Author: a16z; Translation: Golden Finance xiaozou
Later this month, the U.S. House of Representatives will vote on an important bill (HR 4763), one that we should all pay close attention to.
The bill, called the Financial Innovation and Technology for the 21st Century Act (FIT21), could make U.S. crypto regulation more visible to everyone in the industry. If passed, it would:
Providing a safe and efficient way for blockchain projects to launch in the United States;
Clarify the boundaries between the SEC and the CFTC, i.e. who regulates cryptocurrency matters and whether digital assets are securities or commodities;
Ensure oversight of crypto exchanges and further protect American consumers by enforcing crypto trading rules.
We’ll share more about why this all matters below—and you can share it with others, too—but first, here’s what we need to know:
1. Contents of the Act
The FIT21 Act/HR 4763 establishes a regulatory framework for the U.S. digital asset market to:
Solve the unique structural problems of digital assets;
Provide clear and reliable consumer protection;
Clarifying which digital assets are regulated by the Commodity Futures Trading Commission (CFTC) and which are regulated by the Securities and Exchange Commission (SEC) is important because there are key differences between the definitions of “commodities” and “securities” that determine how they are regulated.
The CFTC intends to regulate digital assets as a commodity “provided that the blockchain or digital ledger on which they operate is functional and decentralized.”
The SEC intends to regulate digital assets as securities “provided that their underlying blockchain is functional but not decentralized.”
The bill defines decentralization as “one of the conditions that must be met is that no single person has unilateral control over the blockchain or its use, and no issuer or associated person controls 20% or more of the digital assets or the voting power in the digital assets.”
The bill also imposes other conditions to protect consumers, such as segregation of customer funds, lock-up periods for token insiders (to incentivize innovation, not just speculation), annual sales volume limits, and disclosure requirements.
This is not unlike the protections regulators put in place in the aftermath of the Great Depression, following the excessive prosperity of the 1920s and the stock market crash of 1929 — once those guidelines were in place, America’s markets and economy enjoyed an unprecedented era of growth and innovation.
2. What is not included in the bill?
Some industry insiders have expressed concerns that the bill imposes a very high bar for decentralization, giving the SEC too much jurisdiction and the ability to reclaim any token or project that is “re-centralized.” Others are concerned that the bill does not draw a stricter line between the jurisdiction of the SEC and the CFTC.
However, the bill, while imperfect, will provide the crypto industry with the regulatory certainty it needs to continue operating and innovating in the United States.
Some ask, why do we need regulation? It is unrealistic to think that we can be free of regulation. Clearer regulations are always better than confusing regulations. By providing companies with a clear path to compliance, regulation will enable innovators to build trust with the public and provide useful products to the public - while holding bad actors more accountable.
3. Who is the mastermind behind this?
The FIT21 Act is a joint effort between the House Financial Services Committee (which oversees the SEC) and the House Agriculture Committee (which oversees the CFTC). Last July, the Financial Services Committee passed the bill with the support of six Democrats and all Republicans, and the Agriculture Committee also passed it unanimously. Since then, it has continued to receive bipartisan support.
4. Why now? How can you help?
A vote on the bill in the coming weeks will be a referendum on crypto in the United States.
Therefore, the bill must pass with strong bipartisan support. After that, it needs to be passed by the Senate and signed by the President to become law. So, we are at a critical juncture now. To contribute, we recommend that everyone contact your local representative through the Stand with Crypto portal.
5. Why is it important?
Looking at the big picture, despite the crypto industry having been around for more than a decade, the United States does not yet have a comprehensive regulatory framework for digital assets. Our current regulatory framework is fragmented, incomplete, and lacks transparency. This regulatory uncertainty not only creates a confusing environment for innovation, but also provides a breeding ground for bad actors. As we have seen, it is very easy for companies and individuals with bad intentions to exploit regulatory loopholes to launch products.
Meanwhile, responsible actors—law-abiding entrepreneurs and startups—have been subject to vague “enforcement regulations.” This approach has not only hurt American innovation (especially given the proliferation of innovation in other countries), but has also been detrimental to the long-term dominance of the dollar, American consumers, and the U.S. economy.
When other jurisdictions put in place suitable regulatory regimes, it will lead to the relocation of entrepreneurial activity offshore. This is not an abstract issue: startups create jobs, bring economic value, and may give rise to the next wave of large technology companies. For example, Amazon, Apple, Facebook, Google, Microsoft, Netflix, Nvidia, and Salesforce all started in the United States—some in the last 20 years—and they dominate not only market capitalization today, but also our daily lives. As FIT21 creates a supportive environment for innovation, the crypto industry may have the same potential, but without the large technology companies that have led to the situation where the few are gatekeepers for the many.
Whatever you think of crypto, it’s more than just a financial opportunity — it represents an important technology platform shift, just as personal computers, mobile phones, and the internet transformed our world. While the internet is one of the most important technological innovations in human history, it has failed the people who rely on it today: consumers, creators, and developers. Blockchain, crypto, and web3 can help solve this problem in many ways: from proof of authenticity and real people (not AI) to prevent deep fakes, to more voice and choice on social media platforms, to more inclusive payment systems, and more. But we need a supportive environment so that these innovations can continue to thrive in the United States.
