Rapture #192: CFTC Making Moves on Crypto
Today, a bipartisan set of representatives from the House introduced the digital commodity exchange act of 2022. If passed, this bill would squarely put certain areas of crypto under the regulatory purview of the CFTC, which is seen to be a far more open-minded regulatory agency compared to the SEC.
Lets dive into the details of this bill. Note I am not a lawyer and thus my writings here by no means constitute advice or are even the correct takeaways.
Define digital commodity
This bill formally classifies digital commodities. Additionally, this bill enables the CFTC to oversee entities issuing digital commodities and entities that let users trade these digital commodities. Digital commodity is defined as "any any form of fungible intangible personal property that can be exclusively possessed and transferred person to person without necessary reliance on an intermediary," which is quite a broad definition and could likely be applied to a large portion of digital assets.
Note that the bill specifically states that a digital commodity excludes any asset that is an equity interest, debt interest, a profit share/revenue share derived solely from the managerial efforts of others, or an entitlement to any interest or dividend payment. In essence, the bill still leaves the door open for the SEC to have purview over assets that the agency views as securities.
Jurisdiction
This bill would give the CFTC exclusive jurisdiction over any agreement, contract, or transaction involving a contract of sale of a digital commodity in interstate commerce.
While this bill generally avoids giving the CFTC exclusive jurisdiction over presales (so many exemptions), it does enable the CFTC to have purview over digital commodities obtained through a transaction (i.e. an exchange).
Registered digital commodity exchange
Effectively, this bill would grandfather in existing exchanges and custodians into a new classification of registered digital commodity exchanges. If a trading facility has been continuously licensed as a money services business with the Department of the Treasury 5 since August 1, 2019, is a registered designated contract maker, or is a registered swap execution facility, submits documentation demonstrating the aforementioned licensing, and submits an assessment of the digital commodity units it permits to trade, the CFTC would view the company as a registered digital commodity exchange.
If a trading venue does opt to become a digital commodity exchange, they would become a member of a registered futures association and would more importantly be registered with the Secretary of Treasury as a Money Services Business, meaning they would not have to get money transmitter licenses for every state.
No requirements for creator of digital commodity
One of the largest takeaways from this bill is that the creators of digital commodities (i.e. DAOs/token based projects) will not be required to be registered for that specific asset to be traded on a registered digital commodity exchange.
In essence, this enables innovators to release tokens and, as long as they are considered commodities, their tokens can be listed on a digital commodity exchange.
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