Oct 6, 2021 - Politics & Policy

GOP lawmaker introduces bill to provide legal clarity for crypto industry

Illustration of a pixelated coin hovering above a pedestal.

Illustration: Shoshana Gordon/Axios

Rep. Patrick McHenry (R-N.C.), a noted friend in Congress of the cryptocurrency industry, introduced a new bill Tuesday that aims to provide a framework for nascent digital token networks.

State of play: The bill would allow the networks to fundraise before they’re sufficiently decentralized — without being at risk of violating securities laws.

  • It would codify a safe harbor framework proposed in early 2020 (and revised last year) by SEC Commissioner Hester Peirce.

Why it matters: The crypto industry’s yearning for more regulatory clarity is complicated by the fact that while decentralized networks of digital tokens are not seen as securities under U.S. law, many start out as more centralized projects that would qualify as such.  

  • The Ethereum network, for example, grew to be decentralized over time, as no central individual or group controls its network or token supply any longer.
  • Industry lobbying groups, including the Blockchain Association, Coin Center and the Association for Digital Asset Market, expressed support for the bill. 

Context: Decentralized networks aren't considered securities because an individual or central group doesn't directly influence the development or value of the tokens — unlike in the case of companies issuing stock or bonds.

Details: McHenry's bill would give networks and their initial development teams a three-year grace period while they work to achieve decentralization. During that time, they’d still be required to provide certain disclosures.

What to watch: The bill's passage is a long shot, as virtually no cryptocurrency bill has gotten very far in Congress (unless it's an attempt to squeeze extra tax revenue from the industry).

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