The (Draft) Market Structure Bill: A Note on Strategy.

Everyone is still absorbing the recently dropped draft digital asset market structure bill (DAMS), and I wanted to provide a broader perspective on how we might approach these conversations.

Is this draft bill perfect? No, it certainly has flaws that we should critique in order to improve it. However, considering the current situation and our outlook for the foreseeable future, would things be worse without the bill? I believe so (unlike with the DCCPA, which I strongly opposed). Absent legislative intervention, the current regulatory environment is untenable and given the stakes involved, active and constructive engagement is crucial here.

It’s also encouraging to see that policymakers have changed tactics from the DCCPA by publicly releasing a “discussion draft” and inviting stakeholder input to refine the draft and help resolve its flaws. This inclusiveness is a healthy part of any policymaking process. Even if DAMS doesn’t pass in the near term, these efforts are not wasted as it will likely lay the groundwork for future legislation. Of course, the devil is in the details, and there are unworkable pieces, questionable incentives, and loopholes that all need attention. However, in my opinion, this is the first viable effort by legislators to propose a comprehensive and workable framework (although the draft has echoes of the DCEA, Hester’s Safe Harbor, and the Regulation X proposal).

There are other reasons to engage here even as a baseline on incentive structures — there is an inherent benefit in reestablishing the rule of law in the crypto space by establishing a viable compliance path. Bringing crypto into a policy framework provides clarity, rewards compliance efforts and helps separate out bad actors to the benefit of all market participants. And unlike some, I still believe that laws are necessary in this space provided they are carefully crafted. Laws create incentive structures, and DAMS should be outcome-oriented and drafted with a focus on incentive design.

While the path ahead for DAMS is challenging and offers no guarantees, the draft bill’s emphasis on regulating centralized aspects of the market makes it easier to implement. It also respects the concept of sufficient decentralization and may potentially exempt DeFi (though there needs to be more thought here considering the SEC and CFTC stances). You can find the draft of the bill here:

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