Sebastian Sinclair

Retiring Sen. Pat Toomey’s stablecoin bill, which seeks to establish significant regulatory guardrails for the crypto industry, hit the Senate floor Wednesday — <a href="https://blockworks.co/news/us-senator-proposes-looser-stablecoin-regulation" target="_blank" rel="noreferrer noopener">eight months after the draft proposal</a> was first crafted.



However, with the congressional session ending on Jan. 3 2023, the bill would have to be reintroduced by another senator next session to have any chance of becoming law. The two-term senator announced his retirement in 2020.



The Stablecoin Transparency of Reserves and Uniform Safe Transactions Act of 2022 (<a href="https://www.banking.senate.gov/imo/media/doc/the_stablecoin_trust_act.pdf" target="_blank" rel="noreferrer noopener">TRUST</a>) would establish a new federal license aimed at issuers of payment stablecoins.



TRUST defines a payment stablecoin as being a digital asset that is directly convertible to fiat, widely used, recorded on a public ledger and issued by a centralized entity.&nbsp;



The April draft version of TRUST preceded the collapse of stablecoin issuer <a href="https://blockworks.co/tag/terra" target="_blank" rel="noreferrer noopener">Terra’s </a>ecosystem, which caused billions of dollars in losses of investor funds based on a failed <a href="https://www.blockworksresearch.com/glossary#algorithmic-stablecoin" target="_blank" rel="noreferrer noopener">algorithmic</a> design. But even then the bill limited stablecoin issuance to money-transmitting businesses, or holders of a state or federal license, including banks.



Nationally licensed payment stablecoins must be backed by “cash and cash equivalents or <a href="https://www.ecfr.gov/current/title-12/chapter-II/subchapter-A/part-249/subpart-C/section-249.20" target="_blank" rel="noreferrer noopener">level 1 high-quality</a> liquid assets denominated in United States dollars,” but they also become eligible Federal Reserve accounts and services, according to the newly introduced draft law.



The bill also aims while clarifying their status; they would not be considered securities if no interest is involved.&nbsp;



“I’ve put forward a regulatory model that won’t undermine competition by favoring entrenched incumbents,” Toomey said in a statement. “This bill will also ensure the Federal Reserve, which has displayed significant skepticism about stablecoins, won’t be in a position to stop this activity.”



The bill may serve as a model for similar legislation in the future, but will not be considered before the end of the congressional session on Jan. 3, 2023.



Should a similar bill pass, stablecoin issuers will be subjected to standardized disclosure requirements and attestation by registered accounting firms — historically obtained via <a href="https://blockworks.co/news/us-judge-orders-tether-to-prove-what-backs-usdt" target="_blank" rel="noreferrer noopener">lawsuits</a> and legal settlements.



It would also attempt to bolster privacy protections to financial transactions involving stablecoins by mandating the US Treasury not be allowed to collect nonpublic information unless a warrant is issued by a judge.



TRUST follows more than 16 months of deliberation, discussion and the solicitation of legislative proposals in what Toomey has described as an attempt to shield investors from financial risk while laying the groundwork for stablecoin innovation.



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Lame Duck Senator Leaves Stablecoin Bill Legacy

Casey Wagner

It’s no secret Sam Bankman-Fried shelled out millions to Democratic causes.&nbsp;



But it turns out a fellow top executive — Ryan Salame, the former co-head of FTX’s derivatives business and FTX <a href="https://blockworks.co/news/ftx-execs-user-funds-alameda" target="_blank" rel="noreferrer noopener">whistleblower</a> — was backing Republicans and conservative PACs in a big way.&nbsp;



Meanwhile, some of the donations from SBF himself may not have been properly <a href="https://www.citizensforethics.org/wp-content/uploads/2022/12/SBF-FEC-Complaint-FINAL.pdf" target="_blank" rel="noreferrer noopener">disclosed</a>, according to Bankman-Fried’s own telling.



There is no knowing how much he gave under the table. The now-disgraced FTX founder has admitted he kept significant sums to Republicans under wraps.&nbsp;



“I donated about the same amount to both parties,” Bankman-Fried <a href="https://www.youtube.com/watch?t=782&amp;v=6DezodR9hNI&amp;feature=youtu.be" target="_blank" rel="noreferrer noopener">told</a> <a href="https://twitter.com/TiffanyFong_" target="_blank" rel="noreferrer noopener">Tiffany Fong</a>, a YouTube influencer, before his <a href="https://blockworks.co/news/sam-bankman-fried-arrested-in-bahamas" target="_blank" rel="noreferrer noopener">arrest</a> in the Bahamas. “All my Republican donations were dark.”



His rationale, Bankman-Fried told Fong, had nothing to do with regulatory scrutiny. It was, instead, all about protecting his now-tarnished — but once pristine — public image.&nbsp;



“Reporters freak the f— out if you donate to Republicans,” he said during the interview. “They’re all super liberal, and I didn’t want to have that fight.”



<h3>But Republicans cashed in, too</h3>



At least one executive did not share his concern. Salame, who then held the title of co-chief executive of FTX Digital Markets, made notable personal contributions to GOP campaigns and causes.&nbsp;



Salame alone gave nearly $23 million almost exclusively to Republicans and right-leaning PACs, according to <a href="https://www.fec.gov/data/receipts/individual-contributions/?contributor_name=Ryan+Salame" target="_blank" rel="noreferrer noopener">FEC data</a>.



Salame did not immediately respond to a request for comment.



Bankman-Fried, arrested in the Bahamas, <a href="https://www.justice.gov/opa/pr/ftx-founder-indicted-fraud-money-laundering-and-campaign-finance-offenses" target="_blank" rel="noreferrer noopener">faces federal charges</a>, including money laundering, wire fraud and campaign finance violations.



According to Federal Election Commission (FEC) data, Bankman-Fried personally gave $40 million to various Political Action Committees (PACs) and individual candidates, almost entirely to Democrats.



But FTX US, the American subsidiary of the crypto exchange, donated $500,947.30 between December 2021 and September 2022, according to FEC <a href="https://www.fec.gov/data/receipts/individual-contributions/?contributor_name=FTX" target="_blank" rel="noreferrer noopener">records</a> — the majority to the crypto-focused <a href="https://blockworks.co/news/poll-us-voters-who-own-crypto-are-on-the-rise-just-in-time-for-midterms" target="_blank" rel="noreferrer noopener">GMI PAC</a>, which primarily backed the Republican-aligned Crypto Innovation PAC during the 2022 midterms. Bankman-Fried served as the entity’s chief executive at the time of the donations.&nbsp;



Crypto Innovation PAC, in turn, financed the campaigns of Republicans Michelle Bond — who lost the New York Republican primary for the House of Representatives in 2022 — and Rep. Markwayne Mullin of Oklahoma, who beat out his competition. The group also donated to Rep. Patrick McHenry, R-N.C., Sen. Ted Budd, R-N.C., and Sen. John Boozman, R-Ark., all of whom won their respective races.&nbsp;



All had been <a href="https://blockworks.co/news/bipartisan-stablecoin-regulation-has-a-slim-chance-of-passing-this-year" target="_blank" rel="noreferrer noopener">vocal</a> crypto advocates. At least back then.&nbsp;



Bond also received at least $400,000 in consulting fees from FTX Digital Markets, according to the candidate’s <a href="https://disclosures-clerk.house.gov/public_disc/financial-pdfs/2022/10049865.pdf" target="_blank" rel="noreferrer noopener">financial disclosure report</a> filed in August. No direct donations from FTX to Bond were reported in <a href="https://www.fec.gov/data/receipts/?committee_id=C00816561&amp;two_year_transaction_period=2022&amp;line_number=F3-11AI&amp;data_type=processed" target="_blank" rel="noreferrer noopener">FEC filings</a>.&nbsp;



Salame was <a href="https://www.nytimes.com/2022/12/17/business/ftx-ryan-salame.html" target="_blank" rel="noreferrer noopener">romantically involved</a> with Bond. Salame was also a top donor to the <a href="https://www.fec.gov/data/committee/C00694323/" target="_blank" rel="noreferrer noopener">WINRED PAC</a>, which raked in over $1 billion and gave more than $300,000 to Bond, according to <a href="https://www.fec.gov/data/receipts/?committee_id=C00816561&amp;two_year_transaction_period=2022&amp;line_number=F3-11AI&amp;data_type=processed" target="_blank" rel="noreferrer noopener">filings</a>.&nbsp;



Bankman-Fried’s personal disclosed donations went a long way toward advancing the recipients’ respective agendas, particularly the Protect our Futures PAC, a liberal initiative that credits $27 million of its total $28.5 million raised to Bankman-Fried himself.&nbsp;



Reps. Lucy McBath, D-Ga., and Jasmine Crockett, D-Texas, were two PAC-supported candidates that went on to win their seats in 2022.



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Not Just Democrats: FTX Exec Gave Tens of Millions to GOP Causes

New cryptocurrency tax reporting requirements approved in November 2021 are slated to take effect in the new year, and traders should be prepared, accountants warn.&nbsp;



The Infrastructure and Investment Jobs Act, which was highly debated for its language around cryptocurrency in the months before it was passed, requires all cryptocurrency transactions of $10,000 or greater to be reported. Previously, the requirement only applied to transactions completed in cash.&nbsp;



Lawmakers anticipate collecting an additional $28 billion in tax dollars from this provision alone, according to crypto tax platform Ledgible.



The provision was set to be struck when the bill reached the Senate, but Alabama Republican Sen. Richard Shelby <a href="https://blockworks.co/news/senate-fails-to-amend-crypto-tax-provision-in-infrastructure-bill" target="_blank" rel="noreferrer noopener">scotched an amendment to the must-pass bill</a> at the last minute. 



Just weeks before the act is set to take effect, top House Financial Services Committee Republican Patrick McHenry, R-N.C., penned a letter to the Treasury asked the crypto tax provisions to be delayed. 



“As we have previously noted, Section 80603 is poorly drafted. As such, it could be wrongly interpreted as expanding the definition of a ‘broker’ beyond custodial digital asset intermediaries,” Rep. McHenry wrote in the letter. 



It is not the first time certain lawmakers have expressed concern with the bill’s definition of “broker,” but bipartisan efforts to <a href="https://blockworks.co/news/senators-compromise-on-crypto-tax-provision-bull-run-continues" target="_blank" rel="noreferrer noopener">amend the bill in August 2021</a> came up short, and Congress has not addressed the issue in 2022. 



The measure “also directs Treasury to incorporate digital assets into the definition of ‘cash’ for tax collection and reporting purposes,” McHenry added. “The 6050i reporting requirements jeopardize the privacy of Americans, without a comprehensive analysis of the impact of such change.”&nbsp;



While there is currently no requirement for crypto brokers to set up traders with the tax forms they need, the requirement is not void, added Erin Fennimore, head of tax and information reporting solutions at TaxBit. The responsibility is now on investors to ensure they are completing the appropriate forms.&nbsp;



In addition to the new $10,000 reporting requirements, the 2023 tax season is also going to be different with the newly updated 1040 Form. Taxpayers must now disclose any “digital asset” trading activity, a change from last year’s mandate for “digital currency.”&nbsp;



“With this change in verbiage, I think it is making sure people understand that digital assets can include more than just a token — it can be a much broader asset,” Fennimore said. “I think they are trying to, frankly, close the tax gap of what people are reporting.”&nbsp;



Taxable transactions involving cryptocurrency include converting digital tokens to fiat, trading digital assets for other cryptocurrencies and using crypto for purchases, Ledgible added. 



The act is the latest in a series of efforts to bring crypto trading and transactions into the main view of the IRS. 



In June, Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., unveiled their bipartisan <a href="https://www.gillibrand.senate.gov/imo/media/doc/Lummis-Gillibrand%20Responsible%20Financial%20Innovation%20Act%20%5bFinal%5d.pdf" target="_blank" rel="noreferrer noopener">Responsible Financial Innovation Act</a>, which specifies that the default classification for DAOs is as a business entity for tax purposes. The <a href="https://blockworks.co/news/new-crypto-bill-suggests-some-daos-be-taxed-like-businesses" target="_blank" rel="noreferrer noopener">bill</a> also requires most DAOs to be properly incorporated in accordance with existing laws of an identifiable jurisdiction, such as a limited liability company (LLC) or partnership.



Lummis and Gillibrand introduced the bill to the Senate before passing the legislation to Committee review. Lummis said Wednesday <a href="https://blockworks.co/news/warren-unveils-new-crypto-bill" target="_blank" rel="noreferrer noopener">during a Senate Banking Committee hearing</a> that she intends to reintroduce the legislation during the next session of Congress.



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Infrastructure Bill’s Crypto Tax Provisions Coming in January 2023

A member of the House Committee on Financial Services is calling for the Government Accountability Office, known as Congress’ investigation arm, to look into the SEC and its “failure to protect the investing public” from FTX.&nbsp;



Rep. Ritchie Torres, D-N.Y., drafted the <a href="https://emmer.house.gov/_cache/files/0/c/0c7fc863-7916-4b19-bc44-52bef772287e/9B0B9D1CA9B3C215DDC762DF5B0F6864.3.16.22.emmer.sec.letter.pdf" target="_blank" rel="noreferrer noopener">letter</a>, dated Tuesday.&nbsp;



“Chair Gensler took the position that the SEC had clear authority to investigate crypto exchanges,” Torres told Blockworks via email.



<blockquote class="wp-block-quote">“When it comes to government failure, the public official singularly responsible for failing to expose the FTX fraud is SEC Chair Gary Gensler.”</blockquote>



Torres also referred to the SEC’s handling of FTX as “egregious mismanagement.” 



“If he had clear authority to do so, why did he fail to uncover the largest crypto Ponzi scheme in history?” Torres added. “It is on Congress to pass laws, but it is on the regulators to apply those laws to conduct investigations, and in the case of Gary Gensler, the regulators failed catastrophically. Chair Gensler has some explaining to do.”



Torres’ call for investigation comes months after he, along with Reps. Tom Emmer, R-Ind., Josh Gottheimer, D-N.J., Jake Auchincloss, D-N.J., Ted Budd, R-N.C., Warren Davidson, R-Ohio, Byron Donalds, R-Fl., and Darren Soto, D-Fl., drafted a <a href="https://emmer.house.gov/_cache/files/0/c/0c7fc863-7916-4b19-bc44-52bef772287e/9B0B9D1CA9B3C215DDC762DF5B0F6864.3.16.22.emmer.sec.letter.pdf" target="_blank" rel="noreferrer noopener">letter</a> to Gensler asking about the SEC’s jurisdiction over non-SEC regulated entities. 



“The SEC’s regulatory functions, while broad, are limited to the extent of its statutorily mandated jurisdiction,” the letter, published in March 2022, read. “It appears there has been a recent trend towards employing the Enforcement Division’s investigative functions to gather information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commission’s standards for initiating investigations.”&nbsp;



The letter does not mention any specific cryptocurrency companies representatives were concerned the SEC was investigating, FTX or otherwise.&nbsp;



Torres did receive campaign donations linked to FTX founder Sam-Bankman-Fried, according to Federal Election Commission filings, but the Congressman elected to donate his contribution, his office <a href="https://blockworks.co/news/ftx-donations-campaign-finance" target="_blank" rel="noreferrer noopener">told Blockworks</a> last month.



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US politics