House Republicans Introduce Draft Bill for Crypto Regulation Framework
By: Eliza Bennet
On May 5, 2023, House Republicans unveiled a discussion draft aimed at establishing a federal framework for the regulation of the cryptocurrency industry in the United States. This new draft, led by the leaders of the House Financial Services and Agriculture Committees, marks a significant step towards coordinating regulatory responsibilities between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The initiative seeks to clarify legal definitions within the blockchain and crypto markets, thereby creating a durable framework to protect consumers while nurturing the country's leadership in digital innovation.
The legislation introduces critical definitions for core industry concepts such as digital commodities, blockchain systems, and decentralized governance. This initiative is a key building block towards clearer regulatory paths, offering assurances that distributions achieved through mining, staking, or user rewards are classified as "end user distributions," and are not considered securities or sales under existing laws. Furthermore, the draft bill seeks to manage the issuance of digital commodities by redirecting registration responsibilities for exchanges, brokers, and dealers to the CFTC, while the SEC retains authority over securities and hybrid assets.
An important aspect of the draft is its potential role in reducing the dominance of large crypto firms, as highlighted by the recent discussions led by Paradigm executives. A notable provision requires crypto project members to disclose token holdings exceeding 1% of the total supply, a decrease from the previous threshold of 5%. This rule aims to democratize the crypto market, promoting more participation from smaller entities. Moreover, the bill preserves protections for decentralized finance (DeFi) protocols and self-custody, while excluding specific DeFi trading protocols and messaging systems from traditional financial regulatory oversight, provided they do not manage or exercise discretion over user funds.
To further advance the legislative process, a joint hearing titled "American Innovation and the Future of Digital Assets: A Blueprint for the 21st Century" is scheduled to consolidate formal legislative discussions and gather stakeholder input. This draft framework aspires to end the regulatory ambiguity enveloping the U.S. crypto industry, thereby ushering in a golden age of clarity for developers and users, and fortifying the U.S. as a global hub of crypto innovation.
