Senate Democrats unveil own crypto market structure framework, setting stage for bipartisan talks

A group of 12 Senate Democrats introduced a detailed seven-pillar framework on Tuesday for regulating U.S. crypto markets, marking the party's most comprehensive proposal to date. While the plan signals Democrats' readiness to negotiate with Republicans on long-stalled market structure legislation, it also sharpens the dividing lines over ethics and enforcement.

The group, including Senators Ruben Gallego, Mark Warner, Kirsten Gillibrand, and Cory Booker, framed the nearly $4 trillion global crypto market as too large to remain in regulatory limbo. Their blueprint emphasizes investor protections, closing regulatory gaps, and curbing what they describe as potential corruption linked to President Trump and his family's various crypto ventures.

"Digital asset technology has the potential to unlock new businesses and spur American innovation. But questions about digital assets place in the U.S. regulatory framework have hobbled both innovation and consumer protection," the senators wrote, positioning their proposal as a solution to both.

At its core, the framework would give the Commodity Futures Trading Commission new powers over spot markets for non-security tokens, while creating a process to determine whether a digital asset falls under the Securities and Exchange Commission's jurisdiction as a security.

It also outlines disclosure requirements for token issuers, crypto-specific rulemaking for exchanges and custody providers, and strict anti-manipulation and consumer protection standards.

Notably, digital asset platforms serving U.S. users would be required to register with FinCEN as financial institutions, bringing exchanges, custodians, and other intermediaries further into the orbit of the Bank Secrecy Act, AML rules, and sanctions enforcement. The framework also flags DeFi as a key vector for illicit finance, calling for new oversight tools to prevent its misuse. However, it is unclear if it intends to enforce the same registration mandate on protocol-level software teams, whereas the Republicans have outlined explicit protection for DeFi developers contributing to decentralized protocols.

The framework also seeks a prohibition on interest or yield paid by stablecoin issuers, including indirectly or through affiliates, with non-direct, reward-style programs still prevalent following President Trump's recent signing of the GENIUS Act into law.

One of the most politically charged sections targets ethics, barring elected officials and their families from launching or profiting from crypto projects while in office, and mandating disclosure of their holdings. The Democrats alleged President Trump has "turned to digital asset projects to enrich himself and his family, abusing his office for corruption with no modern precedent," undermining confidence in the broader digital asset industry. They also call for increased funding for financial regulators and a guarantee of bipartisan representation in their rulemaking, warning against one-sided control of agencies.

Clarity Act

The Democrats' proposal arrives against the backdrop of the Clarity Act, the Republicans' preferred market structure vehicle, the latest draft of which was updated by Senate Banking Committee Republicans on Friday. The House of Representatives previously voted 294-134 in favor of passing the Clarity Act in July, sending the proposed legislation to the Senate.

The Clarity Act has also centered on defining tokens, assigning regulatory authority, and streamlining compliance pathways. However, while overlapping in goals, the Democrats' ethics provisions and stricter treatment of DeFi mark notable departures. Also, though Republicans have pressed for speed in passing legislation, Democrats insist a bipartisan outcome cannot be rushed.

With both parties now circulating detailed legislative frameworks, bipartisan negotiations in the Senate Banking Committee are set to intensify in the coming weeks. Whether Democrats and Republicans can reconcile differences over timing, ethics, and DeFi oversight will help determine if the U.S. can finally establish comprehensive crypto market rules after years of gridlock.