Compiled by: Deep Tide TechFlow

Guests:

Evgeny Gaevoy, Founder and CEO of Wintermute

Host:

Haseeb Qureshi, Managing Partner at Dragonfly

Robert Leshner, CEO and Co-founder of Superstate

Tom Schmidt, Partner at Dragonfly

Key Takeaways

· $38 million token sell-off exposed: The transaction between Movement Labs and Web3 Port reveals the dark side of crypto market making.

· Market makers or exit liquidity? — A deep dive into an incentive mechanism that allows market makers to sell tokens and share profits with the foundation.

· Venture capital turns a blind eye — Why top investors continue to support Movement Labs in the face of obvious risks, and what this means for due diligence in cryptocurrency.

· Rushi fired — The CEO of Movement Labs was dismissed after weeks of denial, but did other team members also participate?

· Evgeny from Wintermute speaks out — As one of the largest market makers in the crypto space, Evgeny shares insights on dark trading, sell-off mechanisms, and failures in transparency.

· Airdrops, market manipulation, and losses for ordinary investors — We analyze how token issuance is manipulated behind the scenes and who truly bears the losses.

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

· Self-regulation or SEC intervention? — Can the industry self-correct, or are we triggering another wave of securities enforcement?

· The trust crisis in cryptocurrency — A lack of transparency could lead to the collapse of entire token models. This episode explores how to address this issue.

Insightful Points Summary

· We hope ordinary investors can avoid losses as much as possible.

· I believe that for market makers, disclosure is ultimately very beneficial. I think it will help normalize the market, as it is all about creating standards.

· Many times, people just want to find someone to blame rather than deeply understand the mechanisms of market structure and liquidity operations.

· For market makers, the incentive must be strong enough to drive prices up while also allowing for realization later.

· Sometimes, if you don't have deep connections in the crypto space or lack recommendations, it can be hard to discern who has a good reputation and who doesn't.

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

· In my view, the ideal disclosure system is one where the information gap between exchanges and ordinary investors is virtually zero. When you apply for exchange listing, the information known to the public should be consistent with what the exchange knows.

· We can choose to disclose this information and 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 disclose, you will be attacked.

· There are three channels to effectively standardize disclosure. The first channel is through exchanges. The second channel is through venture capital firms. The third channel is through the market makers themselves.

· If we proactively create a disclosure system that suits us, it will be more beneficial for the industry.

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

· Any consensus ultimately reached by the industry may be supplemented, added to, or formalized by regulators.

· Those project parties claiming "we didn't know it worked this way," I believe are not credible in most cases. In this situation, they do know.

Movement Labs Scandal: The Chaotic Inside of Market Makers

Haseeb: Recently, there has been a lot of interesting news, one of which was reported by CoinDesk regarding Movement. A company related to Movement Labs signed an agreement with a team called Web3 Port. The content of this agreement is that if Movement's fully diluted valuation exceeds $5 billion, Web3 Port can liquidate the tokens they hold and share all profits from the sale of tokens with the foundation.

In other words, this market maker played the role of "agent" in the token sell-off, and their incentive mechanism was to drive up the token price. This not only allowed the market maker to profit, but the Movement foundation could also benefit, which clearly raised significant questions. They also received 5% of the total supply of tokens, which is a huge amount relative to the circulating supply, which is currently less than 10%.

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

The industry is starting to reflect on why such things happen, especially since it received a lot of support from major venture capital and all marketing was very successful.

Evgeny, I don't know if you have a direct relationship with Movement, can you help us explain all of this? How common is this situation in market-making agreements? What is special about it compared to normal market-making agreements? Help us understand what happened.

Robert: Before that, I want to disclose that Robot Ventures is a very small investor in Movement, and we know nothing about any contracts or market-making matters, nor have we participated in them.

Evgeny: This agreement is very non-standard for the market.**

Typically, a standard market-making agreement would include some key performance indicators (KPIs), such as normal operating hours for market making, how much capital needs to be invested, etc. These are the responsibilities of liquidity providers and market makers. Accordingly, they would receive some incentives. Market makers usually gain some benefits from this, and ultimately at the end of the agreement, they can replace token loans with stablecoins or dollars and return them to the agreement at a certain exercise price, which is usually 25%, 50%, or higher than the current price. This is the typical way of operation.

However, this contract is very non-standard because it lacks options or similar mechanisms. Essentially, it has a very strange incentive mechanism to drive up the token price because once it exceeds $5 billion, the agreement and the market maker will split the profits.

The Real Operation of Crypto Market Making

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

Haseeb: Typically, if you have a token, you can launch it on a decentralized exchange (DEX) or through other similar platforms, which means you are actually providing liquidity. However, when you want to list on exchanges like Coinbase or Binance, you can't just launch the token and expect people to trade it.

These exchanges need to ensure liquidity for trading. This means there must always be someone willing to buy and someone willing to sell. Typically, this role is taken on by market makers. Therefore, token issuers usually enter into agreements with market makers like Wintermute. These agreements stipulate that market makers need to provide a certain level of liquidity, such as maintaining the bid-ask spread.

In exchange, market makers are compensated because they need to take on risk and invest capital. Typically, the project party will lend tokens to the market maker so they can perform market-making operations, and the market maker will receive corresponding compensation. Sometimes this compensation is cash, and sometimes it is an option structure, so if the token performs well, the market maker can retain some tokens at a predetermined price, which is usually higher than the price at which the token first lists.

Why aren't all market makers incentivized to drive up the token price? You have an option structure and an exercise price. Why isn't your motivation to raise all prices?

Evgeny: You could say anyone has that incentive. I understand why people think market makers have the motivation to drive up the price of protocol tokens; the key is how strong that incentive is. In our case, we might receive about 0.5% of the token supply, but usually lower. Now this ratio has significantly decreased, and it actually depends on the market cap of the protocol.

But even if you, as a market maker, have such an option structure, you still need to keep the price high before the contract expires because in these contracts, at least in the ones we participate in, if you as a market maker do not display buy and sell quotes according to the procedure, the token issuer can cancel the entire contract, and then you have no options left; you have to try to sell the tokens you hold, which could lead to a price drop. Therefore, this incentive must be strong enough to drive prices up while also allowing for realization later.

In the case of Web3 Port, there is a very obvious incentive to sell when the market cap exceeds $5 billion, but there is also another indication that provides a significant incentive for market makers. Large amounts like $60 million or $100 million, which absolutely would not happen in our case because that is a huge amount. Even if the protocol gives you 5% of the token supply, as a market maker, profiting from the trade, this $60 million if you invest in perpetual contract strategies or market-making strategies, will incur real costs. If you use protocol tokens as collateral and provide a huge amount like $60 million, you have additional incentives to drive the price up and sell as many MOVE tokens as possible to get that money back. Otherwise, you are losing money every day because you have to bear the cost of that capital.

Was it manipulated from the start?

Haseeb: We are now discussing a very suspicious market-making agreement, which is not a normal market-making agreement structure. How common is this situation? How many market makers would adopt such operational methods? And how many projects would be linked to these types of agreements?

Robert: For example, what if a new market maker you've never heard of suddenly appears? Is it easy to create a market maker, shut it down, and then rebrand it? What’s the story here?**

Evgeny: It is possible. However, there are many market makers operating in Asia, but they do not publicly promote themselves, so it is hard for us to notice them. I know Kelsey Ventures, but before this scandal broke, hardly anyone knew of their existence. What interests me is that I thought I had a grasp of all the important market makers, yet new faces keep emerging and getting involved in various operations.

I believe such agreements are very rare in legitimate projects. But if we look at tokens that are only listed on second or third-tier exchanges and have never entered mainstream exchanges like Binance or Coinbase, I believe similar things may still be quite common in those places.

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

Robert: My first reaction was that this kind of thing actually happens quite often; it's just that the public doesn't always know what goes on behind the scenes. There may be more dramatic events happening every day, but they don't reach the level of exposure like CoinDesk. When I read this information, I felt it was almost like a farce. I wonder how many similar farces are going on in the current market environment. Some market makers might be doing crazy things, while project teams lack negotiation experience, leading to agreements filled with unreasonable terms and incentive mechanisms. It's truly a disaster. However, I feel that the public now has a better understanding of how market makers operate, and I hope to see more transparent reporting on the actual situation in the future, as the current level of transparency is simply too low.

Evgeny: But I want to add that it is difficult for market makers to operate without agreements. So those parties claiming "we didn't know it worked this way," I believe in most cases, are not credible. In this situation, they do know.

Tom: The Movement case is strange; it is not a top project, but it is also not a completely unknown small project. The project has some highlights, and there should be someone behind it saying, "This is not right; this does not meet the standards." But the team may have caused these issues due to a lack of experience.

This reminds me of the venture capital era before the YC Safe emerged. At that time, every VC had its own convertible terms, and during negotiations, they would include very harsh terms, 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. However, market making is still in a state similar to the pre-Safe era. If you understand the rules, you might negotiate a decent agreement for yourself, but there is no industry standard.

Haseeb: Indeed. While there are some services, like Coinwatch, that can help project teams navigate market-making negotiations, market makers are recurring participants, while project teams usually only experience a token issuance once. The first collaboration with a market maker and getting a token listed on a major exchange is one of the most important decisions regarding liquidity. Therefore, there are good market makers and bad market makers.

Sometimes, if you don't have deep connections in the crypto space or lack recommendations, it can be hard to discern who has a good reputation and who doesn't.

Evgeny: We have competitors in DeFi, centralized exchanges, venture capital, and decentralized market making, but only a handful of market makers can cover all areas.

Movement Labs and Its Industry Impact

Haseeb: Beyond the operation of the market-making mechanism itself, what stands out is the attention on the team and what prompted the founders to make such decisions. The Movement team was praised for being young, vibrant, and ambitious. Why did they choose this path? What led the founders to decide against fair competition and instead opt to sell tokens, trying to cash out early rather than focusing on delivering a real product?

They faced widespread criticism for launching tokens without a real product. As a result, there were many rumors that they relied on contractors, lacked a strong technical team, and focused more on marketing than substance. Most of these are actually rumors, and no one can provide concrete evidence of their specific actions. However, people are saying they manipulated traffic, did not conduct airdrops, and launched tokens without a real product. All of this points to potential misconduct within the project.

After discussing the post-analysis of Movement with several industry insiders, I have some questions. First, has this changed your view of startups or founders? What are the incentive mechanisms for founders in the industry? Are there really countless founders like Rushi? People are discussing these matters, but 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 I recently read an article from Coin Telegraph that mentioned market-making agreements, and I feel people may underestimate the number of lesser-known but low-quality projects in the long tail; there are indeed many such projects. As you said, those people will seek out these second and third-tier exchanges and market makers. But for such a high-profile project to launch with a market cap of $3-4 billion and go through something like this is indeed crazy.

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

Evgeny: For me, I am very sensitive to founders who are very flashy and heavily focused on marketing. But I know that in Silicon Valley, traditional VCs often like these founders because they bring energy, and I know they are very strong, which often aligns with scamming others. After these incidents, I will be more selective and cautious.

Haseeb: I want to hear Robert's perspective, but we actually did not invest in this project, not because we thought they would sell tokens to retail investors or break lock-up agreements. I don't think any founder would be seen as someone who would break a lock-up and sell tokens.

The reason we did not invest is that we felt their technology was not interesting. We thought it was just a derivative project. When I first met Rushi, I had only seen him once or twice, and my impression was that he was a very energetic, charismatic, and ambitious young man. Now, this has become a meme; Blockworks once had a promotional article about Movement that repeatedly emphasized their youth and the amount of funding they raised. People seem to think that just because you are young and have raised funds, it means you are an excellent founder.

Haseeb: How do you view the investment in Rushi?

Robert: At the A round financing stage, this kind of investment relies relatively less on the founder, but in the early stages where we invest, like the seed round, it is indeed completely reliant on the founder. We do not focus too much on the scalability of the technology and other issues, but rather on the founder's vision, their ambition, and why they have such ambition. Do I believe they can succeed?

As the stages progress, this reliance gradually decreases, focusing more on the actual progress of the project, including technological advancements and fundraising progress from investors. By the C or D round, the role of the founder is almost negligible because they have already proven themselves, and the focus is more on the actual performance of the project. Therefore, it is a gradual process, and when we invested in this project, it happened to be at this transitional stage.

Why Cryptocurrency Needs Market Maker Disclosure

Haseeb: In traditional markets, you need to disclose who your market maker is, while in cryptocurrency, exchanges know who your market maker is. Both Binance and Coinbase know. Before you apply for listing, you must provide this information. But ordinary investors and the public do not know. In my view, the ideal disclosure system is one where the information gap between exchanges and ordinary investors is virtually zero. That is, when you apply for exchange listing, the information known to the public should be consistent with what the exchange knows. I believe we should move in this direction in the future, but we are still far from this goal. I even think the terms of market-making agreements should also be disclosed. This is also what Hester Pierce mentioned in her speech, where she detailed the disclosure system for cryptocurrencies and suggested that the terms of market-making agreements should be disclosed to the public.

What are your thoughts on this system? Would you strongly oppose it, believing it is absolutely impossible, or do you think it would be a good thing? What is your take on this issue?

Evgeny: I strongly support this idea because I believe we must acknowledge that although we pretend tokens are not stocks, their behavior is very similar to stocks. For example, in an IPO (Initial Public Offering), stocks need to disclose a lot of information about market makers, investors, and various risks. Hester's speech was precisely on this topic. But we must discuss not only the issue of information parity between exchanges and retail investors but also that platform investors should have as much information as possible to make purchasing decisions. In reality, we are not achieving this.

I believe the basic content of market-making agreements, such as loan sizes and exercise prices, is crucial. As an ordinary investor, you need to know the motivations of market makers, such as their incentives to sell above a certain price. Once the price exceeds that level, there may be more selling pressure, or they may choose to hold on, but at least you are fully informed.

In fact, we once had a project that disclosed its agreements, which was World Coin from about six months ago. I remember World Coin did disclose loans, market makers, and exercise prices, but they faced a lot of criticism. People began to question why such a structure was created, as if no token had a similar situation. They received a lot of criticism for this, and I believe they did not enjoy that experience. More importantly, all founders became more cautious after that.

We can choose to disclose this information and 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 disclose, you will be attacked.

Robert: So if disclosure is voluntary, it actually creates a balance where no one discloses. Under a mandatory disclosure system, everyone must disclose, just like how registered securities operate.

Do you think we need such requirements to achieve a shift, or do you think it can be prompted through some self-regulatory steps to encourage issuers to disclose market maker information?

Evgeny: I have thought about this issue; typically, we can organize a meeting like some companies do, reach a consensus, and decide to disclose information. I believe for those market makers, disclosing information is ultimately very beneficial. I think it will help normalize the market because it is all about creating standards. Once these standards are established, other market makers will be forced to follow them or choose not to participate. Therefore, without SEC's mandatory requirements, this is indeed very difficult.

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

The second channel is through venture capital firms. Because there are a small number of high-reputation venture capital firms that can come to an agreement to implement a standard disclosure system, requiring their portfolio companies to make these disclosures. This acts like an additional agreement.

The third channel is through the market makers themselves. Those reputable market makers who are not afraid to publicly disclose their market-making agreements can decide that we collectively agree that if you work with a market maker that does not disclose, that is suspicious.

The issue with market makers agreeing to do this is that if there is no mandatory requirement to disclose all market-making agreements, you might only have one or two market makers who are not doing anything wrong, while there are projects like Web3 Port. For example, Rushi may not only have one market maker; they may have multiple, and one of them could be the seller.

I believe some uniformity is needed to address this issue, ensuring that all market makers are disclosed and that exchanges are aware. Because exchanges can see who is trading the assets and who is providing liquidity. Therefore, you cannot operate in front of an exchange without them knowing. So if you are Binance or Coinbase, you are a major liquidity provider for an asset, and ultimately you are also the main executor.

The last option is to wait for the SEC to do this. But I think the SEC will take too long, and ultimately the disclosure system will not be in the form we want. If we proactively create a disclosure system that suits us, it will be more beneficial for the industry. If you try to synchronize it with traditional securities, you will encounter two problems. One is that you will get a lot of useless disclosures that no one cares about, purely formal or some unimportant disclosures. The second is that you cannot balance the cost of disclosure with the value of disclosure well.

Finally, there is a viewpoint that whether disclosure essentially means you agree that tokens are securities. I think it is worth exploring this idea in advance, that disclosure is beneficial for anything. Making disclosures is always good; it does not mean you are a security or not a security. Many things that are not securities also disclose relevant information.

Therefore, ultimately, more disclosure is good. We can say this is unrelated to securities; it is just the way you want to be listed on an exchange. If you want to be listed on an exchange, you must make these disclosures. This is unrelated to securities law and does not mean that this thing is an unregistered security.

When a token is ready to be listed, there is always a major counterparty involved in the negotiations, possibly a foundation or another entity holding a large number of tokens. Even if they have no direct relationship with the project, there is usually someone on the other side of the exchange, possibly just acting as a "representative." Even if the agreement is fully decentralized, this person may still be the one pushing for the token's listing. Regardless of whether this person is the so-called "issuer," they need to be responsible for providing some necessary disclosures to help the token get listed 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 ordinary investors. Events like this will ultimately undermine confidence in the entire token industry.

Evgeny: It is not just market-making agreements that need disclosure; there are many other important things, such as significant transactions. If any substantial transaction is involved, it needs to be disclosed.

Robert: This relates to whether people are willing to buy and sell a certain asset. We have finally reached a point in this industry where certain information is starting to be disclosed to everyone. For example, the token unlocking schedule, which did not exist a few years ago. Everyone is discussing this schedule, but there are also the cost bases for investors, such as the sources of their investments.

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

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

Do market makers control token prices?

Haseeb: There has been a lot of discussion about market makers recently, especially regarding the Movement Labs incident. As a venture capitalist, I feel somewhat relieved because in the past, people always viewed venture capitalists as the "bad guys," and now it seems people are more inclined to see market makers as the "bad guys."

So, can market makers really control token prices? How can we trust that you are not manipulating token prices? What is the extent of market makers' influence on the market? For those who say, "When Wintermute participates in market making, the token price drops," what are your thoughts?

Evgeny: Now market makers have become the new "bad guys." This is actually a cyclical phenomenon. In a bull market, people think market makers are driving up prices; in a bear market, people feel market makers are pushing 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: Market makers play very different roles in different market cycles.

Evgeny: Many times, people just want to find someone to blame rather than deeply understand the mechanisms of market structure and liquidity operations. In fact, much of the discussion about market makers is based on misunderstandings. For example, some believe that we sell tokens after acquiring them from Binance to push down prices, allowing Binance to profit from liquidations. This logic is flawed because both we and Binance profit from ordinary investors.

Haseeb: So you do not want ordinary investors to lose money?

Evgeny: Of course, we hope ordinary investors do not lose money as much as possible. In the past few months, the liquidation situation for ordinary investors has been severe, leading many to exit the market. January was a good month for us, but February, March, and April were not so good.

Haseeb: When ordinary investor activity decreases, the attractiveness of market making also declines. How is your liquidity now?

Evgeny: It is not linear. If trading volume drops by 50%, our revenue will not decrease by 50%, but rather more than that.

Haseeb: Does this relate to the volatility of the crypto market? 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 trading platforms, and we buy and sell between different platforms. The issue is that if a large liquidity fund suddenly enters and starts buying a certain token, it can quickly push up the price, which is difficult for us to handle.

Haseeb: In that case, how are your losses?

Evgeny: About 50% of our contracts will incur losses.

Robert: But can your profitable contracts offset the losses from the losing contracts?

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

Haseeb: So, regarding the issue of options structures, does this exist in traditional finance as well, or is it unique to the crypto market?

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

Haseeb: Why has the crypto market developed in this way? Do you think it relates to the cash flow and volatility of tokens?

Evgeny: That makes sense. The evolution of the market may be due to the high volatility of tokens, leading market makers to prefer to obtain profits through options structures. As the market develops, token pricing becomes more efficient, volatility decreases, and in the future, it may resemble traditional market making more closely.

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

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

Crypto Market Structure Bill: What Are the Stakes?

Haseeb: Recently, a new market infrastructure bill has been introduced. 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 clearly defines digital assets and tokens, specifying under what circumstances tokens are considered securities or non-securities. The CFTC (Commodity Futures Trading Commission) will be responsible for the spot market of non-security tokens in the crypto space, while the SEC (Securities and Exchange Commission) retains enforcement authority over capital raising and fraud. Additionally, projects can raise up to $150 million in tokens each year, provided they plan to decentralize. Unlike the previous "code decentralization test," a so-called "maturity test" has now been introduced, where the standard for mature blockchain protocols is decentralization and/or autonomy, requiring that no one controls more than 20% of the voting rights, and that their value primarily derives from the programmatic functions of the blockchain system. This definition is somewhat vague; I do not fully understand its boundaries, which may be intentionally designed to be ambiguous, but it is not clear how a team or group controlling this system fits in. There are many issues in the crypto market regarding multi-signatures, security committees, and upgradability, and it is unclear how these intersect with so-called immature blockchain protocols. The bill also postpones regulation of DeFi (decentralized finance), and the current definition of DeFi is relatively narrow.

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

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

As an outsider, I estimate the chances of this bill passing to be around 40% to 50%. This is a cyclical estimate. Because we have about a year and a half until the next election, which will reset the game rules. Therefore, if it is to pass, it may happen in the short term.

The progress of stablecoin legislation will provide important insights into the likelihood of passing market structure legislation. If stablecoin legislation reaches a conclusion, the Senate finds a version they like, and the House generally accepts it, then this will be beneficial for market structure. If the House says they do not like the Senate's version and needs to be revised, then this will be detrimental to any crypto legislation. Therefore, if you want to know the outcome of market structure, start with stablecoins.

Haseeb: We have already seen the Democrats starting to express significant opposition to this bill, mainly due to the Trump family's dealings. This situation seems to indicate that it will be difficult for us to reach a meaningful compromise legislatively. Evgeny, how much time have you invested in this bill? What impact do you think it has on your industry?

Evgeny: I haven't read the bill in detail, but we will definitely provide feedback on it. Because we have deep connections in the crypto space. I noticed that the CFTC (Commodity Futures Trading Commission) seems to have more power than the SEC (Securities and Exchange Commission), and I am still pondering whether that is appropriate. Personally, I lean towards the existing SEC structure, so my intuition is that if more power is to be granted, it should go to the SEC.

We need to look at the specifics of the law. If the law merely outlines the rules broadly and states who is responsible for enforcement, then it is not very significant.

Haseeb: I think that is very important. One thing we have learned over the past four years is that you can do a lot within the boundaries of the law, and these things are not always clear. We are facing a similar situation now.

Evgeny: I feel that having a clearer legal framework would be better.

Haseeb: Yes, while this 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 provisions.

Tom, what do you think about the market infrastructure bill?

Tom: I think it is still early, and I haven't spent much time on it, but it reminds me of how difficult it is to draft well-structured crypto legislation. It is always either too specific or not specific enough, ultimately leading to an undesirable solution. This applies not only to crypto legislation but also to general legislation, but the changes and ambiguities in the crypto market make this issue more pronounced.

Can we fix the problems before a crypto crash?

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

Robert: There is some truth to this perspective, but it is not entirely correct. Forty years ago, the SEC led by Gensler could have established rules for the industry through exemptions, frameworks, and various interpretations, but that did not happen. The future SEC or CFTC can also do this. They do not need legislation to create trading frameworks for different securities or assets; they already have the power to establish these frameworks. This does not necessarily have to come from congressional intervention. Therefore, even if Congress does not take action, it does not mean everything falls on us.

Haseeb: I think that is not entirely correct. The SEC has clearly stated that they do not have authorization from Congress. This is what Gensler initially said, and it is what the new SEC is saying: Congress needs to take action to give us clarity; otherwise, who will regulate?

Both the SEC and CFTC have stated that Congress's position is very clear. The debate over the bill means that no one has clear authority. Without clear authority, the SEC will say, "We should not make rules." This creates a regulatory void.

Robert: But they can regulate through formal and informal rule-making. They have been issuing many interpretive statements about different projects. While this is not ideal, they are indeed doing something.

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

Evgeny: Our most basic understanding, such as Bitcoin not being a security, was not confirmed by Congress through legislation but was a decision made by the SEC.

Haseeb: So you can say, "I think this is outside my regulatory scope." But I believe the SEC will not say, "These things are not securities; this is how they should operate." You cannot do both at the same time. If they are not securities, then they are outside the SEC's regulatory scope. If you say certain tokens should be classified as securities, then you have already concluded that the SEC is no longer the regulator for non-securities.

So will the CFTC step in? Will they say, "Okay, we will make rules requiring you to disclose this and that"? I have not seen the CFTC take action in this regard. Maybe they will, but for now, both agencies are saying they are waiting for Congress to act, and the authority differences between the two are also constantly changing. If Congress does not take action, it means Congress deliberately does not want to legislate. This means the crypto industry will continue to remain unregulated.

So I really believe that as an industry, we have a responsibility to address this issue, not only for the potential regulatory frameworks that may be introduced in the future but also for our own interests. We need to reduce market volatility and enhance consumer confidence in token listings. People need to know whether the listed tokens are trustworthy and will not be dumped by unreliable market makers.

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