The Responsible Financial Innovation Act dropped this Tuesday, garnering a lot of attention and making good on its promise to provide a comprehensive framework for some of the crypto industry's biggest roadblocks, including stablecoins and taxes. Although It may take at least a year to get passed, it’s a huge deal in the history of crypto, so let’s take a deeper look.

What makes this bill so impactful is its consideration of crypto beyond its use as digital money. Senators Gillibrand and Lummis built this piece to combine current use cases with future potential to support crypto’s place in culture and the economy as more than just a currency or a store of value. To recognize all cryptocurrencies as securities proves short-sighted because it doesn’t leave room for all of the different ways it could be applied to—and improve—our daily lives.

Perhaps the most remarkable part of this legislature is its clear differentiation between what’s considered a crypto commodity and what’s considered a crypto security. The reason behind this is that each outlet shunts to a different section of regulators, commodities to the Commodity Futures Trading Commission (CFTC) and securities to the Securities Exchange Commission (SEC). Under this new bill, cryptocurrencies will be categorized based on their use case.

“We looked at the purpose of these digital assets,” said Gillibrand in an interview with Yahoo Finance, “and if the purpose is like a stock, where you are offering it for money to start a company like you offer stock in a company, then that would then be clarified as a security…We follow the Howey Test, which is the definition of what a security is, and we make sure that these digital assets can be analyzed in that framework.” (YouTube)

This could serve as a major turning point. Regulators struggle to define crypto due to its innumerable use cases and its unfamiliar market behavior, creating a regulatory bear trap for crypto businesses from the very day digital assets went mainstream. This categorization would provide the foundation the industry needs to bring crypto to consumer culture without having to wonder if they’re crossing an invisible line or stepping into legal quicksand.

The list of cryptocurrencies that could fall under CFTC regulation, which are referred to as “ancillary assets” in the bill itself, currently covers the top 200 cryptocurrencies currently listed on CoinMarketCap, including Bitcoin (BTC) and Ethereum (ETH). Considering that those 2 assets alone make up a large majority of investor holdings, this would be a powerful shift. However, these platforms that aren’t under SEC guidance will have to provide scheduled disclosures highlighting pertinent information, such as how many tokens they issue. This way, these decentralized platforms still provide full transparency surrounding their financial practice.  

In another landmark move, the bill covers the regulation of stablecoins, a topic that is certainly front-and-center as of late. Of major note, the act would mandate all stablecoin issuers to maintain a 100% reserve to ensure the liquidity of investors’ assets. This would ensure that stablecoins are actually, well, stable, with direct one-to-one reserves for every coin. It may also give banks a chance to leverage digital currencies in their ecosystems. (Decrypt)

When you add the other facets of The Responsible Financial Innovation Act to the mix, such as its call for environmental safeguards and eradication of capital gains taxation on amounts of less than $200, the coverage is staggering. It’s a massive accomplishment, backed by at least a year of research, collaborations, and interviews with Senators Lummis and Gillibrand regarding the piece are everywhere. From the stairs of Capitol Hill to their office chairs, they answer a host of questions with one standing out in both frequency and urgency: What about your Senate colleagues?

This is fair because it’s not news that the Senate is comprised of several voices that speak with great gusto against crypto (even though these voices often lack the crypto market savvy to back it up). Despite this, Lummis stated in an interview with CNBC that the Senators found “very receptive people on both sides of the aisle.” Senator Lummis did admit that it took many hours of meetings with leaders from the finance committees overseeing the bill to get there but believed the outcome to be promising. (CNBC)

Of course, these regulations were met with some pushback from voices outside of Capitol Hill who fear regulation will somehow limit the future of crypto. Dennis Kelleher, CEO of Better Markets, spoke out against the bill’s involvement with the CFTC “even though it exists to police markets where physical producers and purchases of commodities like corn, wheat, oil, natural gas, hogs, and cattle hedge their price risk to facilitate the delivery of everyday goods to the American people.”

Others felt the legislation was unwarranted, with people like Mark Hays, a policy analyst for Americans for Financial Reform, deeming it unnecessary and possibly harmful for investors: “Too many lawmakers are rushing to introduce legislation that, in the name of fostering innovation, could legitimize bad actors and bad practices.” (Coindesk)

Arguments like that of Hays are countered by the overall positive reception from the crypto industry that proves grateful for the chance to have a defined framework. As it stands now, many industry leaders are trying their best to adhere to guidelines created on the fly—this bill could help narrow down the scope which would enable them to lock in on what's actually relevant to their bottom line and leave room for upward innovation.

“The ongoing turf war among federal regulators for oversight of the sector has been a hindrance to the industry’s growth potential,” said David Carlisle, who is Head of Policy and Regulatory Affairs at Elliptic. “By placing most supervisory authorities under the CFTC’s remit, the bill will help to streamline the currently fragmented regulatory landscape and will put the US in a better position to both foster innovation while ensuring more effective regulatory oversight.” (Blockworks)

All of that said, it’s great to see progress, even if it will take time for this bill to come to fruition. Under the current Senate, it appears it could take a minimum of a year before The Responsible Financial Innovation Act has a chance of passing, giving people plenty of time to consider what this could actually mean for the future of crypto.

For one thing, it’s nice to see legislators taking a thoughtful approach to the crypto market, looking past the inherent value of crypto and into its multiple use cases. It’s encouraging to see it acknowledged by government officials for all it can do aside from a few exclusive instances in which crypto is a security. Even though crypto is in its very nascent stages, Senators Lummis and Gillibrand seem to see that it has a greater purpose.

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