Senator Lummis offers DeFi protections bill as broader market structure draft nears

Republican Senator Cynthia Lummis offered is pushing one of the key decentralized finance (DeFi) provisions in the Senate's overall market structure bill as its own text, alongside with Democrat co-signer Ron Wyden, as the crypto industry and its Washington lobbyists wait Monday for the unveiling of the new draft.

Crypto's DeFi sector has repeatedly said it's non-negotiable that the market structure legislation protects software developers that don't control people's money from treatment as money transmitters. While there was a section of an earlier Senate draft that shielded those developers, that's been back on the negotiating table. Meanwhile, Lummis and Wyden, an Oregon Democrat, are introducing that provision as a standalone bill. "It’s time to stop treating software developers like banks simply because they write code,” Lummis said in a statement.

A person familiar with the effort said it's aimed at underlining that this particular issue has bipartisan support, though its separate introduction is sure to raise questions about whether it will remain as a section in the bigger bill.

The Blockchain Regulatory Certainty Act, which keeps the money-trasmitter label off developers who don't have custody of customer assets or control their movements, was originally a bill in the House of Representatives. It was eventually picked up as a section of the Senate's market structure bill, and now the Lummis-Wyden bill gives the House's original version a matching Senate counterpart.

Market structure bill

That and a number of other topics are still being negotiated down to the wire in the much larger Senate bill that would establish regulation for the U.S. crypto markets. Two other people familiar with the talks said the biggest debates seem to be illicit-finance questions; the ins and outs of the bill's DeFi treatment; the question of stablecoins being associated with rewards and yield; and the Democrats' request that it address senior government officials profiting from the industry — a provision with President Donald Trump clearly in mind.

Lobbyists are preparing for the legislative language to be finalized as soon as Monday evening, which would be the text that's set for markup at a Senate Banking Committee hearing on Thursday, announced last week by Chairman Tim Scott. As the draft becomes public — potentially into Tuesday morning — that will quickly answer which way the committee is heading, whether with the bipartisan negotiation of months or with a Republican-led effort.

Passing major legislation is always a challenge, but this negotiation is particularly complicated, with so many constituencies involved. Apart from the two political parties and the White House, which is very much involved, the effort is seeking buy-in from bank lobbyists who've thrown an 11th-hour wrench into talks over stablecoin yield, and also the crypto industry itself. Each of them has suggested "red line" issues that could cost their support if their requests aren't met.

The industry isn't a monolith in its own right, because it represents divergent views from its DeFi insiders and its more centralized firms such as the platforms Coinbase and Kraken. While the industry has represented a combined front on such issues as protecting software developers from legal liability, as seen in a letter last August signed by more than 100 companies and organizations, the eventual bill may test whether red lines declared in one segment of crypto is defended in others.

For its part, Coinbase CEO Brian Armstrong said in a December 26 post on social media site X that his company will walk away from a bill that gives in to bankers' requests to stop crypto firms from paying interest and offering rewards on stablecoins.

"Red line issue for us," he wrote. "And will keep advocating for our customers and the crypto industry." Coinbase reported earning $355 million in stablecoin-related revenue in the third quarter of 2025.

Satisfying Democrats?

Close observers of the negotiations were predicting on Monday that the bill will not manage to satisfy the list of sticking points for Democratic lawmakers. If the draft gets only a party-line approval in the committee this week, it raises questions about whether it'll manage to win the seven Democrat votes the bill would need, assuming the entire Republican caucus gets on board.

In the squeezed timeline for this markup, Democrats are expected to have until the end of Tuesday to get their amendments filed for the Thursday hearing, according to one of the people.

For Republicans, the silver lining of a failure to compromise could be especially apparent to Tim Scott, who in addition to his committee chairmanship also leads the National Republican Senatorial Committee (NRSC) that's responsible for supporting GOP candidates in this year's midterm election.

The crypto industry was among the top campaign benefactors in 2024, and it could have potentially more than $200 million on the table for its favored congressional candidates. If Democrats can be painted as the opponents of crypto legislative progress, much of that money could end up in the Republican cause.

While the Senate Banking Committee prepares for its Thursday markup, the Senate Agriculture Committee — the other panel that needs to approve the market structure effort if it's to become law — delayed its hearing. It had planned on trying to go the same day as the banking panel, but it's now moving toward the end of the month, according to Chairman John Boozman, who has been working with Democrat Senator Cory Booker to iron out some of the differences.

"To finalize the remaining details and ensure the broad support this legislation requires, additional time is needed before moving to markup," Boozman said in a statement on Monday. "The committee will mark up this legislation during the last week of January."

Read More: Crypto crowd could still walk away from U.S. market structure bill if DeFi needs unmet

UPDATE (January 12, 2025, 22:02 UTC): Adds information on the market structure bill process and negotiations.

UPDATE (January 12, 2025, 22:17 UTC): Adds scheduling change for Senate Agriculture Committee hearing.