Original author: Mary Liu, BitpushNews

According to Forbes, since 2022, US lawmakers have submitted at least 50 digital asset bills to Congress, covering various aspects of cryptocurrency regulation, from stablecoins to regulatory jurisdiction. This article will review several key bills that could have a significant impact on the crypto industry if passed.

The Crypto Asset National Security Enhancement Act

Introduced on July 21st by Senator Jack Reed, and co-sponsored by Senators Mark Warner (Democrat, Virginia), Mike Rounds, and Mitt Romney (Republican, Utah), this is a bipartisan bill focused on anti-money laundering and sanctions compliance, which could have significant implications for DeFi protocols if approved.

Key provisions of the bill:

According to a draft of the bill, it aims to subject DeFi protocols to the same rules as other regulated financial intermediaries in the US.

The bill would require anyone "controlling" a DeFi protocol to ensure effective anti-money laundering programs and comply with Know Your Customer (KYC) policies. DeFi protocol controllers would also be responsible for reporting suspicious activity and ensuring that anyone sanctioned is prevented from using the protocol.

If a protocol doesn't have identifiable controllers, the bill specifies that anyone investing over $25 million towards the development of the protocol would be held responsible.

The bill also proposes that "virtual currency kiosks" such as Bitcoin ATMs must comply with KYC laws. Operators of such ATMs must "at a minimum, verify and record the name and physical address of the consumer, including inspecting official documents evidencing nationality or residency containing a photograph of the consumer."

Outlook:

Miller Whitehouse-Levine, CEO of the DeFi Education Fund, believes that this legislation "will effectively ban the development of US DeFi in a centralized manner." He states, "Unfortunately, this approach is not only a disproportionate response to illicit use of DeFi but also has the potential to harm existing insights and impacts of US law enforcement on peer-to-peer cryptocurrency activities."

However, anonymous sources within Congress revealed in an interview with Bloomberg that this bill is the result of bipartisan efforts, particularly as its goal is to enhance national security, which increases its chances of receiving a full house vote.

Financial Innovation and Technology for the 21st Century Act

Introduced on July 20th by Republican members of the US House Committee on Agriculture and Financial Services, this bill aims to establish a reliable process for determining whether digital assets are commodities or securities. If passed, it would permanently define the regulatory roles of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in relation to cryptocurrencies.

The bill has received support from key figures, including Republican Glenn Thompson, Chairman of the House Agriculture Committee, Republican French Hill, and Representative Dusty Johnson (RS.D). Hill leads the inaugural Digital Assets, Financial Technology, and Inclusive Subcommittee, while Johnson leads the Commodities Markets, Digital Assets, and Rural Development Subcommittee.

The key points of the bill are:

The bill empowers the Commodity Futures Trading Commission (CFTC) with jurisdiction over digital commodities, including exchanges and broker-dealers. It also clarifies the jurisdiction of the Securities and Exchange Commission (SEC).

 The legislation defines the classification of digital assets, stating that the presence of investment contracts alone does not make tokens securities. The co-sponsors wrote in the accompanying memo that approximately 70% of cryptocurrencies should be classified as commodities rather than securities, placing them under the jurisdiction of the CFTC.

In addition, previously labeled securities of crypto assets will be reclassified as commodities, potentially allowing some projects that were shut down due to past legal decisions to restart.

Prospects:

The bill currently has significant support from influential committees, including the House Financial Services Committee, but lacks bipartisan support and may face opposition from House Democrats, many of whom believe that the SEC should have a greater role than currently allocated by the bill.

Democratic Representative Maxine Waters of California previously stated in a hearing on clarifying industry regulation, "We didn't think there should be such strong support for CFTC."

Hilary Allen, Professor at American University Washington College of Law, criticized the bill as Republicans "trying to please" the crypto industry, as it is not the "most urgent financial or agricultural issue facing the American public." Allen stated that House Republicans have not focused on the pressing issue of the Farm Bill but instead competed to please crypto exchanges, Wall Street, and Silicon Valley venture capitalists, sacrificing the interests of American consumers and retail investors."

Responsible Financial Innovation Act (RFIA)

According to Forbes, the RFIA reintroduced by Senator Cynthia Lummis (Republican, Wyoming) and Kirsten Gillibrand (Democrat, New York) is the most comprehensive and bipartisan supported cryptocurrency bill in Senate history.

This bill (also known as the Lummis-Gillibrand bill) has similar goals as its predecessor, aiming to clarify the roles of the SEC and CFTC in cryptocurrency regulation. According to the bill's statement of purpose, it also aims to provide greater consumer protection by enacting laws to "prevent another FTX-style incident."

 Key provisions of the bill:

Imposing mandatory segregation and third-party custody requirements on cryptocurrency exchanges to explicitly prohibit mingling of customer funds.

Setting limitations on digital asset lending and empowering the CFTC to regulate potential conflicts of interest between cryptocurrency exchanges and affiliated companies. Similarly, the legislation requires these companies to produce reserve proof.

Bringing greater clarity to the industry by creating a new classification status for certain cryptocurrencies ("auxiliary assets"), which will encompass "digital assets sold pursuant to investment contracts but without conferring business entity interests to the holders thereof, so long as these auxiliary assets comply with the disclosure requirements of the U.S. Securities and Exchange Commission, they will be regulated as commodities."

Clarity on the treatment of digital asset taxation is also included, as the Federal Reserve will be instructed to handle banking applications of cryptocurrency companies in a "fair and equitable manner."

The bill also considers depositary institutions as the sole entities allowed to issue stablecoins, adds a definition for decentralized autonomous organizations (DAOs) in tax law, and commissions an advisory committee as well as a series of periodic reports concerning the industry.

Outlook:

The 2022 version of the Lummis-Gillibrand bill gained significant momentum in the previous Congress but was put on hold due to the collapse of FTX. Lummis, a cryptocurrency advocate, bought her first Bitcoin as early as 2013 and has been dubbed the "Crypto Queen of the Senate," playing a crucial role in making Wyoming an innovative hub for cryptocurrency miners and entrepreneurs. Bipartisan collaboration has been incorporated into the bill, which may contribute to its prospects for passage.

Digital Asset Market Structure Bill (DAMS)

The DAMS, introduced on June 1st, is another bill aimed at defining the SEC and CFTC's roles regarding cryptocurrencies and establishing a framework for regulatory authorities to determine whether certain cryptocurrencies are securities or commodities.

This bill has attracted some attention, and on June 26th, Congresswoman Maxine Waters wrote to Treasury Secretary Janet Yellen and Securities and Exchange Commission Chairman Gary Gensler, asking for their opinions on the bill.

According to the proposed bill, before a certain cryptocurrency is designated as a commodity, it must be certified by the SEC to demonstrate its full decentralization.

Cryptocurrency exchanges will be able to register as Alternative Trading Systems (ATS) with the SEC, and regulatory agencies will not be able to reject registration based on the platform for trading digital assets. DAMS will clarify ATS rules and allow for the trading of digital commodities and stablecoins on ATS platforms, and the SEC will be required to allow broker-dealers to custody cryptocurrencies if certain requirements are met.

Digital Commodity Exchange Act (DCEA)

The updated version of the DCEA was first introduced in September 2020 and revised in April 2022, specifying that stablecoin providers can register as "fixed value digital commodity operators," including record-keeping and reporting requirements.

This bill grants the CFTC the power to register and regulate spot exchanges, with spot exchanges following the same rules as other commodity exchanges. In this process, the bill redefines cryptocurrencies not considered securities as digital commodities, and the SEC will oversee the issuance of crypto securities.

Cryptocurrencies not considered securities are marked as digital commodities within the jurisdiction of the CFTC, and the SEC will regulate the issuance of crypto securities.

Cryptocurrency developers may also voluntarily register with the U.S. Commodity Futures Trading Commission and submit disclosure information required for publicly trading and listing their assets on exchanges.

Other Bills

There are also several cryptocurrency bills under congressional review with varying degrees of support, such as the Stablecoin Trust Act and the Stablecoin Innovation and Protection Act related to stablecoin regulation. The Cryptocurrency Consumer Investor Protection Act and the Cryptocurrency Exchange Disclosure Act were introduced in December 2022 but have not made much progress since then.

Senator Elizabeth Warren and Roger Marshall also introduced the Digital Asset Anti-Money Laundering Act in December last year, which would regulate crypto ATMs and prohibit financial firms from using crypto mixers. Warren expressed her intention to reintroduce the bill in February, but no action has been taken yet.