5 Highlights from the U.S. Senate's Much-Hyped Crypto Market Structure Draft Bill

The crypto market may finally be getting something it has desperately wanted – codified market structure – courtesy of the Digital Asset Market Clarity Act (released overnight) which has earned bipartisan support thanks to some very noteworthy concessions regarding the future of crypto in America.

The 278-page text – the result of months of fraught negotiations between Senate Republicans and Democrats (and industry lobbyists) – establishes a regulatory framework that would split digital asset oversight between the SEC and CFTC agencies. The crypto community is sure to have some mixed takeaways on some of these provisions. Paradigm policy head Justin Slaughter called the bill "a big win for the Democratic Members on [the Senate Banking Committee]," and something that could have passed under a Biden administration.

Today, we're exploring five key provisions of the Digital Asset Market Clarity Act (DAMCA) to better understand how the future of crypto market structure clarity might evolve. 👇

1️⃣ No Stablecoin Yield

Under the Digital Asset Market Clarity Act, stablecoin issuers will be prohibited from distributing yield back to passive token holders.

Title IV of DAMCA, which lays out the rules of the road for how regulated banking institutions can interact with digital assets, will prohibit stablecoin issuers (as defined by the GENIUS Act) from making interest payments to holders.

While DAMCA will allow stablecoin issuers to distribute rewards tied to actions, such as account opening incentives and cashback rewards, the fact remains that protecting stablecoin yield had previously been a firm "red line" for the crypto industry. Heavy restrictions on stablecoins risk putting crypto-native issuers at a perpetual disadvantage against the banking sector.

Still, many key crypto players – including Coinbase – have surprisingly continued to back the bill's language on stablecoin yield prohibition, viewing it as the least favorable language they could tolerate without derailing the bill's momentum.

2️⃣ Commodity Clarity

The Lummis-Gillibrand Responsible Financial Innovation Act of 2026 – Title I of DAMCA – would amend the Securities Act of 1933 to clarify when crypto network tokens transition from securities into commodities.

According to this section of DAMCA, the SEC will publish formal guidelines within 360 days of its enactment for when individual persons who initially offered, sold, or distributed tokens and the largest recipients of those tokens are "jointly and severally" considered to be a token's issuer.

Title I establishes expansive regulations over anyone who sold, controlled, or caused the initial distribution, problematically extending liability to related persons even if they did not receive the largest share in a token. It also extends SEC jurisdiction over tokens issued by foreign governments, tokens issued without a company structure, and majority American-owned tokens.

The section would provide exemption carveouts for a network token to be treated as a non-security (i.e.; a commodity) when they have no attached financial rights, such as participation in profit sharing or implied ownership interest.

To certify their non-security status, the burden will fall on network tokens themselves; asset issuers must submit written certifications to the SEC demonstrating that their token is not a security. The Commission will then have 60 days to deny the certification.

If projects do not or are unable to certify their non-security status with the SEC, they will be legally required to publish semiannual mandatory disclosures, the obligations for which occupy 12 pages of DAMCA alone. Projects with over $25M in gross proceeds must also publish audited financial statements, prepared by an independent public accountant.

Fortunately, Title I of DAMCA will not be applied ex post facto, meaning individuals who offered, sold, or distributed covered tokens before the bill's enactment need not fear retroactive liability.

3️⃣ DeFi Regulation

Title III of DAMCA addresses the decentralization part of decentralized finance, outlining when crypto projects are – and are not – considered truly "decentralized."

According to this section, a decentralized protocol allows users to make financial transactions in accordance with an "automated rule or algorithm that is predetermined and non-discretionary" that does not rely on a person other than the user to maintain custody or control over their digital assets.

The designation of "non-decentralized finance trading protocol" would apply to any protocol in which: a person or group of persons has the ability to control or alter the functionality of an application; the application does not operate based solely on code; and a person or group of persons can restrict, censor, or prohibit user activity.

Non-decentralized protocols will need to comply with the Securities Exchange Act of 1934 and Bank Secrecy Act, imposing novel registration, conduct, disclosure, record-keeping, and supervision requirements.

While this chapter may homogenize the application of securities laws across technologies and protect the public interest, it may also capture non-immutable smart contract protocols with even minimal operator control in its drag net (including those designed around multi-signature technology or trusted encryption environments).

Fortunately, Title III does include a sizable carveout that affords protocol "security councils" the ability to respond to incidents (like hacks) with "pre-defined, temporary rules-based cybersecurity emergency measures" without jeopardizing their decentralization status.

Concerningly, Title III imposes requirements on "web-hosted" crypto wallets that allow users to interact with blockchain technologies, mandating that such intermediaries comply with sanctions and anti-money laundering regulations. Confusingly, this regulation will not apply to "any software or hardware wallet that facilitates the custody of an individual of their digital assets."

4️⃣ Micro-Innovation Sandbox

DAMCA will require the CFTC and SEC to establish a "Micro-Innovation Sandbox" within 360 days of its enactment to "enable 10 eligible firms to test innovative activities within the United States," subject to applicable Federal and State securities and commodities laws.

To participate in the Sandbox, eligible groups must be looking to conduct lawful innovative activities within the United States, and cannot employ more than 25 employees or gross more than $10M of revenue in any given fiscal year.

All applications must be jointly approved by the CFTC and SEC for entry into the Sandbox, and participants in the program will be granted regulatory relief, which can be revoked at any time by discretion of the Commissions.

Sandbox participants will be required to satisfy the disclosure requirements of both Commissions when their jurisdiction is implicated, and any regulatory relief granted through the program will supersede any State securities or commodities registration requirements.

Program acceptance will be limited to 20 projects per year, and accepted firms will be limited to $20M in aggregate customer, investor, or counterparty funds.

5️⃣ Digital Asset Kiosk Crackdown

Perhaps most surprisingly of all, the Digital Asset Market Clarity Act devotes significant attention to the regulation of digital asset kiosks – think Bitcoin ATMs.

Under Section 205 of DAMCA, digital asset kiosks will be designated as "money transmitting businesses," imposing substantial regulatory burdens on operators of these cash-for-crypto machines.

Every 90 days, operators will be required to submit a detailed list of their digital asset kiosks to the Secretary of the Treasury, which includes (among other things) the operator's legal name, trade name, the physical address of each kiosk, and the digital assets compatible with the kiosk.

Before entering into transactions with customers, digital asset operators must disclose their terms and a litany of government-imposed consumer warnings in an easily readable manner.

Digital asset kiosks will be required to furnish customers with a receipt that details information about their transaction, and implement anti-fraud controls to prevent the transfer of digital assets to wallets known to be affiliated with fraudulent activity.

The Secretary of the Treasury will also be empowered to set limits on single-day deposits and withdrawals at digital asset kiosks at their discretion, but until such time, digital asset kiosk operators will not be permitted to conduct transactions exceeding $3.5k with "new customers" within any 24-hour period.