Wintermute CEO's Statement: Market Makers Are Not the New "Bad Guys," People Need a Scapegoat
Guests:
Evgeny Gaevoy, Founder and CEO of Wintermute
Host:
Haseeb Qureshi, Managing Partner at Dragonfly
Robert Leshner, CEO and Co-founder of Superstate
Tom Schmidt, Partner at Dragonfly
Podcast Source: Unchained
Original Title: Crypto Market Makers EXPOSED: Inside the $38M Move Token Dump - The Chopping Block
Release Date: May 11, 2025
Key Takeaways
$38M Token Dump EXPOSED: The transaction between Movement Labs and Web3 Port reveals the dark side of crypto market making.
Market Maker or Exit Liquidity? ------ An in-depth analysis of an incentive mechanism that allows market makers to dump tokens and share profits with the foundation.
Venture Capital Turns a Blind Eye ------ Why top investors continue to support Movement Labs in the face of obvious risks, and what this means for due diligence in cryptocurrency.
Rushi Fired ------ The CEO of Movement Labs was dismissed after weeks of denial, but were other team members involved?
Evgeny from Wintermute Speaks Out ------ As one of the largest market makers in crypto, Evgeny shares insights on dark trades, dumping mechanisms, and failures in transparency.
Airdrops, Market Manipulation, and Ordinary Investors' Losses ------ We dissect how token issuance is manipulated behind the scenes and who truly bears the losses.
The Importance of Disclosure ------ Haseeb believes the crypto market needs mandatory public market-making agreements to prevent regulatory intervention.
Self-Regulation or SEC Intervention? ------ Can the industry self-correct, or are we triggering another wave of securities enforcement?
The Trust Crisis in Cryptocurrency ------ A lack of transparency could lead to the collapse of the entire token model. This episode explores how to address this issue.
Highlights of Opinions
We hope ordinary investors lose as little as possible.
I believe that for market makers, disclosure is ultimately very beneficial. I think it will help normalize the market as it creates standards.
Many times, people just want to find someone to blame rather than deeply understand the mechanisms of market structure and liquidity operations.
For market makers, this incentive must be strong enough to drive prices up while also allowing for realization later.
Sometimes, if you don't have deep connections in crypto or lack recommendations, it can be hard to discern who is reputable and who isn't.
We have competitors in DeFi, centralized exchanges, venture capital, and decentralized market making, but only a handful of market makers can cover all areas.
In my view, the ideal disclosure system is one where the information gap between exchanges and ordinary investors is virtually zero. When you apply for exchange listing, the information known to the public should be consistent with what the exchange knows.
We can choose to disclose this information and be accountable to investors, or we can remain silent because we don’t want to be criticized. This is the current state of our industry: no disclosure, but if you disclose, you will be attacked.
There are three channels to effectively standardize disclosure. The first channel is through exchanges. The second channel is through venture capital firms. The third channel is through the market makers themselves.
If we proactively create a disclosure system that suits us, it will be more beneficial for the industry.
As an industry, we need to mature and address these issues proactively to avoid truly losing the trust of ordinary investors. Such events will ultimately undermine confidence in the entire token industry.
Any consensus reached by the industry may be supplemented, added to, or formalized by regulators.
Those project teams claiming "we didn't know it worked this way," I think in most cases, that’s not credible. In this case, they do know.
Movement Labs Scandal: The Chaotic Inside Story of Market Makers
Haseeb:
There has been a lot of interesting news lately, one of which was reported by CoinDesk about Movement. A company related to Movement Labs signed an agreement with a team called Web3 Port. The agreement states that if Movement's fully diluted valuation exceeds $5 billion, Web3 Port can liquidate their held tokens and share all profits from the sale of tokens with the foundation.
In other words, this market maker played the role of "agent" in the token dump, and their incentive mechanism was to drive up the token price. This not only allowed the market maker to profit, but the Movement foundation also benefited, which clearly raised significant questions. They also received 5% of the total supply of tokens, which is a huge amount relative to the circulating supply, which is currently less than 10%.
They dumped $38 million worth of MOVE tokens, resulting in Binance banning the account. Initially, everyone involved denied everything, but eventually, Coindex reported on the matter and provided relevant contracts, leading to the dismissal of Rushi, the co-founder and CEO of Movement Labs. Now, it seems this incident has finally come to a close. Movement is forming a new team and has established a new organization called Movement Industries. Everything is quite chaotic, but Movement has been on a downward trend.
The industry is starting to reflect on why this happened, especially since it received a lot of support from major venture capital and all the marketing was quite successful.
Evgeny, I don't know if you have a direct relationship with Movement, can you help us explain all of this? How common is this situation in market-making agreements? What makes this different from standard market-making agreements? Help us understand what happened.
Robert:
Before that, I want to disclose that Robot Ventures is a very small investor in Movement, and we know nothing about any contracts or market-making activities, nor have we participated in them.
Evgeny:
This agreement is very non-standard for the market.
Typically, standard market-making agreements include some key performance indicators (KPIs), such as normal operating hours for market making, how much capital needs to be deployed, etc. These are the responsibilities of liquidity providers and market makers. Correspondingly, they receive some incentives. Market makers usually gain some benefits from this, and at the end of the agreement, they can replace token loans with stablecoins or dollars and return them to the agreement at a certain exercise price, which is usually 25%, 50%, or higher than the current price. This is the typical way it operates.
However, this contract is very non-standard because it lacks options or similar mechanisms. Essentially, it has a very strange incentive mechanism to drive up the token price because once it exceeds $5 billion, the agreement and the market maker will split the profits.
The Real Operations of Crypto Market Making
Haseeb:
So what is the role of market makers, and how do they participate in the token listing process?
Haseeb:
Typically, if you have a token, you can launch it on a decentralized exchange (DEX) or through other similar platforms, which means you are actually providing liquidity. However, when you want to list on exchanges like Coinbase or Binance, you can't just launch the token and expect people to trade it.
These exchanges need to ensure liquidity for the trades. This means there must always be someone willing to buy and someone willing to sell. Typically, this role is taken on 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 level of liquidity, such as maintaining the bid-ask spread.
In exchange, market makers are compensated because they need to take on risks and deploy capital. Typically, the project will lend tokens to the market makers so they can perform market-making operations, and the market makers will receive corresponding compensation. Sometimes this compensation is cash, and sometimes it is in the form of options structures, so if the token performs well, the market maker can retain some tokens at a predetermined price, which is usually higher than the price at which the token first lists.
Why aren't all market makers incentivized to drive up token prices? You have options structures and exercise prices. Why isn't your motivation to raise all prices?
Evgeny:
You could say anyone has that incentive. I understand why people think market makers have the motivation to drive up the protocol token price; the key is how strong that incentive is. In our case, we might receive about 0.5% of the token supply, but usually lower. Now this percentage has significantly decreased, and it actually depends on the protocol's market cap.
But even if you, as a market maker, have such an options structure, you still need to keep the price high before the contract expires because in these contracts, at least in the ones we participate in, if you as a market maker do not display buy and sell quotes according to the procedure, the token issuer can cancel the entire contract, and then you have no options left; you have to try to sell the tokens you hold, which could lead to a price drop. Therefore, this incentive must be strong enough to drive prices up while also allowing for realization later.
In the case of Web3 Port, there is a very obvious incentive to sell when the market cap exceeds $5 billion, but there is also another indication that provides significant incentive for market makers. Large sums like $60 million or $100 million are absolutely not going to happen in our case because that is a huge amount. Even if the protocol gives you 5% of the token supply, as a market maker, profiting from the trade, this $60 million if you deploy it into perpetual contract strategies or market-making strategies will incur real costs. If you provide collateral like $60 million and receive protocol tokens in return, you have an additional incentive to drive the price up and sell as many MOVE tokens as possible to get that cash back. Otherwise, you are losing money every day because you have to bear the cost of that capital.
Was It Manipulated from the Start?
Haseeb:
We are now discussing a very suspicious market-making agreement, which is not a normal market-making structure. How common is this? How many market makers would adopt such operational tactics? And how many projects would be linked to these types of agreements?
Robert:
For example, a new market maker you've never heard of suddenly appears? Is it easy to create a market maker, shut it down, and then rebrand? What’s the story here?
Evgeny:
It is possible. However, there are many market makers operating in Asia, but they do not publicly promote themselves, so it is hard for us to notice them. I know Kelsey Ventures, but before this scandal broke, almost no one knew of their existence. What interests me is that I thought I knew all the important market makers, but these new faces keep emerging and getting involved in some operations.
I think such agreements are very rare in reputable projects. But if we look at tokens that only list on second or third-tier exchanges and have never entered mainstream exchanges like Binance or Coinbase, I believe similar things may still happen in those places.
Haseeb:
Robert, what was your first reaction when these things were exposed?
Robert:
My first reaction is that this kind of thing actually happens often; it’s just that the public doesn’t always know what’s happening behind the scenes. There could be more dramatic events happening every day, but they don’t reach the level of exposure like CoinDesk. When I read this information, I felt it was like a farce. I wonder how many similar farces are happening in the current market environment. Some market makers might be doing crazy things while project teams lack negotiation experience, leading to unreasonable terms and incentive mechanisms in the agreements. It’s truly 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 the actual situation in the future because the current transparency is simply too low.
Evgeny:
But I want to add that it’s hard for market makers to operate without agreements. So those project teams claiming "we didn't know it worked this way," I think in most cases, that’s not credible. In this case, they do know.
Tom:
The Movement case is strange; it’s not a top project, but it’s also not a completely background-less small project. The project does have some highlights, and there should be someone behind it saying, "This is wrong; this is not standard." But the team may have caused these issues due to a lack of experience.
This reminds me of the venture capital era before YC Safe emerged. At that time, every VC had its own convertible terms, and negotiations would include 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. However, market making is still in a state similar to the pre-Safe era. If you understand the rules, you might negotiate a decent agreement for yourself, but there is no industry standard.
Haseeb:
That’s true. While there are some services like Coinwatch that can help project teams navigate negotiations in market making, because market makers are recurring participants, while project teams usually only experience a token issuance once. The first collaboration with a market maker and getting the token listed on a major exchange is one of the most important decisions regarding liquidity. Therefore, there are good market makers and bad market makers.
Sometimes, if you don’t have deep connections in crypto or lack recommendations, it can be hard to discern who is reputable and who isn’t.
Evgeny:
We have competitors in DeFi, centralized exchanges, venture capital, and decentralized market making, but only a handful of market makers can cover all areas.
Movement Labs and Its Industry Impact
Haseeb:
Aside from the operation of the market-making mechanism itself, what stands out is the attention on the team and what prompted the founders to make such decisions. The Movement team was once praised for being young, vibrant, and ambitious. Why did they choose this route? What made the founders decide not to compete fairly but to dump tokens in an attempt to cash out early instead of focusing on delivering a real product?
They faced widespread criticism for launching tokens without a real product. Therefore, there are many rumors that they relied on contractors, the technical team was underpowered, and they focused more on marketing than substance. Most of these are rumors, and no one can provide concrete evidence of their specific actions. But people are saying they manipulated traffic, didn’t conduct airdrops, and launched tokens without a real product. All of these point to possible misconduct within the project.
After discussing the post-analysis of Movement with several industry insiders, I have some questions. First, has this changed your view of startups or founders? What are the incentive mechanisms for founders in the industry? Are there really countless founders like Rushi? People are discussing these matters, but there is no concrete evidence. I haven’t seen many other projects like Movement. What are your thoughts on these issues?
Tom:
I think this situation is indeed rare, which is why it has garnered so much attention. But I recently read an article from Coin Telegraph mentioning market-making agreements, I think people might underestimate the number of lesser-known but low-quality projects in the long tail; there are indeed many such projects. As you said, those people will seek out these second-tier and third-tier exchanges and market makers. But for such a high-profile project to launch with a $30-40 billion market cap and go through something like this is truly crazy.
Haseeb:
Evgeny, what are your thoughts on this? When the next token contacts you, what will you pay attention to? What should we focus on?
Evgeny:
For me, I am very sensitive to founders who are very flashy and overly focused on marketing. But I know that in Silicon Valley, traditional VCs often like these founders because they bring energy, and I know they are very strong, which often aligns with scamming others. After that, I will be more selective and cautious about these matters.
Haseeb:
I want to hear Robert's thoughts, but we actually didn’t invest in this project, not because we thought they would dump tokens on retail investors or break lock-up agreements. I don’t think any founder would be seen as someone who would break lock-ups and dump tokens.
The reason we didn’t invest is that we didn’t find their technology interesting. We thought it was just a derivative project. When I first met Rushi, I had only seen him once or twice, and my impression was that he was a very energetic, charismatic, and ambitious young man. Now, this has become a meme; Blockworks once had a promotional article about Movement that repeatedly emphasized their youth and the amount of funding they raised. People seem to think that just because they are young and have raised funds, it means they are excellent founders.
Haseeb:
How do you view the investment in Rushi?
Robert:
In the Series A funding stage, this type of investment relies relatively less on the founder, but in the early stages of our investment, such as the seed round, it is indeed entirely reliant on the founder. We don’t focus too much on the scalability of the technology and other issues but rather on the founder's vision, their ambition, and why they have that ambition. Do I believe they can succeed?
As the stages progress, this reliance gradually decreases, focusing more on the actual progress of the project, including technological advancements and fundraising progress from investors. By the time we reach Series C or D, the role of the founder is almost negligible because they have proven themselves, and the focus shifts more to the actual performance of the project. Therefore, it is a gradual process, and when we invested in this project, we happened to be at this transitional stage.
Why Cryptocurrency Needs Market Maker Disclosure
Haseeb:
In traditional markets, you need to disclose who your market makers are, while in cryptocurrency, exchanges know who your market makers are. Both Binance and Coinbase know. Before you apply for listing, you must provide this information. But ordinary investors and the public do not know. In my view, the ideal disclosure system is one where the information gap between exchanges and ordinary investors is virtually zero. That is, when you apply for exchange listing, the information known to the public should be consistent with what the exchange knows. 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 market-making agreements should also be disclosed. This is also what Hester Pierce mentioned in her speech, where she detailed the disclosure system for cryptocurrencies and suggested that the terms of market-making agreements should be disclosed to the public.
What are your thoughts on this system? Would you strongly oppose it, thinking it’s absolutely impossible, or do you think it would be a good thing? How do you view this issue?
Evgeny:
I strongly support this idea because I believe we must acknowledge that while we pretend tokens are not stocks, their behavior is very similar to stocks. For example, in an IPO, stocks need to disclose a lot of information about market makers, investors, and various risks. Hester's speech was precisely about this topic. But we must discuss not only the issue of information parity between exchanges and retail investors but also that platform investors should have as much information as possible to make purchasing decisions. In reality, we are not achieving that.
I think the basic content of market-making agreements, such as loan sizes and exercise prices, is crucial. As an ordinary investor, you need to know the motivations of market makers, such as whether they have incentives to sell above a certain price. Once the price exceeds that level, there may be more selling pressure, or they may continue to hold, but at least you are fully informed.
In fact, we once had a project that disclosed agreements, which was World Coin from about six months ago. I remember World Coin did disclose loans, market makers, and exercise prices, but they faced a lot of criticism. People started questioning why such a structure was created, as if no token had similar situations. They received a lot of criticism for that, and I think they did not enjoy that experience. More importantly, all 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 don’t want to be criticized. This is the current state of our industry: no disclosure, but if you disclose, you will be attacked.
Robert:
So if disclosure is voluntary, it actually creates a balance where no one discloses. In a mandatory disclosure system, everyone must disclose, just like we discussed with registered securities.
Do you think we must have such requirements to achieve change, or do you think some self-regulatory steps could encourage issuers to disclose market maker information?
Evgeny:
I have thought about this issue; typically, we can organize a meeting like some companies do, reach a consensus, and decide to disclose information. I believe that for those market makers, disclosure is ultimately very beneficial. I think it will help normalize the market as it creates standards. Once these standards are established, other market makers will be forced to follow them or choose not to participate. Therefore, without the SEC's mandatory requirements, it is indeed very difficult.
Haseeb:
I think there are three channels to effectively achieve this standardization. The first channel is through exchanges. This is the simplest; if Coinbase or Binance decides that if you want to list, you must disclose. This means everyone must disclose because they want to list 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 high-reputation venture capital firms that can reach a consensus to promote a standard disclosure system requiring their portfolio companies to make these disclosures. This acts like an additional agreement.
The third channel is through the market makers themselves. Those high-reputation market makers who are not afraid to disclose their market-making agreements can decide that if you work with a non-disclosing market maker, that is suspicious.
The issue with market makers agreeing to do this is that if there are no mandatory requirements to disclose all market-making agreements, you might only have one or two market makers that don’t do bad things, while there are projects like Web3 Port. For example, Rushi may not be the only market maker; they may have multiple, and one of them is the seller.
I think some uniformity is needed to solve this issue, ensuring all market makers are disclosed, and exchanges are aware. Because exchanges can see who is trading the assets and who is providing liquidity. Therefore, you cannot operate in front of an exchange without them knowing. So if you are Binance or Coinbase, you are a major liquidity provider for the asset, and ultimately you are also the main executor.
The last option is to wait for the SEC to do this. But I think the SEC will take too long, and ultimately the disclosure system will not be in the form we want. If we proactively create a disclosure system that suits us, it will be more beneficial for the industry. 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, purely formal or some unimportant disclosures. The second is that you cannot balance the cost of disclosure with the value of disclosure well.
Finally, I think there is a viewpoint that disclosure essentially means you agree that tokens are securities. I think it’s worth exploring this idea in advance, that disclosure is beneficial for anything. Disclosing information is always good; it doesn’t mean you are a security or not a security. Many things that are not securities also disclose relevant information.
So ultimately, more disclosure is good. We can say this has nothing to do with securities; it’s just how you want to be listed on an exchange. If you want to be listed on an exchange, you must make these disclosures. This has nothing to do with securities law and does not mean this thing is an unregistered security.
When a token is ready to be listed, there will always be a major counterparty involved in the negotiations, possibly a foundation or someone else holding a large number of tokens. Even if they have no direct relationship with the project, there is usually someone on the other side of the exchange, possibly just as a "representative." Even if the agreement is fully decentralized, this person may also be the one pushing for the token listing. Regardless of whether this person is the so-called "issuer," they need to be responsible for providing some necessary disclosures to help the token get listed and gain liquidity.
I believe that as an industry, we need to mature and address these issues proactively to avoid truly losing the trust of ordinary investors. Such events will ultimately undermine confidence in the entire token industry.
Evgeny:
It’s not just market-making agreements that need disclosure; there are many other important things, such as significant transactions. If any substantive transactions are involved, they need to be disclosed.
Robert:
This relates to whether people are willing to buy and sell a certain asset. We have finally reached a point in this industry where certain information is starting to be disclosed to everyone. For example, the token unlock schedule, which did not exist a few years ago. Everyone is discussing this schedule, but there are also investors' cost bases, such as where their investments come from.
Haseeb:
But there is still a lot of work to be done to establish the right disclosure structure. I think the entire market, especially the trust issues surrounding all tokens, has the potential to gradually deteriorate. Therefore, I strongly encourage anyone seriously considering this issue to take action as soon as possible, rather than pursuing perfection.
Because you can always continue to improve and refine it. Moreover, any consensus reached by the industry may be supplemented, added to, or formalized by regulators. As an industry, the best practice is to take the lead and demonstrate good trust, not only for 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 regarding the Movement Labs incident. As a venture capitalist, I feel somewhat relieved because in the past, people always viewed venture capitalists as the "bad guys," while now it seems people are more inclined to see market makers as the "bad guys."
So, can market makers really control token prices? How can we trust that you are not manipulating token prices? What is the actual impact of market makers on the market? For those who say, "Once Wintermute gets involved in market making, the token price drops," what are your thoughts?
Evgeny:
Now market makers have become the new "bad guys." This is actually a cyclical phenomenon. In a bull market, people think market makers are driving prices up; in a bear market, people feel market makers are driving prices down. 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 scapegoats.
Haseeb:
Market makers play very different roles in different market cycles.
Evgeny:
Many times, people just want to find someone to blame rather than deeply understand the mechanisms of market structure and liquidity operations. In reality, much of the discussion about market makers is based on misunderstandings. For example, some believe that once we receive tokens from Binance, we sell them to drive down the price, allowing Binance to profit from the liquidation. This logic is flawed because both we and Binance profit from ordinary investors.
Haseeb:
So you don’t want ordinary investors to lose money?
Evgeny:
Of course, we hope ordinary investors lose as little as possible. In the past few months, ordinary investors have faced severe liquidations, leading many 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 also declines. How is your liquidity now?
Evgeny:
It’s not linear. If trading volume drops by 50%, our revenue won’t decrease by 50%; it will decrease even more.
Haseeb:
Does this relate to the volatility of the crypto market? Do you think the price volatility and momentum effects in the crypto market make market making more complex?
Evgeny:
Actually, it doesn’t. Our model operates across multiple trading platforms, and we buy and sell across different platforms. The issue is that if a large liquidity fund suddenly enters and starts buying a token, it can quickly push the price up, which is hard for us to handle.
Haseeb:
In that case, how are your losses?
Evgeny:
About 50% of our contracts will incur losses.
Robert:
But can your profitable contracts offset the losing contracts?
Evgeny:
Yes, our business is quite diversified; for example, we also engage in over-the-counter (OTC) trading, which helps us gain more revenue from liquidity provision.
Haseeb:
So, regarding the options structure, does this exist in traditional finance as well, or is it unique to the crypto market?
Evgeny:
In traditional finance, there are indeed similar structures, but they are not entirely the same. In the crypto market, market makers often also play the role of investment banks.
Haseeb:
Why has the crypto market developed in this way? Do you think it relates to the cash flow and volatility of tokens?
Evgeny:
That makes sense. The evolution of the market may be due to the high volatility of tokens, making market makers more inclined to use options structures to gain profits. As the market develops, token pricing becomes more efficient, and volatility decreases; in the future, it may resemble traditional market making more closely.
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 different ways. In short, changes in market structure will affect how market makers operate.
Crypto Market Structure Bill: What’s at Stake
Haseeb:
Recently, a new market infrastructure bill has been introduced. This bill is a comprehensive rewrite of the previous FIT21 bill. While it shares many similarities in spirit with the previous bill, there are also some significant differences.
This bill clearly defines digital assets and tokens, specifying under what circumstances tokens are considered securities or non-securities. The CFTC (Commodity Futures Trading Commission) will be responsible for the spot market of non-security tokens in the crypto space, while the SEC (Securities and Exchange Commission) retains enforcement authority over capital raising and fraud. Additionally, projects can raise up to $150 million in tokens annually, provided they plan to decentralize. Unlike the previous "code decentralization test," a so-called "maturity test" has now been introduced, where the standard for mature blockchain protocols is decentralization and/or autonomy, requiring that no one controls more than 20% of the voting rights, and that its value primarily derives from the programmatic functionality of the blockchain system. This definition is somewhat vague; I don’t fully understand its boundaries, which may be intentionally designed to be vague, but it’s unclear how a team or group controlling this system fits in. There are many issues in the crypto market regarding multi-signatures, security committees, and upgradability, and it’s not clear how these intersect with so-called immature blockchain protocols. The bill also postpones regulation of DeFi (decentralized finance), and the current definition of DeFi is relatively narrow.
I’d like to hear everyone’s overall thoughts on this bill.
Robert:
I haven’t spent much time on this because all bills evolve, and the initial draft is definitely not the final version. If you look at the current state of stablecoin legislation, you can clearly see this. I think this bill will undergo significant changes, definitions will change, and some core structures will also change. There is still a long way to go before the law is signed. If this bill is signed into law as it stands, I think it would be a huge upgrade and improvement for everyone, whether you are a founder, a venture capitalist, a market maker, or an ordinary investor.
As an outsider, I estimate the chances of this bill passing at about 40% to 50%. This is a cyclical estimate. Because we have about a year and a half until the next election, which will reset the game. Therefore, if it is to pass, it may happen in the short term.
The progress of stablecoin legislation will provide important insights into the likelihood of passing the market structure bill. If stablecoin legislation reaches a conclusion, and the Senate finds a version they like, which the House also generally accepts, then this will be favorable for the market structure. If the House says they don’t like the Senate version and need to revise it, then that will be unfavorable for any crypto legislation. Therefore, if you want to know the outcome of the market structure, start with stablecoins.
Haseeb:
We have seen the Democrats starting to express considerable opposition to this bill, mainly due to the Trump family's dealings. This situation seems to indicate that it will be difficult for us to reach meaningful compromises in legislation. Evgeny, how much time have you invested in this bill? What impact do you think it will have on your industry?
Evgeny:
I haven’t read the bill in detail, but we will definitely provide feedback on it. Because we have deep connections in the crypto space. I noticed that the CFTC seems to have more power than the SEC, and I’m still pondering whether that’s appropriate. Personally, I lean towards the existing SEC structure, so my intuition is that if more power is to be granted, it should go to the SEC.
We need to look at the specifics of the law. If the law just broadly outlines the rules and states who is responsible for enforcement, then it’s not very important.
Haseeb:
I think that’s very important. One thing we’ve learned over the past four years is that you can do a lot within the boundaries of the law, and those things are not always clear. We are facing a similar situation now.
Evgeny:
I feel that having a clearer legal framework would be better.
Haseeb:
Yes, while this may reduce some risks, the reality is that almost everything in the crypto market is complex and chaotic, and many operations do not fully comply with any legal provisions.
Tom, what are your thoughts on the market infrastructure bill?
Tom:
I think it’s still early; I haven’t spent much time on it, but it reminds me of how difficult it is to write good crypto legislation. It’s always either too specific or not specific enough, ultimately leading to an undesirable solution. This applies not only to crypto legislation but also to general legislation, but the changes and ambiguities in the crypto market make this issue more pronounced.
Can We Fix Issues Before a Crypto Crash?
Haseeb:
This means that if we only pass the stablecoin bill without the market structure bill, then as an industry, we need to self-regulate and establish some norms. This way, future governments or new regulators can see the state of the industry.
Robert:
This viewpoint has some merit, but it’s not entirely correct. Forty years ago, the SEC led by Gensler could have established rules for the industry through exemptions, frameworks, and various interpretations, but that didn’t happen. Future SEC or CFTC could do the same. They don’t need legislation to create trading frameworks for different securities or assets; they already have the power to establish those frameworks. This doesn’t necessarily have to come from mandatory intervention by Congress. Therefore, even if Congress does not take action, it does not mean everything falls on us.
Haseeb:
I don’t think that’s entirely correct. The SEC has explicitly stated that they do not have authorization from Congress. This is what Gensler initially said, and it’s what the new SEC is saying; Congress needs to take action to provide us with clarity, otherwise, who will regulate?
Both the SEC and CFTC have stated that Congress's position is very clear. The debate over the bill means that no one has clear authority. If there is no clear authority, the SEC will say, "We shouldn’t make rules." This creates a regulatory void.
Robert:
But they can regulate through formal and informal rule-making. They have been issuing many interpretative statements about different projects. While this is not ideal, they are indeed doing some things.
Haseeb:
But in most cases, these are almost all retractions of previous statements. Much of what we see are speeches rather than rule-making. So far, the SEC has not issued any formal rules.
Evgeny:
Our most basic understanding, such as Bitcoin not being a security, was not confirmed by Congress through legislation but was a decision by the SEC.
Haseeb:
So you can say, "I think this is not within my regulatory scope." But I don’t think the SEC will say, "These things are not securities; this is how they should operate." You can’t do both at the same time. If they are not securities, then they are not within the SEC's regulatory scope. If you say to classify certain tokens as securities, then you have already ended it because the SEC is no longer the regulator of non-securities.
So will the CFTC intervene? Will they say, "Okay, we will make rules requiring you to disclose this and that"? I haven’t seen the CFTC take action in this regard. Maybe they will, but for now, both agencies are saying they are waiting for Congress to act, and the authority differences between the two are constantly changing. If Congress does not act, it means Congress deliberately does not want to legislate. This means the crypto industry will continue to remain unregulated.
So I really believe that as an industry, we have a responsibility to address this issue, not only for the regulatory systems that may be introduced in the future but also for our own interests. We need to reduce market volatility and enhance consumer confidence in token listings. People need to know whether the listed tokens are trustworthy and will not be dumped by unreliable market makers.