On June 7, Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) released their highly anticipated bill – the Responsible Financial Innovation Act – that would create a legal framework to govern digital assets. The bill represents one of the first comprehensive, bipartisan bills introduced by the U.S. Congress focused on digital assets and the technologies that underpin them (i.e., blockchain technology).
As written, the bill would have far-reaching implications for the digital asset industry. However, at this point, the chances of the bill passing into law over the short term are slim. While the recent meltdown in the cryptocurrency market has pushed regulating digital assets higher on the agenda for governments everywhere, lawmakers in the U.S. have several other priorities - like inflation and the upcoming midterm elections - that will likely take up much of their focus throughout the rest of the year. That said, the bill is largely being positioned as a starting point for lawmakers to frame their efforts in a push to pass legislation sometime next year.
- Establishes the CFTC as the Primary Regulator of Digital Assets – Most notably, the bill would effectively establish the Commodity Futures Trading Commission (CFTC) as the primary regulator of digital assets by (a) providing the agency with “exclusive spot market jurisdiction” over digital assets, (b) codifying a crypto-specific interpretation of the Howey test that is used by the SEC to determine if an asset is a security, and (c) defining most digital assets as “ancillary assets” and treating them as commodities, thus putting them under the CFTC’s jurisdiction. 
- Stablecoin Reserve Requirements – Stablecoin issuers would be required to (a) maintain high-quality liquid assets valued at 100% of the face value of issued stablecoins, (b) provide monthly disclosures on such assets, and (c) guarantee the ability to redeem all stablecoins at par in legal tender.
- Stablecoin Issuance Process for Banks and Credit Unions – Establishes a procedure for banks and credit unions to issue stablecoins by establishing a separate depository institution affiliate and securing the necessary regulatory approvals.
- Regulatory Reporting Requirements – Sets a number of reporting requirements for operators in the digital assets industry. In particular, issuers of digital assets that are considered “ancillary assets” would have to submit twice-annual disclosures to the SEC on the valuation and management of those assets. In addition, digital asset service providers would be required to provide clear consumer notices, and require acknowledgement of, on a number of matters ranging from material source code updates to how a bankruptcy or insolvency scenario would be handled.
- Digital Asset Exchange Registration Requirements and Fees – Establishes a pathway for digital asset exchanges to register with the CFTC. In addition, the bill would permit the CFTC to impose user fees on digital asset exchanges to cover regulatory costs.
- Crypto Broker Tax Reporting Requirements – Delays for two years (until 2025) and amends the mandatory yearly tax reporting requirements for crypto brokers that were passed last year as part of the Infrastructure Investment and Jobs Act.
- Tax Exemption for Crypto Transactions Less than $200 – Provides a tax exemption for all transactions for goods and services under $200.
- Tax Exemption for Digital Asset Lending Agreements – Specifies that so-called digital asset lending agreements are not generally taxable events.
- Tax Exemption for Crypto Mining and Staking – Establishes that digital assets obtained from mining or staking are not to be treated as taxable income until they are converted into fiat currency and gains or losses are realized.
- Decentralized Autonomous Organization (DAO) Registration Requirements – Requires community-led decentralized autonomous organizations (DAOs) to classify as business entities that must be incorporated as an LLC, corporation, partnership, foundation, cooperative, or similar organization.
- Government Studies on Key Issues – Directs a number of government agencies to conduct studies on key issues within the digital asset industry. For example, the bill directs the Treasury Department, the Federal Energy Regulatory Commission (FERC), the SEC, and the CFTC to conduct studies on (a) opportunities, benefits, and challenges associated with decentralized finance, (a) energy consumption related to digital assets, (b) how the digital assets industry self regulates and how registered digital asset associations should be established, and (c) cybersecurity standards for digital asset intermediaries.
- Advisory Committee on Financial Innovation – Proposes an Advisory Committee on Financial Innovation that includes industry representatives, the SEC, CFTC, a Federal Reserve Board member, a state regulator, and consumer protection advocates.
What to Expect Moving Forward
So far, the bill has received widespread praise from the digital assets industry and some pushback from consumer advocates. In particular, Blockchain Association Executive Director Kristin Smith noted in a statement that the bill, “represents a milestone moment for crypto policy and a major step forward for the crypto industry in Washington.”  Similarly, Perianne Boring, chief executive of the Chamber for Digital Commerce, called it a “foundational, comprehensive start.”  And Sheila Warren, chief executive of the Crypto Council for Innovation, said the bill amounts to “a significant step forward.”  Critics of the bill, however, have argued that it would undermine securities law and open consumers and investors to undue harm. For instance, Mark Hays, a senior policy analyst on fintech for the Americans for Financial Reform said the bill "would do quite a bit to undermine existing securities laws by creating an alternative route that could bypass the current, time-tested rules.” 
While the bill marks a significant step forward for the U.S. Congress in defining a legal framework for digital assets, the bill is unlikely to pass this year. In fact, several reports suggest that in a briefing with reporters before the bill was released, the staff of both Sens. Lummis and Gillibrand suggested that the bill would likely be advanced in a piecemeal fashion through various committees in an effort to make it ready to pass sometime next year.  That said, it should be noted that the lead sponsors of the bill sit on key committees with jurisdiction over its proposed provisions – Sen. Lummis serves on the Senate Banking Committee that oversees the SEC and Sen. Gillibrand sits on the Senate Agriculture Committee that oversees the CFTC – that may help its chances.
Moving forward, the bill will likely be used to frame the ongoing legislative and regulatory debate around digital assets within the U.S. In addition, the strategy of passing the bill piece by piece through Congress provides an opportunity for lawmakers to fast-track high-priority provisions – like the stablecoin reserve requirements. However, significant revisions to the bill should be expected as it meanders through the legislative process.
The full text of the bill can be found here. A section-by-section overview can be found here. The press release announcing the bill can be found here. A joint blog from Sens. Lummis (R-WY) and Gillibrand (D-NY) on the bill can be found here.
 As defined by the bill, “ancillary assets” would be an “intangible, fungible asset that is offered, sold, or otherwise provided to a person in connection with the purchase and sale of a security through an arrangement or scheme that constitutes an investment contract.” According to reports, those close to the bill's drafting suggested that this definition would apply to the 200 most valuable cryptocurrencies listed on CryptoMarketCap.
 Newmyer, T. (2022, June 7). Crypto industry scores a big win under long-anticipated Senate bill. The Washington Post. Retrieved June 8, 2022, from https://www.washingtonpost.com/business/2022/06/07/crypto-lummis-gillibrand-regulation/
 Kiernan, P. (2022, June 7). Senators propose industry-friendly cryptocurrency Bill. The Wall Street Journal. Retrieved June 8, 2022, from https://www.wsj.com/articles/senators-to-propose-industry-friendly-cryptocurrency-bill-11654592401
 Davidson, K., & Weaver, A. (2022, June 7). The Fed's new framework ages fast. POLITICO. Retrieved June 8, 2022, from https://www.politico.com/newsletters/morning-money/2022/06/07/the-feds-new-framework-ages-fast-00037653
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