a16z: Why does the FIT21 bill help the development of the crypto industry?

Original title: Finally, a bill that helps our industry: why, how, and what to do
Original source: a16z

Original translation: TechFlow

At the end of this month, the House of Representatives will vote on an important bill (HR 4763) that we think you should pay attention to.

The Financial Innovation and Technology for the 21st Century Act, also known as the FIT21 Act, if passed, will make U.S. regulation of cryptocurrencies clearer, benefiting everyone in the industry. If this bill is passed, it will:

· Provide a safe and efficient path for blockchain projects to launch in the U.S.;

· Clarify the lines between the SEC and CFTC regarding who regulates what in crypto and whether digital assets are securities or commodities;

· Ensure oversight of cryptocurrency exchanges and further protect American consumers by enforcing rules for cryptocurrency trading.

We’ll share with you below why this is all so important.

What’s in this bill?

The FIT21 Act /HR 4763 establishes a regulatory framework for the U.S. digital asset market to:

· Address the unique structural issues of digital assets;

· Provide clear and robust consumer protections;

· Clarify which digital assets are regulated by the Commodity Futures Trading Commission (CFTC) and which are regulated by the Securities and Exchange Commission (SEC). This is important because there are important differences in the definitions of "commodities" and "securities", which have important implications for how they are regulated.

· If the blockchain or digital ledger on which the digital asset runs is functional and decentralized, the U.S. Commodity Futures Trading Commission (CFTC) will regulate the digital asset as a commodity.

· If its associated blockchain is functional but not decentralized, the U.S. Securities and Exchange Commission will regulate the digital asset as a security.

The bill defines decentralization as, among other requirements, if no one person has unilateral power to control the blockchain or its use, and if no issuer or affiliate has 20% or more control of the digital asset or voting power in the digital asset.

The bill also imposes other consumer protection requirements, such as segregation of customer funds; lockup periods for token insiders (to incentivize innovation rather than just speculation); annual sales volume limits; and disclosure requirements.

These protections bear some resemblance to those put in place by regulators after the Great Depression, following the excesses of the 1920s boom and the stock market crash of 1929, but once established, the United States ushered in an era of unprecedented growth and innovation in markets and the economy.

What's Not in This Bill?

Some in the industry are concerned that the bill gives the SEC too much jurisdiction because it sets a very high bar for decentralization, as well as the ability to reclaim any tokens or projects that re-centralize. Others are concerned that the bill does not draw clear lines for the jurisdiction of the SEC and the CFTC.

However, while this bill is not perfect, it will provide the crypto industry with the regulatory certainty it needs to continue to operate and innovate in the United States.

Some will ask, why is any form of regulation needed? No regulation is unrealistic, and clearer rules are better than confusing rules. Regulation, and a clear path for companies to comply, allows innovators to build trust with the public and provide useful products, while holding any actors with bad intentions more accountable.

Who is behind it?

The FIT21 Act is a joint effort of the House Financial Services Committee (which oversees the Securities and Exchange Commission) and the House Agriculture Committee (which oversees the Commodity Futures Trading Commission), with support from the industry. Last July, the Financial Services Committee passed the bill with the support of six Democrats and all Republicans on the committee, while it also passed the Agriculture Committee by unanimous consent. Since then, the bill has continued to enjoy bipartisan support.

Why now, and what you can do to help?

The vote on the bill will take place in the coming weeks, and it will be a referendum on cryptocurrency in the United States.

Therefore, it is critical to ensure that the bill passes with strong bipartisan support. After that, it will also need to pass the Senate and be signed into law by the President. So, we are now at a critical juncture. To do your part, we urge you to contact your local representatives through the Stand with Crypto website.

Why does this matter?

Despite the crypto industry having been around for more than a decade, there is no comprehensive regulatory framework for digital assets in the United States, and the current regulatory framework is fragmented, incomplete, and lacks clarity. This regulatory uncertainty not only creates a confusing environment for innovation, but also provides a breeding ground for bad actors. As we have seen, it is easy for companies and individuals with bad intentions to launch products that exploit regulatory gaps.

Meanwhile, responsible actors—legitimate entrepreneurs and startups—are subjected to questionable “enforcement-based regulation.” This approach harms American innovation, especially as other countries continue to innovate, and is detrimental to the long-term dominance of the dollar, to American consumers, and to the overall development of the U.S. economy.

Startup activity often moves abroad when other jurisdictions offer suitable regulatory regimes. This is not an abstract concern: startups create jobs, economic value, and may develop into the next big tech company. For example, Amazon, Apple, Facebook, Google, Microsoft, Netflix, Nvidia, and Salesforce were all founded in the United States, some in the past 20 years alone. Today they not only dominate market value, but also profoundly impact our daily lives. The FIT21 Act enables the crypto industry to have the same potential by creating an environment that supports innovation while avoiding a situation where a few large tech companies dominate the market and act as gatekeepers for the majority.

Whatever you think of cryptocurrency, it is more than just a financial opportunity; it represents a significant technology platform shift, just as personal computers, mobile phones, and the internet changed our world. While the internet is one of the most important technological innovations in human history, it is failing the consumers, creators, and developers who rely on it today. Blockchain, cryptocurrencies, and Web3 can solve this problem in many ways: from proof of authenticity against deepfakes and identity proofing against AI, to more voice and choice in social media platforms, to more inclusive payment systems, and more. But we need an enabling environment for these innovations to continue to thrive in the United States.

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