Zooming Out: The Real Takeaway from the Senate’s Digital Asset Debate
Taking advantage of a procedural move, all progress on the infrastrucre bill’s crypto regulation was neutralized by a single senator. The original unfavorable bill now heads to the House of Representatives. Where does this leave the U.S. DeFi and crypto mining industries?
Why Did the Crypto Amendment Compromise Fail?
In recent coverage of the last minute digital asset regulation and taxation stuffed into the infrastructure bill, The Tokenist noted that Treasury Secretary Yellen was lobbying to further regulate digital assets. The original bill was so broad adn ill-conceived that it would imbue the broker status to all crypto participants – miners, protocol developers, liquidity providers, and wallet developers.
In turn, if taken at face value and applied literally by the administration/IRS, the US crypto industry would take a back seat. Two groups of senators took different stances through proposed amendments.
On August 4th, we saw the Wyden-Lummis-Toomey amendement, which was positively received by larger digital asset community. The amendment explicitly removed validtors, protocol developers, as well as software and hardware creators from the definition of ‘broker’.
The following day, on August 5th, a competing amendment surfaced, dubbed the Warner-Portman-Sinema amendment. This proposal maintained a broad definition of ‘broker’, which was not well received by supports of digital assets.
After some back-and-forth, the two opposing groups reached an agreement which clarified the definition of a ‘broker’.
This last minute amendment would’ve taken into account both the tax clarification and the regulatory implication, so as not to harm the US DeFi/crypto industry. The original team, lead by Sen. Rob Portman, accepted this.
Good news seemed to be on the horizon until a procedural snag demolished all efforts in one fell swoop. Sen. Richard Shelby (R-AL), 87 years old, decided to ask for an extra $50 billion for military budget spending. When other senators refused the sudden influx of additional military spending, Sen. Shelby objected to the bill.
Because of a prior Senate agreement to not add further amendments, unanimous consent was needed to pass them. Meaning, when Sen. Shelby objected, no amendments could pass through, including the one agreed-upon by Warner-Portman-Sinema and Wyden-Lummis-Toomey.
In the end, the original infrastructure bill was approved by the Senate and passed to the House. It will likely take several weeks for the situation to unfold.
Digital Assets are Now Center Stage
Although the original onerous crypto regulation pushed through, there is a silver lining. The very fact that Bitcoin, DeFi protocols, wallets, and discussions around PoS vs. PoW entered the public discourse on the Senate floor, speaks to the growing power of DeFi. So much so that the banking sector has to exert enormous pressure to stifle its competition.
Just a few years ago, such a development would’ve been unthinkable. Meaning, DeFi is steadily moving out of the fringes and into the mainstream. It is no accident Sen. Elizabeth Warren framed the sector as one run by “shadowy super coders”. One uses this language to keep something within the fringes in order to better serve true constituents, while publicly opposing them for political points.
Moving forward, the infrastructure bill will now have to go through the House of Representatives. If the crypto legislation goes through in its original state again, we will likely see the diminishment of the US role, as explained by the Electronic Frontier Foundation.
- Blockchain developers will be discouraged to stay in the US.
- Miners will be pushed out of the US.
- American users will face significant difficulty when trying to using DeFi protocols.
At the same time, all other nations that adopted a crypto-friendly approach – from Singapore and Japan to the Middle East and Switzerland – will continue to benefit with or without US involvement.
It is often the case that judges have to excuse themselves if there is a conflict of interest. Do you think the same should be applied to senators as well? Let us know in the comments below.