by Alex Broudy, Technical & Financial Writer
Jun 21, 2022
Last week, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced the bipartisan Lummis-Gillibrand Responsible Financial Innovation Act (the "RFIA"). With many in the digital asset industry calling for regulatory clarity, RFIA represents forward momentum and a chance to foster a greater understanding of digital asset related issues on both sides of the aisle. This article explores key aspects of the proposed bill, as well as definitions of key terms. Additional legislative proposals addressing digital assets and stablecoins specifically are expected to be introduced in the months ahead.
What separates RFIA from the other 50+ digital asset legislative proposals that Congress has seen so far is its breadth and depth of scope: RFIA is the most wide-reaching and comprehensive digital asset bill to be proposed in the United States to date. It also, notably, has bipartisan sponsorship.
While the benefits and drawbacks of this bill will be debated for months to come, understanding the bill can inform those arguments and help investors form a long-term view on digital assets in the United States. Below we highlight a few of the key terms in the bill along with some related implications.
Legislating the rapidly expanding digital asset ecosystem requires careful definitional work. There are so many new blockchains, protocols, and tokens that to properly govern them all, these innovations need to be consistently defined. Let's review some of the key definitions from the RFIA that may help shed light on the future of digital assets in the United States:
[A] natively electronic asset that (i) confers economic, proprietary, or access rights or powers; and (ii) is recorded using cryptographically secured distributed ledger technology, or any similar analogue; and [B] includes (i) virtual currency and ancillary assets, consistent with the Commodity Exchange Act; (ii) payment stablecoins (as defined below); and (iii) other securities and commodities, that meet the digital asset definition.
(A) [I]s redeemable, on demand, on a one to one basis for instruments denominated in United States dollars and defined as legal tender or for the instruments defined as legal tender under the laws of a foreign country (excluding virtual currency defined as legal tender under the laws of a foreign country); (B) is issued by a business entity; (C) is accompanied by a statement from the issuer, that the asset is redeemable as specified in subparagraph (A) from the issuer or another identified person; (D) is backed by 1 or more financial assets (excluding other digital assets), consistent with subparagraph (A); and (E) is intended to be used as a medium of exchange.
[A] digital asset that (i) is used primarily as a medium of exchange, unit of account, store of value, or any combination of such functions; (ii) is not legal tender, as described in section 5103; and (iii) does not derive value from or is backed by an underlying financial asset (except other digital assets); and (B) includes a digital asset, consistent with subparagraph (A) that is accompanied by a statement from the issuer that a denominated or pegged value will be maintained and be available upon redemption from the issuer or other identified person, based solely on a smart contract.
Finally, the bill grants the Commodity Futures Trading Commission (CFTC) jurisdiction over digital asset spot markets and allows exchanges to register as a digital asset exchange under the CFTC. This has the potential to expand the CFTC’s jurisdiction and provide greater regulatory clarity for businesses exploring digital assets.
Whether or not some iteration of the RFIA will pass remains up in the air. But some of the definitions that Senators Lummis and Gillibrand put forward may become foundational to other legislation. Exploring how these definitions might apply to digital innovations can help investors stay ahead of the curve. To learn more about digital assets, subscribe for updates below.
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