U.S. Reps. Tom Emmer (R-MN) and Darren Soto (D-FL) introduced legislation that seeks to bring more clarity to the regulatory classification of digital assets.
Currently, existing securities law does not distinguish between an asset and the securities contract. Many cryptocurrencies may initially be issued as part of a securities contract, but after the project is fully developed and decentralized, the token could fall under a different classification, such as a commodity.
However, without a distinction between the asset and the securities contract, token projects that must raise capital to fund development in the early stages will not be able to move out of the securities framework once the project is decentralized. This prevents these tokens from being used for their utility, which could harm token holders.
Their bill, the Securities Clarity Act, would provide the necessary clarity to the regulatory classification of digital assets. Specifically, it says that any asset sold as the object of an investment contract, now defined as an “investment contract asset,” is distinct from the securities offering it was a part of. This definition is technology-neutral and would apply to all assets sold or offered that would only be considered a “security” because of their inclusion in an investment contract.
“So long as we lack a clear definition under the law for what is a commodity and what is a security, American innovation will suffer,” Emmer, the majority whip, said. “Entrepreneurs need to be able to accurately calculate risk to create new investment opportunities and grow our economy. The Securities Clarity Act will help provide these answers and allow American investors to fully participate in this exciting technology without sacrificing consumer protections. We need the United States to lead in the next iteration of the internet.”
The lawmakers said it would provide market certainty for innovators and clear jurisdictional boundaries for regulators, while enabling crypto projects to reach their full potential in a compliant way.
“Blockchain technology contributes to our nation’s economy by allowing innovation to grow. Congress is working to protect those who invest in this technology with the Securities Clarity Act. This bill will add critical definition and jurisdiction to create certainty for a strong digital asset market in the United States. This is an important step in maximizing the potential of virtual currencies for the U.S. economy, all while protecting customers and the financial well-being of investors,” Soto said.
This legislation is backed by several industry groups, including the Coin Center, Blockchain Association, Chamber of Digital Commerce, and the Crypto Council for Innovation.
“The lack of clarity on the definition of a digital asset security continues to be a major challenge for companies operating in the United States. We commend Rep. Tom Emmer and Rep Darren Soto for their commitment to American innovation with the reintroduction of this important bipartisan legislation, which makes clear the distinction between an investment contract and the underlying asset or token,” Sheila Warren, CEO of the Crypto Council for Innovation, said.