Original Title: Crypto Market Makers EXPOSED: Inside the $38M Move Token Dump - The Chopping Block

Original Source: Unchained

Original Translation: Deep Tide TechFlow

· Guest: Evgeny Gaevoy, Founder and CEO of Wintermute

· Hosts: Haseeb Qureshi, Managing Partner at Dragonfly, Robert Leshner, CEO and Co-founder of Superstate, Tom Schmidt, Partner at Dragonfly

· Air Date: May 11, 2025

Key Takeaways

· $38M Token Dump Exposed: The trade between Movement Labs and Web3 Port revealed the dark side of crypto market-making.

· Market Maker or Liquidity Exiter? — A deep dive into 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 still support Movement Labs despite obvious risks, and what this means for cryptocurrency due diligence.

· Rushi Gets Fired — The CEO of Movement Labs was ousted after weeks of denial, but were other team members involved as well?

· Evgeny from Wintermute Speaks Out — As one of the largest market makers in the crypto space, Evgeny voices his opinions on dark trading, dumping mechanisms, and transparency failures.

· Airdrops, Market Manipulation, and Retail Investor Losses — We dissect how token issuances are manipulated behind the scenes and who truly bears the losses.

· The Importance of Disclosure — Haseeb believes the cryptocurrency market needs mandatory public disclosure of market-making agreements to prevent regulatory intervention.

· Self-Regulation or SEC Intervention? — Can the industry self-improve, or are we triggering another wave of securities enforcement?

· The Trust Crisis in Cryptocurrency — Lack of transparency could lead to the collapse of the entire token model. This episode explores how to address this issue.

Insightful Highlights

· We aim to minimize losses for retail investors as much as possible.

· I believe disclosure of information is ultimately very beneficial for market makers. I think this will help drive market normalization, as it is all about creating standards.

· Many times people just want to find someone to blame rather than delve into understanding the market structure and the mechanisms of liquidity operation.

· For market makers, this incentive must be strong enough to drive price increases while also being redeemable later.

· Sometimes, if you are not deeply connected in the crypto circle or lack referrals, it's hard to distinguish who has a good reputation and who doesn't.

· We have competitors in DeFi, centralized exchanges, venture capital, decentralized market making, but perhaps only a very small number of market makers can cover all areas.

· In my view, the ideal disclosure system would have minimal information asymmetry between the trading platform and retail investors. When you apply to list on a trading platform, the information known to the public should align with what the platform knows.

· We can choose to disclose this information, be accountable to investors, or we can stay silent because we don't want criticism. This is the current state of our industry: no disclosure, but if you do disclose, you will be attacked.

· There are three channels through which disclosure standardization can be effectively achieved. The first channel is through the trading platform. The second channel is through venture capital firms. The third channel is through market makers themselves.

· If we proactively establish a disclosure system that suits us, it is more advantageous for the industry.

· As an industry, we need to mature and address these issues in advance to avoid losing the trust of retail investors. Such events will ultimately undermine confidence in the entire token industry.

· Any consensus eventually reached by the industry, regulatory agencies may supplement, add, or formalize based on that foundation.

· The claim by project teams that "we didn't know it worked this way," I believe is largely not credible in most cases. In this situation, they were aware.

Movement Labs Scandal: The Messy Insider Story of a Market Maker

Haseeb: There has been a lot of interesting news lately, one of which was reported by CoinDesk regarding Movement. A company associated with Movement Labs signed an agreement with a team called Web3 Port. The content of this agreement states that if Movement's fully diluted valuation exceeds $50 billion, Web3 Port can liquidate their held tokens and split all profits from the token sales with the foundation.

In other words, this market maker played an “agent” role in the token sale, and their incentive mechanism is to drive the token price up. This not only allows the market maker to make money, but also benefits the Movement Foundation, which has sparked significant scrutiny. They also received 5% of the total token supply, which is a huge amount compared to the circulating supply, currently less than 10% of the total supply.

They sold $38 million worth of MOVE tokens, and as a result, Binance banned the account. Initially, everyone involved denied everything, but ultimately Coindex reported on the matter and provided relevant contracts, leading to the dismissal of Rushi, co-founder and CEO of Movement Labs. Now, this event seems to have finally come to a close. Movement is assembling a new team and has now established a new organization called Movement Industries. Everything is chaotic, but Movement has been in a downward spiral.

The industry is beginning to reflect on why such a thing happened, especially since it received a lot of venture capital support and all the marketing was very successful. Evgeny, I don't know if you have any direct connection to Movement, can you help us explain all this? How common is this situation in market-making protocols? What makes this different from a normal market-making protocol? Help us understand what happened.

Robert: Before we proceed, I would like to disclose that Robot Ventures is a very small investor in Movement, and we are completely unaware of any contracts or market-making activities, nor have we been involved.

Evgeny: This protocol is very atypical for the market.

Usually, standard market-making protocols would include some key performance indicators (KPIs), such as normal operation time for market-making, how much capital needs to be input, etc. These are the responsibilities of liquidity providers and market makers. Accordingly, they would receive some incentives. Market makers typically benefit from this, and ultimately at the end of the protocol, they can collateralize the token loan with stablecoins or dollars and return it to the protocol at an exercise price, typically 25%, 50%, or more above the current price. That's the typical way of operation.

However, this contract is very atypical for the market as it lacks options or similar mechanisms. Essentially, it has a very peculiar incentive mechanism to drive the token price up, as once it surpasses 50 billion, the protocol and market maker split the revenue equally.

The Real Operation of Cryptocurrency Market Making

Haseeb: So what is the role of a market maker, and how do they participate in the token listing process?

Haseeb: Typically, if you have a token, you can release it on a decentralized exchange (DEX) or similar platform, effectively providing liquidity. However, when you want to list on exchanges like Coinbase or Binance, you can't just release the token and expect people to start trading.

These exchanges need to ensure liquidity in trading. This means there always need to be buyers and sellers. Usually, market makers take on this role. Therefore, token issuers often engage with market makers like Wintermute. These agreements require market makers to provide a certain level of liquidity, such as maintaining a bid-ask spread. In exchange, market makers are rewarded because they take on risk and commit capital. Typically, projects lend the tokens to market makers so they can conduct market-making operations, and in return, market makers receive compensation. Sometimes this compensation is in cash, sometimes it's in an options structure so that if the token performs well, market makers can retain some tokens at a predetermined price, usually higher than the token's initial listing price.

Why isn't every market maker incentivized to drive up the token price? You have an options structure and an exercise price. Why isn't your motivation to increase the price across the board?

Evgeny: It can be said that everyone has such an incentive. I understand why people might think that market makers have an incentive to raise the protocol token's price. The key is how strong this incentive is. In our case, we might receive around 0.5% of the token supply, but usually less. Now this ratio has significantly decreased, depending on the protocol's market cap.

But even as a market maker with such an options structure, you still need to keep the price at a high level before the contract expires. In these contracts, at least in the contracts we are involved in, if you as a market maker do not show buy-sell quotes according to the procedure, the token issuer can cancel the entire contract, so you would have no options, and you would have to try to sell the tokens in your possession, which could lead to a price drop. Therefore, this incentive must be strong enough to drive price increases and also realize gains later.

In the case of Web3 Port, there is a very clear incentive to sell when the market cap exceeds $50 billion, but there is another sign that gives market makers a significant incentive. Like a huge fund of $60 million or $100 million, which would never happen in our case because it's a huge amount. Even if the protocol gives you a 5% token supply, as a market maker, profiting from trades, if you invest this $60 million in perpetual contract strategies or market-making strategies, there is a real cost. If you receive protocol tokens as a reward and offer a massive collateral like $60 million, you have an additional incentive to drive up the price, sell as much MOVE token as possible to recoup those dollars. Otherwise, you are losing money every day because you have to bear the cost of these funds.

Were We Deceived From the Start?

Haseeb: What we are discussing now is a very suspicious market-making protocol, which is not a normal market-making protocol structure. How common is this situation? How many market makers adopt such practices? And how many projects are associated with these types of protocols?

Robert: For example, a new market maker that you have never heard of suddenly appears? Is it easy to create a market maker, shut it down, and then rebrand? What is the story here?

Evgeny: It is possible. However, there are many market makers operating in Asia, but they do not openly promote themselves, so it's difficult for us to notice. I knew about Kelsey Ventures, but almost no one knew of their existence before this scandal broke. What interests me is that I thought I already knew all the major market makers, but these new faces keep popping up and getting involved in some operations.

I think this kind of protocol is very rare in legitimate projects. But if we look at tokens listed only on second or third-tier exchanges, and have never made it to mainstream exchanges like Binance or Coinbase, I believe similar things may still be quite common in those places.

Haseeb: Robert, what was your initial reaction when these things were exposed?

Robert: My initial reaction was that these things actually happen quite often, it's just that the public doesn't always get to know what really happens behind the scenes. There may be even more dramatic events happening every day, they just don't reach the exposure level of outlets like CoinDesk. When I read this information, I felt like it was a farce. I wonder how many similar farces are currently happening in the market. Perhaps some market makers are doing crazy things while the project teams lack negotiation experience, resulting in protocols filled with unreasonable terms and incentives. It's truly a disaster. However, I think the public now has a better understanding of how market makers operate, and I hope to see more transparent reporting on actual situations in the future because the current transparency is just too low.

Evgeny: But I want to add, market makers find it challenging to carry out these operations without an agreement. So the claims from the protocol side saying "we didn't know it was being operated this way," I find mostly not credible. In this situation, they were aware.

Tom: The case of Movement is quite peculiar. It is not a top-tier project, but it is also not a completely obscure small project. The project still has some highlights, there should be someone supporting it from behind, and pointing out: "This is not right, this does not meet the standards." However, the team might have caused these issues due to lack of experience.

This reminds me of the pre-YC Safe era of venture capital. Back then, every VC had its own convertible terms, adding very harsh terms during negotiations, 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. The market-making space is currently in a similar state to the pre-Safe era. If you understand the rules, you may negotiate a decent agreement for yourself, but there is no industry standard yet.

Haseeb: Indeed. Although there are some services like Coinwatch that can help project teams navigate the negotiation of market-making, as market makers are a recurring role, while project teams usually only go through token issuance once. The first collaboration with a market maker and getting the token listed on a major exchange is one of the most critical decisions regarding liquidity. Therefore, there are good market makers and there are bad market makers. Sometimes, if you are not deeply connected in the crypto circle or lack recommendations, it's hard to discern who has a good reputation and who doesn't.

Evgeny: We have competitors in DeFi, centralized exchanges, venture capital, decentralized market-making, and so on, but perhaps only a few market makers can cover all areas.

Movement Labs and Its Industry Impact

Haseeb: Apart from the operation of the market-making mechanism itself, the most notable thing is everyone's focus on the team and what prompted the founders to make such decisions. The Movement team was once praised for being young, energetic, and ambitious. Why did they choose this path? What made the founders decide not to take the legitimate path of competition, but to choose to dump tokens, attempting to cash out early, rather than focus on delivering actual products?

They faced widespread criticism for launching a token without an actual product. Therefore, there are many rumors that they rely on contractors, the technical team is not strong enough, they focus more on marketing rather than substance. Most of these are actually rumors, and no one can provide concrete evidence to prove their specific actions. But people are saying they manipulate traffic, did not conduct an airdrop, and did not have a real product before launching the token. All of these point to potential misconduct within the project.

After discussing the postmortem of Movement with several industry insiders, I have some questions. First, has this incident changed your view of startups or founders? What is the incentive mechanism for founders in the industry? Are there really countless founders like Rushi? People are discussing these things, but in reality, 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 attracted so much attention. But recently, I was reading an article on Coin Telegraph that mentioned in the case of automated market makers, I think people may underestimate the number of low-quality projects in the long tail, there are indeed many such projects. As you said, those people will seek out these second-tier, third-tier exchanges and market makers. But for such a high-profile project to launch with a market cap of 30-40 billion dollars and go through such an event, it's really insane.

Haseeb: Evgeny, what are your thoughts on this issue? When the next token reaches out to you, what will you pay attention to? What should we focus on?

Evgeny: For me, I am very sensitive to those very flashy, very marketing-focused founders. But I know in Silicon Valley, traditional VCs usually like these founders because they bring energy, and I know they are very dominant, which often coincides with defrauding others. After that, I will be more selective and cautious in these matters.

Haseeb: I'd like to hear Robert's opinion, but we actually didn't invest in this project, not because we thought they would dump tokens on retail investors or break the lock-up agreement. I don't think any founder would be considered someone who would break the lock-up and dump tokens.

The reason we didn't invest is that we don't find their technology interesting. We think it's just a derivative project. When I first met Rushi, I only saw him once or twice, and my impression was that he was a very energetic, very charismatic, and very ambitious young man. Now, it has become a meme. Blockworks once had a promotional article about Movement, repeatedly emphasizing their youth and substantial fundraising. People seem to think that just because you are young and raise money means you are an excellent founder.

Haseeb: How do you view investing in Rushi?

Robert: During the Series A funding stage, this type of investment relies relatively less on the founder, but in the early stages we invest in, such as seed rounds, it is indeed entirely dependent on the founder. We do not pay too much attention to issues like the technology's scalability, but rather focus on the founder's vision, their ambition, and why they have such ambition. Do I believe they can succeed? As the stage progresses, this dependence gradually diminishes, focusing more on the project's actual progress, including technological advancements and investor funding progress. By the time we reach Series C or D rounds, the founder's role is almost non-existent because they have already proven themselves, and more attention is given to the project's actual performance. Therefore, this is a gradual process, and when we invest in this project, we are exactly in that progressive stage.

Why Cryptocurrency Needs Market Maker Disclosure

Haseeb: In traditional markets, you need to disclose who your market maker is, while in cryptocurrency, the exchange platform knows who your market maker is. Both Binance and Coinbase know. You have to provide this information before applying for listing. However, ordinary investors and the public are not aware. In my opinion, the ideal disclosure system is that the information gap between the exchange platform and ordinary investors is close to zero. That is to say, when you apply for listing on the exchange platform, the information known to the public should be consistent with what the exchange platform knows. I believe we should move towards this direction in the future, but we are currently far from this goal. I even think that the terms of market-making agreements should also be disclosed. This is also mentioned by Hester Pierce in her speech, where she elaborated on the disclosure system of cryptocurrencies and suggested that market-making agreement terms should be disclosed to the public.

What are your thoughts on this system? Would you strongly oppose it, thinking it is 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 recognize that, despite pretending tokens are not stocks, their behavior is very similar to stocks. For example, in an IPO, stocks require extensive disclosure of information about market makers, investors, and various risks. Hester's speech was precisely about this topic. But what we need to discuss is not just the information asymmetry issue between the exchange platform and retail investors but that platform investors should have as much information as possible to make purchasing decisions. In reality, we have not achieved this.

I believe that the fundamental aspects of market-making agreements, such as order size and exercise price, are crucial. As a retail investor, you need to know the market maker's incentives, such as their incentive to sell above a certain price. Once the price exceeds this 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 its protocol, which was World Coin about half a year ago. I remember World Coin did disclose its lending, market-making, and strike prices, but they faced a lot of criticism. People started questioning why such a structure was created as if no other token had a similar situation. They were heavily criticized, and I don't think they enjoyed that experience. More importantly, all founders became more cautious after that.

We can choose to disclose this information, be accountable to investors, or we can remain silent because we don't want to face criticism. This is the current state of our industry: no disclosure, but if you do disclose, you will be attacked.

Robert: So, if disclosure is voluntary, it actually creates a state of equilibrium where nobody discloses. Under a mandatory disclosure regime, everyone has to disclose, similar to how registered securities operate, as we discussed. Do you think we need such requirements to bring about a change? Or do you think it can be achieved through some form of self-regulatory steps to encourage issuers to disclose market maker information?

Evgeny: I have thought about this issue, and usually, we can organize a meeting like some companies do, reach a consensus, and decide to disclose the information. I think disclosure of information is ultimately very beneficial for those market makers. I believe this will help drive the normalization of the market because it's all about creating standards. Once these standards are established, other market makers will be forced to comply with these standards or choose not to participate. So without the SEC's mandatory requirement, this is indeed difficult.

Haseeb: I think there are three channels that can effectively achieve this standardization. The first channel is through exchanges. This is the simplest; if Coinbase or Binance decides that you must disclose if you want to list, then everyone must disclose because they want to list on Coinbase or Binance. In this case, you have to disclose before applying for listing. So, everyone will disclose because they want to list on these platforms.

The second channel is through venture capital firms. Because there are a small number of high-prestige venture capital firms, they can come to an agreement, promote a standardized disclosure regime, and require their portfolio companies to make these disclosures. It's like an additional agreement. The third channel is through the market makers themselves. High-prestige market makers who are not afraid to publicly disclose their market-making agreements can decide that we collectively agree that it's suspicious if you collaborate with a non-disclosing market maker.

Now, the issue with market makers agreeing to do this is that if there isn't a requirement for full disclosure of all market-making agreements, you might only have one or two market makers who are not bad actors while having projects like Web3 Port. For example, Rushi may not have just one market maker, they may have multiple, and one of them could be a dumper. I think there needs to be some uniformity to address this issue, ensuring that all market makers are disclosed, and the trading platform is aware. Because the trading platform can see who is trading assets, see who is providing liquidity. So, you can't operate in front of the trading platform and have the trading platform not know. Therefore, if you are Binance or Coinbase, you are a major liquidity provider for an asset, and ultimately, you are also a major executor.

The last option is to wait for the SEC to do this. But I think the SEC will take too long, and ultimately, a disclosure regime won't be in the form we want. It would be more beneficial for the industry to proactively create a disclosure regime that suits us. If you try to sync it with traditional securities, you will encounter two problems. One is you'll get a lot of useless disclosures that no one cares about, purely formal or some irrelevant disclosures. The second is you can't balance the relationship between the cost of disclosure and the value of disclosure.

Finally, I think there is a viewpoint that disclosure equates to basically agreeing that the token is a security. I think it's worth exploring this idea in advance, that disclosure is beneficial for anything. Disclosing is always good, it doesn't mean you are a security or not a security. Many non-securities also disclose relevant information.

So, ultimately, more disclosure is good. We can say that this has nothing to do with securities; it's just the way you want to list on a trading platform. If you want to list on a trading platform, you have to make these disclosures. This is not related to securities law, nor does it mean that this thing is an unregistered security.

When a token is ready to be listed, there is always a key counterparty involved in the negotiation, perhaps a foundation or another large token holder. Even if they are not directly related to the project, there is usually someone on the other side of the trading platform, possibly just as a "representative." Even if the protocol is fully decentralized, this person may also be the one pushing for the token to be listed. Regardless of whether this person is the so-called "issuer," they need to be responsible for providing some necessary disclosure to help list the token and gain liquidity.

I believe that as an industry, we need to mature and address these issues in advance to avoid truly losing the trust of retail investors. Such events will ultimately undermine the confidence of the entire token industry.

Evgeny: It's not just market-making agreements that need disclosure, there are many other important things, such as significant trades. If there are any material transactions involved, they all need to be disclosed.

Robert: This involves whether people are willing to buy or sell a certain asset. We have finally reached a point in this industry where some 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 is also the investors' cost basis, such as the source of their investment.

Haseeb: But there is still a lot of work to be done here to establish the right disclosure structure. I think that the entire market, especially the trust issue with all tokens, could gradually deteriorate. Therefore, I strongly encourage anyone seriously considering this issue to take action as soon as possible rather than pursue perfection.

Because you can always continue to improve and refine. Moreover, any consensus eventually reached by the industry may be supplemented, added to, or formalized by regulatory agencies. As an industry, the best practice is to take the lead, demonstrate good faith, not just for regulatory agencies, but more importantly for your own industry, to enhance investor confidence.

Do Market Makers Control Token Prices?

Haseeb: There has been a lot of recent discussion about market makers, especially the Movement Labs incident. As a venture capitalist, I feel somewhat relieved because in the past, venture capitalists were always seen as the "bad guys," but now people seem to lean towards viewing market makers as the "bad guys."

Can market makers really control token prices? How can we trust that you are not manipulating token prices? How much impact do market makers really have on the market? For those who say "Whenever Wintermute participates in market making, the token price drops," what is your view on that?

Evgeny: Market makers have now become the new "bad guys." This is actually a cyclical phenomenon. In a bull market, people think market makers are driving up prices, while in a bear market, people believe 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: The role of market makers varies greatly in different market cycles.

Evgeny: Many times, people just want to find someone to blame rather than deeply understand the market structure and liquidity operation mechanism. In reality, much of the discussion about market makers is based on misunderstandings. For example, some people think we sell off tokens received from Binance to depress prices and allow Binance to profit from liquidation. This logic is flawed because both we and Binance profit from ordinary investors.

Haseeb: So you don't want retail investors to lose money?

Evgeny: Of course, we want retail investors to lose as little as possible. In the past few months, retail investors have been heavily liquidated, causing many to leave the market. January was a good month for us, but February, March, and April haven't been great.

Haseeb: As retail investor activity decreases, the attractiveness of market making also declines. How is your current liquidity?

Evgeny: It's not linear. If trading volume decreases by 50%, our revenue doesn't decrease by 50%, but by more.

Haseeb: Do you think the price volatility and momentum effects in the crypto market make market making more complex?

Evgeny: Not really. Our model operates across multiple exchanges, and we trade between different platforms. The issue is if a large liquidity fund suddenly enters and starts buying a token, it can quickly drive up the price, which is hard for us to cope with.

Haseeb: In such a scenario, how is your exposure?

Evgeny: We have around 50% of contracts that end up in losses.

Robert: Can the profitable contracts compensate for the losing ones?

Evgeny: Yes, our business is quite diversified; for example, we also engage in over-the-counter (OTC) trading, which helps us generate more revenue in terms of liquidity provision.

Haseeb: So, regarding the structure of options, is this also present in traditional finance? Or is it a phenomenon unique to the crypto market?

Evgeny: In traditional finance, there are indeed similar structures, but they are not exactly the same. In the crypto market, market makers often also play the role of an investment bank.

Haseeb: Why has the crypto market evolved in this way? Do you think this is related to token cash flow and volatility?

Evgeny: Indeed, that makes sense. The market's evolution may be due to the overly high volatility of tokens, leading market makers to prefer earning returns through option structures. As the market matures, token pricing becomes more efficient, volatility decreases, and in the future, it may resemble market making in traditional markets.

Haseeb: If the market structure changes, how will market makers adjust their role?

Evgeny: If a new model emerges, such as Binance proposing a new market mechanism, market makers may provide liquidity in different ways. In any case, changes in market structure will impact how market makers operate.

Crypto Market Structure Bill: Where Interests Lie

Haseeb: Recently, a new market infrastructure bill has been passed. 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 provides a clear definition of digital assets and tokens, specifying when a token is considered a security or non-security. The CFTC (Commodity Futures Trading Commission) will oversee the spot market of non-security tokens in the crypto space, while the SEC (Securities and Exchange Commission) retains jurisdiction over capital raising and enforcement actions against fraud. Additionally, projects can raise a maximum of $1.5 billion in tokens per year, provided they plan to be decentralized. In contrast to the previous "code decentralization test," there is now an introduction of a so-called "maturity test," where the standard for a mature blockchain protocol is decentralization and/or autonomy, requiring no single entity to control over 20% of the voting power, with its value derived primarily from the programmatic functionality of the blockchain system. This definition is somewhat vague, and I don't fully grasp its boundaries; it may be intentionally designed to be ambiguous, but it's not clear how it applies to a situation where a team or group controls the system. There are many unresolved issues in the crypto market regarding multisig, security councils, and upgradeability, and it's unclear how these intersect with so-called immature blockchain protocols. The bill also defers the regulation of DeFi (Decentralized Finance), with the current definition of DeFi being relatively narrow.

I'd like to first hear everyone's overall thoughts on this bill.

Robert: I haven't spent too much time on this as all bills evolve, and the initial draft is definitely not the final version. If you look at the current stablecoin legislation, you can clearly see this. I believe this bill will undergo significant changes, the definitions will change, and some core structures will also change. There is still a long way to go before it is signed into law. If this bill is signed into law as is, I think it's a good thing for everyone. Whether you're a founder, a venture capitalist, a market maker, or a regular investor, everyone would see this as a significant upgrade and improvement to the market structure legislation.

As an outsider, I believe the likelihood of this bill passing is around 40% to 50%. This is a rough estimate. Because we have about a year and a half until the next election, this will reset the playing field. So, if it is going to pass, it may happen in the short term.

The progress of stablecoin legislation will provide valuable insights into the likelihood of market structure passage. If stablecoin legislation progresses to completion, the Senate finds a version they like, and the House also broadly accepts it, then this will be favorable for market structure. If the House says they don't like the Senate's version and it needs to be revised, then this will be unfavorable for any crypto legislation. So, if you want to know the outcome of the market structure, start with stablecoins.

Haseeb: We've seen the Democratic Party start to push back quite a bit on this bill, mainly due to the Trump family's transactions. This situation seems to indicate that meaningful compromises are hard to come by in legislation. Evgeny, how much time have you spent on this bill? How do you think it will affect your industry?

Evgeny: I haven't read this bill in detail, but we will definitely provide feedback on it because we have deep connections in the crypto space. I noticed that the power of the CFTC (Commodity Futures Trading Commission) seems to be greater than the SEC (Securities and Exchange Commission), and I'm also thinking about whether this is appropriate. I personally lean towards the existing SEC structure, so my intuition is that if more power is to be given, it should be to the SEC. It depends on the specifics of the law. If the law just broadly outlines the rules and specifies who is responsible for enforcement, then it's not as important.

Haseeb: I think that's very important. One thing we've learned in the past four years is that you can do a lot within the boundaries of the law, and those things aren't always clear. We're facing that situation now as well.

Evgeny: I think having a more clear legal framework would be better.

Haseeb: Yes, while that 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 standards. Tom, what are your thoughts on the market infrastructure bill?

Tom: I think it's still early days, and I haven't spent too much time on it, but it reminds me of how challenging it is to write good crypto legislation. It's always either too specific or not specific enough, ultimately leading to a less than ideal solution. This applies not only to crypto legislation but also to general legislation, yet the changes and ambiguities in the crypto market make this issue even more pronounced.

Can We Fix This Before the Crypto Collapse?

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 standards. This way, future governments or new regulators can see the state of the industry.

Robert: This point makes some sense, but it's not entirely accurate. Forty years ago, the SEC led by Gensler could have actually set rules for the industry through exemptions, frameworks, and various interpretations, but that didn't happen. The future SEC or CFTC could also do this. They don't need legislation to create trading frameworks for different securities or assets; they already have the power to establish these frameworks. It doesn't necessarily have to come from congressional intervention. So, even if Congress doesn't act, it doesn't mean it's all on us.

Haseeb: I don't think that's entirely accurate. The SEC has explicitly stated that they don't have authority from Congress. This is what Gensler originally said and what the new SEC is saying, that Congress needs to act to give us clarity, or else, who will regulate?

Both the SEC and CFTC have stated that Congress's position is very clear. The debate over bills means no one has clear authority. With no clear authority, the SEC says, "we shouldn't be making rules." This creates a regulatory gap.

Robert: But they can regulate through formal and informal rulemaking. They have already put out many interpretive statements on various projects. While it's not ideal, they are indeed doing some things.

Haseeb: But most of the time, these are almost all retractions of previous statements. Much of what we see is speeches rather than rulemaking. So far, the SEC has not issued any formal rules.

Evgeny: Our most basic understanding, like Bitcoin not being a security, was not confirmed by Congress through law but by the SEC's decision.

Haseeb: So you can say, "I think this is not within my regulatory purview." 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 things. If they are not securities, then they are not within the SEC's regulatory purview. If you say you want to classify certain tokens as securities, then you are done because the SEC is no longer a non-securities regulator.

So will the CFTC get involved? Will they say, "Alright, let's create rules, require you to disclose this and that?" I haven't seen the CFTC take action in that regard. Perhaps they will, but as of now, both agencies are saying they are waiting for Congress to act, and the difference in authority between the two is also evolving. If Congress doesn't act, it means Congress is deliberately choosing not to legislate. This means the crypto industry will continue to operate in an unregulated state.

So will the CFTC get involved? Will they say, "Alright, let's create rules, require you to disclose this and that?" I haven't seen the CFTC take action in that regard. Perhaps they will, but as of now, both agencies are saying they are waiting for Congress to act, and the difference in authority between the two is also evolving. If Congress doesn't act, it means Congress is deliberately choosing not to legislate. This means the crypto industry will continue to operate in an unregulated state.

So I really do think, as an industry, we have a responsibility to address this issue, not only for the potential future introduction of regulatory regimes but also for our own benefit. We need to reduce market volatility and increase consumer confidence in token listings. People need to know whether a listed token is trustworthy and won't be dumped by some unreliable market maker.

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