HOUSE COMMITTEES ON FINANCIAL SERVICES & AGRICULTURE
For questions on the note below, please contact the Delta Strategy Group team.
On May 5, the House Committees on Agriculture and Financial Services jointly released a discussion draft of digital asset market structure legislation. A section-by-section analysis is available here, and the one-pager is available here.
On May 6, the House Agriculture Committee Subcommittee on Commodity Markets, Digital Assets, and Rural Development and the House Financial Services Committee (HFSC) Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence held a joint hearing turned roundtable due to Ranking Member Waters (D-CA) procedural objection as she called for Democrats to join her separate “shadow hearing on Trump’s crypto corruption.” The Republican Subcommittee proceedings entitled, “American Innovation and the Future of Digital Assets: A Blueprint for the 21st Century,” continued as a roundtable not subject to unanimous consent from the Committee. Witnesses in the hearing were:
- James Rathmell, General Counsel, Haun Ventures
- Alex Miller, Chief Executive Officer, Hiro Systems
- Daniel Davis, Partner and Co-Chair of Financial Markets and Regulation, Katten; Former General Counsel, Commodity Futures Trading Commission
- Greg Tusar, Vice President of Institutional Product, Coinbase
- Honorable Rostin Behnam, Distinguished Fellow, Psaros Center, Georgetown University; Former Chairman, U.S. Commodity Futures Trading Commission
Below is a summary of the hearing prepared by Delta Strategy Group. It includes several high-level takeaways, followed by summaries of opening statements and discussion.
Key Takeaways
The following is a summary of the main topics explored in the hearing, with further details in the Discussion section below.
- Republicans, led by HFSC Committee Chairman Hill (R-AR) and HFSC Subcommittee Chairman Steil (R-WI), emphasized that the lack of a defined framework is leaving innovation in regulatory limbo and detracting from U.S. global competitiveness, as they cautioned against inaction in lieu of a legislative solution. They warned that without bipartisan legislation, the U.S. would continue losing innovation, capital formation, and consumer protection to more regulatorily-responsive foreign jurisdictions. Witnesses agreed that the absence of a clear regulatory regime in the digital asset space harms consumers, investors, and innovation, calling for a pathway that provides clarity and fosters innovation over pushing it offshore due to regulatory uncertainty.
- HFSC Chairman Hill described the environment under the Biden administration and former SEC Chair Gensler as one of “regulation by enforcement,” which failed to produce workable rules or clear paths to compliance. He reiterated that both regulatory certainty and stablecoin legislation are equally vital for digital asset market development, calling the recently released discussion draft a “precursor” of the principles outlined in the Financial Innovation and Technology for the 21st Century Act (FIT21) and as a foundation for meaningful reform. He outlined that both the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) need clearly delineated but complementary roles, and that dual registration should be expected where intermediaries operate in both securities and commodities markets. Miller supported the draft’s clear regulatory delineation, particularly the recognition that pre-selling tokens to fund network development may fall under SEC oversight, while ongoing trading of decentralized digital commodities and spot market oversight should fall under the CFTC.
- HFSC Subcommittee Chairman Steil described the discussion draft as a strong step toward resolving token classification and establishing harmonized oversight across the SEC and CFTC to ensure U.S. market competitiveness and leadership in innovation. Davis emphasized that Section 202 of the drafted proposal correctly classifies digital asset secondary market transactions as commodities, placing them under CFTC jurisdiction rather than existing SEC securities exemptions. He noted that this interpretation aligns with judicial precedent and provides needed clarity to reduce interagency conflict. Rathmell praised the draft for recognizing that digital assets are not static and evolve beyond initial capital raises, as he criticized the SEC’s 2019 guidance and its sixty-factor framework determining whether a digital asset is a security for being overly complex and unworkable.
- House Ag Subcommittee Chairman Johnson (R-SD) raised why the CFTC is best suited to regulate the digital asset spot market, with Davis outlining the Commission’s significant technical and regulatory expertise developed from early engagement with digital assets. Davis emphasized that self-certification requirements, which necessitate ongoing oversight and active monitoring, have given the CFTC substantial visibility into how the underlying spot markets function. He highlighted how the practical experience of twenty digital assets currently trading or self-certified on CFTC-regulated platforms, combined with the Commodity Exchange Act’s (CEA) core principles-based framework, equips the CFTC to address fraud, manipulation, and cybersecurity risks while maintaining room for innovation.
- Tusar discussed how the CFTC’s flexible, risk-based regulatory model is well-suited to the digital asset ecosystem and can support the development of modern exchange infrastructure while incorporating essential investor protections under the CEA. He noted how a parallel framework to Regulation Alternative Trading System (ATS) for digital assets under the CFTC would support market evolution and address the unique features of crypto, such as instantaneous settlement and the absence of traditional credit risks. He emphasized that a parallel framework to ATS for digital asset commodities under CFTC oversight would reduce market opacity and fragmentation as well as harmonize expectations across digital securities and commodities.
- Former CFTC Chairman Rostin Behnam called for a principles-based oversight model subject to the CEA, coupled with a permanent fee-for-service funding mechanism applied solely to digital asset registrants to avoid draining broader agency resources. He stressed the need for mandatory disclosure requirements to ensure investors have access to critical information, the formal recognition of self-regulatory organizations (SROs) to enhance market supervision, and broad authority for anti-money laundering (AML), know your customer (KYC), and customer identification program (CIP) compliance. He highlighted that exclusive jurisdiction should be complemented by enhanced cross-agency collaboration through mechanisms like portfolio margining and netting, cautioning that blurred lines could spill over into other markets, including agriculture and energy.
- When questioned by Representative Huizenga (R-MI) on the largest detriment due to the lack of regulation, Rathmell noted his largest concern as the loss of U.S. innovation, while Miller warned of a complete loss of global competitiveness. Davis cautioned that the industry would be forced to fight legal battles in court rather than develop in the U.S., and Tusar emphasized the loss of U.S. capital and talent. Behnam added that without legislation, fraud in the digital asset markets would continue unchecked, posing risks to U.S. financial markets and their integrity. Representative Rose (R-TN) emphasized that a key objective of any digital asset market structure regulation should prioritize putting more traditional entities on an equal playing field with crypto native firms.
- Rathmell noted that early-stage startups with limited capital are forced to divert critical resources toward legal analysis, expending resources on attorneys to interpret ambiguous regulatory signals rather than focusing on building innovative technologies. He argued that the lack of a clear, fit-for-purpose exemption for digital assets under current securities law undercuts legal certainty and stifles innovation, reinforcing the urgent need for legislative clarity.
SUMMARY
Opening Statements and Testimony
Agriculture Committee Chairman GT Thompson (R-PA)
Our Committees have worked together on legislation, writing rules of the road for digital asset markets, with FIT21 as a great example of what can happen when we work together. Unfortunately, today is an example of what happens when we cannot work together, winding up with a second-best solution. We have a rare opportunity to make law this Congress and to be the authors of legislation which will change the way we use the Internet and how we interact with digital commodities.
HFSC Chairman French Hill (R-AR)
FIT21 is the precursor of our work today and we have turned the page, approaching it in a fresh way and remaining open to examining the potential to go in a different direction. In the absence of safeguards and regulatory certainty, consumers, digital asset firms, and developers are stuck in regulatory limbo and bad actors will continue to flourish. Inaction is not a solution.
HFSC Subcommittee Chairman Bryan Steil (R-WI)
Legislative solutions are needed to close existing regulatory gaps that continue undeterred. This draft legislation is simply too important not to engage in an open, public discussion about how the U.S. can lead in the Web3 era. We need robust, nonpartisan engagement. Innovation has not followed a straight line. Outdated regulatory frameworks and a “regulation by enforcement” approach, particularly under former SEC Chair Gensler, have stifled clarity, pushed jobs, investment, and leadership offshore, and exposed consumers to greater risk from fraud and mismanagement. Congress has both the opportunity and responsibility to act and pass comprehensive, bipartisan legislation that provides clarity and fosters responsible innovation.
HFSC Subcommittee Ranking Member Stephen Lynch (D-MA)
Every detail of President Trump’s crypto dealings contains a conflict of interest. “World Liberty Financial has eviscerated the boundary between private enterprise and government policy in ways without precedent in American history.” Last Thursday during in a meeting in Dubai, Trump’s WLF made a deal with a Dubai investor to contribute $2 billion that will benefit the Trump family.
House Agriculture Subcommittee Chairman Dusty Johnson (R-SD)
We must delineate the jurisdictional boundaries between the CFTC and SEC to reduce fragmentation, minimize duplication, and enhance regulatory coordination. We learned about projects that can enhance the lives of everyday Americans, such as from Mike Horton and GEODNET’s efforts to create an accessible, worldwide precision mapping network. People are solving real-world problems and found digital assets could help them do it, but it is made possible by blockchain technology and digital assets. The legal discussion only matters if we get it right to empower entrepreneurs and encourage innovation. If we provide clarity on how to build with digital assets, people like Mike will create services that improve our country.
House Agriculture Subcommittee Ranking Member Don Davis (D-NC)
The future of American innovation depends on our ability to lead in the digital economy because digital assets and blockchain technology are not passing trends, they are foundational technologies with the potential to revolutionize. Our leadership in this space is not guaranteed, and we must work to ensure the U.S. remains a global leader. Other countries are moving quickly to attract talent, capital, and infrastructure. If we do not act with vision and purpose, we risk ceding that leadership, and with it, the value that defines our markets.
Agriculture Committee Ranking Member Angie Craig (D-MN)
We need to be engaged and part of the discussion to find on the rules of the road for crypto because we have a responsibility to be part of the solution. If we are successful in working together, legitimate enterprises will innovate and thrive, and consumers and retail investors will be protected. If we fail to find a bipartisan solution to these pressing questions, we will witness more scandals and consumers will be left without the protections they so clearly need.
James Rathmell, General Counsel, Haun Ventures
Crypto, or cryptographic primitives with economic incentives, has the potential to modernize financial infrastructure and digital ecosystems. With new primitives, money, assets, and markets can become instantly transferable and are accessible, programmable, and auditable. Innovators want to build and expand in the U.S., but they need clarity to do so. They do not need special treatment, just consistent rules that reflect how these systems work. A digital asset is not inherently a stock, currency, or investment contract; it is a computing primitive that evolves over time and serves multiple purposes depending on the context. We need legislation that accounts for the unique properties of digital assets and evolves with them. Existing laws as inadequate to meet the present need. A token might start its life primarily as a mechanism for capital raising, with the initial transactions involving security-like characteristics, may evolve to primarily serve other functions as adoption grows. This evolution is not incidental and is the explicit goal of many projects which aim to decentralize over time, becoming governed by open-source communities and secured through trustless consensus. As networks mature and decentralize, the focus can shift to market integrity and price discovery. Decentralized networks generate incredible amounts of high-resolution, real-time data, and we should be working with the private sector to ensure that on-chain data is standardized and disseminated into the market. The U.S. should lead in adopting electronic systems as we did when we built the world’s most dynamic capital markets by balancing investor protection with financial and technological innovation. If we do not take the opportunity to do that again with crypto, innovation will not wait and will simply move elsewhere. This Congress has a historic opportunity to create a blueprint that will determine whether the next generation of digital asset innovation happens here or abroad.
Alex Miller, Chief Executive Officer, Hiro Systems
We believe that for a project to have the firmest foundation to become generational, it had to be decentralized, trustworthy, and compliant with the law, so that there would be no doubt about its staying power. That is why we chose to offer STX, the token used for gas and incentives in the Stacks Network, under Reg A, so that everyone, not just the accredited investors under Reg D or the international investors under Reg S, could participate. Unfortunately, we ran directly into the challenge of trying to fit the square peg of new technology into the round hole of outdated law. Because of the lack of a clear regulatory structure, doing things the right way has now cost us more than the $15 million we raised under Regulation A. While bad actors do exist in crypto, today’s regulatory ambiguity helps them at the expense of ethical actors and promising projects. Clear, fit-for-purpose regulatory frameworks will allow ethical innovation to flourish while ambiguity only helps those who seek to avoid accountability.
Daniel Davis, Katten Financial Markets and Regulation; Former CFTC General Counsel
The CFTC is already engaged in a significant portion of the digital asset markets and is the natural federal regulator to be granted additional authority over the digital asset spot market. Every court that considered the question has ruled that digital assets are commodities. The CFTC currently has enforcement authority to prosecute if there is fraud or manipulation in such transactions, but that is the extent of its power in those cases. However, if a futures contract is placed on that digital asset, full CFTC jurisdiction applies. The entity must register, is subject to examination, and must comply with CFTC core principles and regulations, with that same as true for swaps and options on digital assets. The CFTC already has jurisdiction over about twenty CFTC-regulated digital asset products that are trading or have been self-certified to trade. These CFTC-regulated entities are monitoring, surveilling, and engaging with over eighty percent of the market, and have been doing so for roughly a decade. I am encouraged by many aspects of the draft bill, especially Section 202, which correctly recognizes that secondary market transactions are commodities transactions, not securities, and should fall under CFTC jurisdiction.
Greg Tusar, Vice President of Institutional Product, Coinbase
Markets work best when rules are clear and technology is embraced, not ignored. We are witnessing a major technological shift that will enable new products and services across markets and asset classes, but smart rules are needed to guide this transition, foster innovation, protect consumers, and ensure U.S. leadership. This is an opportunity to return to core principles and design markets for the 21st century, and the discussion draft released yesterday is a strong step in that direction, building on the bipartisan consensus in FIT21 to modernize outdated systems and expand access to financial opportunity. The CFTC is the right federal regulator to oversee the spot market because it has long overseen crypto derivatives, decades of experience with complex financial products, and helped enable exchange-traded products under SEC oversight. It should be empowered to do the same for crypto spot markets in ensuring national standards, proactive oversight, and consistent protections. Congress must establish clear lines and give both the SEC and CFTC distinct but complementary authorities. Regulation ATS brought electronic trading systems under the regulatory perimeter and enabled ATSs to operate with reduced market opacity and fragmentation, showing precedent in leveraging technology to mitigate risk and adapting rules to meet evolving customer expectations is. That framework remains in place today and is well suited to digital assets. Coinbase supports the discussion draft’s approach to allowing ATS structures and creating regulatory symmetry across the SEC and CFTC for digital asset securities and commodities. We are eager to further digest the discussion draft released yesterday and to build on the bipartisan success of FIT21.
Honorable Rostin Behnam, Psaros Center, Georgetown University; Former CFTC Chairman
During my years at the CFTC, I consistently conveyed to Congress that under current U.S. law, a regulatory gap persists for the non-security digital asset market, enabling fraud and scandals due to the absence of core customer protections. A common objection to closing this gap argues that regulation may legitimize the digital asset market and enable bad actors, but in practice, this inaction has left investors unprotected and markets vulnerable. There must be new legislative authority for the CFTC to oversee the non-security digital asset market and provide the same investor protections expected in traditional financial markets. As Congress evaluates legislation, it should rely on established legal precedent to define when a digital token is a security or a commodity and recognize that commodities do not require the same regulatory treatment as securities. Exclusive jurisdiction should be complemented by enhanced cross-agency collaboration through mechanisms like portfolio margining and netting. To empower the CFTC, the regulatory framework should include: a principles-based oversight model that has proven effective; appropriate funding through a permanent fee-for-service model assessed only on digital asset registrants; disclosure requirements to ensure investor access to material information; a role for self-regulatory organizations; comprehensive authority for AML, KYC, and customer identification programs; and a robust public education and outreach component to ensure informed investor participation. D
DISCUSSION
Representative Johnson (R-SD): Why do you believe the CFTC is the natural choice to regulate the digital asset spot market? Davis: The CFTC has the experience and has accumulated significant knowledge since Chairman Giancarlo discussed bitcoin futures. When a company self-certifies a bitcoin futures product, it must assert that the product is not readily susceptible to manipulation, which requires monitoring and surveilling the underlying bitcoin spot market. As part of its natural monitoring and examination regime, the CFTC has expert visibility into the spot market, which now includes twenty digital assets that are either self-certified or actively trading. It has examined CFTC registrants and brought numerous enforcement actions for fraud and manipulation, actions that require a deep understanding of the spot markets; Tusar: I agree that the principles-based regime is the right framework for the digital asset ecosystem and its continued development. This is a critical moment that requires a market structure that fosters innovation while also incorporating the strong consumer protections and essential principles provided by the CFTC and CEA. Regulation ATS delivered a similar balance in the securities world.
Representative Johnson (R-SD): Does the absence of a clear regulatory regime in the digital asset space harm consumers, investors, and innovation? Witnesses: Yes.
Representative Davis (D-NC): Why is it important that all parts of the framework move together to ensure interoperability and success? Behnam: The authority needed is much like the traditional authorities that both the CFTC and the SEC have in traditional markets. I would encourage, and certainly support, the Committee’s effort to do this comprehensively and in one shot instead of piecemeal and holding out for efforts down the road.
Representative Davis (D-NC): Do you have any initial thoughts on the discussion draft of the market structure bill released yesterday? Tusar: It is a strong step in the direction of making a few things very clear. Token classification is very unclear with respect to the difference between commodities and securities, specifically which fall under which regulatory regime. There is the potential for there to be harmonization between digital asset securities and digital asset commodities trading as well as having an integrated federal-level regime for custody. It is important that the two regimes on the CFTC and SEC sides are harmonized to the greatest degree possible so that consumers are afforded the same protections. The potential for leaving custody unaddressed on the commodity side leaves open the potential to have federal-level regulation for trading and listing of assets, but state-level regulation for custody. We must legislate to harmonize the mechanics of trading, custody, and related areas.
Representative Steil (R-WI): Is the current exemption framework for raising capital under Reg A compatible with the digital asset ecosystem? Miller: It is definitely not compatible. All of the current securities law exemptions, as well as registration and qualification schemes, are based on the fundamental idea of either a debt or equity offering in a company. The high costs associated, and the lack of clarity are why we see small teams who are trying to be upstarts moving offshore today.
Representative Steil (R-WI): Do you believe the SEC’s 2019 rule with its sixty-factor test is helpful in clarifying digital asset regulation, or does it simply add more complexity to the system? Did you have to create your own internal process, particularly as a venture capital firm? Rathmell: We are certainly grateful for the clarity. The issue is there are startup teams who may have raised a few million dollars but are spending a disproportionate amount on reading the legal tea leaves. The 2019 guidance is part of that, but a sixty-factor test is not really workable.
Representative Steil (R-WI): What is the impact of the existing regulatory structures for digital asset trading platforms, particularly at the state level? Could that serve as a potential pathway? Tusar: Federal-level regulation is critical. We have a variety of different approaches and have money transmission licenses from state to state, which leaves customers with different levels of protection, different levels of our ability to have product state by state when it comes to things like staking, and different levels of disclosure that are required.
Representative Thompson (R-PA): What uncertainty and confusion was caused when the SEC and CFTC took opposing positions, particularly given past warnings that sudden reversals could disrupt the derivatives market? What effect does this confusion have on digital asset ecosystem and innovation? Behnam: When we listed bitcoin futures in 2017, and then ether futures a few years later, there was a legal assumption that the underlying assets, bitcoin and ether, were commodities. Any confusion in the public markets about what those assets are along the security-commodity line would certainly create confusion, regulatory uncertainty, and potentially legal liability; Miller: Untold sums of time and money to understand agency interpretations that might change every four years. Many cannot afford to take the risk of operating here; Rathmell: Markets demand clarity. Our innovators should not have to understand the nuances of securities and commodities laws or spend millions of dollars on legal advice from lawyers who lack a clear legislative or regulatory framework to interpret, demonstrating wasted opportunity.
Representative Thompson (R-PA): How does regulating digital assets align with the CFTC’s purpose of promoting responsible innovation and fair competition in the markets? Davis: Well-functioning markets allow innovation to thrive. When entrepreneurs know what the rules are, spending more time innovating and less time trying to figure out what they are allowed to do, innovation succeeds. Since the passage of the Commodity Futures Modernization Act (CFMA), the number and diversity of products trading in CFTC markets has grown tremendously. Some products have failed, but those that succeeded did so tremendously. That is because the self-certification core principles create an environment in which innovation can rise to the top. Representative Vindman (D-VA): How are you building trust around digital assets? Behnam: Trust is going to be built with a regulatory system in place. Trust exists in traditional markets because of a comprehensive regulatory framework that ultimately creates a level playing field. It establishes a system of transparency and eliminates conflicts of interest, which is a core principle in itself.
Representative Rose (R-TN): Do you agree that the SEC and CFTC must work together to oversee the digital asset space, and what are the challenges to that partnership? Davis: There has always been active engagement between the Commissions and Congress. Coordination is critical. One of the complications is sometimes not having a full understanding of where the line is between the jurisdiction of the two. Congress can benefit us through precise and specific delineations between the jurisdiction of the SEC and the CFTC. The more precise and quantitative, like with security futures, and with more accurat language used, there is less opportunity for inter-agency disputes in the future. Congress can help by narrowing the area of disagreement by clearly defining jurisdictional lines.
Representative Rose (R-TN): What would help create a level playing field for traditional markets as well as new market entrants? Davis: Clarity would help all market participants but specifically makes it easier for smaller entities to enter the ecosystem. The CFTC registration system, right now, for current registrants is clear about what you need to do and not to do to get registered with the CFTC. Applying the same type of registration principles and coming up with a process that is efficient is important. We must have an efficient process where any type of registrant who can satisfy the core principles can register, accounting for the ability of certain participants to weather delays in the process and successfully register.
Representative Liccardo (D-CA): Does the draft address your core concerns and six recommendations? Behnam: There is more work to be done but the short answer is yes, it does address my concerns. Giving the authority to the CFTC to register some of the intermediaries in the digital asset space in a traditional way, based on the core principles of the CEA, would mandate and permit the CFTC to create a regulatory structure that addresses all the areas I mentioned and other important core principles. There were no major or glaring gaps in my first reading, but there are some other issues I would flag for further discussion. Two market regulators is not an ideal situation for registrants who play in both markets. I stand by my suggestion of dual registration in many circumstances in traditional securities markets and derivatives markets. There will be circumstances where participants in the digital security space and the digital commodity space should be duly registered. If you have a model where there is a deferral or a notice filing to another agency, you create gaps that can be identified and exploited.
Representative Hill (R-AR): Has the absence of uniform listing standards hurt the ecosystem’s development, driven business offshore, and created confusion for others trying to operate exchange-like functions, even if Coinbase managed it well? Tusar: Out of all the things in the bill that provide clarity, token classification is likely the most impactful element, because that is what will decide whether an entity feels comfortable and safe doing their project and development here in the U.S. or moves it overseas.
Representative Hill (R-AR): Is establishing a clear regulatory framework or implementing a dollar-backed stablecoin regime more important for the digital asset ecosystem? Tusar: They are equally important.
Representative McClain-Delaney (D-MD): What are your initial thoughts on the draft bill to establish a regulatory framework, particularly regarding how it addresses AML, the prevalence of risky exchanges lacking KYC rules? Do you see any inclusions of lessons from the EU’s MiCA regime? Miller: Delineating clear authority for overall trading within the CFTC is a huge advancement here. Regulatory unclarity or ambiguity creates gaps that bad actors can exploit, and it makes it harder for those trying to enforce the law. The fundamental structure offered here is clearly making these digital commodities, and if one needs to pre-sell some of those to raise the funds to build the network, that comes under the SEC authority. We are still working through some of the details, but that fundamental structure and general concept allows for the appropriate expertise when it comes to preventing bad actors from exploiting the system the same way they do every other monetary system that exists.
Representative Lucas (R-OK): Does the bill appropriately account for the risk management strategies of digital assets regulated by both the CFTC and SEC, and how should we think about cross-margining for transactions that fall under both agencies? Should we apply the same logic to clearing U.S. Treasuries and their derivatives, and how can we incentivize clearing and create a more supportive regulatory environment for our most critical asset class? Behnam: Cross-agency collaboration avoids duplicative regulation by multiple agencies, which is burdensome and not comprehensive. We should lean toward comprehensive regulation to avoid risks that can cause unintended consequences. There are mechanisms within the two agencies, such as portfolio margining and other netting mechanisms, that would enable market participants to manage their balance sheets and capital requirements if they have exposure to products with symmetries along risk lines. The clearing mandate begins to roll out over the next twelve to twenty-four months, if not sooner. Clearing is a healthy component of market infrastructure and is why the SEC, under the Biden administration, took steps to mandate clearing. We need to incentivize participation and ensure market participants’ continued engagement, with high periods of volatility in the Treasury market in recent years. Capital restraints remain one of the biggest barriers to entry in the Treasury market, and mechanisms allowing for netting across different products, whether cash and futures or otherwise, can create those incentives. If well thought out, the industry can be protected by smart regulation and avoid unintended consequences.
Representative Davidson (R-OH): What is at risk when comparing language that says a federal agency “may not prohibit” versus “may not prohibit, restrict, or otherwise impair,” as in my Keep Your Coins Act? Miller: It is not just a Second Amendment issue, it is also about the First and Fourth Amendments. “Prohibited” is a much less protective term than “impair,” “infringe,” or “abridge.” Without the ability for individuals to run their own software and self-possess their own assets in their own wallets on their own computers, we lose that decentralization and it just becomes a move to another centralized authority. It is critically important that we preserve the right and access to self-custody and the protections for developers who build self-custodial wallets. If you are not in possession of someone’s private keys, then you are not controlling those assets and should not be regulated as a custodian.
Representative Messmer (R-IN): Is the SEC or CFTC approach a better fit for regulating digital assets? Davis: For the secondary market transactions and most commodity market activity, the CFTC is the natural regulator. There are certain circumstances, particularly in the initial development of some coins, where a capital-raising activity may occur, and type of activity falls more within the purview of the SEC. Specific provisions like AML and KYC are an important aspect of any regulatory ecosystem. Reporting, cybersecurity, and operational resilience are the types of things where we need to have a productive discussion with the industry.
Representative Nunn (R-IA): Would granting the CFTC spot market authority increase confidence to support U.S. capital formation? Tusar: It absolutely would and is exactly the clarity and clear rules of the road that would make people feel more comfortable and not at risk when developing their projects.
Representative Downing (R-MT): Why is it a bad idea to treat every digital asset the same? Rathmell: They are computing primitives that are multi-nodal, disintermediated, and can evolve over time. A uniform application would undermine the premise of asset classes and increase compliance burdens, as well as hindering innovation.
Representative Foster (D-IL): Is crypto an opportunity to merge the SEC and CFTC, making a unitary crypto regulator and single point of contact for the industry? Rathmell: There is incredible fragmentation, both at the federal and state level in terms of our market regulation, but digital assets are a unique technology in its unifying nature; Miller: As long as the designated regulator has the expertise and experience to understand the crypto market as well as its unique applications and operations; Davis: The SEC and the CFTC have different regulatory philosophies, mandates, organizations, and areas of focus. It is difficult to see practically how a merger of those two agencies could be accomplished without a lot of unintended consequences; Tusar: This bill is a once-in-a-generation opportunity to think from first principles about all of our market structures, whether on the CFTC side or the SEC side. It takes advantage of some of the real efficiencies of the digital asset space with the proper structural protections in place.
Representative Taylor (R-OH): What have other countries done with their regulatory frameworks to encourage innovation? Rathmell: The EU, UK, and other jurisdictions have moved quickly with a unifying framework that is workable, supports token launches, and addresses consumer protection and market integrity. The U.S.’s inaction is causing the trouble.
Representative Huizenga (R-MI): Why is it a key milestone when a digital asset project is no longer reliant on a central group or organization, but instead depends on the collective contributions of a dispersed network of users? Rathmell: Digital asset projects, especially once they have achieved decentralization, should be much more focused on market integrity, efficient price discovery, broad-based participation, and antifraud protections versus information asymmetries in the marketplace. A token is effectively decentralized when its value is primarily determined by supply and demand dynamics, its use on the blockchain network, and the security of that network. That is when market integrity becomes the primary driver and regulatory focus.
Representative Huizenga (R-MI): What would be your biggest concern for the industry and U.S. competitiveness without clarity from market structure legislation? Rathmell: The loss of American innovation; Miller: Complete loss of competitiveness in the international economy; Davis: Fighting in the courts instead of focusing on U.S. development; Tusar: Loss of competitiveness and U.S. capital; Behnam: Continued, unchecked fraud in the markets.