Stablecoin incentives and DeFi safeguards are central to the latest Senate proposal on market structure

Senate Crypto Regulation Bill: Key Insights and Developments

A newly revised version of the U.S. Senate's proposed crypto regulation bill sheds light on significant decisions regarding decentralized finance (DeFi) and stablecoin yields. However, the draft does not address certain major topics, such as whether government officials may benefit financially from involvement in crypto-related businesses while holding public office.

Unveiled just after midnight by Senate Banking Committee Chairman Tim Scott, the 278-page document prompted immediate analysis from industry lobbyists. The bill aims to clarify the roles of federal agencies—including the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC)—in overseeing the cryptocurrency sector.

This latest version builds upon and expands a previous draft that circulated among industry participants earlier in the week. The legislation is scheduled for review by the Senate Banking Committee later this week.

Lawmakers are set to discuss and propose changes to the bill on Thursday, with a deadline of Tuesday evening for submitting amendments. Meanwhile, the Senate Agriculture Committee will hold a similar session later this month, following a postponement by its chair, Senator John Boozman. Both committees must advance their respective bills before the full Senate can consider them.

Stablecoin Yield Provisions

After extensive negotiations between the crypto sector and banking representatives, the bill finally addresses the contentious issue of stablecoin rewards and yields.

According to the draft, "A digital asset service provider may not pay any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding of a payment stablecoin." However, this restriction does not apply to rewards or incentives based on specific activities, such as transactions. This language reflects a compromise proposed by Senator Angela Alsobrooks, aiming to safeguard the traditional deposit-taking model of community banks.

Sources familiar with the discussions noted that Coinbase, a leading industry voice, viewed Alsobrooks' proposal as a constructive step toward resolving a major sticking point in the negotiations.

The bill adopts the GENIUS Act's definition of "digital asset service provider," encompassing exchanges, custodians, and issuers.

Unaddressed Ethics Concerns

The current draft does not appear to include measures related to ethical issues raised by committee Democrats last year, particularly those concerning former President Donald Trump and his family's connections to various crypto enterprises.

Securities Oversight and Definitions

The draft outlines how the SEC should regulate securities, addresses illicit finance, DeFi, banking, and encourages "responsible regulatory innovation."

It introduces the Senate's "ancillary asset" classification, a concept not present in the House's version of the legislation. As a result, the House will need to either approve the Senate's language or negotiate a compromise.

Another section clarifies that "network tokens"—including any digital asset currently part of an exchange-traded fund (ETF)—will not be considered ancillary assets or securities. This suggests that cryptocurrencies such as XRP, Solana (SOL), and Chainlink's LINK, among others, would not be classified as securities by default.

DeFi Oversight and Developer Protections

The bill introduces a new section dedicated to DeFi regulation. While an earlier partial draft did not mention the Blockchain Regulatory Certainty Act—introduced by Senators Cynthia Lummis and Ron Wyden—it is included in the final version.

Additional provisions for developers are present, though initial reactions from DeFi insiders suggest these protections may be less robust than in previous drafts, but not entirely removed as some traditional finance lobbyists had sought.

Calls for Further Review

On Monday, Senators Jack Reed, Tina Smith, and Chris Van Hollen sent a letter to Chairman Tim Scott, requesting a hearing to debate the bill before Thursday's markup session.

The letter emphasized, "If the markup proceeds as scheduled, Committee Members will have 48 hours to review text and less than 24 hours to prepare amendments before being asked to vote. We should not be asked to cast such a vote without sufficient time to analyze and review the text … This may be the most significant law considered by the Committee this century."

Update (Jan. 13, 05:36 UTC): The committee has released the full text of the bill.