Just before the U.S. Securities and Exchange Commission (SEC) approved the regulatory documents for an Ethereum spot ETF, the U.S. House of Representatives passed the FIT21 bill, which provides guidance to U.S. regulatory agencies on overseeing crypto assets. While there hasn’t been much online discussion about this bill, it actually has a profound impact on the future regulation of crypto assets by the U.S. government. It is also a bill that crypto project teams must carefully study before issuing crypto assets in the U.S.
Here are some interesting provisions from the bill that I have excerpted:
The bill clearly defines two regulatory agencies for overseeing crypto assets: the Commodity Futures Trading Commission (CFTC) and the SEC.
How do these agencies regulate crypto assets?
The bill states that if a crypto asset is defined as a commodity, it falls under the jurisdiction of the CFTC; if it is defined as a security, it falls under the jurisdiction of the SEC.
But how do we determine whether a crypto asset is a commodity or a security?
The bill proposes several key factors to distinguish whether a digital asset belongs to the category of securities or commodities, including the “Howey Test,” “use and consumption,” “degree of decentralization,” “functionality and technical characteristics,” and “market activity.” Among these factors, except for “degree of decentralization,” the other factors are easily understood in terms of traditional definitions within the realm of commodities or securities. The “degree of decentralization” is a new concept introduced by blockchain technology and crypto assets.
So, how do we define “decentralization”?
The bill stipulates (in essence) that if no one has direct control and token/voting rights do not exceed 20% in the past 12 months, then it is considered decentralized.
This definition of “decentralization” actually provides a reference standard for us to speculate on the targets that may be targeted by Wall Street institutions in the future.
It is an unstoppable trend for crypto assets to be introduced to traditional finance by Wall Street institutions in a compliant manner and attract widespread public participation. Bitcoin and Ethereum have already been successfully demonstrated and incorporated into the U.S. government’s regulatory framework by Wall Street institutions. In the future, more and more crypto assets will be subjected to similar operations by Wall Street.
In fact, clear and appropriate regulation can not only promote the healthy and long-term development of the crypto ecosystem but also push the value and price of crypto assets higher.
So, I have always believed that there is no need to panic or resist, but rather to view reasonable and appropriate regulation with a positive attitude. Frankly, I have a very positive view of these two operations by Wall Street institutions on Bitcoin and Ethereum spot ETFs (although I don’t like these institutions at all).
This is how the bill is viewed from the perspective of Wall Street and regulation.
How can we view this bill from the perspective of crypto project teams?
First of all, in the entire crypto ecosystem, assets like Bitcoin that do not rely on team operations are still in the minority, and more projects, like Ethereum, require development under the leadership of a team. Therefore, any crypto team must consider the potential regulatory challenges when issuing their assets.
Among the SEC and CFTC, the CFTC’s regulation is more lenient and accommodating. Therefore, for general project teams, unless they have specific purposes (such as issuing securities), they generally hope that the tokens they issue will be regulated by the CFTC.
If project teams want their tokens to be considered “commodities” and regulated by the CFTC, then based on the provisions excerpted above, a unique standard in the crypto ecosystem is worth noting: the “degree of decentralization.”
For users in the crypto ecosystem, when we talk about “decentralization,” it is generally to emphasize that projects are free from monopolistic interference and manipulation. However, in this bill, it becomes an important criterion for defining whether a crypto asset is a commodity or a security.
According to this line of thinking, if project teams want their tokens to pass regulatory scrutiny as much as possible, they must focus on “decentralization” and at least not monopolize chips like in the past and manipulate the market as they please.
As investors, how can we view this bill?
We can use it as a reference and guide for evaluating investment targets.
For example, if a token is considered a commodity, to some extent, we can also consider it to be sufficiently “decentralized.” Conversely, if a token is sufficiently “decentralized” for users in the crypto ecosystem, we can speculate that it is likely to be classified as a commodity, making it relatively easier to pass CFTC scrutiny.
By applying this standard, we can carefully examine popular blockchain tokens (such as BNB, Solana, Aptos, SUI, MATIC, etc.), classic ERC-20 tokens (UNI, CRV, MAKER, AAVE, etc.), and emerging inscription tokens (ORDI, SATS, etc.), and then combine other determining factors (investment contracts, use and consumption, functionality and technical characteristics, market activity), we can at least make a rough guess as to which tokens are likely to pass scrutiny more easily.
