The US House of Representatives Releases Draft Framework for Digital Asset Regulation

On May 5, leaders of the U.S. House Committee on Financial Services and the Agriculture Committee released a discussion draft proposing a federal framework for regulating the U.S. digital asset industry.

The draft was jointly released by four Republican lawmakers, including House Financial Services Committee Chairman Patrick McHenry, Agriculture Committee Chairman Glenn Thompson, Financial Services Committee Digital Asset Subcommittee Chairman Brian Stile, and Agriculture Committee Commodity Markets Subcommittee Chairman Dusty Johnson.

This legislation aims to coordinate the regulatory responsibilities between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), and to provide legal definitions for key terms in the blockchain and digital asset markets.

Chairman Hill stated that the draft further develops on the progress made by both parties and both chambers in the 118th Congress, providing a lasting framework for protecting consumers and maintaining the United States' leadership in the field of digital innovation. He also mentioned that the committee plans to solicit public input and work with the government to promote the implementation of the final bill.

The draft introduces a series of definitions for core industry concepts, including digital goods, blockchain systems, decentralized governance, approved payment stablecoins, and mature blockchain systems. Furthermore, the draft clearly stipulates that distributions made through mining, staking, or user rewards, referred to as "end-user distributions," do not fall under securities nor constitute a sale under current laws.

Chairman Thompson emphasized the urgent need for clear legislation, pointing out that the proposed framework will fill regulatory gaps and provide developers and users with the certainty they have long been calling for.

The draft sets forth a registration pathway for digital commodity exchanges, brokers, and dealers under CFTC regulation, while allowing the SEC to retain jurisdiction over securities and certain hybrid assets. Entities engaged in custodial functions, trade facilitation, or interactions with customers must adhere to newly defined registration and disclosure procedures.

Stair stated that this marks the beginning of the golden era of digital assets, with the House leading the trend. Johnson also believes that the U.S. must provide a sensible regulatory framework to maintain its position as a global center for digital asset investment and innovation.

The draft also retains protections for decentralized finance (DeFi) protocols and self-custody. It states that as long as DeFi trading protocols and messaging systems do not custody user funds or exercise discretion, they are not required to comply with traditional financial regulations. Furthermore, the bill also prohibits the Treasury or the Financial Crimes Enforcement Network (FinCEN) from issuing rules that restrict individuals' ability to self-custody digital assets through wallets.

The committee has scheduled a joint hearing on May 6, titled "The Future of American Innovation and Digital Assets: A Blueprint for the 21st Century," aimed at initiating formal legislative discussions and collecting input from stakeholders.

The draft includes provisions regarding the joint formulation of rules by the SEC and CFTC, as well as conducting research on DeFi, NFTs, and blockchain infrastructure by expanding the functions of the innovation office of federal agencies.

The proposed bill aims to eliminate uncertainty in the regulation of digital assets in the United States by establishing legal definitions and clear jurisdictional boundaries, while encouraging responsible development and regulation of the digital asset market. This initiative is expected to provide clearer guidance for the future development of the digital asset industry in the United States.