Compiled edited by TechFlow
Guests:
Evgeny Gaevoy, Founder and CEO, Wintermute
host:
Haseeb Qureshi, Managing Partner, Dragonfly
Robert Leshner, CEO and Co-founder of Superstate
Tom Schmidt, Partner, Dragonfly
Podcast source: Unchained
Original title: Crypto Market Makers EXPOSED: Inside the $ 38 M Move Token Dump - The Chopping Block
Air Date: May 11, 2025
Summary of key points
$38M Token Sale Exposed: Movement Labs’ Deal with Web3 Port Reveals the Dark Side of Crypto Market Making.
Market Makers or Exit Liquidity? — An in-depth analysis of an incentive mechanism that allows market makers to sell tokens and share profits with the foundation.
VCs turn a blind eye — Why top investors backed Movement Labs despite obvious risks, and what it means for cryptocurrency due diligence.
Rushi Fired – Movement Labs CEO Removed After Weeks of Denials, But Was the Rest of the Team Involved?
Wintermutes Evgeny Speaks Out - As one of the largest market makers in crypto, Evgeny speaks out on shady trading, sell-off mechanisms, and failures of transparency.
Airdrops, market manipulation, and losses for ordinary investors - We dissect how token issuance is manipulated behind the scenes and who actually bears the losses.
Importance of disclosure — Haseeb believes that the cryptocurrency market needs to be forced to disclose market-making protocols to prevent regulators from getting involved.
Self-regulation or SEC intervention? – Can the industry correct itself, or are we setting off another wave of securities enforcement?
The trust crisis in cryptocurrencies — lack of transparency could lead to the collapse of the entire token model. This issue explores how to solve this problem.
Summary of highlights
We want ordinary investors to lose as little money as possible.
I think for market makers, disclosing information is ultimately very beneficial. I think it will help normalize the market because its all about creating norms.
Many times people just want to find someone to blame, rather than gaining a deeper understanding of the market structure and how liquidity works.
For market makers, this incentive must be strong enough to drive prices up while also being able to cash out later.
Sometimes it’s hard to tell who’s reputable and who isn’t if you’re not deeply involved in crypto circles or lack referrals.
We have competitors in DeFi, centralized exchanges, venture capital, decentralized market making, etc., but there are probably only a very few market makers that can cover all areas.
In my opinion, the ideal disclosure system is that the information gap between the exchange and ordinary investors is basically zero. When you apply for listing on the exchange, the information known to the public should be consistent with the information known to the exchange.
We can choose to disclose this information and be accountable to investors, or we can remain silent because we dont want to be criticized. This is exactly what is happening in our industry right now: no disclosure, but if you disclose, you get attacked.
There are three channels through which disclosure can be effectively standardized. The first channel is through exchanges. The second channel is through venture capital firms. The third channel is through the market makers themselves.
It would be better for the industry if we proactively created a disclosure system that works for us.
As an industry, we need to mature and address these issues in advance before we really lose the trust of ordinary investors. Events like these will ultimately undermine confidence in the entire token industry.
Regulators may supplement, add to or formalize any consensus that the industry ultimately reaches.
I find most of the time it’s not credible that projects claim “we didn’t know it worked this way.” In this case, they did.
Movement Labs Scandal: The Messy Inside Story of a Market Maker
Haseeb:
There has been a lot of interesting news recently, one of which was reported by CoinDesk about Movement. A company associated with Movement Labs signed an agreement with a team called Web3 Port. The content of this agreement is that if the fully diluted valuation of Movement exceeds $5 billion, Web3 Port can liquidate the tokens they hold and split all profits from the sale of tokens with the foundation.
That is, this market maker acted as an “agent” in the token sell-off, and their incentive mechanism was to drive the token price up. This not only made the market maker money, but the Movement Foundation also profited from it, which obviously raised a lot of questions. They also received 5% of the total supply of tokens, which is a huge amount relative to the current total circulation, which is less than 10%.
They dumped $38 million worth of MOVE tokens, and Binance banned the account. At first everyone involved denied it, but eventually Coindex reported it and provided the relevant contracts, which led to the firing of Rushi, the co-founder and CEO of Movement Labs. Now, it seems that the incident has finally come to an end. Movement is forming a new team and now has established a new organization called Movement Industries. Everything is in chaos, but Movement has been falling.
The industry is starting to reflect on why this happened, especially since it had a lot of big venture capital backing and all the marketing was successful.
Evgeny, I dont know if you guys are directly involved with Movement, but could you explain all of this to us? How common is this in market making protocols? Whats special about this compared to a normal market making protocol? Help us understand whats going on.
Robert:
Before I do that, I want to disclose that Robot Ventures is a very small investor in Movement and we have no knowledge of, and no involvement in, any contracts or market making.
Evgeny:
This agreement is highly inconsistent with market standards.
Typically, standard market making agreements will include some key performance indicators (KPIs), such as the uptime of market making, how much capital needs to be invested, etc. These are the responsibilities of liquidity providers and market makers. Accordingly, they will receive some incentives. Market makers usually get some benefits from it, and ultimately at the end of the agreement, they can replace the token loan with stablecoins or US dollars and return it to the agreement at a certain strike price, which is usually 25%, 50% or more of the current price. This is the typical way it works.
And this contract is very non-market-compliant because it has no options, no mechanisms like that. Basically, it has a very weird incentive mechanism to drive the token price up because once it exceeds 5 billion, the protocol and the market maker will split the proceeds.
The real operation of crypto market making
Haseeb:
So what is the role of market makers and how do they participate in the token listing process?
Haseeb:
Normally, if you have a token, you can launch it on a decentralized exchange (DEX), or through other similar platforms, so that you are actually providing liquidity. However, when you want to list on an exchange like Coinbase or Binance, you cant just launch a token and expect people to trade it.
These exchanges need to ensure liquidity for trading. This means there must always be someone willing to buy and someone willing to sell. Usually, this role is assumed by market makers. Therefore, token issuers usually enter into agreements with market makers like Wintermute. These agreements stipulate that market makers need to provide a certain degree of liquidity, such as maintaining a spread.
In exchange, market makers are paid for taking on risk and putting up capital. Typically, projects will lend tokens to market makers so they can make markets, and the market makers are paid accordingly. Sometimes this payment is in cash, and sometimes it’s structured as an option so that if the token performs well, the market maker can keep some of the tokens at a predetermined price, which is usually higher than the price when the token is first listed.
Why isnt every market maker incentivized to drive up the price of the token? You have option structures, and you have strike prices. Why isnt your incentive to drive all prices up?
Evgeny:
You could say that anyone has this incentive. I understand why people would think that market makers have an incentive to drive up the price of the protocol token, but it really comes down to how big that incentive is. In our case, we probably get about 0.5% of the token supply, but its usually lower. Its significantly lower now, and it really depends on the market cap of the protocol.
But even if you as a market maker have such an option structure, you still need to keep the price high until the contract expires, because in these contracts, at least in the contracts we are involved in, if you as a market maker do not show the bid and ask quotes as required, the token issuer can cancel the entire contract, and then you have no options to speak of, and you have to try to sell the tokens you have, which may cause the price to fall. So this incentive must be strong enough to drive the price up, but also be able to cash out later.
In the case of Web3 Port, there was a very clear incentive to sell when the market cap was over $5 billion, but there is another sign of a big incentive for market makers. A huge amount of money like 60 million or 100 million, which is absolutely not going to happen in our case because it is a huge amount of money. Even if the protocol gives you 5% of the token supply, as a market maker, profiting from trading, this $60 million of capital has real costs if you put it into a perpetual contract strategy or a market making strategy. If you are rewarded with protocol tokens and provide a huge collateral like $60 million, you have an additional incentive to drive the price up and sell as many MOVE tokens as possible in order to get those dollars back. Otherwise, you are losing money every day because you have to bear the cost of these funds.
Was it manipulated from the beginning?
Haseeb:
We are now talking about a very suspicious market making protocol that is not a normal market making protocol structure. How common is this? How many market makers would use such a method? How many projects would hook into these types of protocols?
Robert:
For example, a new market maker that you’ve never heard of suddenly appears? Is it easy to create a market maker, shut it down, and then rebrand it? What’s the story here?
Evgeny:
It is possible. However, there are many market makers operating in Asia, but they do not advertise themselves publicly, so it is difficult for us to notice them. I knew Kelsey Ventures, but before this scandal broke, almost no one knew they existed. But what makes me interested is that I thought I knew all the important market makers, but these new faces keep popping up and participating in some operations.
I think this kind of agreement is very rare in regular projects. But if we look at tokens that are only listed on second-tier or third-tier exchanges and have never entered mainstream exchanges like Binance or Coinbase, I believe similar things may still be a lot in those places.
Haseeb:
Robert, what was your first reaction when these things came to light?
Robert:
My first reaction was that this kind of thing happens all the time, but the public doesnt always know whats really going on behind the scenes. Theres probably more drama every day that just doesnt get the level of exposure that CoinDesk does. It just feels like a farce to me when I read this information. I wonder how many other farces like this are going on in the current market environment. There are probably market makers doing crazy things, and the project team lacks the negotiation experience, resulting in agreements full of unreasonable terms and incentives. Its a disaster. However, I feel that the public now has a better understanding of how market makers operate, and I hope to see more transparent reporting on whats actually going on in the future, because the current transparency is too low.
Evgeny:
But I would add that it is very difficult for market makers to do these things without a protocol. So the claims by those on the protocol side that “we didn’t know it worked this way” I think are not credible in most cases. In this case, they did know.
Tom:
The case of Movement is a strange one, it’s not a top-tier project, but it’s not a small project with no background at all. There are still some bright spots in the project, and there should be people behind it and say, “This is not right, this is not up to standard.” But the team may have caused these problems due to their lack of experience.
This reminds me of the days of venture capital before YC Safe. At that time, each VC had its own convertible terms and would negotiate very harsh terms, such as extreme liquidation preferences. The emergence of YC Safe brought transparency and standardization to the entire industry. Now everyone can choose a public standard contract. Market making is currently in a state similar to the pre-Safe era. If you understand the rules, you may be able to get yourself a good deal, but there is no industry standard.
Haseeb:
Indeed, it is. While there are services, such as Coinwatch, that can help projects navigate market making negotiations, since market makers are a recurring role, project teams typically only go through a token launch once. Working with a market maker for the first time and getting a token listed on a major exchange is one of the most important decisions about liquidity. As such, there are good market makers and bad market makers.
Sometimes it’s hard to tell who’s reputable and who isn’t if you’re not deeply involved in crypto circles or lack referrals.
Evgeny:
We have competitors in DeFi, centralized exchanges, venture capital, decentralized market making, etc., but there are probably only a very few market makers that can cover all areas.
Movement Labs and its impact on the industry
Haseeb:
Aside from the workings of the market making mechanism itself, what is most striking is the focus on the team and what prompted the founders to make such a decision. The Movement team has been praised for being young, energetic, and ambitious. Why did they choose this approach? What made the founders decide not to go the path of fair competition, but to sell tokens in an attempt to cash out early instead of focusing on delivering an actual product?
They have been widely criticized for launching a token without an actual product. As a result, there are a lot of rumors that they rely on contractors, have an underpowered technical team, and focus more on marketing than substance. Most of these are actually rumors, and no one can provide hard evidence to prove their specific actions. But people are saying that they manipulated traffic, did not do an airdrop, and did not have a real product before launching the token. These all point to possible wrongdoing in the project.
After discussing the Movement post-mortem with several industry insiders, I have a few questions. First, has this changed your view of startups or founders? What are the incentives for founders in the industry? Are there really countless founders like Rushi? People discuss these things, but there is actually no hard evidence. I dont see many other projects like Movement. What are your thoughts on these issues?
Tom:
I think its really rare, and thats why its getting so much attention. But I was reading a Coin Telegraph article recently that mentioned market making protocols, and I think people might underestimate the number of lesser-known, lower-quality projects in the long tail, and there are a lot of them. As you said, those people will go find these second-tier and third-tier exchanges and market makers. But its really crazy that a high-profile project like this launched with a market cap of $3-4 billion and went through something like this.
Haseeb:
Evgeny, what are your thoughts on this question? What will you focus on when the next token contacts you? What should we focus on?
Evgeny:
For me, I am very sensitive to founders who are very flamboyant and very marketing-focused. But I know that in Silicon Valley, traditional VCs usually like these founders because they bring energy, and I know they are very strong, which often coincides with defrauding others. I will be more selective and cautious in these things in the future.
Haseeb:
I want to hear Roberts opinion, but we didnt actually invest in this project because we thought they would sell tokens to retail investors or break the lock-up agreement. I dont think any founder would be considered someone who would break the lock-up and sell tokens.
The reason we didnt invest was that we didnt think their technology was interesting. We thought it was just a spin-off project. When I first met Rushi, I had only met him once or twice, and my impression of him was that he was a very dynamic, very charismatic, very ambitious young man. Now, this has become a meme, Blockworks once had a promotional article about Movement, repeatedly emphasizing that they were young and raised a lot of money. People seem to think that just because you are young and have raised money means you are a good founder.
Haseeb:
What do you think of the investment in Rushi?
Robert:
At the Series A stage, this investment is relatively less dependent on the founder, but at the early stages of our investment, such as the seed round, it is indeed completely dependent on the founder. We dont pay too much attention to issues such as the scalability of the technology, but to the founders eyes, their ambitions and why they have such ambitions. Do I think they can succeed?
As the stages progress, this reliance will gradually decrease, and more attention will be paid to the actual progress of the project, including technical progress and investor fundraising progress. By the C or D round, the founders have almost no role to play because they have proven themselves, and they are more concerned about the actual performance of the project. Therefore, this is a gradual process, and when we invested in this project, it was at this gradual stage.
Why Cryptocurrencies Need Market Maker Disclosures
Haseeb:
In traditional markets, you need to disclose who your market makers are, and in crypto, exchanges know who your market makers are. Binance and Coinbase both know. You have to provide this information before you apply for listing. But ordinary investors and the public dont know. In my opinion, the ideal disclosure system is that the information gap between exchanges and ordinary investors is basically zero. That is, when you apply for exchange listing, the information known to the public should be consistent with the information known to the exchange. I think we should move in this direction in the future, but we are still far from this goal. I even think that the terms of the market making agreement should also be disclosed. This is also mentioned by Hester Pierce in her speech, where she described the disclosure system of cryptocurrency in detail and suggested that the terms of the market making agreement should be disclosed to the public.
What do you think of this system? Do you strongly oppose it, think it is absolutely impossible, or do you think it will be a good thing? How do you view this issue?
Evgeny:
I’m a big fan of this idea because I think we have to acknowledge that even though we pretend tokens aren’t stocks, they behave very much like stocks. Stocks, for example, in an IPO (initial public offering), need to disclose a lot of information about market makers, investors, and various risks. Hester’s talk was about this very topic. But we have to talk about more than just information parity between exchanges and retail investors, but that platform investors should have as much information as possible to make a buying decision. In practice, we don’t do that.
I think the basics of market making agreements, such as loan size and strike price, are crucial. As an ordinary investor, you need to know the motivations of market makers, such as their incentive to sell above a certain price. Once the price exceeds this level, there may be more selling pressure, or they may continue to hold, but at least you are fully informed.
We actually had a project with protocol disclosure, which was World Coin half a year ago. I remember that World Coin did disclose loans, market makers, and strike prices, but they received a lot of criticism. People began to question why such a structure was created, as if there was no similar situation for each token. They received a lot of criticism for this, and I dont think they enjoyed the experience. More importantly, all the founders became more cautious after that.
We can choose to disclose this information and be accountable to investors, or we can remain silent because we dont want to be criticized. This is exactly what is happening in our industry right now: no disclosure, but if you disclose, you get attacked.
Robert:
So if disclosure is voluntary, there is actually an equilibrium where no one discloses. Under a mandatory disclosure system, everyone must disclose, just like the operation of registered securities that we discussed.
Do you think we have to have this requirement in order to make the transition, or do you think there can be some kind of self-regulatory step to force issuers to disclose market maker information?
Evgeny:
Ive thought about this, and usually we can organize a meeting like some companies do, reach a consensus, and decide to disclose information. I think for those market makers, disclosing information will ultimately be very beneficial. I think it will help promote the normalization of the market because its all about creating norms. Once these norms are established, other market makers will be forced to follow them or choose not to participate. So its really difficult without the SECs mandatory requirements.
Haseeb:
I think there are three channels that can effectively achieve this normalization. The first channel is through exchanges. This is the simplest, if Coinbase or Binance decides that if you want to be listed, you have to disclose. This means that everyone has to disclose because they want to be listed on Coinbase or Binance. In this case, you must disclose before applying for listing. Therefore, everyone will disclose because they want to be listed on these platforms.
The second channel is through venture capital firms. Because there are a small number of highly prestigious venture capital firms, they can agree to promote a standard disclosure system and require their portfolio companies to make these disclosures. Its like a side agreement.
The third channel is through the market makers themselves. Those high-profile market makers who are not afraid to disclose their market making protocols can decide that we all agree that if you work with a market maker that does not disclose, it is suspicious.
Now, the problem with market makers agreeing to do this is that if there is no mandatory requirement to disclose all market making agreements, then you might only have one or two market makers who are not doing bad things, and at the same time you have projects like Web3 Port, for example, Rushi might not have only one market maker, they might have multiple, and one of them is a dumper.
I think there needs to be some uniformity to fix this and make sure that all the market makers are disclosed and the exchanges know about it. Because the exchanges are able to see who is trading the asset, see who is providing liquidity. So you cant operate in front of the exchange and the exchange doesnt know about it. So if you are Binance or Coinbase, you are the primary liquidity provider for an asset, and ultimately you are also the primary enforcer.
The last option is to wait for the SEC to do it. But I think the SEC will take too long, and the final disclosure system will not be in the form we want. It is better for the industry if we take the initiative to create a disclosure system that suits us. If you try to synchronize it with traditional securities, you will encounter two problems. One is that you will get a lot of useless disclosures that no one cares about, which are purely formal or unimportant. The second is that you cant strike a good balance between the cost of disclosure and the value of disclosure.
Finally, I think theres a view on whether disclosure means youre basically agreeing that the token is a security. I think its worth exploring this idea upfront that disclosure is good for anything. Its always good to make disclosures, and it doesnt mean youre a security or youre not a security. A lot of things that arent securities have disclosures.
So at the end of the day, more disclosure is good. We can say, this has nothing to do with securities, this is just how you want to list on an exchange. If you want to list on an exchange, you have to make these disclosures. This has nothing to do with securities laws and it doesnt mean this thing is an unregistered security.
When a token is ready to be listed, there is always a major counterparty involved in the negotiations, which may be a foundation or other person who holds a large number of tokens. Even if they are not directly related to the project, there is usually someone on the other side of the exchange, who may just be acting as a representative. Even if the protocol is fully decentralized, this person may be the one who is pushing for the listing of the token. Whether this person is the so-called issuer or not, they need to be responsible for providing some necessary information disclosure to help the token be listed and obtain liquidity.
I think as an industry we need to mature and address these issues in advance before we really lose the trust of ordinary investors. Events like these will ultimately undermine confidence in the entire token industry.
Evgeny:
It’s not just the market making agreement that needs to be disclosed, there are many other important things, such as major transactions. If there is any substantial transaction involved, it needs to be disclosed.
Robert:
Its about whether people are willing to buy or sell an asset. Were finally getting to a point in the industry where certain information is starting to be disclosed to everyone. Like the token unlocking schedule, which didnt exist a few years ago. Everyone is talking about that schedule, but also the cost basis of investors, like where their investment came from.
Haseeb:
But there is still a lot of work to be done here to get the disclosure structure right. I think the trust issue in the market in general, and in all tokens in particular, has the potential to get worse over time. So I strongly encourage anyone seriously considering this to act quickly, rather than aiming for perfection.
Because you can always keep improving and perfecting it. And any consensus that the industry eventually reaches, the regulators may supplement, add to or formalize it. As an industry, the best practice is to take the lead and demonstrate good trust, not only for the regulators, but more importantly for your own industry, to enhance investor confidence.
Do market makers control token prices?
Haseeb:
There has been a lot of discussion about market makers recently, especially the Movement Labs incident. As a venture capitalist, I feel a little relieved because in the past, venture capitalists were always regarded as the bad guys, but now people seem to be more inclined to think that market makers are the bad guys.
Can market makers really control the price of tokens? How can we trust that you are not manipulating the price of tokens? How much influence do market makers have on the market? What do you think of those who say that as soon as Wintermute participates in market making, the price of tokens will fall?
Evgeny:
Now market makers are the new bad guys. This is actually a cyclical phenomenon. In a bull market, people think that market makers are pushing up prices, and in a bear market, people think that market makers are pushing down prices. In fact, two months ago we were seen as the bad guys, but now the situation has changed. I think people are always looking for new people to blame.
Haseeb:
The role that market makers play varies widely across market cycles.
Evgeny:
Many times people just want to find someone to blame, rather than deeply understand the market structure and the mechanism of liquidity operation. In fact, many discussions about market makers are based on misunderstandings. For example, some people think that we get tokens from Binance and then sell them to drive down the price, allowing Binance to profit from liquidations. This logic is wrong because both we and Binance profit from ordinary investors.
Haseeb:
So you dont want ordinary investors to lose money?
Evgeny:
Of course, we want the average investor to have as little loss as possible. The past few months have seen a lot of liquidations among average investors, causing a lot of people to exit the market. January was a good month for us, but February, March, and April were not so good.
Haseeb:
When ordinary investor activity decreases, the attractiveness of market making will also decrease. How is your liquidity now?
Evgeny:
Its not linear. If volume drops by 50%, our earnings dont drop by 50%, they drop by much more.
Haseeb:
This is related to the volatility of the crypto market. Do you think the price volatility and momentum effect in the crypto market makes market making more complicated?
Evgeny:
Actually not. Our model operates on multiple exchanges, and we buy and sell between different platforms. The problem is that if a large liquidity fund suddenly comes in and starts buying a token, it can drive the price up quickly, which is difficult for us to deal with.
Haseeb:
In this case, what is the extent of your losses?
Evgeny:
We lose money on about 50% of our contracts.
Robert:
But can your profitable contracts make up for your losing contracts?
Evgeny:
Yes, our business is quite diversified. For example, we also engage in over-the-counter (OTC) transactions, which helps us gain more profits in terms of liquidity provision.
Haseeb:
So, regarding the question of option structure, does this also exist in traditional finance, or is it a phenomenon unique to the crypto market?
Evgeny:
In traditional finance, there is indeed a similar structure, but it is not exactly the same. In the crypto market, market makers often also play the role of investment banks.
Haseeb:
Why has the crypto market developed this way? Do you think it has something to do with the cash flow and volatility of tokens?
Evgeny:
It does make sense. The evolution of the market may be because the volatility of tokens is too high, making market makers more inclined to obtain returns through option structures. As the market develops, token pricing becomes more efficient and volatility decreases, it may become more like market making in traditional markets in the future.
Haseeb:
If the market structure changes, how will the role of market makers adjust?
Evgeny:
If a new model emerges, such as Binance proposing a new market mechanism, market makers may provide liquidity in a different way. In short, changes in market structure will affect the way market makers operate.
Crypto Market Structure Act: What’s at Stake
Haseeb:
There is a new Market Infrastructure Bill that was recently introduced. This bill is a complete rewrite of the previous FIT21 bill. While there are many similarities in spirit to the previous bill, there are also some significant differences.
The bill is very clear about the definition of digital assets and tokens, clarifying when a token is considered a security or non-security. The CFTC will be responsible for the spot market for non-security tokens in the crypto space, while the SEC retains enforcement authority over capital raising and fraud. In addition, projects can raise up to $150 million in tokens per year, provided they plan to be decentralized. Unlike the previous code decentralization test, a so-called maturity test is now introduced, that is, the standard for mature blockchain protocols is decentralization and/or autonomy, requiring that no one controls more than 20% of the voting rights, and its value mainly comes from the programmatic functions of the blockchain system. The definition is a bit vague, I dont fully understand its boundaries, and it may be deliberately designed to be vague, but it is not clear about the situation where a team or group controls the system. There are many issues in the crypto market about multi-signatures, security committees, and upgradeability, and it is not clear how these intersect with so-called immature blockchain protocols. The bill also postpones the regulation of DeFi (decentralized finance), which is currently defined relatively narrowly.
I would like to first hear your overall views on this bill.
Robert:
I havent spent a lot of time on this because all bills evolve and the first draft is definitely not the final version. If you look at the current situation of stablecoin legislation, you can see this clearly. I think this bill will change a lot, the definitions will change, and some core structures will change. Its a long way from being signed into law. If this bill is signed into law as it is, I think it will be a good thing for everyone. Whether you are a founder, a venture investor, a market maker, or an ordinary investor, you will feel that this is a huge upgrade and improvement to the market structure before legislation.
As a layman, I would put the chances of this bill passing at about 40% to 50%. Thats a one-cycle estimate. Because we still have about a year and a half until the next election, which will reset the rules of the game. So if its going to pass, its probably going to happen in the short term.
The progress of stablecoin legislation will provide important insights into the market structures chances of passage. If stablecoin legislation gets to the end and the Senate finds a version they like and the House generally accepts it, then that will be good for market structure. If the House says they dont like the Senates version and need to rework it, then that will be bad for any crypto legislation. So if you want to know the market structure outcome, start with stablecoins.
Haseeb:
Weve seen considerable opposition to the bill from the Democratic Party, primarily because of the Trump familys dealings. This situation seems to indicate that we will have a hard time reaching meaningful compromise on legislation. Evgeny, how much time have you devoted to this bill and what impact do you think it will have on your industry?
Evgeny:
I havent read the bill in detail, but we will definitely give feedback on it. We have deep connections in the crypto space. I noticed that the CFTC seems to have more power than the SEC, and Im still thinking about whether this is appropriate. I personally prefer the existing SEC structure, so my instinct is that if more power is to be given, it should be given to the SEC.
It depends on what the law says. If the law just outlines the rules and says who is responsible for enforcing them, then it wont matter much.
Haseeb:
I think this is very important. One thing weve learned over the last four years is that you can do a lot within the boundaries of the law, and those boundaries arent always clear. Were in that situation now.
Evgeny:
I think it would be better if there was a clearer legal framework.
Haseeb:
Yes, while this may reduce some risk, the reality is that almost everything in the crypto market is complex and confusing, and many operations do not fully comply with any legal regulations.
Tom, what do you think of the Market Infrastructure Bill?
Tom:
I feel like this is still early days and I havent spent a lot of time on it, but it reminded me of how difficult it is to write good crypto legislation. Its always too specific or not specific enough and ends up with a suboptimal solution. This applies not only to crypto legislation but legislation in general, but the dynamic and ambiguity of the crypto market makes this even more problematic.
Can we fix the problem before encryption breaks down?
Haseeb:
This means that if we only pass the Stablecoin Act but not the Market Structure Act, then as an industry we need to self-regulate and establish some norms. That way, future governments or new regulators can see the current state of the industry and
Robert:
There is some truth to this view, but it is not entirely correct. Forty years ago, the SEC led by Gensler could have set rules for the industry through exemptions, frameworks, and various interpretations, but this did not happen. The future SEC or CFTC can also do this. They do not need legislation to create trading frameworks for different securities or assets. They already have the power to establish these frameworks. This does not necessarily require mandatory intervention from Congress. So even if Congress does not act, it does not mean that everything is on us.
Haseeb:
I think thats not entirely correct. The SEC has made it clear that they have no authority from Congress. Thats what Gensler said originally and thats what the new SEC is saying, that Congress needs to act to give us clarity, otherwise whos going to regulate?
Both the SEC and the CFTC said Congress’ position was very clear. The debate over the bill meant that no one had clear authority. Without clear authority, the SEC said, “We shouldn’t make the rules.” That creates a regulatory vacuum.
Robert:
But they can regulate through formal and informal rulemaking. They are already issuing a lot of interpretive statements about different programs. Its not ideal, but they are doing something.
Haseeb:
But most of the time, these are almost all rollbacks of previous statements. A lot of what were seeing is speech, not rulemaking. So far, the SEC has not issued any formal rules.
Evgeny:
Our most basic understanding, such as Bitcoin is not a security, is not confirmed by Congress through law, but by the SECs decision.
Haseeb:
So you can say, I dont think this is under my purview. But I dont think the SEC is going to say, These things are not securities, and this is how they should work. You cant do both at the same time. If theyre not securities, then theyre not under the purview of the SEC. If you say youre going to classify certain tokens as securities, then youre done because the SEC is no longer a regulator of non-securities.
So will the CFTC step in? Will they say, Okay, lets write rules that require you to disclose this and that. I dont see the CFTC taking action in this regard. Maybe they will, but at the moment, both agencies are saying theyre waiting for Congress to act, and the difference in authority between the two is constantly changing. If Congress doesnt act, it means that Congress deliberately doesnt want to legislate. This means that the crypto industry will continue to be unregulated.
So will the CFTC step in? Will they say, Okay, lets write rules that require you to disclose this and that. I dont see the CFTC taking action in this regard. Maybe they will, but at the moment, both agencies are saying theyre waiting for Congress to act, and the difference in authority between the two is constantly changing. If Congress doesnt act, it means that Congress deliberately doesnt want to legislate. This means that the crypto industry will continue to be unregulated.
So I really think that as an industry, we have a responsibility to address this, not only for the sake of future regulations that may be introduced, but also for our own benefit. We need to reduce volatility in the market and increase consumer confidence in token listings. People need to know that the tokens listed can be trusted and not be dumped by some unreliable market maker.
