In brief
- A new draft of a crypto market structure bill in the House appears poised to end the SEC’s oversight over most crypto assets.
- The bill would amend securities laws from the 1930s to exclude digital assets that meet certain criteria.
- The legislation would also move regulation of the secondary market trading of many of these assets from the SEC to the CFTC.
The House Financial Services Committee released a new discussion draft of its crypto market structure legislation on Monday—and the current version of the bill would amend American securities laws to exempt most top digital assets from the SEC’s oversight.
The latest bill draft would add key language to numerous foundational securities laws, including the Securities Act of 1933 and Securities Exchange Act of 1934, that would formally exclude “digital commodities” from the definition of security, and thus, SEC purview.
The bill goes on to define digital commodities in such a way that appears to apply to many of crypto’s most popular assets. For instance, a digital commodity can be generated by a blockchain system, derive its value from said system, offer voting rights in a decentralized governance system, or be used to validate transactions on a blockchain system.
What’s more, the secondary market trading of such “digital commodities” would also be exempt from SEC regulation under the new bill—so long as the assets in question are certified by the SEC as originating from a “mature blockchain system.”
So the trillion-dollar question becomes: What exactly is a “mature blockchain system”?
The bill defines it as a network that allows users to execute on-chain transactions, access on-chain services, operate nodes, or validate transactions; that is open-source and open to public use; that is automated; and that cannot be shut off or altered by a single person or entity (unless this control is taken in the name of cybersecurity or maintenance). Further, no single person or entity can “beneficially own” more than 20% of the supply of a token in question for it to meet this standard.
These exemptions for secondary transactions related to digital commodities issued by mature blockchain systems would not apply, however, if the transactions involved purchasing an ownership interest in the “revenues, profits, or assets of the issuer”—aka, institutional offerings.
In short: The proposed law appears to exempt from SEC regulation not just the issuance, but also the secondary trading, of most of crypto’s most popular tokens. Tokens like Ethereum, Solana, XRP, BNB, and Cardano all appear to meet the definition of “digital commodity.” Most of the networks behind those tokens also appear to meet the definition of a “mature blockchain system.”
Under the proposed regime, such digital assets would be regulated by the CFTC.
A question remains, though, about tokens like XRP. The token was developed in part by the founders of Ripple, and now Ripple controls far more than 20% of XRP’s supply. Conceivably, this would mean that secondary trading of XRP may not, then, be exempt from securities laws. Most of the XRP Ripple holds, though, is in escrow—which may or may not meet the bill’s definition of “beneficial ownership.”
Further, according to the bill, tokens issued prior to the passage of the legislation—such as XRP—could still be exempted by the SEC on a case-by-case basis, even if they’ve only met “some” of the mature blockchain system requirements.
Decrypt reached out to both Ripple and a spokesperson for the House Financial Services Committee on that point, but did not immediately hear back from either party.
The release of the new market structure bill comes ahead of a crypto-focused meeting of the House Financial Services Committee on Tuesday—one that looks poised to become heated.
Democrats on the committee, frustrated over the refusal of Republicans to add clauses to crypto legislation banning the president from participating in crypto ventures while in office, plan to walk out of the session as a form of protest, two sources with knowledge of the matter told Decrypt. News of the planned walkout, which is intended to prevent the hearing from proceeding, was first reported by Punchbowl News
Edited by Andrew Hayward
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