Last Thursday the Senate Banking Committee had planned a markup session to make changes to the Clarity Act, the crypto market infrastructure bill. Around midnight the night before, Coinbase pulled support for the bill, resulting in the postponement of the markup.
Whether or not one agrees with the issues that Coinbase raised, the fact that a single company should carry such clout in legislative matters should be causing more of a stir. That’s especially given that the majority of comments from other crypto firms were that the markup should proceed. Legislation is a tricky area, where momentum and timing can be critical. With midterm elections looming later this year, there are risks that party balances might change.
Coinbase’s main objections were a “defacto ban” on tokenized equities, DeFi prohibitions, an erosion of CFTC authority and the ban on stablecoin rewards.
Regarding tokenized stocks, the objection likely relates to a single sub-clause that certainly needs a revisit, but that would likely have happened during markup. As currently worded, it prevents the SEC from giving any blockchain related no action letters and other waivers, including the one granted to the DTC. So this is not about favoring one group over another. The clause would negatively impact both TradFi and DeFi players. While a tokenized security needs to comply with securities laws, there are details in the current laws that need adapting in order to truly benefit from tokenization.
Clause 505(e)(2) states: “No waiver or modification of any requirement applicable to the underlying financial instrument may be granted solely because the instrument is issued, recorded, or transferred using distributed ledger technology.”
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