Introduction
The nation’s largest labor federation has launched a fierce opposition to the Senate’s flagship crypto legislation, warning it creates dangerous loopholes while providing only superficial oversight. The AFL-CIO argues the Responsible Financial Innovation Act weakens consumer safeguards and exposes workers’ retirement funds to unnecessary risk, drawing parallels to the conditions that led to the 2008 financial collapse. The dispute emerges as Senate Republicans push for a November floor vote on the controversial legislation that would fundamentally reshape how traditional financial institutions interact with digital assets.
Key Points
- The bill would allow FDIC-insured banks to directly hold and trade cryptocurrencies, potentially putting taxpayer-backed insurance funds at risk
- Provisions enable tokenized securities to bypass traditional SEC oversight, creating what critics call a 'parallel market' with weaker regulation
- The legislation would permit retirement plans including 401(k)s and pensions to hold crypto assets, increasing worker exposure to market volatility
Labor Federation Sounds Alarm on Systemic Risks
In a strongly worded letter to Senate Banking Committee leadership, AFL-CIO Director of Government Affairs Jody Calemine accused the Responsible Financial Innovation Act of providing only “the facade of regulation” while actually weakening critical consumer protections. The labor federation, representing millions of American workers, warned that the 182-page Senate draft released last month would permit FDIC-insured banks to directly hold and trade cryptocurrencies, creating what Calemine described as “heightened risk of losses and failures” for financial institutions. The union specifically highlighted concerns about the FDIC’s taxpayer-backed Deposit Insurance Fund being put at greater risk through these provisions.
The AFL-CIO’s opposition draws direct comparisons to the unregulated derivatives trading that fueled the 2008 financial collapse, with Calemine warning the bill “creates conditions for crisis.” The labor federation contends that rather than establishing meaningful oversight, the legislation would enable the crypto industry to “operate in wider and deeper ways” without sufficient regulatory constraints. This criticism comes as Senate Republicans, led by Senator Cynthia Lummis of Wyoming alongside Democratic Senator Kirsten Gillibrand of New York, race toward a potential floor vote in November.
Retirement Funds and Regulatory Bypasses Raise Concerns
Among the most contentious provisions identified by the AFL-CIO are those that would greenlight retirement plans like 401(k)s and pensions to hold crypto assets. The federation argues that “rather than insulating workers from the instability of crypto assets values, the Responsible Financial Innovation Act would increase workers’ exposure” to market volatility. These provisions, according to the union, “substantially weaken both federal and state enforcement tools” designed to protect pension funds from fraud, potentially jeopardizing the retirement security of millions of American workers.
The legislation also faces criticism for enabling what the union describes as blockchain-based “shadow stocks” that trade independently of traditional securities markets. Calemine framed this as allowing issuers to “evade SEC regulation through tokenization,” warning it would cause assets to proliferate that investors will wrongly perceive as safe. Nitesh Mishra, co-founder of ChaiDEX, echoed these concerns, telling Decrypt that “the Act does not significantly modernize oversight” and instead “codifies a separate, loosely regulated parallel market, weakening consumer protections and SEC authority.”
Industry Pushback and Political Momentum
Despite the AFL-CIO’s strong opposition, political momentum appears to be building for the legislation. Senator Lummis told CNBC last month that “we want this on the president’s desk before the end of the year,” indicating the urgency behind the Republican push. The bill would need at least seven Democratic senators to join all Republicans to reach the 60-vote threshold for passage, though a September 9 framework backed by 12 Senate Democrats signaled emerging bipartisan support despite the labor federation’s objections.
Industry figures have pushed back against the AFL-CIO’s position, with Kadan Stadelmann, Chief Technology Officer at Komodo Platform, characterizing the labor federation’s stance as fighting an inevitable shift. “The AFL-CIO will find out soon enough that its defense of the status quo will prove costly as Bitcoin continues to siphon money away from traditional investment products, starting with the types of low-return products held by retirement funds,” Stadelmann told Decrypt. He predicted that within two decades, 401(k)s and pensions will inevitably hold Bitcoin, arguing that its volatility is steadily declining in a trend that “will only strengthen in the years ahead.”
When asked what guardrails would be essential if banks were permitted to custody crypto under FDIC insurance to avoid 2008-style contagion, Mishra of ChaiDEX called for “robust on-off ramp of liquidity, transparency in the overall system, better protection from the regulatory authorities.” As the November vote approaches, the debate highlights the fundamental tension between innovation advocates seeking to integrate crypto into mainstream finance and traditional stakeholders concerned about preserving existing protections for workers and consumers.
📎 Related coverage from: decrypt.co