Crypto Community Divided Over Senate Measure Empowering CFTC

There’s an internecine conflict emerging around the Digital Commodities Consumer Protection Act, a bill in the Senate that would broaden the Commodity Futures Trading Commission’s authority so the agency directly oversees and regulates markets that make up a majority of volume and value exchange of cryptocurrency trading.

Authored by Sens. Debbie Stabenow, D-Mich., and John Boozman, R-Ark., the bill has drawn the support of FTX CEO Sam Bankman-Fried, who has been making a play in politics lately, giving $23 million to his pro-Democrat Protect Our Future super PAC, as part of a focus on pandemic preparedness. The pushback from many DeFi advocates centers on how the proposed measure wouldn’t offer clarity or help for decentralized finance projects, as the bill applies primarily to cryptocurrencies that are labeled digital commodities, and few DeFi tokens qualify under existing standards, The Block reports.

What had been a behind-closed-doors disagreement between Bankman-Fried and other portions of the industry spilled out into the open via Twitter after The Block reported on negotiations around the bill, including the possibility of a mandated regulatory study of DeFi. The FTX CEO published a detailed "manual" to his own policy views.

A recent dinner gathering in Washington of industry representatives and digital currency advocates served as an in-real-life foreshadowing of the very online meltdown reaction to Bankman-Fried’s policy statements.

Earlier this month Messari CEO Ryan Selkis brought together a group that included DeFi Education Fund, the Crypto Council for Innovation, the Blockchain Association, Coin Center and FTX. 

"We convened a small policy-focused meeting of some of Messari's customers, investors and partners during DC Fintech Week (when many crypto policy folks were in the same place),” Selkis said in an email. “It's important we get this right, without rushing to pass legislation that could inadvertently hurt emerging protocols and software developers,” he added.

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DeFi proponents argued the bill he supports favors exchanges like FTX, whose commodity offerings — definitely bitcoin, probably ether — would be regulated by the CFTC. Others, including Bankman-Fried, characterized the bill as a step in the right direction for crypto. 

“I won't push against the community's strategy,” Bankman-Fried said in a live-streamed debate on the topic with ShapeShift CEO Erik Voorhees last Friday. “Even where I think it might not be the most effective way to accomplish the goal.”

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The likelihood that the bill is passed into law in the next several months is slim, but not impossible, said Alex Grieve, vice president of Tiger Hill Partners, an advocacy firm that represent clients in the digital asset industry. There’s likely not enough time for the bill to move on its own during what remains of this Congress, meaning it would need to catch a ride with must-pass legislation, likely a government funding package in the lame-duck session expected to take place after midterm elections.

“Given the litany of other congressional priorities before the end of the year, inclusion in any final omnibus package is far from certain, and it will likely continue to be a topic of debate and consideration for the new Congress,” Grieve said in a written response. 

Still, the possibility of the bill getting a ride with a larger piece of legislation worries some DeFi proponents.

“This is yet another example of centralized, CeFi [centralized finance] crypto trying to pull up the ladder behind them. They’ve made their money, they’ve got their dominant market positions so they want to build a moat around their businesses,” said PaperImperium, a MakerDAO delegate who uses a pseudonym and advocates on behalf of DeFi projects. 

The skeptics also include Alliance DAO, a web3 accelerator and founder community, which opposes the bill as it is written.

“In a perfect world, Congress takes a breather and revisits this next year as a specific bill, not as part of another legislative process,” said Alliance DAO’s Dane Lund. “When you sweep things into an omnibus package, it is often an underhanded way of passing things that otherwise would not pass.”