Democrats Propose Crypto Overhaul to Reclaim Market Trust and Clarity

Senate Democrats have introduced a comprehensive framework aimed at reshaping the U.S. crypto market structure, setting the stage for negotiations with Republicans on stalled legislation. The initiative, unveiled by 12 Democratic senators including Ruben Gallego, Mark Warner, Kirsten Gillibrand, and Cory Booker, outlines a seven-pillar approach to address regulatory gaps, enhance investor protections, and mitigate potential corruption linked to high-profile crypto ventures. The proposal comes as the global crypto market, valued at nearly $4 trillion, remains in a regulatory limbo, according to the lawmakers.

At the heart of the framework is a reassignment of regulatory authority, granting the Commodity Futures Trading Commission (CFTC) expanded oversight over spot markets for non-security tokens. The plan also introduces a mechanism to determine whether a digital asset qualifies as a security under the Securities and Exchange Commission’s (SEC) jurisdiction. Additionally, the framework mandates new rules for token issuers, including disclosure requirements, and specifies crypto-specific regulations for exchanges and custody providers to ensure transparency and prevent market manipulation.

A significant component of the framework involves mandatory registration of digital asset platforms serving U.S. users with FinCEN as financial institutions. This requirement would bring exchanges, custodians, and other intermediaries under the Bank Secrecy Act, anti-money laundering (AML) rules, and sanctions enforcement. The Democrats’ plan also addresses decentralized finance (DeFi), identifying it as a potential vector for illicit finance and calling for enhanced oversight. However, it remains unclear whether the registration requirement will extend to protocol-level software teams, a point of contention compared to the Republican approach, which includes explicit protections for DeFi developers.

The proposal also includes a prohibition on interest or yield offered by stablecoin issuers, including indirect or affiliate-based mechanisms, following the recent passage of the GENIUS Act. This aligns with broader efforts to prevent conflicts of interest, particularly in light of allegations that President Trump and his family have exploited digital asset projects for personal enrichment. The framework also introduces ethics provisions banning elected officials and their families from launching or profiting from crypto projects while in office and mandates full disclosure of crypto holdings.

The Democrats' proposal emerges as a counterpoint to the Republican-led Clarity Act, which has already passed the House and is now under consideration in the Senate. While both frameworks aim to provide regulatory clarity, they differ on key issues such as ethics, DeFi oversight, and the pace of implementation. The Democrats have emphasized the need for a bipartisan process with adequate time for negotiation, whereas Republicans have pushed for a swift legislative timeline. With both parties now holding detailed legislative blueprints, the path forward will depend on the ability of the Senate Banking Committee to reconcile differences over ethics, DeFi, and enforcement mechanisms.