Founder of Web3 Working Group Discusses Updated Crypto Legislation: The Responsible Financial Innovation Act of 2023

Earlier today, Senator Cynthia Lummis and Senator Kirsten Gillibrand reintroduced comprehensive legislation aiming to provide updated rules to enable crypto asset innovation while ensuring consumer protection. In 2022, the two Senators released draft legislation that was described as a major step forward for the digital asset industry. At that time, Senator Lummis stated:

“The United States is the global financial leader, and to ensure the next generation of Americans enjoys greater opportunity, it is critical to integrate digital assets into existing law and to harness the efficiency and transparency of this asset class while addressing risk.”

Unfortunately for the Senators, the bipartisan bill did not capture sufficient support to move out of the Committee and to the Senate floor for a vote. Perhaps, the second attempt will fare better.

CI connected with Amy James, founder of Web3 Working Group, which has been following the legislation and is assessing its impact on the digital asset sector.

Web3 Working Group is a 501(c)(3) nonprofit organization created to educate regulators and the public about how Web3 will “permanently restore user control of cyberspace, replacing centralized control with transparent and permissionless protocols through incentives aligned with users.”

We asked James about her impressions of the updated legislation as to what is new and improved. She said the legislation has increased focus on consumer protection.

“After a year of bad news from the collapse of Terra, Celsius, FTX & others, regulatory clarity is urgently needed,” said James. “Lack of regulation is hurting the industry and putting consumers at risk. The bill addresses consumer protection issues such as mandatory proof of reserves, plain language requirements, advertising, and the role of the FTC [Federal Trade Commission]. One of the best aspects of the bill is that it defines a path for crypto assets to be classified as commodities. If a token doesn’t represent ownership in a project or come with rights to dividends, it’s a commodity – not a security.”

As the first attempt failed to make any headway due to insufficient bipartisan support, we asked James if she believed the legislation will gain sufficient bipartisan support from the Senate Banking Committee where it will need approval if it is to make it to the Senate floor.

James said it is noteworthy that three of the provisions were originally proposed by Senators Elizabeth Warren and Roger Marshall in their Digital Asset Anti-Money Laundering Act in 2022. James said hat hopefully this signals the legislature is ready to work together to do what’s right for the American people.

As several international jurisdictions have moved forward with digital asset regulation, most notably MiCA (Markets in Crypto Assets) legislation in the European Union, we asked if this had influenced the Senators in the revamped bill.

“It’s interesting that at this stage of Web3 development, the EU has more regulatory clarity than the US, which is the opposite of Web1,” stated James. “A positive regulatory environment in the US and an overly restrictive one in the EU during the Web1 era resulted in the US dominating the tech sector.”

James said there is a very real threat the US could lose its position in digital asset innovation if ongoing regulatory uncertainty persists.

“Entrepreneurs face enough risk in building a business without the looming threat of surprise prosecution, they will go where regulation supports innovation,” she said.

And what about the legislation that is working its way through the House – which is viewed as a more crypto-friendly part of Congress?

“The legislation in both the Senate and House defines a new class of asset. In the Senate bill, it’s called an ‘ancillary asset,’ in the House bill it’s called a ‘restricted digital asset.’ This illustrates how new technology needs new rules. Trying to force the old rules to work doesn’t offer the intended consumer protection, and harms our ability to compete in the global marketplace,” James said.

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