The Way it Works with Cody Carbone
The CEO of The Digital Chamber talks GENIUS, Market Structure, industry infighting, and the strange delights of New Jersey.
I started Brogan Law to provide top-quality legal services to individuals and entities with questions related to cryptocurrency. Cryptocurrency law is still new, and our clients recognize the value of a nimble and energetic law firm that shares their startup mentality. To help my clients maintain a strong strategic posture, this newsletter discusses topics in law that are relevant to the cryptocurrency industry. While this letter touches on legal issues, nothing here is legal advice. For any inquiries email aaron@broganlaw.xyz.
Set Up a Meeting: I’m on the road this week. I’ll be in Las Vegas today, Monday, May 26th and in the Bay Area on Tuesday, May 27th and Wednesday, May 28th to speak at Stanford Law School about the global regulation of cryptocurrency. If you’re around, I would love to meet you. Book a time here and let’s connect. If you are interested in attending the session at Stanford, email me at aaron@broganlaw.xyz, we should be able to accomodate all who want to come.
The Way it Works
You might have noticed, if you’ve been following this newsletter for a while, that we talk to D.C. people a lot. That is no accident. Years of successful mobilization and fundraising by the cryptocurrency industry created a remarkable presence in the swamp. When the results came in last November, and it became clear that crypto-supporting candidates were dominating across party lines, I realized that this is where the action would be for the foreseeable future.
At start of year, despite a familiarity with the process of government in the United States generally, I didn’t know much about how the industry might advance actual cryptocurrency policy in D.C. I figured, since I didn’t know, that some of you readers might be interested as well. This is how we got conversations with people like Bill Hughes, who are established leaders in the capital.
So now, a half year after the election, here is how it works. There are three major groups of influential crypto boosters in D.C. First, elected politicians. PACs like Fairshake and Protect Progress spent millions of dollars to elect politicians who are supportive of cryptocurrency. A number of these electeds, across both parties, are now introducing bills and using their influence to support cryptocurrency causes.
They’re not just arriving at these policies from first principles, though. That would be crazy. The people who understand the regulation cryptocurrency needs are the industry participants themselves. This is where the next two groups come in.
The second group of note are the large players: well-capitalized firms like Coinbase and Ripple that can afford to establish in-house policy teams and hire seasoned lobbyists. These companies have the resources to maintain a constant presence on the Hill and ensure their voices are heard.
Finally, for the industry as a whole, there is another important class of influential political actors. These are industry groups. These groups raise funds from multiple industry parties, and represent the collective positions of their members as a whole.1 This gives their views heft that no individual corporate actor could have alone. These groups have grown numerous, including (among others) The Digital Chamber, the Blockchain Association, the Crypto Council for Innovation, the DeFi Education Fund, and the Decentralization Research Center.
I'm lucky to know the leaders of some of these groups, and I’ll tell you, they are some of the most interesting and best informed people you could speak to on these topics. That’s why, this week, our guest is Cody Carbone, CEO of The Digital Chamber.
Let’s get into it.
Interview with Cody Carbone
Aaron Brogan: Cody — it’s a pleasure to have you on the newsletter this week. I think in a lot of ways, D.C. has been the center of gravity for cryptocurrency over the past few years. That is true now more than ever as legislation is currently in the works that could reorder the regulatory treatment of the entire industry. To start, could you tell us a little bit about who you are, what you do, and what you stand for?
Cody Carbone: D.C. has never been so popular! It’s great to be talking to you, Aaron. As you know, I’m a big fan of the newsletter. I have the honor of being CEO of The Digital Chamber, the largest blockchain and digital asset trade association in D.C. Our mission is pretty simple: we are advocating for common sense policies in Washington that lead to widespread blockchain and digital asset adoption. We represent ~200 companies and have been doing it since 2014 (OGs!) and it's great to see a change in tune in Washington as it relates to our industry.
AB: Let’s talk about The Digital Chamber. What has day-to-day life been like since January 21 when the new administration came in.
CC: A mix of chaotic energy with all-time high vibes and optimism. The biggest change in day to day is that the new regulatory landscape has allowed us to be more proactive in pushing industry-friendly policies and less reactive/defensive to all of the attacks coming out of Washington, which we saw in the previous administration. This entails proposing legislation/rulemakings/guidance, sitting at the table with regulators and explaining the tech and what policies are needed for the industry to flourish. The open-door policy of the Trump administration has been astounding and there has been a real emphasis on re-building trust, as illustrated by the SEC’s Crypto Task Force. For the first time, policymakers are coming to us asking how we can be helpful and we have to be able to meet this opportunity and answer that call to get things done.
AB: You all have gotten a lot done. What are the three most important industry accomplishments this year? Top of my head, you have SAB 122, killing the IRS Broker Rule, and the SEC Crypto Task Force, but curious about your perspective.
CC: A lot done, but a lot of work to do. We need legislation still. To me, the biggest win is SAB 122, which replaced SAB 121. It was a low hanging fruit, signaled an immediate shift from the Biden/Gensler era, and greenlit financial institutions to enter the market at the same time. After that, the biggest accomplishments revert back to the rebuilding of trust by regulators and Congress that has completely changed the perception of crypto in the United States. The establishment of the White House Crypto Council from a Day 3 Executive Order, which made it known that crypto was a top priority for this White House; the creation of a Congressional Crypto Caucus; the SEC Crypto Task Force, the nomination of pro-crypto SEC and CFTC Chairs; the White House Crypto Summit; the list continues. These moves have had a massive impact on perception, which has allowed for the reputation worldwide to shift dramatically and put the U.S. back in the driver’s seat.
AB: Something that has garnered a lot of attention over the past few months is the intrigue around the GENIUS Act. For months all I’ve heard out of D.C. is “this thing is definitely going to pass,” and then out of nowhere Sen. Ruben Gallego comes out against it at the 11th hour. The first cloture vote failed, but when it came back around this week it passed. Can you give a little play-by-play on what happened, to fall, and then the rise again?
CC: Politics — love it or hate it, but it’s always a component in legislating. Democrats used President Trump’s affiliation with $TRUMP and World Liberty Financial’s USD1 to enhance their negotiating position and it paid off. The legislation is truly a bipartisan compromise, and each side should be happy, which is rare. Although this isn’t done, and there may be more bumps during the amendment process, the GENIUS Act is very close to overcoming the political machine and passing the Senate.
AB: I’m interested in the substance of GENIUS. What are the main elements of the law? Are any of them controversial? What about the prohibition on yield — It wasn’t in the original draft I saw, so how did it get in there? How do your member organizations feel about that element of the bill?
CC: In its simplest form the legislation creates a legal framework to issue payment stablecoins in the U.S. Payment stablecoins is a *relatively new term, which means a stablecoin backed 1:1 by highly qualified liquid assets (e.g., short-term treasury bills). It creates a regime for issuers (banks or non-banks) to get licensed at either the state or federal level and creates certain requirements for them to issue, like disclosure requirements, prohibition on rehypothecation, routine audits and certifications, and last but not least, a prohibition on providing yield back to consumers. I can’t say for sure how the provision made its way into the bill, but I think banks advocated for it to be removed due to fear it would siphon deposits into stablecoins. Competition runs D.C. and the bank lobby is quite powerful.
Our members are supportive of offering yield-bearing stablecoins. It’s a necessity to allow stablecoins adoption to flourish. What’s better than a high rate deposit that could be used 24/7 worldwide?
AB: So on GENIUS, what do we have ahead of us? I know that the Senate recently voted to open the amendment process, but what does that mean? And if all this does lead to the bill eventually passing on the Senate floor, what is going to happen in the House?
CC: The Senate’s “open amendment” deal lets any senator offer floor changes during the 30-hour post-cloture window, but each amendment needs 60 votes, so most will likely die and the core GENIUS text should stay largely intact. I’m expecting the bill to pass the Senate floor the week after the Memorial Day recess. Pencil in June 3 or 4 (just my guess). Once the bill clears the Senate, it will be sent to the House, where is where things get fun. The House will have a choice: either fast-tracking the Senate version or moving its own near-identical STABLE Act and trying to reconcile the differences. That choice gets much tougher if we see a very favorable Senate tally (≈70 votes in support). This would make it politically hard for the House to not just take up the GENIUS Act and pass it as is. I still expect a unified stablecoin framework on the President’s desk before the August recess.
AB: What happens if GENIUS doesn’t pass, in your view? There are already major stablecoins available in the United States, and they’re not going away. What does the bad case look like?
CC: I don’t think this is an option. If we don’t get legislation, we’re going to continue with the status quo — where non-bank issuers continue to issue under MTLs or limited purpose trust charters and we continue to have a lack of clarity. That’s how the U.S. loses and the White House and members on both sides of the aisle in Congress are keen on not letting that happen.
AB: Ok — there’s another bill kicking around, which as of right now is unnamed but is known throughout the land as “Market Structure.” What does that one do?
CC: This creates the jurisdictional lines between the federal government’s two market regulators: the SEC and CFTC as it relates to digital assets. Are you going to issue a token? It tells you how you’re going to be regulated and who the regulator is going to be. Are you going to list a token? Same deal. This bill aims to provide the framework to know whether you’re going to be regulated by the SEC, CFTC, or sometimes both.
AB: Congressman Hill, among others, recently released a discussion draft of that bill. I’ll be honest, because it’s public anyway, but I have been critical of it. Basically, I’ve taken the view that it is too parochial in excluding blockchain assets that are not and do not aspire to be decentralized from the digital commodity exchange framework, and also that the $150,000,000 cap on exempt fundraising is too low. What is your view on this? Obviously your members are already established in the industry, so raising seed capital may not matter as much to them as it does to the early stage community that I tend to represent — do you think this bill should be changed in any way?
CC: Honestly, I’m with you. If we cap early stage projects at $150 million and shut the door on anything that isn’t already fully decentralized, we’re basically telling entrepreneurs to pack a suitcase for Dubai or Singapore. A better move would be to bump that fundraising cap way up or scrap it for a tiered, disclosure-based system (Sarbanes-Oxley had something like this for emerging companies and audit requirements) and give less-than-100 percent-decentralized projects a safe on-ramp into the digital-commodity framework, then let the market decide if they evolve or not. Even though many of our members are later-stage, they rely on that early stage pipeline for talent and new ideas and a lot of them we’re those projects in a basement or garage! We all lose if U.S. founders can’t raise cash at home.
AB: Let’s say Market Structure stalls. The counterfactual is that then we are stuck in a bit of a quagmire. There are a number of barriers to the issuance of cryptocurrency tokens in the United States and, crucially, on secondary markets. The SEC can issue exemptive relief, but that doesn’t apply to the states, who can sue on their own. And while there were a number of appeals that could have definitively determined whether secondary sales of cryptocurrency constitutes securities contracts, Ripple and Coinbase primarily, they have all been dismissed as the Trump administration takes a different approach to enforcement. Give me the roadmap if Market Structure stalls. What are you asking the administration for? What’s on your wishlist?
CC: Market structure is going to take awhile either way. What I’m really waiting for is the “digital-asset bible” the White House Crypto Council has to deliver under the Day-3 executive order—every agency head is in that huddle, and their blueprint is due in July (180 days from the EO signing). Once it lands, it’ll set the administration’s whole regulatory playbook, so we’re lining up our asks now: nail down true tax clarity, lift the cap on token fundraising, launch a federal sandbox, flood the market with plain-English guidance, and create a joint SEC-CFTC advisory committee—or even spin up a dedicated SRO.
AB: I saw today you were xeeting about the Blockchain Regulatory Certainty Act (BRCA), which Reps. Tom Emmer and Ritchie Torres introduced together recently. Obviously Torres is a Democrat and Emmer is a Republican, and I know it’s not reported in the corrupt news media, but I swear the representatives seem more collegial across parties this year. Not all of them, obviously, but around the middle it seems like they are a lot more willing to come together. Have you seen this? How have the vibes shifted in D.C. over the years?
CC: I have never heard xeeting before. I like it. Yes, there is absolutely a collegial tone on digital assets. There is a huge contingent of bipartisan lawmakers who desperately want to get something done legislatively here and not make this a partisan issue. Politics will always get in the way (see GENIUS Act above), but Republicans and Democrats both see political and policy reasons for supporting crypto. It’s why these bills are moving so fast and furiously — there are very few areas like this in Washington right now and lawmakers need to show that they can well…pass laws. Crypto allows them to do that.
AB: Your members come from all different parts of the industry, and you, I believe, also have fintech firms, not just crypto, so you might be able to give me an arm's length perspective on this. One of the dynamics that has emerged since the election is a growing distrust among members of the industry of one another. You can divide this up however you like, decentralized vs. centralized industry participants, legacy vs. new, Ethereum vs. Solana. Frankly, a lot of these folks hate each other. My two cents, we’re all on the same team here and everyone should get over themselves and get along, but they don’t put me in charge (yet). What’s going on here? Where do you think it comes from? What do you think we should do about it?
CC: It’s amazing to me watching it unfold. Is it weird to long for the Gensler era where everyone was on the same team fighting one common enemy? The infighting is bizarre and nasty. The industry is far too tribal and I hope it’s simply growing pains of maturity, but if it doesn’t stop no one will win except TradFi and the anti-crypto army.
Everyone should leave each other alone and let the free market win. If you hate a competitor, then buy them and bury them like the good ol’ days of Vanderbilt and Rockefeller. Don’t tweet at them like a high school.
AB: Ok, year ahead, what are your five top goals for The Digital Chamber? What is at stake?
CC:
Pass stablecoin legislation
Pass market structure legislation
Achieve tax clarity — pass de minimis, address taxation on staking and block rewards
Expand bipartisan coalition of champions
Rescind OGE legal advisory that doesn’t allow executive branch officials to hold crypto
The U.S. ability to lead on this issue is at stake. If we’re not leading, we’re following and we lose the advantage of our massive, liquid capital markets. We’ll be following for decades, like the world has been following us post-internet boom.
AB: Cody, thank you so much for joining. It’s been a pleasure as always. Typically at the end of conversations here I let my guests say whatever they want. Something I missed, something about New Jersey, anything you want. The floor is yours.
CC: The pleasure is all mine, Aaron! It’s dangerous to give me an open floor opportunity to talk about New Jersey — greatest state in the Union. My usual plug is to encourage people to come to D.C. and talk to their representatives. I don’t care if you have a business or you’re a consumer, speak out and tell them why you care about digital assets. You’d be amazed at how much lawmakers pay attention to the voices of their constituents and how it can change a naysayer to a believer by hearing why their voters care about an issue.
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If you are wondering if this kind of coordination has antitrust implications, it absolutely does. However, since the 1960s, joint lobbying efforts have enjoyed a limited immunity from antitrust law under the Noerr-Pennington Doctrine. This is a big reason that these groups are so important, and why all cryptocurrency firms should consider becoming involved.