Capitol Hill is not immune to the shock waves sent by the sudden and unexpected collapse of the cryptocurrency exchange FTX last week.
Sam Bankman-Fried, the former CEO of FTX, was well-known in Washington and a major political donor until last week. He contributed $5.2 million to Joe Biden’s presidential campaign and spent an additional $40 million on primarily Democratic candidates in the run-up to the November midterm elections.
Bankman-Fried frequently met with lawmakers and authorities to discuss how the cryptocurrency business should be governed. He was an outspoken supporter of one bill in particular: the bipartisan Digital Commodities Consumer Protection Act (DCCPA), which Sen. Debbie Stabenow supports (D-Mich.), the chairwoman of the Senate Agriculture Committee, and Sen. John Boozman (R-Ark), the ranking senator.
Bankman-Fried has given at least $8,700 to Boozman and $26,600 to Stabenow this year. He gave $16,600 in June to Sen. Kirsten Gillibrand (D-NY), who co-sponsored the legislation in September, and $5,700 in 2021 to Sen. Cory Booker (D-N.J.), who was also a co-sponsor.
That law lies at the crossroads of the existential query that the crypto industry is currently grappling with: Why did FTX crash, and how can repeats be avoided? In the crypto ecosystem, FTX was a centralised exchange and a single point of failure. It failed, ostensibly as a result of decisions made by Bankman-Fried.
While opponents of the DCCPA claim the measure will damage the origin story of cryptocurrency, many crypto purists contend that now is the time to strengthen it. After the financial crisis of 2008, Bitcoin was proposed as a decentralised way of running a financial system. That concept is still relevant in decentralised exchanges (DEXes) like Uniswap and other DeFi systems.
3) The bill, originally, would create tax reporting requirements for “any person who (for
consideration) is responsible for and regularly provides any service effectuating transfers of
They would have to send reports on US users’ activity to the IRS.
— SBF (@SBF_FTX) August 5, 2021
Effects on DeFi
According to the DCCPA’s opponents, it would effectively end DeFi in the United States by making it impossible for major companies like Uniswap to comply, solidifying centralised exchanges. The legislative requirements listed in the most recent form of the bill (uploaded to GitHub by Gabriel Shapiro, general counsel at Delphi Labs) effectively outlaw DeFi.
FTX’s failure and Bankman-subsequent Fried’s downfall have led opponents of the measure to declare it dead, although parliamentarians, including the bill’s sponsors, have disputed this allegation.
In a statement released on Nov. 10, Boozman noted that the failure of FTX only served to highlight the necessity for increased government regulation of the cryptocurrency sector. Boozman joined a bipartisan group of lawmakers who have voiced worry over the demise of FTX and the need for crypto regulation, including Elizabeth Warren (D-Mass.), Sens. Cynthia Lummis (R-Wyo.), and Sherrod Brown (D-Ohio).
Despite the shadow cast by Bankman-wrecked Fried’s legacy, the DCCPA is still alive and one of the most developed pieces of possible crypto law.
To give the Commodity Futures Trading Commission control over the crypto spot market, the DCCPA seeks to amend the Commodity Exchange Act. Broker-dealers in the cryptocurrency industry must register with the CFTC and submit to regulation under the DCCPA.
The requirements for crypto commodity platforms, which include brokers, dealers, custodians, and exchanges, and the requirements for the CFTC, can be loosely separated into two portions of the bill.
Like other commodity dealers, crypto commodity platforms must partner with the CFTC. For instance, firms would have to adhere to requirements that safeguard against”fraud, deceit, and manipulation, maintain accurate records for at least five years, disclose information with the CFTC upon request, designate a senior compliance officer, and more.
The DCCPA also mandates that crypto commodity platforms have sufficient financial resources to hold customer funds to minimise the risk of loss or unreasonable delay in access to customer property. Commingling customer funds with the broker-assets dealers is strictly forbidden, as is investing customer funds in anything other than U.S. Treasurys or other high-quality liquid assets.
Unlike some of its predecessors, a lengthy definitions section in the DCCPA outlines exceptions to the regulations for non-commodity platform organisations, such as software developers and validators. Additionally, any cryptocurrency transactions used to pay for goods or services are not subject to the CFTC’s jurisdiction.
The DCCPA also mandates that the CFTC produce several reports within 180 days of the bill’s passage, including one on historically underserved customers that will look at the racial, ethnic, and gender demographics of cryptocurrency users and one on the energy usage associated with cryptocurrency mining. Both reports will be regularly updated to guide future legislation if the DCCPA is passed.
Under the DCCPA, the CFTC will also be responsible for international harmonisation, which entails collaborating with foreign authorities to develop uniform global regulations for cryptocurrency.
De facto ban on DeFi?
After Bankman-alleged Fried’s fraud was made public, many DeFi supporters found the potential impact on decentralised exchanges even more irritating.
However, the amendments in the leaked text suggest that Stabenow and Boozman are aware of worries that the legislation would be read as a general prohibition on DeFi.
The lawyer for Delphi Labs, Shapiro, tweeted in October that the leaked version of the document contained a limited exception to the definition of digital commodity trading facility that removed the word person and added a line exempting a person who develops or publishes software, adding that he thought the wording could be a “boon to DeFi/crypto.”