Stablecoins and Trump crypto deals

The White House failed in its first bid to resolve the stablecoin ‘yield v rewards’ impasse, but President Trump’s crypto profits could prove an even greater impediment to digital asset market structure progress.

It’s been nearly a week since the Senate Agriculture Committee made history by advancing its digital asset market structure bill (the Digital Commodity Infrastructure Act). But there’s been no sign that the Senate Banking Committee is ready to do likewise with its market structure text (the CLARITY Act), increasing doubts that these legislative cats can be herded before senatorial focus turns to November’s midterm elections.

Following last month’s last-minute cancellation of its CLARITY markup session, the Banking committee’s focus has turned to a White House-driven initiative to make housing more affordable. Banking’s formal resumption of market structure discussions is now not expected until late February or early March.

There’s also the problem that Democrats and Republicans remain sharply divided on many issues in the bills, as reflected in the fact that the Ag bill advanced along purely partisan lines. A finished market structure bill will require 60 votes on the Senate floor to advance, meaning at least seven Dems will need to vote ‘aye’ along with all 53 GOP senators, making Dems’ buy-in critical.

On Tuesday, The Hill quoted Brian Gardner, policy strategist for investment bankers Stifel, saying “a party-line vote is not a great sign for any bill.” And with the Congressional calendar “becoming a problem” with each passing day, Gardner doesn’t think “anybody can say that the prospects are overwhelmingly good for the bill to pass this year.”

Not everyone is pessimistic. Beacon Policy Advisors analyst Chris Niebuhr agreed that “the second half of the year is basically a wash” but believes “the incentive structure still points toward everybody being interested in passing a bill, and that’s usually the key underlying condition to even suggest that something has the possibility of passing.”

On Tuesday, Crypto in America journo Eleanor Terrett reported that Senate Dems planned to hold a closed-door meeting on market structure on Wednesday. This would be the first such meeting since last month’s Banking blowup. Progress? Or more debating society posturing? Watch this space.

White House fails to bridge the stablecoin divide

One of the main sticking points preventing CLARITY from moving forward is the stablecoin ‘yield v rewards’ debate. The banking sector wants to prohibit companies like Coinbase (NASDAQ: COIN) digital asset exchange from offering rewards/interest to customers holding stablecoins on their platforms. A prohibition on stablecoin issuers offering ‘yield’ to token holders is part of the GENIUS Act, but non-issuing crypto operators argue this doesn’t apply to them.

On Monday, TD Securities analyst Jaret Seiberg issued a note that said resolving this quagmire “will require President Trump’s personal intervention” to force both sides of this debate “to make the compromises needed” to advance CLARITY before the midterms.

That same day saw representatives from the crypto and banking sectors assemble at the White House to see if a compromise was possible. Trump wasn’t there, but White House crypto advisor Patrick Witt was, along with representatives from both banking and crypto industry associations, Wall Street giants, and some major digital asset firms, including Coinbase, Circle (NASDAQ: CRCL), Ripple Labs, Tether, Paxos, Kraken, Crypto.com, Galaxy Digital (NASDAQ: GLXY), Stripe, and more.

Following the meeting, Witt tweeted his “sincere thanks” to the participants for a “constructive, fact-based, and, most importantly, solutions-oriented” discussion. But Witt’s hope that stakeholders “will be able to resolve” this dilemma only confirmed that consensus remains elusive.

Punchbowl’s Brendan Pedersen tweeted that individuals who were in the room “had very different approaches to initial negotiations,” as the banking reps “mostly avoided details, did not want to discuss discrete solutions.” Pedersen clarified that banks weren’t “doing a runaround” and that their “early aloofness is standard issue policy negotiation strategy.”

Regardless, the White House reportedly wants a deal done by the end of this month. Whether that will take a summoning of all sides for an expletive-laden dressing down by the President remains to be seen.

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Coinbase CEO got bum’s rush from bank CEOs

The two sides of this debate aren’t exactly given to compromise, considering the apparent disdain with which each side holds the other. Last week, the Wall Street Journal reported that Coinbase CEO Brian Armstrong was mostly snubbed in his quest to lobby bank CEOs at last month’s World Economic Forum in Davos.

JPMorgan Chase (NASDAQ: JPM) CEO Jamie Dimon reportedly got in Armstrong’s face to tell him, “You are full of shit.” This harsh critique was apparently sparked by Armstrong’s anti-bank diatribes during his many TV appearances since Coinbase withdrew its support for CLARITY the night before the Banking committee’s scheduled markup session.

Brian Moynihan, CEO of Bank of America (NASDAQ: BAC), reportedly adopted a less confrontational tone in a 30-minute sitdown with Armstrong. However, Moynihan told Armstrong that if Coinbase wants “to be a bank, just be a bank,” with all the associated regulatory headaches. “If you want to be a money market fund, just be a money market fund.” A similar point re MMFs was made last month by PNC Bank CEO Bill Demchak.

(On that point, TD Cowen’s Jaret Seiberg believes banks are far more concerned about stablecoin rewards eating into their MMF business than they are about potential ’mass deposit flight’ from banking customers shifting their cash to exchanges to earn greater interest. The banks supposedly believe mass deposit flight won’t occur until stablecoins are widely used for actual payments, something that might never happen in developed Western markets.)

Other banking execs at Davos were reportedly even less receptive to Armstrong’s overtures. Citigroup (NASDAQ: C) CEO Jane Fraser gave him only a minute of her time, while Wells Fargo (NASDAQ: WFC) CEO Charlie Scharf reportedly told Armstrong they had nothing to talk about.

Armstrong offered some indirect commentary on the WSJ article by tweeting that he was “going for the best societal outcome and view capitalism as a positive sum (we all win.) Some parties are trying to use the government to block their competition and see it as zero sum.”

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WLF’s deal with UAE ‘spy sheikh’ causing major waves

Another major issue preventing greater Dem support for CLARITY is the ‘ethics’ question, aka efforts to limit the ability of elected officials—including President Trump—and their families from profiting off crypto ventures over which said officials have the power to reduce (or eliminate) regulatory guardrails.

This issue took on new urgency this weekend after the Wall Street Journal reported that the Trump-linked decentralized finance (DeFi) platform World Liberty Financial (WLF) had sold 49% of the company to a UAE government official for $500 million. The sale occurred just four days prior to Trump’s second inauguration, with much of this windfall going directly to the Trump family.

A Trump-controlled entity (DT Marks DEFI LLC) originally held a 75% stake in WLF but this stake was reduced to “approximately 60%” last June and reduced again to “approximately 40%” the following month (currently 38%). But the identity of the buyer(s) wasn’t disclosed until the Journal named the purchaser as Aryam Investment 1, an entity linked to Abu Dhabi royal family member Sheikh Tahnoon bin Zayed Al Nahyan.

The $500 million purchase price was delivered in two installments, the first arriving shortly before Trump took his oath of office for the second time in January 2025. Of the first $250 million payment, $187 million went to two Trump-controlled entities, while another $31 million went to Trump’s friend/fixer Steve Witkoff (a WLF co-founder, like Trump and his three sons) and a second $31 million payment to yet more WLF co-founders, Zak Folkman and Chase Herro. The Journal isn’t sure how the second $250 million installment (due last July) was distributed.

The deal allowed Aryam to appoint two members to WLF’s five-member board of directors. Tahnoon, brother to the UAE’s president and known as the UAE’s ‘spy sheikh,’ also controls the AI firm G42, which struck a deal last March with the Trump administration that granted the firm access to long-denied U.S. microchip technology.

That G42 deal was itself controversial due to it having been made shortly before the announcement of a $2 billion investment in the Binance exchange by the UAE state-owned investment firm MGX (also overseen by Tahnoon).

For reasons known only to itself, MGX chose to make that investment not in cash but in USD1, the stablecoin launched by WLF earlier that year. Stablecoin issuers earn interest off the fiat reserves backing their issued tokens, and if Binance chose not to redeem its USD1 (and so far it hasn’t), that $2 billion would generate tens of millions of dollars annually for WLF.

Then there’s the fact that the G42 chip deal was negotiated by Witkoff, who at the time had yet to divest his stake in WLF. National security concerns over the U.S.-made chips—and fears that these chips could ultimately find their way to China—led the New York Times to say the deal ”blurred the lines between personal and government business and raised questions about whether U.S. interests were served.”

Trump himself was asked about the report during a media scrum in the Oval Office on Tuesday. Trump claimed not to know anything about the deal, saying “my sons are handling that. My family is handling it. And I guess they get investments from different people, but I’m not … I don’t know exactly, other than, you know, I’m a big crypto person. I’m the one that probably helped crypto more than anybody, because I believe in it.”

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Ethics blowback in 3…2…1…

Trump may want to move the conversation on to other topics, but the episode has given Senate Dems—already keen on reining in the Trump family’s crypto profiteering—fresh fuel to pour on their ethics dumpster fire.

Elizabeth Warren (D-MA), the Banking Committee’s ranking member, tweeted that the Journal report showed “corruption, plain and simple. Steve Witkoff, [White House AI & Crypto Czar] David Sacks, and [Commerce Secretary] Howard Lutnick must testify in front of Congress. And Congress needs to grow a spine and put a stop to Trump’s crypto corruption.”

Sen. Chris Murphy (D-CT) tweeted that the Journal report indicated “brazen, open corruption. And we shouldn’t pretend it’s normal.” Murphy added a clip of himself speaking on the Senate floor in which he noted that the parties involved “knew it was so egregious, it was so wrong, that they did it in private … those are the elements of a bribe. This is potentially criminal conduct.”

Murphy went on to warn that “for now, the President and his cronies may get away with these crimes and this corruption. But the rule of law is coming back. And when it does, everyone who has greased their palms off government service, trading government favors for cash and violating the laws of this nation, are going to jail.”

Murphy’s desire for legal repercussions could explain why Trump has begun to state out loud that Republicans should take control of November’s midterm elections. If nothing else, this episode will likely encourage Senate Dems to dig in their heels on the ‘ethics’ issue when market structure comes back on the agenda.

On Tuesday, Trump’s crypto advisor Witt told CoinDesk that the White House has “made clear that there are red lines” regarding the ethics language the administration is willing to tolerate in market structure legislation. “We’re not going to allow the targeting of the president individually or his family members.”

Referencing some previous ethics proposals, Witt claimed that “a lot of senators’ wives and husbands maybe would have been put out of work by that.” Witt expressed hope that Dems would suggest ethics language that’s “a little bit closer to something that could be ultimately be agreed to.” Witt dismissed some early ethics proposals by Sen. Adam Schiff (D-CA) as “completely outrageous.”

Last July, Schiff unsuccessfully proposed an amendment to the GENIUS Act that would “prevent the financial exploitation of any digital assets by public officials, including the president and the First Family.” Last month, Schiff said a prohibition on crypto profiteering by elected officials “needs to be applied to everyone.”

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Let’s all go to the lobby

Last week, the New York Times crunched Federal Election Commission (FEC) filings and concluded that crypto was one of the four ‘richest players’ seeking to influence the 2026 midterm results. Coinbase chief legal officer Paul Grewal quickly retweeted Times journo Teddy Schleifer, calling crypto one of “the Big Money Four to be scared of” in November.

Coinbase is one of the three primary contributors to the Fairshake political action committee (PAC). Last week, Fairshake revealed it has $193 million earmarked for spending on the midterm elections, nearly 50% more than it spent during the 2024 election cycle.

Last week, Punchbowl News quizzed a few senators on how they viewed Fairshake’s announcement/threat. Bernie Moreno (R-OH), who won his seat in 2024 after Fairshake spent $40 million attacking his opponent, said Fairshake should drop its nonpartisan fig leaf and spend its millions “on campaigns electing more Republicans.”

Kirsten Gillibrand (D-NY), a major crypto booster, claimed Fairshake’s cash wasn’t “relevant … There are hundreds of pots of money around the country that care deeply about the outcomes of elections.” But her colleague Adam Schiff called this kind of sector-specific largesse a “system-wide problem” that “diminishes the voices of ordinary voters.”

Speaking of system-wide problems, an FEC filing for The Fellowship PAC is confusing the hell out of crypto influencers. The Tether-linked Fellowship made a splashy debut last September, bragging of a “$100M+” bankroll that would be spent on efforts to benefit the broader crypto sector, rather than Fairshake’s alleged focus on “narrow or individual interests.”

But the filing, signed by Mitchell Nobel, director of digital asset strategy and policy at the Tether-linked Wall Street firm Cantor Fitzgerald (NASDAQ: ZCFITX), shows The Fellowship closed 2025 with precisely $0 in the bank. Impressively, this $100 million bankroll was zeroed out despite The Fellowship spending precisely $0 on lobbying efforts last year.

So did Tether already get all it wanted out of Washington since September and now sees no need to spend any money? Or has the crypto price crash that followed one month after The Fellowship’s splashy debut—and apparently bit into Tether’s quarterly profits—left Tether thinking that $100 million should be reserved for more pressing needs?

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CFTC launching blowout sale: all regulations must go!

The two federal agencies that will oversee digital asset regulation, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), held a joint summit last week. Most of the hour-long discussion focused on how best to harmonize their respective agencies’ efforts, which these days largely involves searching for the few regulatory guardrails that have yet to be dismantled since Trump returned to the White House.

CFTC chair Michael Selig, making his first official public appearance since being sworn in as chairman three days before Christmas, said the two agencies’ mutual goals are to “advance a clear crypto asset taxonomy, clarify jurisdictional lines, remove duplicative compliance requirements, and reduce regulatory fragmentation.”

Selig said he echoes SEC chair Paul Atkins’ view that “most crypto assets trading today are not securities.” As such, Selig has directed CFTC staff to work with their SEC counterparts to “consider a joint codification of this framework” that will “make clear that digital commodities, digital collectibles, and digital tools are not ‘securities’—even when they are sold as part of an investment contract.”

Next up is ensuring the “responsible deployment of additional forms of eligible tokenized collateral,” including stablecoins and other prominent tokens such as BTC and ETH. The idea is to “make liquidity more dynamic and markets more resilient” through 24/7 trading and automation (including AI-based systems).

Selig also wants to ‘onshore’ perpetual contracts and “other novel derivative products;” establish “clear and unambiguous safe harbors” for DeFi developers through the use of “innovation exemptions;” clarify how “leveraged, margined, or financed retail commodity transactions in crypto may be offered off-exchange under an ‘actual delivery’ exception;” and draw up “events contract rulemaking” to “provide certainty” for prediction market operators.

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SEC lays down the tokenization law

The SEC’s Atkins had fewer bold new strategies to unveil, in part because so much of digital asset oversight will fall under the CFTC’s purview once market structure legislation is finally the law of the land.

But Atkins did say that the SEC was still working on the ‘innovation exemptions’ that were originally supposed to be enshrined before 2025 was through. Atkins stressed the need to “measure twice and cut once,” adding that Congress finishing its market structure squabbles could help offer the “direction” the SEC needs to finish this job.

More significant SEC announcements came earlier last week, specifically regarding the issue of tokenized equities. This subject has pitted the crypto newcomers against Wall Street’s old guard, with the latter insisting that the newbies be subject to the same rules the veterans have had to deal with for decades.

On January 27, the SEC’s Crypto Task Force held a meeting with representatives from the Securities Industry and Financial Markets Association (SIFMA) and a few Wall Street firms. SIFMA submitted some recommendations to the Task Force, including its belief that “regulatory clarity should be achieved through rulemaking, not exemptive relief” for crypto operators who want to trade tokenized securities (whether on centralized or decentralized platforms).

The following day, the SEC issued a statement on tokenized securities that can be boiled down to this single line: “The format in which a security is issued or the methods by which holders are recorded (e.g., onchain vs. offchain) does not affect application of the federal securities laws.” So a security is a security is a security. Case closed.

The SEC also divided tokenized securities into two categories: securities tokenized by or on behalf of the issuers of such securities; and securities tokenized by third parties unaffiliated with the issuers of such securities.

Third-party tokenized securities made headlines last summer through the offering of tokenized stocks to European Union customers of the Robinhood (NASDAQ: HOOD) trading platform. Some of these tokenized securities represented shares in private companies like OpenAI, which publicly distanced themselves from these ‘OpenAI tokens’ and warned investors to steer clear.

The SEC warns that third-party tokenized securities “may or may not represent an ownership interest in or contractual obligation of the issuer of the underlying security and, as such, may or may not confer upon the holder of the crypto asset any rights as a holder of the underlying security. Further, holders of the crypto asset may be exposed to risks with respect to the third party, such as bankruptcy.”

The same day, Robinhood CEO Vlad Tenev issued a lengthy X post saying “it is inevitable that the U.S. embraces” tokenized securities in order to lower costs, allow 24/7 trading, improve settlement times, and allow native fractionalization. Tenev pledged to work with the SEC and push for “sensible U.S. equity tokenization guidelines” via market structure legislation.

Tokenization platform Securitize also welcomed the SEC statement, tweeting its thanks for the regulator “recognizing native, issuer-supported tokenization and onchain recordkeeping as a modern extension of securities infrastructure. Clear frameworks like this are key to responsibly scaling tokenization.”

One final SEC note: Atkins has confirmed he will become the first sitting SEC chair to speak at the BTC sector’s biggest annual confab in Vegas this April. You’ll recall that when then-candidate Trump spoke at the 2024 event in Nashville, the biggest round of applause he got from the audience was when he promised to fire then-SEC chair Gary Gensler. The times, they are-a-changing…

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