We welcome the release today of six key principles on which to base this future legislation, from Reps. They are to be commended for their focus on innovation, regulatory clarity and consumer protection. Their proposal, as described in an op-ed published on April 4, would provide much-needed legal certainty for the digital asset market. It addresses critical questions such as asset classification, issuance of new assets, protection of assets held by customers, and regulation of spot market exchanges. Beyond tech, the principles aim to protect individual rights to self-custody and self-determine their investments, and foster decentralized projects. On this issue, Congress is rightly moving in the right direction with the Financial Innovation and Technology for the 21st Century Act (FIT21) under consideration. These measures would help delineate the jurisdictions of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in regulating digital assets.

Hill and Thompson’s first principle is a great touchstone for ensuring that innovation is at the forefront of regulatory efforts over the digital asset space. This is a good indication that they want to establish a regulatory environment that fosters the development and adoption of new technologies.

The second principle zeroes in on the need for more specific digital asset classifications. This has been a major grievance and thorn-in-the-side for the industry. Properly classifying a digital asset as either a security or a commodity is key. This decision is a tremendous blow to regulatory oversight.

users of digital assets should clearly understand the nature of their holdings, including whether they qualify as securities or non-securities. - Reps. Hill and Thompson

The third principle is establishing a framework for how new digital assets are issued. This would provide guidelines for companies looking to launch new digital assets, ensuring compliance and investor protection.

The fourth principle focuses on developing best practices to protect customer assets. This involves implementing policies to protect the money from fraud and theft.

segregate customer funds and hold them with qualified custodians. - Reps. Hill and Thompson

The fifth principle supports regulating the exchanges and intermediaries that make up the spot market. This would require these platforms to come under the appropriate regulatory oversight, providing for protections against unfair trading practices and market manipulations.

Congress should provide the Commodity Futures Trading Commission (CFTC) with the authority to impose requirements over these entities necessary to protect customers, limit conflicts of interest, ensure appropriate execution of customer orders, and provide disclosures. - Reps. Hill and Thompson

The sixth principle is indeed twofold—protecting not just an individual’s right to self-custody their digital assets, but also innovative, decentralized projects. Self custody gives users the tools to take control of their digital assets. Mutually, by protecting decentralized projects, values-based regulation keeps projects out of the reach of overly burdensome regulations, creating space for innovation.

Congress must also protect an individual’s right to self-custody their digital assets. - Reps. Hill and Thompson

Congress should ensure that decentralized protocols, which pose different risks and benefits, are not subject to regulations designed for centralized, custodial firms. - Reps. Hill and Thompson

The Financial Innovation and Technology for the 21st Century Act (FIT21) is a key piece of legislation in this area. FIT21’s main goal is to provide guidance on which government agencies will have jurisdiction over certain tokens and digital asset platforms. Expiring transferability Last May, that bill passed a House floor vote with overwhelming bipartisan support—279-136. It is currently in the Senate where it has been referred to the Committee on Banking, Housing and Urban Affairs for consideration.

FIT21 addresses the long-standing discussion on the SEC’s heavy-handed regulatory approach to digital assets. This issue is at the heart of their mission. Despite its enforcement actions, the SEC has not provided guidance on how existing securities laws should apply to digital assets. This new regulatory requirement has ignited significant debate between regulators and industry stakeholders.

Under FIT21, the CFTC would take on a major oversight role, probably to the detriment of the SEC’s authority. This indicates the belief that most digital assets operate like commoditized goods, and thus should be treated and regulated like commodities.

Reps. Hill and Thompson’s message about balance in the digital asset space is an important one. We need to foster innovation but we need to keep consumers safe. Their six principles are a helpful set of guiding ideas to begin finding that balance.

seek to protect opportunities for innovators to create and utilize digital assets while ensuring users can lawfully transact with one another. - Reps. Hill and Thompson