In this week’s newsletter, Alex Thorn brings readers up to date on the market structure legislation in the U.S. Congress; Zack Pokorny and Marc Hochstein examine the latest prediction market controversies; and Thad Pinakiewicz explains MSCI’s decision to punt on whether to remove digital asset treasury firms from its stock indexes.

📄 Market Structure Bill Set for Committee Vote

Congress’s bid to overhaul the financial system for crypto just shifted into overdrive. Just this week, Senator Tim Scott (R-SC), Chairman of the Senate Banking Committee announced a markup of the Responsible Financial Innovation Act, the Senate version of crypto market structure legislation, Senator John Boozman (R-AR) is rumored to be planning a similar markup in the Senate Agriculture Committee, and the White House began a public push to close some of the outstanding policy gaps dividing several groups of Senators.

The announcement, long in the works before the Holidays, followed a private bipartisan meeting on Tuesday between key Democrat and Republican Senators and Administration officials to negotiate final details of the bill. That meeting identified key areas of negotiation and outstanding debate items, with classification of DeFi under anti-money-laundering rules as perhaps the most consequential. Other items under negotiation include the handling of yield from stablecoin reserves, protections for non-custodial developers, and the SEC’s authority to authorize or cap token issuance. And while all this activity continues to advance this much-needed legislation, there are some warning signs that cannot be ignored. Senator Booker (D-NJ), one of the lead negotiators for Democrats on the Senate Agriculture Committee, is reportedly unhappy with the current draft, and his support is in question.

The results of next week’s committee votes – particularly whether the bills receive genuine bipartisan support – will be consequential for the likelihood of whether market structure legislation ultimately makes it to the president’s desk to be signed into law.

OUR TAKE:

Passing market structure legislation has been the crypto industry’s top legislative priority for several years. The foundation of the bill has always been delineating which types of assets are regulated by which market regulator and under which circumstances. Which assets are commodities, and which are securities? How may regulated intermediaries interact with digital commodities and digital securities (and which licenses do they need from which regulator)? How may tokens be issued and used to raise capital?

But over the last year, the market structure legislation has evolved into a bit of a Christmas tree bill, with all the various constituencies and stakeholders hanging additional policy items on it. The original questions about token classification and regulatory jurisdiction have become mostly table stakes, with most factions in agreement. Instead, more controversial items have taken center stage in the negotiations, particularly 1) how should DeFi be regulated, if at all; 2) the extent to which non-custodial developers can be exempted from anti-money-laundering and money transmitter registration requirements; 3) whether to enact stricter bans on stablecoin issuers sharing yield with token holders; 4) Treasury’s sanction power over intermediaries, whether centralized or decentralized; and 5) how to handle conflicts of interest involving government officials or their families. These issues are all important, but they are mostly not questions of “market structure” but instead a laundry list of Congress’s outstanding priorities for crypto.

The big test will be if Republicans and Democrats can come together next Thursday and advance the bills out of committee on a bipartisan basis. The Senate generally needs 60 votes to advance any measure, and with the body split 53-47, Republicans need 7-10 Democrats to vote affirmative. On June 17, 2025, 17 Democrats joined 51 Republicans to pass the GENIUS Act (Republicans Josh Hawley and Rand Paul voted “no”). Advocates for the market structure bill want to see a similar level of bipartisanship next week. Absent a strong bipartisan showing in the Senate Banking Committee vote, the bill’s odds of passing in 2026 drop dramatically. In this context, a “strong bipartisan vote” likely means that all Republican committee members vote yes and at least 2 Democrat members vote yes (likely no more than 4 Dems are possible). If it advances with 4 Democrats, it is likely the floor vote sees all 17 of the GENIUS Act Democrats voting yes, giving roll call a 65-70 vote yes count. (See the history of past related roll call votes here).

Enactment of a bipartisan market structure legislation that clearly defines token classifications, delineates regulatory jurisdictions, and protects developers and non-custodial protocols would be a major bullish catalyst for crypto adoption. If the Senate fails to advance the measure, though, the downside impact would be relatively minimal, fundamentally for the industry (though it could result in negative market sentiment). As we’ve previously written, the crypto industry has already achieved a lot of its policy objectives through a combination of administrative relief and regulatory pivots. The primary (and a very important) reasons to codify these changes into federal law are to 1) minimize the risk of future regulatory rollback and 2) provide that final leg of clarity to allow traditional investors and companies to confidently enter the space.

If the Senate falls short next week, the combination of crowded congressional calendars and looming midterm elections makes a second run in 2026 highly uncertain. Still, GENIUS Act went through several fits and starts last Spring, with several failed votes before eventually passing in June, so a failed markup doesn’t necessarily kill the bill. But the window is narrow, and it won’t be open forever. Next week will see a flurry of activity as we approach Thursday’s committee markup. – Alex Thorn

🔮 Trading on Maduro’s Capture Revives Old Prediction Market Debates

Prediction markets are back in the spotlight as two separate markets related to the U.S. military’s action in Venezuela reheated long-simmering controversies around insider trading and resolution logic.

Polymarket odds on whether Nicolás Maduro would be ousted in January started climbing late Friday, the day before President Trump announced the Venezuelan president’s capture. They surged from the 5%-6% range for most of the preceding week to 95.5% in the wee small hours of Saturday morning, according to the Wall Street Journal. News outlets that had caught wind of the planned raid sat on the story until U.S. troops were safely out of Venezuela. But the market signaled Maduro’s shifting fortunes in real time, leading to familiar speculation that traders were acting on leaked information. In response, Rep Richie Torres (D-N.Y.), a prediction market supporter, said he would introduce a bill to prohibit federal officials from trading contracts when they have or could reasonably obtain relevant material nonpublic information through their duties.

Odds also spiked on a separate Polymarket contract asking whether the U.S. would “invade” Venezuela by the end of the month, but then subsided, reflecting uncertainty about whether the capture of Maduro would count as an invasion. The market title, “Will the U.S. invade Venezuela by...?,” and resolution definition, “This market will resolve to ‘Yes’ if the United States commences a military offensive intended to establish control over any portion of Venezuela,” were slightly at odds with each other. This may have confused market predictors who only read the title without checking the market rules that dictate the logic by which the market is settled. The market ultimately did not settle, sparking criticism.

OUR TAKE:

There are two separate issues here. The insider trading question goes to the heart of what prediction markets are supposed to do. The resolution issue, meanwhile, is about how these markets are constructed.

As we wrote back in June, “paying insiders to reveal information is a feature, not a bug, of prediction markets.” Put another way, the thing that distinguishes prediction markets from purely extractive gambling is their positive externality, or byproduct: These markets induce people with valuable information to share that information with the rest of the world, expressed as prices measuring probabilities. As economist Robin Hanson, the godfather of modern prediction markets, wrote on X in response to a news article about the Maduro market controversy: “If you want accurate prices, as you may take actions based on them, then it's good that people make money by making prices more accurate.” It may not be fair to other market participants, but it’s arguably a more salubrious outcome for the news-consuming public.

Even if you care more about market fairness than price accuracy, those on the hunt to expose bad actors should be careful of false positives. Some X accounts are creating “insider trader detection bots.” Many of them label activity suspicious on the basis of “first-time traders” with size, “low activity” addresses, addresses buying longshot odds with size, and timing analyses. But detecting true insider trading requires a multi-dimensional analysis combining onchain and offchain information. Timing alone is insufficient evidence of mischief in liquid and highly watched markets; and the generation of new addresses for individual trading strategies is common privacy practice. The burden of proof is on the accuser, and sometimes coincidences do happen. Most social media chatter relies narrowly on onchain information, with limited justification beyond that. This controversy was sparked by one user who generated $409,882 in gains between the two markets.

Another persistent point of controversy is the logic by which prediction markets are resolved, i.e. settled. This pertains to the verbiage and definitional nuance that specify the markets, not the infrastructure (e.g. oracles) and other mechanisms and procedures that pass information into the markets themselves (oracles and related infrastructure also have received criticism but that’s separate from the contentious point of the Venezuela invasion market).

In Polymarket's “Will the U.S. invade Venezuela by...?” market, the definition of “invade” was the issue. The market rules stated:

This market will resolve to “Yes” if the United States commences a military offensive intended to establish control over any portion of Venezuela between November 3, 2025, and January 31, 2026, 11:59 PM ET. Otherwise, this market will resolve to "No.”

So, while the U.S. military had boots on the ground when it captured Maduro, it did not “establish control” or move in with the purpose of establishing control over Venezuelan territory, Trump’s bluster notwithstanding. It simply moved in, captured Maduro, and left. While ambiguous definitions have created genuine problems for prediction markets in the past, in the case of this specific market, the definition was quite clear and the pushback on its lack of resolution feels forced.

The issue historically with prediction market resolution logic is twofold: 1) market rules are sometimes ambiguous and up to interpretation, or don’t line up with market titles, and 2) some market predictors just read the market title and make their own assumptions without reading the market rules. Addressing these problems requires some change, but only so much of the change is under the prediction market platforms’ control. Markets need to have as airtight definitions as possible that limit room for subjective interpretation and the titles need to most accurately reflect the resolution logic. Not only would such clarity help with gracefully resolving markets, but it can also improve the market signal by helping predictors more accurately forecast outcomes (the more straightforward the market definition, the clearer the output people are predicting). This is something prediction market platforms can and should control. As for market predictors not reading the market rules, there is only so much that platforms can do to solve for this. It is on the individuals in the market to do their due diligence before making bets. Perhaps prediction market platforms can require them to view the market definition before predicting (similar to how some platforms force users to view and scroll through terms of service), but even then, some users will still simply accept without actually reading anything. – Marc Hochstein and Zack Pokorny

📈 When Passive Indexes Start Asking Active Questions

This week MSCI gave digital asset treasury operators and owners a few months of respite, delaying a rule change that would have removed them from its indices. MSCI extended the comment period for the proposed rule change that would have reshaped how public companies holding large amounts of digital assets are treated in major equity benchmarks. What was supposed to go live on Jan.15, after a brief comment period, has been punted to a future quarterly meeting, with more thinking, consultation, and nuance.

For those lucky enough not to think about indexes for a living, MSCI is one of the world’s most influential index providers. Trillions of dollars in index funds are allocated based on MSCI’s benchmarks, meaning a technical eligibility tweak can have a drastic effect on a stock’s performance. That’s why the proposed rule change focusing on digital asset treasury companies raised eyebrows well beyond crypto Twitter.

MSCI’s original proposal would have made it impossible for firms whose primary, non-operating assets are cryptocurrencies to be index members. MSCI’s logic was straightforward: once the balance sheet becomes the business, it starts to look less like an operating company and more like an investment vehicle. MSCI drew its initial line at 50% of balance sheet assets as the upper limit for index membership, but it has changed its tone after industry consultation.

That framing did not sit well with Strategy (formerly MicroStrategy), the poster child for Bitcoin-as-corporate-treasury and the company most notably threatened by the proposal. In Strategy's response to MSCI, it argued that the rule change misunderstood corporate finance and Bitcoin itself. The company warned that excluding firms based on treasury composition would be “arbitrary and inconsistent with how operating companies are historically evaluated,” and cautioned that treating Bitcoin holdings as evidence of non-operation risked creating a bespoke rulebook for a single asset class. In other words: if cash, gold, or foreign currency reserves don’t disqualify you from being an operating company, why should Bitcoin?

MSCI heard the industry complaints, and in delaying the rule change said it needed more time to study the issue, noting that “distinguishing between investment companies and other companies that hold non-operating assets, such as digital assets, as part of their core operations rather than for investment purposes requires further research and consultation with market participants.” The firm added that eligibility assessments may require “additional inclusion assessment criteria, such as financial-statement-based or other indicators.”

OUR TAKE:

This isn’t truly a win for DATs. The can has only been kicked down the road. Still, the delay signals that MSCI’s analysis is taking a principled approach in the rulemaking process and not creating rules as a knee-jerk response to the flurry of DAT formation of 2025. The index provider acknowledges that this question doesn’t stop with digital assets. If the issue is “non-operating assets,” logic dictates to look outside the single asset class of cryptocurrencies. What about companies that primarily hold stakes in other public firms? What about royalty companies, IP holding companies, SPAC remnants, or balance-sheet-heavy vehicles that exist to warehouse cash while waiting for opportunity? Once you classify intent instead of activity, indexes begin to move from measurement toward judgment.

Indexes like to present themselves as neutral mirrors of the market, but moments like this reveal them as governance structures with philosophical commitments about what a “real company” is supposed to look like. MSCI’s delay suggests it knows the stakes: redefining eligibility around “non-operating” assets doesn’t just tidy up crypto edge cases, but opens a much larger debate about whether, and how much of, balance sheets are allowed to be strategies. And once you ask that question, you realize you’re no longer indexing markets so much as refereeing them. – Thad Pinakiewicz

Charts of the Week

Daily volume on PumpSwap, the decentralized exchange for memecoins launched on Pump.Fun, reached a new all-time high this week, challenging the increasingly common narrative that “memecoins are dead.” While the memecoin landscape is nowhere near as active as it was during last year's $TRUMP coin saga, onchain trading behavior suggests speculative demand remains, and can quickly be reignited during periods of broader market relief. PumpSwap’s surge indicates that retail-driven token trading (particularly around new launches) continues to generate substantial volume on the Solana blockchain.

Solana trading bot daily volume (measured in U.S. dollars) has also accelerated sharply. Bots remain a core component of the Solana trading stack (something Galaxy Research wrote about in our memecoin survey last year), particularly for token launches where execution speed matters.

Further evidence of memecoins’ staying power: The White Whale token ($WHITEWHALE) recently surpassed a $100 million market capitalization on Solana. Fewer and fewer tokens have been reaching these valuations (since $MOODENG, $JELLYJELLY, $PNUT, $TROLL, etc), so the cetacean-themed coin’s feat may help to re-ignite “the trenches.” – Will Owens

Other News

• 🇿 Zcash dev team from Electric Coin Co. spins out into new entity in governance dispute

• 🏦 Morgan Stanley files for BTC and SOL ETFs, plans digital wallet for RWAs

• 🇺🇸 Trumps’ World Liberty seeks a U.S. banking license

• 🔷 Ethereum raises data capacity in latest scaling tweak

• 🇬🇧 U.K. megabank Barclays buys stake in stablecoin firm Ubyx

• 🤝 Fireblocks acquires crypto accounting platform TRES for $130m

• 👔 JPMorgan to issue JPM stablecoin directly on Canton Network

• 🤠 Wyoming issues first U.S. state-backed stablecoin on Solana

• 🐊 Florida lawmakers renew push for state bitcoin reserve

• 🪙 a16z invests $15m in ‘DeFi on Bitcoin’ project Babylon