the Senate, you go and talk to them, and it has nothing to do with a $4 trillion industry.

It has nothing to do with a $4 trillion industry that’s growing to a $10 trillion industry. It has nothing to do with tens of millions of Americans holding this asset and wanting clear rules. It has everything to do with maximizing power, centralizing an entire industry, and giving an uncaring, unaccountable federal government absolute power over everything. I don’t know why people vote for Democrats. I really don’t.

They are the most morally bankrupt people. Trump has a lot of problems, and there are a lot of problems with modern Republicanism. God damn, they can be as hypocritical as people can point out. But the Democrats stand for nothing. They stand for big institutions.

That’s it. Big pharma—take your vax, shut up, get in the corner. Big academia—let’s just give huge amounts of money to these bloated, gigantic universities with no accountability or oversight and socialize all of their bad behavior through debt forgiveness with student loans. Big tech—let’s hand all the power to Microsoft, Google, Apple, and these other companies that give 90-95%. Big banks—let’s regulate an industry and have 10-15 large financial institutions control all of your money.

And if you disagree, you get deplatformed economically and socially in every aspect of your life. They want a hand in a public-private partnership to multi-trillion dollar businesses, and you have no say in the matter. You can’t even pick your leaders if you’re on the left. You were told Kamala Harris is your person. You didn’t get to vote for it; you were just told that.

And that’s only after the dementia puppet who had metastatic cancer was no longer viable, and they couldn’t ride his corpse anymore. It became so blatantly apparent to everybody. What do you stand for on the left anymore? Really, honestly speaking, you used to be the guys who were like, "Fuck the man and freedom to the little guy." The little guy is the DeFi user.

The little guy is the person who downloads a browser wallet or a mobile wallet and buys an NFT or participates in a memecoin. The little guy built crypto. It’s not Chase, it’s not Goldman Sachs, it’s not Google, it’s not Pfizer. It’s the little guy. And every single time you pull the lever for somebody on the left, know that you are voting for somebody who doesn’t give a damn about you, who doesn’t care if you die of cancer, who doesn’t care what goes in your body unless it’s sponsored by a large corporation, who wants the power to arbitrarily and capriciously ban you at any time from every part of social media or your bank account.

We finally had a window here where we could at least agree it’s good for America to be leaders in a $4 trillion industry that’s growing to a $10 trillion industry, and then these guys just show up and try to blow up the whole process. To what benefit? What do they gain? How does it help their constituents? How does it help America?

How does it create jobs? How does it grow the industry? It’s about power and control. It’s about creating a panopticon where everything you think, everything you say, everything you see, everything you believe, everything you buy is recorded, and some ministry sits there and decides whether it’s problematic or not. It’s disgusting.

At the highest level, there’s no good faith anymore in these people. There’s no good faith in these people—absolutely none. They don’t want to have a conversation. They don’t want to engage. They don’t want to sit down and say, "Hey, let’s talk about the next 10 years, 15 years, 20 years, and what’s good for America.

" They shovel all this horseshit using the mainstream media down your throats about equity and systemic racism, about how everybody is racist and we have to use the government to right the scales of historic injustices. And then we hand them a financial system, the first in human history that doesn’t care if you’re white or black or gay. It doesn’t care what language you speak. It doesn’t care what country you’re born in. It’s the only thing we’ve ever invented that makes everybody truly equal.

And what they want to do is hand it to large institutions and banks to continue discriminating against those who are to the left of the economic curve—the poor people who are disproportionately minorities. The hypocrisy is so vast, and it’s so intellectually bankrupt at this point. And to what end? Where do we go from here? What’s your vision for America as we stare at $37 trillion of debt, $50 trillion by the end of this decade?

We stare at a war with China by 2027. We stare at everybody hating each other and the whole country fractured like hell and getting worse. And now political violence is the common thing. You have the gall to tell us that all the institutions are now being politicized. You’re the ones who politicized all the institutions.

You’re the ones who wiretapped nine senators. You’re the ones who arrested the opposition leaders. You’re the ones who politicized every dimension of our society. And now you’re getting your bitter medicine on the other side. You don’t it.

That’s what you created. You created this monster. We had one thing that could be bipartisan—one thing that we could all come together and agree on: it might be okay for America to have fair money, fair finance, true decentralization, to export American principles across the world, to dollarize those who aren’t dollarized, or to preserve the dominance of the dollar throughout the developing world so China doesn’t eat us alive. But no, we can’t even have that. You can’t get your grubby, corrupt claws all over the goddamn thing.

Please do tell me about how bad the orange man is. You’re willing to burn the entire United States to the ground because you hate him that much. You just can’t live in a world where he gets a win in the column. 50 million Americans hold it. We’re heading to a hundred.

But screw all of them. Screw the entire DeFi industry. Screw every developer. Screw every American company. Because orange man bad.

That’s what you’re fighting for there. And if not that, institution good, centralization good, large company good, donor class happy. I don’t understand you people on the left. I really don’t. You’re so thoroughly propagandized.

What do you stand for? Honestly speaking, what do you stand for? You say you stand for democracy, and you don’t get to pick your leaders. You say you stand for truth and transparency and objective reality, and you’re the party of science and the party of intellectualism, and yet you can’t even admit when your leaders have dementia and cancer and they’re deeply compromised. You say you stand for the rule of law and that no one is above the law, but then you’re all totally comfortable when Hunter Biden gets a blanket pardon and we just have to move on.

And all the garbage with the Clinton initiative and this other stuff. You say you stand for equality and equity and combating systemic racism. And when we invent a money system that can end that for everyone everywhere, you want to go and destroy it, burn it to the ground. Offshore, it doesn’t hurt white people like me who are rich. We can go offshore.

It hurts the minorities in Chicago who can’t. What do you stand for? Honestly speaking, this is your leadership. I get that you hate the orange man. I get that you wake up every day and say 15 curses, hoping for the worst for him.

But what? In January 2029, he’s gone forever. And you have to live with the consequences of the actions today. How will we pay back a $50 trillion national debt if we hand away one of the fastest growing and most valuable industries in the history of the world to our economic competitors? How will we—how will the dollars in your pocket be worth anything if we throw that away?