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Senators Reintroduce Landmark Crypto Bill Amid Heavy Competition And Regulatory Turf Battles
Cynthia Lummis and Kirsten Gillibrand produced a bi-partisan crypto bill that saw little progress last year.
July 13, 2023
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What Happened

The landmark bipartisan crypto bill known as the Lummis-Gillibrand Responsible Financial Innovation Act has been reintroduced by Senator Cynthia Lummis (R-Wyo.) and Senator Kirsten Gillibrand (D-N.Y.). The current iteration includes some key changes from the 2022 version, which predated the collapse of crypto exchange FTX, and appears to represent the most comprehensive and thorough framework for U.S. digital asset policy and regulation yet.

Changes to the bill come at a time when the House of Representatives have seen movement on their own crypto framework legislation. Rep. Patrick McHenry (R-N.C.), chair of the House Financial Services Committee, has been working in coordination with Rep. Glenn ‘G.T.’ Thompson (R-Pa.), head of the House Agriculture Committee, in a joint approach to crypto policy that has already included combined hearings on stablecoins and crypto market-structure bills.

According to Hill insiders, the new Lummis-Gillibrand bill places a stronger emphasis on consumer protections than before, such as a mandatory requirement for proof of reserves for stablecoin issuers. This time, as opposed to the option for U.S. crypto exchanges to register with the Commodities Futures Trading Commission (CFTC), the bill now also makes it mandatory. That would give the CFTC primacy over the Securities and Exchange Commission in terms of the crypto spot market. Finally, stablecoins may only be issued by banks or credit unions.

The senators have run this language by the key players in the Treasury and the White House. Additionally, they have been in contact with McHenry's staff as the House bill has progressed.

 

Key Additions To The New Lummis-Gillibrand Bill

(1) Mandatory requirements for crypto asset exchanges to register with the CFTC

(2) Payment stablecoins can only be issued by a bank or a credit union

(3) Algorithmic stablecoins will be regulated by the CFTC

(4) New penalties for violating money-laundering laws, examination standards for the Bank Secrecy Act, crypto asset automated teller machines, mixers and tumblers

(5) Defines a “decentralized crypto asset exchange” for the first time

(6) SEC and CFTC to jointly charter a customer protection and market integrity authority self-regulatory organization

(7) Provides for $1.4 billion in appropriations over five years to the Treasury, CFTC, SEC, White House and other agencies to implement sound crypto asset policy, paid for by revenue generated from making crypto assets subject to the wash sale rule and by requiring intermediaries to mark their assets to market for tax purposes.

(8) To prevent another FTX, mandatory segregation and third-party custody requirements are included, as well as legal authority to the CFTC to supervise affiliates and holding companies, bans rehypothecation, the practice of a financial intermediary using client collateral for its own purposes

There are important differences between competing crypto legislative efforts

“I am glad to see Senators Lummis and Gillibrand reintroduce their bipartisan legislation to establish a regulatory framework for digital assets. Their work demonstrates that protecting consumers, providing legal clarity, and spurring innovation was never a partisan effort. I look forward to our continued work with our Senate colleagues on common sense legislation.”Representative French Hill (R-Ark.), vice chair of the House Financial Services Committee and chair of the Subcommittee on Digital Assets

Outlook

A press release from Lummis and Gillibrand gives a section-by-section breakdown of the legislation, the bill itself, and a list of what’s new in this version. With the reintroduction of the bill, the next step in the Senate will be to refer the bill to the appropriate Committees for consideration.

Meanwhile, the House Financial Services and Agriculture Committees are expected to determine any changes to the language of their bills in a mark-up session, which according to people familiar with the matter, is scheduled for July 19. This session will prove critical in building bipartisan support for the House bill, which was introduced by only Republicans.

There remain some important gaps to overcome across the aisle for any piece of legislation. Speaking about the Lummis-Gillibrand bill, a House Democrat who requested anonymity because the bill had not been made public yet told Forbes, “I was skeptical of the original bill, and I am skeptical of this one…This bill appears to be another effort to muzzle the SEC by the industry in favor of what it sees as an easier regulator in the form of the CFTC.”

While the bill may not need Democratic support to pass the Republican-led House, these feelings have also been expressed by prominent Democratic Party Senators such as Elizabeth Warren of Massachusetts, who sits on the Banking Committee.

The House is much further along with its legislation than the Senate, mainly due to the cooperation between the lower chamber’s Financial Services and Agriculture Committees. Numerous hearings on stablecoins and market structure, including two joint sessions, have taken place in the House. With the House Financial Services Committee chair leading the effort on this legislation, one can expect the House to move faster with respect to a possible floor vote in 2023, then the Senate would consider it. The question then, since neither Lummis nor Gillibrand are either Chairs or Ranking Members of the Senate Banking or Agriculture Committees, is the degree of influence the two Senators have on their colleagues in the Senate.

The key takeaway is that legislation for crypto and stablecoins is alive and well in Congress. Concerns ranging from systemic risks to the overall economy, the ability of customers to retrieve their funds in the event of bankruptcy and other key consumer protections, and anti-money laundering and other safeguards against illicit finance, drive the outlook for what type of legislation the U.S. may be in store for in 2023. Additionally, Europe is beginning to implement its Market in Crypto Asset (MiCA) legislation and the U.K. seemingly moving forward with a receptive framework to crypto assets will also be key motivators for Congress in terms of keeping the U.S. competitive on the global stage.

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Musk Turns On Starlink to Save Iranians from Regime’s Internet Crackdown

Elon Musk, the world’s richest man and a visionary behind SpaceX, has flipped the switch on Starlink, delivering internet to Iranians amid a brutal regime crackdown.

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The former Department of Government Efficiency chief activated Starlink satellite internet service for Iranians on Saturday following the Islamic Republic's decision to impose nationwide internet restrictions.

As the Jerusalem Post reports, that the Islamic Republic’s Communications Ministry announced the move, stating, "In view of the special conditions of the country, temporary restrictions have been imposed on the country’s internet."

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Meanwhile, Reza Pahlavi, the exiled son of Iran’s last monarch, called on military and security forces to abandon the regime, accusing Supreme Leader Ayatollah Ali Khamenei in a Persian-language social media post of forcing Iranians into an unwanted war.

Starlink has been a beacon in other crises. Beyond Iran, Musk has leveraged Starlink to assist people during natural disasters and conflicts.

In the wake of hurricanes and earthquakes, Starlink has provided critical internet access to affected communities, enabling emergency communications and coordination.

Similarly, during the Ukraine-Russia conflict, Musk activated Starlink to support Ukrainian forces and civilians, ensuring they could maintain contact and access vital information under dire circumstances.

The genius entrepreneur, is throwing a lifeline to the oppressed in Iran, and the libs can’t stand it.

Conservative talk show host Mark Levin praised Musk’s action, reposting a message stating that Starlink would "reconnect the Iranian people with the internet and put the final nail in the coffin of the Iranian regime."

"God bless you, Elon. The Starlink beams are on in Iran!" Levin wrote.

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GENIUS Act lets State banks conduct some business nationwide. Regulators object

The Senate passed the GENIUS Act for stablecoins last week, but significant work remains before it becomes law. The House has a different bill, the STABLE Act, with notable differences that must be reconciled. State banking regulators have raised strong objections to a provision in the GENIUS Act that would allow state banks to operate nationwide without authorization from host states or a federal regulator.

The controversial clause permits a state bank with a regulated stablecoin subsidiary to provide money transmitter and custodial services in any other state. While host states can impose consumer protection laws, they cannot require the usual authorization and oversight typically needed for out-of-state banking operations.

The Conference of State Bank Supervisors welcomed some changes in the GENIUS Act but remains adamantly opposed to this particular provision. In a statement, CSBS said:

“Critical changes must be made during House consideration of the legislation to prevent unintended consequences and further mitigate financial stability risks. CSBS remains concerned with the dramatic and unsupported expansion of the authority of uninsured banks to conduct money transmission or custody activities nationwide without the approval or oversight of host state supervisors (Sec. 16(d)).”

The National Conference of State Legislatures expressed similar concerns in early June, stating:

“We urge you to oppose Section 16(d) and support state authority to regulate financial services in a manner that reflects local conditions, priorities and risk tolerances. Preserving the dual banking system and respecting state autonomy is essential to the safety, soundness and diversity of our nation’s financial sector.”

Evolution of nationwide authorization

Section 16 addresses several issues beyond stablecoins, including preventing a recurrence of the SEC’s SAB 121, which forced crypto assets held in custody onto balance sheets. However, the nationwide authorization subsection was added after the legislation cleared the Senate Banking Committee, with two significant modifications since then.

Originally, the provision applied only to special bank charters like Wyoming’s Special Purpose Depository Institutions or Connecticut’s Innovation Banks. Examples include crypto-focused Custodia Bank and crypto exchange Kraken in Wyoming, plus traditional finance player Fnality US in Connecticut. Recently the scope was expanded to cover most state chartered banks with stablecoin subsidiaries, possibly due to concerns about competitive advantages.

Simultaneously, the clause was substantially tightened. The initial version allowed state chartered banks to provide money transmission and custody services nationwide for any type of asset, which would include cryptocurrencies. Now these activities can only be conducted by the stablecoin subsidiary, and while Section 16(d) doesn’t explicitly limit services to stablecoins, the GENIUS Act currently restricts issuers to stablecoin related activities.

However, the House STABLE Act takes a more permissive approach, allowing regulators to decide which non-stablecoin activities are permitted. If the House version prevails in reconciliation, it could result in a significant expansion of allowed nationwide banking activities beyond stablecoins.

Is it that bad?

As originally drafted, the clause seemed overly permissive.

The amended clause makes sense for stablecoin issuers. They want to have a single regulator and be able to provide the stablecoin services throughout the United States. But it also leans into the perception outside of crypto that this is just another form of regulatory arbitrage.

The controversy over Section 16(d) reflects concerns about creating a regulatory gap that allows banks to operate interstate without the oversight typically required from either federal or state authorities. As the two Congressional chambers work toward reconciliation, lawmakers must decide whether stablecoin legislation should include provisions that effectively reduce traditional banking oversight requirements.

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If you find value in my content, consider showing your support via:

💳 PayPal: 
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Dubai regulator VARA classifies RWA issuance as licensed activity
Virtual Asset Regulatory Authority (VARA) leads global regulatory framework - makes RWA issuance licensed activity in Dubai.

Real-world assets (RWAs) issuance is now licensed activity in Dubai.

~ Actual law.
~ Not a legal gray zone.
~ Not a whitepaper fantasy.

RWA issuance and listing on secondary markets is defined under binding crypto regulation.

It’s execution by Dubai.

Irina Heaver explained:

“RWA issuance is no longer theoretical. It’s now a regulatory reality.”

VARA defined:

- RWAs are classified as Asset-Referenced Virtual Assets (ARVAs)

- Secondary market trading is permitted under VARA license

- Issuers need capital, audits, and legal disclosures

- Regulated broker-dealers and exchanges can now onboard and trade them

This closes the gap that killed STOs in 2018.

No more tokenization without venues.
No more assets without liquidity.

UAE is doing what Switzerland, Singapore, and Europe still haven’t:

Creating enforceable frameworks for RWA tokenization that actually work.

Matthew White, CEO of VARA, said it perfectly:

“Tokenization will redefine global finance in 2025.”

He’s not exaggerating.

$500B+ market predicted next year.

And the UAE just gave it legal rails.

~Real estate.
~Private credit.
~Shariah-compliant products.

Everything is in play.

This is how you turn hype into infrastructure.

What Dubai is doing now is 3 years ahead of everyone else.

Founders, investors, ecosystem builders:

You want to build real-world assets onchain.

Don’t waste another year waiting for clarity.

Come to Dubai.

It’s already here.

 

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🙏 Donations Accepted 🙏

If you find value in my content, consider showing your support via:

💳 PayPal: 
1) Simply scan the QR code below 📲
2) or visit https://www.paypal.me/thedinarian

🔗 Crypto – Support via Coinbase Wallet to: [email protected]

Or Buy me a coffee: https://buymeacoffee.com/thedinarian

Your generosity keeps this mission alive, for all! Namasté 🙏 Crypto Michael ⚡  The Dinarian

 

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