To maintain America as the financial capital of the world, the federal government needs to encourage innovation in the digital assets markets and protect consumers through thoughtful regulation. Here’s how:

Sen. Kirsten Gillibrand
6 min readJun 7, 2022

For many everyday Americans, the word “cryptocurrency” was not a household term until recently, when blockchain technology and its many potential uses arrived in the mainstream.

But since these digital tokens were first developed over a decade ago, virtual currencies and digital assets have grown into a $1.2 trillion industry that provides opportunities to spur innovation and economic growth, to democratize financial markets, and to transform access to capital for underserved communities. As of mid-April 2022, 18 percent of American adults reported owning some form of virtual currency. But that percentage is much higher among younger adults and those in marginalized communities. Because anyone with an internet connection can engage with and benefit from digital assets, the industry allows those who might not have easy access to basic financial services to overcome the hurdles associated with traditional financial systems. This has created great opportunities for many, but also carries serious financial risks in the current unregulated market.

As with any new technology, there are real risks to consumers, businesses, national security, and our financial system. These risks make sound regulation key. Furthermore, without a clear and defined regulatory framework to guide their businesses practices, digital asset companies could be compelled to take their operations overseas.

The bottom line is that it is absolutely critical that the U.S. plays a leading role in this new frontier.

That is why we are introducing the Responsible Financial Innovation Act, legislation that would create a regulatory framework for digital assets. This bipartisan package, which would address CFTC and SEC jurisdiction, stablecoin requirements, and the treatment of digital assets for tax purposes, would ultimately generate more flexibility, innovation, consumer protections, and transparency while providing more certainty and clarity to the growing digital assets industry.

Here’s more detail on what our package will do:

Create a clear standard for determining which digital assets are commodities and which are securities, providing clarity and structure for businesses and regulators. The bill makes a clear distinction between digital assets that are securities and commodities by looking at the purpose of the product being issued and the rights it conveys the consumer, giving digital asset companies the ability to determine what their regulatory obligations will be, and giving regulators the clarity needed to enforce existing commodities and securities trading laws. Lummis-Gillibrand accomplishes this by codifying precedents under the Howey test that an ancillary asset provided to a purchaser under an investment contract is presumed to be a commodity, unless the asset is debt or equity or provides profit sharing or similar rights. Lummis-Gillibrand also strengthens our existing laws by requiring tailored disclosures relating to ancillary assets that ensures consumers have the information they need to make sound financial decisions.

Create clear definitions. There is no common set of definitions for digital assets today. Lummis-Gillibrand creates definitions that will enable discussions about digital asset regulation to take place in a consistent way, and for all Americans to know the laws that affect them.

Assign regulatory authority over digital asset spot markets to the CFTC. Understanding that most digital assets are more similar to commodities than securities, the bill gives the CFTC clear authority over virtual currency spot markets, which aligns well with its current purview over other commodity markets. Digital assets that meet the definition of a commodity, such as bitcoin or ether, which comprise more than half of digital asset market capitalization, will be regulated by the CFTC.

Define and create strong requirements for stablecoins that will promote faster payments and will protect consumers. Payment stablecoins are increasing in use and adoption and when done correctly, could provide consumers with a faster way of making payments. The 100 percent reserve model guarantees that a stablecoin holder can always redeem the stablecoin with the issuer in exchange for the equivalent dollar value, which maintains its stable value and protects consumers from many of the potential risks in the stablecoin markets today.

Create an advisory committee to develop guiding principles, empower regulatory agencies, and advise lawmakers on fast-developing technologies. Lummis-Gillibrand creates an advisory committee composed of a diverse set of stakeholders, including industry, advocacy groups, federal and state regulators, and subject matter experts knowledgeable in consumer protection, consumer education, financial literacy, and financial inclusion. The committee is key to flexibility and for responding to rapid developments in the industry. It will continuously study the quickly changing digital asset industry and make recommendations based on new developments so that regulations remain relevant and effective.

Impose disclosure requirements on digital asset service providers to ensure that consumers understand the product and can make informed decisions when engaging with digital assets. Consumer education must remain a priority for digital asset service providers. Lummis-Gillibrand’s disclosure requirements on digital asset service providers will ensure that consumers understand the products they’re purchasing, their rights, as well the associated risks of engaging in digital assets, including source code version changes and digital asset lending.

Require a study on digital asset energy consumption. The bill directs the Federal Energy Regulatory Commission to analyze and report on energy consumption in the digital asset industry. Digital asset mining can be an energy-intensive endeavor. It is important to understand the energy demands of digital asset mining, as well as the innovative ways in which miners are harnessing existing energy sources and developing new energy sources to power their operations.

Direct the CFTC and the SEC to study and report on the development of a self-regulatory organization (SRO). SROs can play a complementary role, working with regulators to allow them to be more nimble and efficient, while maintaining strong supervision. However, the composition and scope of this kind of organization must be structured carefully in order to achieve the desired results.

Direct the CFTC and SEC to consult with the Department of the Treasury and the National Institute of Standards and Technology to develop comprehensive, principles-based guidance relating to cybersecurity for digital asset intermediaries. As we learn more about the ways in which countries like China and Russia are participating in digital asset markets, we need to prioritize the development of robust cybersecurity standards. It is important that the U.S. lead this regulatory effort so businesses and innovation remain onshore, ensuring that the U.S. will determine the cybersecurity standards that govern the industry. The bill directs the appropriate regulators to study the potential for sanctions avoidance, money laundering, and terrorist financing, and to develop rules around appropriate cybersecurity standards, threat identification and mitigation, security operations, auditing, and penetration testing.

Provide a regulatory sandbox for state and federal regulators to collaborate on innovative financial technologies. Innovation must be able to flourish in its early stages. The bill creates a joint structure in which federal and state regulators collaborate with financial technology companies to permit them to introduce innovative products into the market on a limited basis,allowing regulators to become more familiar with financial technology products in a controlled environment, and to participate in the consumer education and financial literacy work that is important to help them engage safely with the market.

Create a workable structure for the taxation of digital assets. As digital assets grow in use and legitimacy, it’s important to make it easier for people to use them in their everyday lives. Lummis-Gillibrand creates a de minimis exemption so people can make purchases with digital assets without having to account for and report income. The bill also clarifies the tax treatments of different actors and actions in the virtual currency system, including that miners and validators are not “brokers” for income tax purposes, and that their rewards shall not be counted as income until redeemed for cash.

Direct the Government Accountability Office (GAO) to conduct an analysis of the potential opportunities and risks associated with investing retirement savings in digital assets and to report its findings to Congress, Treasury, and the Department of Labor. Lummis-Gillibrand aims to avoid limiting consumers’ opportunities to benefit from this growing sector, while also ensuring that investments can be made safely, given that many Americans count on the benefits of retirement savings through 401k plans.

Direct the Office of Management and Budget, along with the Cybersecurity and Infrastructure Security Agency, the Director of National Intelligence, and the Department of Defense, to conduct an information security study around the digital yuan, China’s central bank digital currency. Central bank digital currencies (CBDCs) are growing in prevalence and it is important the U.S. understands the national security implications of the digital yuan and China’s intention to promote its adoption internationally.

Digital assets have the potential to spur innovation in new and revolutionary ways. But as the market’s recent volatility has shown, providing a regulatory framework is necessary for this industry to thrive. With the guidelines in our legislation to regulate digital assets, we can increase investor confidence, stabilize the market, and foster economic growth in communities across the country.



Sen. Kirsten Gillibrand

United States Senator for New York. Official Senate Medium account.