- The Senate Committee on Agriculture, Nutrition, and Forestry has pushed out its discussion draft for the Crypto Market Structure legislation.
- The draft expressly protects the rights to self-custody and peer-to-peer trading of assets, but does not allow such transactions with US financial institutions.
- Software developers and infrastructure providers will not be treated as money transmitters or financial institutions; however, the bill’s position on defi interfaces remains a puzzle.
The US Senate Agriculture Committee has released its discussion draft as part of the process to advance legislation on a proper crypto market structure. Although the bipartisan draft included provisions for digital asset self-custody and for treating developers and infrastructure providers as non-money transmitters, it still casts a shadow of regulatory uncertainty over several vital defi components.
Senate AG Draft On Digital Asset Self-Custody
According to the draft, anyone has the right to own a hardware or software wallet, so long as it is used for lawful custody of the owner’s digital assets. This provision ensures that people using self-custody wallets like TrustWallet and Metamask can transact freely as usual and manage their assets without any need for intermediaries.
In addition, it allows a user to “engage in direct peer-to-peer lawful transactions” with another user, provided the counterparty is not recognized as a financial institution by US law, and the transaction does not involve blocked or sanctioned assets.
Meanwhile, the rule above applies only to personal use by individuals and not to those acting as fiduciaries, custodians, or those acting in the capacity of financial service providers for others.
Blockchain Developers, Infrastructure Providers Are Not Money Transmitters
The document states that software developers and infrastructure providers are not to be treated as money transmitters or financial institutions, but under certain conditions. First, software developers involved with creating and publishing blockchain software will not be regulated as money transmitters.
Furthermore, those who provide hardware and software that facilitate custody of assets and those running infrastructure to support blockchain network operations, such as validators, nodes, and APIs, will not be classified as money transmitters.
While the preliminary bill document spells out the regulatory direction for developers and infrastructure providers generally, it appears to lack the coherent language that protects the broader defi interface stash, including wallet UIs and custodial services.
The wording of the custody rules for legal “personal use” probably leaves room for possible arbitrary litigation if a regulatory agency declares the use of a wallet illegal or if the owner of a wallet is a limited liability company.
Last month, Senate Democrats highlighted some demands in their market structure bill proposal, including the classification of all participants who deploy or benefit from a defi protocol as intermediaries.
They also proposed to impose KYC requirements on all defi interfaces or websites that help users to interact with blockchain networks, irrespective of whether they control funds or not. A future debate on these important issues is expected to streamline market structure legislation and, by extension, the direction of US defi regulation.
