A Framework for Digital Assets in the United States

The concept of digital assets was first introduced in 2008 with the release of the Bitcoin White paper, which outlined a peer-to-peer system for exchanging value without intermediaries. This revolutionary idea sparked the development of systems where value was exchanged not only for its own sake but also for services and digital products. Over the past decade, innovators have created decentralized networks for various purposes, including computing services, file storage, asset exchange, and more. These networks have the potential for endless use-cases, both financial and non-financial, as they can be utilized by anyone offering services and accessed by anyone. Despite their promise, these networks have faced criticism and regulatory uncertainty. The Biden-Harris Administration's approach, marked by lawsuits and enforcement actions without clear regulatory guidance, has hindered the growth of the digital asset ecosystem in the United States, driving innovation to other jurisdictions with clearer regulations. The Securities and Exchange Commission (SEC) has failed to provide clarity on how existing securities laws apply to digital asset transactions, stifling the ecosystem's growth and pushing it overseas. To address these challenges, Congress has been working to modernize the regulatory framework to accommodate the unique characteristics of digital assets. This effort has led to the introduction of bills aimed at clarifying the use of digital assets in the financial system, protecting investors, and fostering innovation. The House Committees on Financial Services and Agriculture have launched a joint initiative to address digital asset regulation, resulting in the first-ever bipartisan digital asset market structure legislation to pass in a chamber of Congress. This collaboration has enabled Congress to tackle long-standing ecosystem challenges and lay the groundwork for a suitable framework. As the current Congress moves forward, it is essential to create a clear and balanced path for the digital asset ecosystem. To achieve this, we have established six principles for digital asset legislation. Firstly, legislation should promote innovation, protecting opportunities for creators and users of digital assets while ensuring lawful transactions. Secondly, it must provide clarity on asset classification, so users understand the nature of their holdings and whether they are securities or not. Thirdly, a framework for issuing new digital assets should be codified, allowing issuers to raise capital under SEC jurisdiction while protecting retail investors and requiring transparency about digital asset networks. Fourthly, the regulation of spot market exchanges and intermediaries should be established, with centralized exchanges and intermediaries adhering to similar requirements as other financial firms. The Commodity Futures Trading Commission (CFTC) should be authorized to impose necessary requirements to protect customers, limit conflicts of interest, ensure proper order execution, and provide disclosures. Fifthly, best practices for protecting customer assets should be established, requiring entities registered with the SEC or CFTC to segregate customer funds and hold them with qualified custodians, protecting these funds during bankruptcy. Lastly, innovative decentralized projects and activities should be safeguarded, ensuring that decentralized protocols are not subject to regulations designed for centralized firms and protecting individuals' rights to self-custody their digital assets. We look forward to continuing our legislative work to provide much-needed regulatory clarity to this rapidly evolving industry, ensuring the United States remains a leader in shaping the future of digital finance.