At the urging of President Trump and his crypto allies, Congress rushed to pass the GENIUS Act, a weak regulatory regime for stablecoins. Stablecoins are a special type of crypto token whose issuer claims is redeemable for a dollar or other government-backed currency. Stablecoins are primarily used to trade other crypto assets. This new law, signed by President Trump in July, undermines protections that stablecoin holders would benefit from if their funds were instead deposited in a traditional bank and may seed another financial crisis. But rather than enact clear safeguards, Congress passed off the details to the Treasury Department to fix the problems it created, even as it tied the regulators’ hands.
Now Congress is moving forward to consider legislation that would create a regulatory regime for other crypto assets, such as bitcoin and ether. Proposals for this new regime lack adequate guardrails to protect consumers and the financial system from frauds, money laundering, and financing of criminal activity—guardrails that exist for other capital assets. In fact, as discussed below, some provisions would increase potential harms to consumers, other capital markets, and the financial system.
To protect Americans’ economic security, Congress must not only fix the serious problems with the GENIUS Act’s regulatory regime for stablecoins but also ensure that any new legislation for nonstablecoin crypto does not increase harms but instead establishes clear guardrails that provide the same protections for consumers, investors, and the financial system afforded by laws governing other capital markets—one of the principles sought by a group of Senate Democrats involved in negotiations. This may mean adjusting the industry’s vision of how crypto markets should be structured where that vision is at odds with a safe, sound financial system, such as in tokenization of securities and decentralized platforms, discussed below.
Among the most important measures Congress should include are:
- Subject crypto market participants who raise capital for businesses to the same rules and regulators as others doing the same activities, including U.S. Securities and Exchange Commission (SEC) jurisdiction.
- Subject tokens of traditional securities to the same rules as other derivatives on those securities.
- Require structural changes, if necessary, so decentralized finance (DeFi) platforms comply with the same rules that apply to other capital market platforms.
- Fix fundamental gaps in the GENIUS Act, such as by prohibiting affiliates of stablecoin issuers from offering yields of any kind.
Congress should apply the same protections to nonstablecoin crypto markets that apply to other capital markets
Federal and state laws that govern banking, securities trading, and even gambling provide protections for market integrity and ensure that investors, traders, and gamblers get what they pay for. These include rules around safekeeping assets and disclosing risks, as well as about how the markets and games operate. These rules also are designed to reduce market susceptibility to cyberattacks and protect against market manipulation, fraud, money laundering, and terrorist financing.
The crypto industry largely does not want these rules and is pushing lawmakers to ensure that any new regulation on the industry is light-handed.
But the same concerns arise in markets where crypto assets are traded. Nonstablecoin crypto assets include all other tokens that are not stablecoins. These crypto assets fluctuate in value, often wildly, and include the most common tokens, bitcoin and ether, but also millions of others. Anyone can create a cryptocurrency. There currently is no distinct federal regulatory framework explicitly governing the trading of nonstablecoin crypto assets, though basic rules against fraud and manipulation that apply to securities and commodities markets theoretically apply to crypto markets, as do rules to ensure fair trading and to prevent use of the financial system for crimes.
Crypto markets have not followed rules that are typical for other capital assets, and that helps explain why crypto markets continue to be rife with billion-dollar hacks, frauds, and rampant money laundering by terrorist organizations, drug dealers, and foreign bad actors. Decentralized exchanges, mixers, and other opaque mechanisms fuel illicit activity and are likely to increase. Crypto crime is becoming more diverse and professionalized.
The laws governing other capital markets, especially securities, were developed by Congress after decades of experience with financial crises and crimes and have provided confidence in U.S. capital markets, making them the most robust and trusted in the world. Similar protections must apply to crypto markets; otherwise, there could be a migration of capital from sound markets to digital markets, with corresponding increases in risk for investors, markets, and the financial system.
Subject crypto market participants who raise capital for businesses to the same rules and regulations as others doing the same activities, including SEC jurisdiction
An ongoing dispute over crypto regulation has been whether nonstablecoin crypto assets are securities and thus subject to extensive investor protection laws that apply to securities markets and advisors, which are regulated by the SEC, or whether these tokens are commodities subject to the jurisdiction and weaker regulation of the Commodity Futures Trading Commission (CFTC). As it currently stands, only two nonstablecoin crypto assets, bitcoin and ether, are deemed commodities by courts.
The extent to which draft crypto legislation affects the definition of terms such as “security” and “commodity” has serious implications, as these definitional changes could affect existing laws and rules that govern the trading of all other capital assets, from stocks to corporate bonds to U.S. Treasury securities. And given the continuing problem with illicit financing and scams in crypto markets, care should be taken to define crypto assets and transactions into a strong regulatory framework that protects investors and guards against risks to the financial system and economy.
Investor protection, fair access, and market integrity are the core expertise of the SEC. Securities laws governing capital markets and investment companies and advisers have been established and perfected over decades, adjusting as new technologies have developed over time. Rules for financial markets regulated by the SEC promote market transparency, price discovery, and market stability. The SEC already has significant experience regulating firms that operate crypto platforms and issue fund shares on the blockchain and is already equipped to regulate crypto markets. And unlike the CFTC, the SEC is very familiar with overseeing thousands of assets trading in hundreds of different market centers at the same time.
Subject tokens of traditional securities to the same rules as other derivatives on those securities
Unfortunately, if Congress passes legislation that fails to address the risks crypto markets pose to investors and the financial system, the harm could extend well beyond the individuals who choose to participate in the rigged and risky crypto markets.
The House Digital Asset Market Clarity Act of 2025 and the Senate proposals based on it would allow the creation of tradeable token versions of securities—referred to as “tokenization”—and thereby potentially avoid the securities rules that would otherwise apply, a concern that both Republican SEC Commissioner Hester Peirce and Democratic Commissioner Caroline Crenshaw have raised. The Securities Industry and Financial Markets Association (SIFMA) and private financial services firm Citadel Securities have also expressed strong concerns about the potential loss of important investor protections through tokenization of securities.
Tokenized versions of other securities, such as publicly traded stocks, are nothing more than new derivatives of those securities or funds, while lacking the rules that protect investors in the underlying security. Congress must not also exempt them from the protections that would otherwise apply to the derivatives.
Congress made this mistake before with the Commodity Futures Modernization Act, which deregulated derivatives that became a principal driver of the rampant speculation in mortgages in the early 2000s and the global financial crisis that followed. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act to fix that error, requiring many firms that trade derivatives to use a regulated clearinghouse, and it took the SEC and the CFTC years to implement associated rules. However, the crypto legislation being considered now would essentially unwind those rules and re-expose the economy to lightly or unregulated trading of securities derivatives.
Require structural changes, if necessary, so DeFi platforms comply with the same rules that apply to other capital market platforms
One of the bedrock principles of financial regulation is that regulators should identify the important functions in the markets and ensure that market participants performing the same functions play by the same set of rules. Individuals or entities that operate as brokers, traders, or exchanges, for example, should be regulated as such. Brokers have a duty to get their customers the best price available, known as best execution. Traders that hold large amounts of a particular stock and could thereby manipulate the market must disclose their positions. And exchanges where securities and derivatives are traded must safeguard against fraud and manipulation. These rules should apply to every broker, trader, or exchange.
Some new market participants, however, claiming to be decentralized finance, allow the public to trade, borrow, and earn interest on crypto assets. DeFi platforms claim to have no centralized governance structure—a claim they say frees them from having to comply with a range of rules that apply to all other capital market transactions. Allowing DeFi platforms an exemption from rules that apply to other capital market platforms could increase the interconnectedness between traditional financial markets and crypto markets and pose serious risks to the financial system.
While the crypto industry claims that DeFi platforms cannot comply with such rules, in reality, the governance of DeFi platforms is often concentrated in the hands of developers, early investors, or those who hold large balances on platforms. Decisions are made affecting the operation of platforms, and someone is making them.
Congress should require that crypto asset market participants, including DeFi platforms, be subject to the same rules for similar activities and risks as other market participants, even if this requires structural changes such as requiring appointment of a central authority for DeFi platforms that is accountable for ensuring that protections against fraud, manipulation, illicit finance, and money laundering are followed.
Congress should fix fundamental gaps in the GENIUS Act
As part of any legislation to create a new regulatory regime for nonstablecoin crypto assets, Congress should address the gaps it failed to close in the GENIUS Act affecting stablecoins, especially where those gaps are significant and raise broader concerns. The following is one example:
- Prohibit affiliates of stablecoin issuers from offering yields of any kind. The GENIUS Act prohibits a stablecoin issuer from paying holders of its stablecoin any form of interest or yield, but the scope of the prohibition is not clear and affiliates of stablecoin issuers already offer rewards that perform like yield. For example, a crypto exchange may offer rewards on stablecoins held on its platform. This practice, if not explicitly prohibited, is expected to cause significant flight of deposits from banks to stablecoin platforms or other affiliates and affect the supply of credit at banks, particularly community banks. Allowing affiliates to offer yields of any kind undermines fair competition and could result in a decline of real investments in communities across the United States.
Conclusion
Congress has been rushing to create a weak regulatory regime for an industry that has demonstrated little benefit and poses significant risks to the financial system, while also massively deregulating significant portions of existing capital markets and the banking system that Americans rely on to keep their hard-earned savings safe.
Crypto markets should be responsibly regulated just like other financial markets, and Congress should take the time to get it right.