What might the proposed crypto bill for NFT mean?

After months of teasing a new U.S. regulatory body centered on crypto, U.S. Senator Cynthia Lumis (R-WY) of the Senate Banking Committee and Kirsten Gillibrand of the Senate Agriculture Committee (D-NY) introduced bipartisan legislation Tuesday.

Although the 69-page bill does not address NFTs, it does provide important information that will help determine whether a token is considered a ‘product’ rather than a ‘security’.

Define ‘digital assets’ and ‘virtual currencies’

In its current form, Lumis’ and Gillibrand’s bill defines a ‘digital asset’ as a native electronic asset that grants economic or proprietary access rights and includes virtual currency and payment stablecoin.

The bill subsequently defines “virtual currency” as a digital asset that is “primarily” used as a medium of exchange, unit of account or value store and not supported by an underlying financial asset.

Most crypto will be ‘products’

The 69-page bill, known as the ‘Responsible Financial Innovation Act’, encourages ‘responsible innovation’, where much of the crypto market will fall under the Commodity Futures Trading Commission (CFTC) – rather than the SEC’s stern expectations and reporting requirements.

However, it still leaves a wide array of tokens under the supervision of the SEC. The language of the bill designates digital currency as an “ancillary asset” or a vague, fungus asset that is offered or sold in conjunction with a security purchase and sale. Under US law and the jurisdiction of the CFTC, these ancillary assets will be treated as “commodities”.

Sense aides Lumis and Gillibrand added that the bill treats all digital assets as “ancillary” unless they act as a protection that a corporation typically issues to investors to raise capital – such as dividends, liquidation rights or issuers of financial interests.

Companies can register as ‘Digital Asset Exchange’

Although the bill seeks to regulate ‘digital asset exchange’, it distinguishes between ‘centralized’ and ‘decentralized’ exchanges – it actually fails to determine what is ‘digital asset exchange’.

An attorney presents an automated market maker (AMM), liquidity pool, or front-end estimates of a decentralized platform for these purposes. Brandon Ferrick, general counsel of Injective Labs, has identified what he believes is an “internal inconsistency” that points to manufacturers’ inability to individually change or influence the project or organization they create.

“So in the case of a decentralized platform here, if the law requires that the platform only list certain … tokens, if the person who creates and publishes it no longer retains the ability to comply with that law, then you are going to 100 every time. % Fails … This reflects a misunderstanding of what’s going on with the underlying technology, “he said. The Defiant.

Stablecoin providers must disclose their reserves publicly

Earlier this week, the New York State Department of Financial Services released new rules for licensed cryptocurrency firms that issue stablecoins, calling for reserve requirements and monthly independent audits that could affect existing holders of state bitcoin license holders.

The New York Landmark Crypto Regulation, BitLicense, which was first introduced in 2015, allows a company to conduct virtual currency business activities involving New York or New York residents.

However, under Lummis’ and Gillibrand’s bills, stablecoin providers must disclose their reserves publicly and be 100 percent supported by cash through regular audits. This could raise questions for Circle and Tether, the two largest stablecoin issuers, which recently revealed that their products are backed by a combination of cash, cash-strapped products, short-term securities and commercial paper.

According to Lumis, full-time audits will be the first industry for stablecoins.

Although the bill will not receive much traction until 2023, due to the upcoming mid-November elections, it will still set the stage for strong regulatory action.

Depending on the size and complexity of the bill, legislators may be placed in a position to analyze and pass its individual components, including bill amendments that speak directly to the NFT.

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