Coinbase withdrew its support from a significant cryptocurrency market structure bill after reviewing the final text, leading the Senate Banking Committee to cancel a planned markup hearing and restart negotiations. This development occurred late Tuesday night, with the committee canceling its Thursday morning hearing by Wednesday evening, pushing further discussions into the following week.
Coinbase Exit Triggers Last-Minute Reset
Coinbase had been a central figure in the bill's negotiations and had invested considerable resources in lobbying efforts. However, the company stated its inability to support the legislation in its released form. Following Coinbase's announcement, the Senate Banking Committee promptly canceled the scheduled markup hearing.
Discussions between lawmakers and industry representatives resumed on Friday, with Democrats and their staff holding calls with various crypto groups to address outstanding issues. Coinbase was not the sole entity expressing reservations; several other participants raised concerns after reviewing the final language of the bill.
DeFi Rules and Review Timeline Raise Alarm
Participants in the cryptocurrency industry expressed surprise at new provisions targeting decentralized finance (DeFi) that were not present in earlier drafts of the bill. These newly introduced DeFi rules proposed applying anti-money laundering (AML) and know-your-customer (KYC) regulations to DeFi platforms.
Critics argued that this approach could compel centralized entities to manage systems that are inherently designed to be decentralized. Another significant concern centered on the Treasury Department's potential authority over self-hosted wallets that interact with exchanges. Summer Mersinger, CEO of the Blockchain Association, cautioned that the bill could inadvertently bring core DeFi infrastructure under existing regulatory frameworks.
The timeline for reviewing the bill also exacerbated the backlash. Lawmakers released the full text of the bill just before midnight on Monday. Amendments were required to be submitted by 5:00 p.m. on Tuesday, allowing approximately 17 hours for a comprehensive review. The subsequent planned hearing on Thursday provided only about 58 hours for analyzing the complex proposal.
Stablecoin Yields and Securities Oversight Disputes
The provisions related to stablecoins also created divisions within the industry. The bill proposed limiting yield rewards unless they were directly linked to specific activities, such as transactions or staking. While some industry participants identified potential loopholes, others viewed these restrictions as overly severe. Proposed amendments were also under consideration that could have tightened these limitations even further.
Concurrently, the bill sought to expand the Securities and Exchange Commission's (SEC) authority over tokens associated with managerial efforts. Coinbase CEO Brian Armstrong stated that this expansion would weaken the Commodity Futures Trading Commission (CFTC) and reduce regulatory flexibility. He also voiced concerns that it could lead to a de facto prohibition on tokenized equities.
Conversely, tokenization firms, including Securitize and Dinari, expressed a different perspective, arguing that the bill would treat tokenized securities similarly to traditional financial assets. Despite ongoing discussions and negotiations, the markup hearing remains unscheduled as parties continue to work through the unresolved issues.