A new Republican draft proposal aims to limit the dominance of large crypto firms while fostering broader market participation. The new rules redefine an affiliated person and simplify the regulatory framework for decentralized finance protocols. This legislative change seeks to clarify crypto regulation in the US, presenting both opportunities and immediate challenges amid political opposition.
A new legislative proposal, the “Digital Asset Market Structure Discussion Draft,” introduced by House Republicans on May 5, is aiming to lessen the influence of large crypto firms in the marketplace. This initiative, led by Glenn Thompson and French Hill, who chair the House agricultural and financial services committees, presents what Paradigm’s vice president of regulatory affairs Justin Slaughter describes as a significant shift from prior bills, notably the Financial Innovation and Technology for the 21st Century Act (FIT21).
One key revision in this draft is the definition of an “affiliated person.” Instead of the previous threshold of owning 5% of a digital commodity, the new draft sets it at just 1%. Slaughter suggests this change could decrease the power wielded by larger firms, opening doors for smaller players to participate more actively in crypto markets. He points out that this shift is an effort to encourage a more democratized space and counteract the prevalent dominance of few major firms.
The draft also introduces the term “mature blockchain system,” defining it as one that isn’t under the “common control” of any individual or group. Slaughter notes that the Securities and Exchange Commission (SEC) will be the primary oversight body for activity within crypto networks, until such networks demonstrate sufficient decentralization.
Furthermore, the proposal clarifies what constitutes decentralized finance trading protocols, allowing users to engage in transactions independently. These protocols will be exempt from the requirement to register as digital commodity brokers or dealers, simplifying compliance for many players in the market.
In a notable shift in terminology, the draft refers to digital commodities as “investment contract assets”. This, according to Slaughter, aims to clearly differentiate their handling from that of traditional assets, with less likelihood of triggering securities laws unless certain conditions about ownership transfers are met.
The path for crypto firms to raise funds under SEC oversight is also outlined, aiming to ultimately provide a clearer framework for registering digital commodities with the Commodity Futures Trading Commission (CFTC). Additionally, both the SEC and the CFTC are expected to establish joint rules for the delisting of crypto assets that no longer meet regulatory standards.
In statements made by committee members, there’s a recognition of the potential for crypto to boost innovation within the US economic framework, emphasising modernisation of financial infrastructure and maintaining the dominance of the US dollar. They have expressed frustration with the previous administration’s enforcement-centric regulatory approach, suggesting the unclear guidelines have caused many businesses to consider relocating abroad for clearer regulatory environments.
Dusty Johnson, who chairs the subcommittee on commodity markets and digital assets, noted, “America needs to be the powerhouse for digital asset investment and innovation. For that to happen, we need a commonsense regulatory regime.” Slaughter echoed this sentiment, stating that this bill could finally provide the regulatory clarity that stakeholders have long awaited.
However, it seems not all is smooth sailing. Democratic opposition is already evident, as House Financial Services Committee Ranking Member Maxine Waters intends to block a Republican-led event slated for May 6. According to an anonymous staffer, all committee members must agree before such hearings can proceed, which complicates the discussions outlined in the draft report.
In closing, this legislative draft represents a noteworthy attempt to reshape the crypto landscape in the US, potentially balancing the scales between large and emerging firms in this evolving market.
