Just before the SEC approved the regulatory filing for the Ethereum spot ETF, the U.S. House of Representatives passed the FIT21 bill to guide U.S. regulators in regulating crypto assets.
There is not much discussion about this bill online, but in fact it has a profound impact on the U.S. government's future regulation of crypto assets. It is also a bill that crypto project teams must carefully study before issuing crypto assets in the United States in the future.
I have excerpted some of the interesting clauses.
This bill clearly defines two institutions that regulate crypto assets: one is the U.S. Commodity Futures Trading Commission (CFTC), and the other is the U.S. Securities and Exchange Commission (SEC).
How do these two agencies regulate crypto assets?
The bill stipulates that if a crypto asset is defined as a commodity, it will be regulated by the CFTC; if it is defined as a security, it will be regulated by the SEC.
So how do you determine whether a crypto asset is a commodity or a security?
The bill proposes several key elements to distinguish whether digital assets are securities or commodities: including "investment contract (The Howey Test)", "use and consumption", "degree of decentralization", "functional and technical characteristics", and "market activities".
Among these factors, except for the "degree of decentralization", the other factors are easy to understand in terms of definition and belong to the definition of traditional commodities or securities. Only the "degree of decentralization" is a new concept introduced by blockchain technology and encrypted assets.
What is considered “decentralized”?
The bill states (roughly): If no one has direct control and holds no more than 20% of tokens/voting rights in the past 12 months, then it is decentralized.
This definition of “decentralization” actually provides us with a reference standard for speculating on the targets that may be targeted by Wall Street institutions in the future.
It is an unstoppable trend that crypto assets are introduced into traditional finance in a compliant manner by Wall Street institutions and attract a wide range of people.
Bitcoin and Ethereum have been successfully demonstrated by Wall Street institutions and incorporated into the U.S. government's regulatory system. In the future, more and more crypto assets will be similarly operated by Wall Street.
In fact, clear and appropriate supervision can not only promote the healthy and long-term development of the crypto ecosystem, but also promote the value and price of crypto assets to rise step by step.
So I have always believed that we do not need to panic or resist this, but should take a positive attitude towards reasonable and appropriate regulation. Frankly speaking, I have a very positive view of Wall Street's two spot ETF operations on Bitcoin and Ethereum (although I don't like these institutions at all).
This is how the bill is viewed from a Wall Street and regulatory perspective.
From the perspective of the crypto project team, how do you view this bill?
First of all, in the entire crypto ecosystem, crypto assets like Bitcoin that do not rely on a team to operate are a minority after all. Most of them are projects like Ethereum that must be developed under the leadership of a team.
Therefore, in the future, any crypto team must consider what kind of regulation they may face when issuing their own assets.
Of the two agencies, the SEC and CFTC, the CFTC’s supervision is much more relaxed and inclusive. Therefore, for general project parties, unless there is a specific purpose (such as issuing securities), they generally hope that the tokens they issue will be regulated by the CFTC.
If the project wants the tokens it issues to be considered “commodities” and regulated by the CFTC, then based on the terms excerpted above, a standard unique to the crypto ecosystem is worth noting: “degree of decentralization.”
For users of the crypto ecosystem, when we talk about "decentralization", it is generally to emphasize that the project is free from interference and manipulation by monopoly forces; and in this bill, it has become an important criterion for defining whether crypto assets are commodities or securities.
According to this idea, if project owners want the tokens they issue to pass supervision as much as possible, they must do enough work on "decentralization". At least they cannot monopolize the chips themselves as they did in the past and do whatever they want and act lawless by pulling up the market and making the market.
As investors, what do we think of this bill?
We can use it as a reference for reviewing investment targets.
For example, if a token is regarded as a commodity, we can also consider it to be sufficiently “decentralized” to a certain extent; conversely, if a token is sufficiently “decentralized” for users in the crypto ecosystem, we can also speculate to a certain extent that it will most likely be identified as a commodity, thus relatively easily passing the CFTC’s review.
According to this standard, we carefully examine the currently popular blockchain tokens (such as BNB, Solana, Aptos, SUI, MATIC, ...), classic ERC-20 tokens (UNI, CRV, MAKER, AAVE, ...) and emerging inscription tokens (ORDI, SATS, ...), and then combine other judgment conditions (investment contract, use and consumption, functional and technical characteristics, market activities), we can at least roughly guess which of these tokens are likely to pass the review more easily based on the judgment criteria.
