Key House Committee Chairs Release Draft Bill on Digital Asset Market Structure: Bill Would Establish CFTC/SEC Regulatory Authorities for Digital Assets and Codify DeFi Boundaries

On May 5, 2025, the Republican committee chairs in the US House of Representatives with jurisdiction over digital asset legislation released a digital asset market structure discussion draft bill (the “Discussion Draft”).¹ The Discussion Draft would create a regulatory framework for digital asset markets by establishing the regulatory authorities and responsibilities of the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) for digital assets. The Discussion Draft is significant as its sponsors include the chairs of both the House Financial Services Committee and the House Agriculture Committee, the two committees with jurisdiction over the bill. This signals that any potentially problematic committee jurisdictional matters with the bill have been resolved. It is expected that the legislation could be marked up by the committees as early as June.²

With the US Senate moving first on stablecoin legislation and now set to pass the GENIUS Act next week, the US House of Representatives appears eager to move first on digital asset market structure legislation. Given that the Senate Banking Committee has yet to hold hearings on digital asset market structure, any digital asset market structure legislation passed by the House of Representatives is likely to serve the base text for Congressional negotiations over the final market structure legislation to be passed by both the House and Senate. Because President Donald Trump has made establishing a digital asset regulatory regime his top financial services policy priority, it is likely that Congress passes both stablecoin legislation (the GENIUS Act) and market structure legislation by the end of the 119th Congress. Nevertheless, we expect Congressional negotiations over a digital asset market structure bill to be more time intensive and complex than those for stablecoin legislation due to the regulatory issues involved and the broader range of entities impacted by such a bill. 

The Discussion Draft builds on the framework established by the H.R. 4763, Financial Innovation and Technology for the 21st Century Act (“FIT21”), which passed in the House last year by a vote of 279-136, but stalled in the Senate before the end of the 118th Congress. Like FIT21, the Discussion Draft would: (i) confirm the Commodity Futures Trading Commission (“CFTC”) as the primary regulator of spot market digital commodities; (ii) codify a limited antifraud and manipulation role for the Securities and Exchange Commission (“SEC”); and (iii) create new registration tracks for market intermediaries while bringing decentralized finance (“DeFi”) activities within a definable compliance perimeter.

In this Legal Update, we summarize the Discussion Draft’s key provisions and highlight its differences from FIT21.

Key Differences from FIT21

• The Discussion Draft expressly grants the CFTC exclusive jurisdiction over cash and spot transactions in “digital commodities” and “permitted payment stablecoins” executed on, or through, a registered digital commodity exchange.
• Intermediaries that handle digital commodities must register with the CFTC, even if they are already SEC-registered broker-dealers or exchanges (which may create overlapping compliance obligations, e.g., disclosures and examinations, although the notice-based registration process should not create a duplicative burden). This statutory requirement clarifies an area that FIT21 had left to interagency coordination and future rulemaking.
• FIT21 defined “permitted payment stablecoins” without assigning a lead regulator. The Discussion Draft does so: stablecoin transactions on CFTC-registered venues fall under CFTC oversight, while the SEC retains only anti-fraud and anti-manipulation authority over transactions in permitted payment stablecoins on SEC-registered platforms; as expected, the issuance of stablecoins is not addressed in the Discussion Draft.
• Where FIT21 used a principles-based safe harbor for DeFi activities, the Discussion Draft lists specific infrastructure activities (e.g., hosting a front-end interface, running a node, or publishing code) that alone do not trigger CFTC or SEC registration, and preserves those agencies’ enforcement authority over fraud and manipulation. It also clarifies when actors must register as a digital commodity exchange based on control or intermediation; for example, when they exercise custody over user assets, act as a counterparty, or facilitate settlement or liquidity provision in exchange for compensation.
• Discussion Draft includes a more detailed notice of intent regime than FIT21, allowing firms to operate provisionally as a digital commodity exchange, broker, or dealer while final CFTC rules are developed, provided they segregate customer assets, join a registered futures association, and maintain baseline public disclosures.

Digital Asset Categories and Jurisdiction

The Discussion Draft retains FIT21’s three-part framework: (i) restricted digital asset securities, regulated by the SEC; (ii) digital commodities, regulated by the CFTC; and (iii) permitted payment stablecoins, subject to dual oversight. However, it expands on FIT21 by expressly authorizing financial holding companies that are regulated by the Board of Governors of the Federal Reserve System to engage in activities related to digital commodities.

The draft legislation maintains the concept of a “digital commodity,” but introduces a more precise test, tied to the blockchain system’s functional operation and programming, while preserving FIT21’s decentralization threshold through the concept of a “mature blockchain system.” (Discussion Draft §101-104).

Stablecoins: Codified Treatment and CFTC Role

A “permitted payment stablecoin” must be fiat‑pegged, redeemable one‑for‑one, and issued by a state‑ or federally regulated entity. When traded or custodied on a CFTC‑registered platform, the stablecoin is excluded from the statutory definition of a security and primary market‑oversight shifts to the CFTC under the Commodity Exchange Act (as amended by the Discussion Draft), except to the extent the transaction occurs on an SEC‑registered broker‑dealer or ATS, where the SEC retains antifraud authority. (Discussion Draft §301-302).

The Discussion Draft’s stablecoin trading and custody framework appears intended to complement the GENIUS Act, which addresses stablecoin issuance and prudential supervision.

Digital Commodity Intermediaries and Dual Registration

The Discussion Draft creates new registration categories for market participants handling spot digital commodity transactions that will be administered by the CFTC. These provisions apply regardless of whether the entity is already registered with the SEC, representing an evolution from FIT21’s general framework toward dual compliance obligations—meaning that certain firms may need to satisfy parallel sets of registration forms, examinations, disclosure, recordkeeping, and capital requirements under both agencies, as well as anti-money laundering obligations under the Bank Secrecy Act. However, the CFTC will only be empowered to regulate and supervise the digital commodity-related activities of a dual-registrant, with the SEC retaining sole authority to regulate and supervise securities-related activities, similar to the current allocation frameworks for (i) futures contracts and securities and (ii) swaps and security-based swaps.

• Exchanges: A platform listing digital commodities for spot trading must register as a digital commodity exchange and comply with core principles modeled on those for designated contract markets (“DCMs”), including fair access, market integrity, and operational safeguards. Exchanges also become subject to new capital and customer‑asset segregation requirements. (Discussion Draft §404).
• Brokers/Dealers: Any person that solicits, accepts, or acts as a counterparty in spot digital commodity trades must register as a digital commodity broker or dealer, and will be subject to capital, risk management, disclosure, and recordkeeping obligations to be prescribed by the CFTC. (Discussion Draft §406). SEC‑registered broker‑dealers engaging in spot activity must therefore file notice and maintain CFTC compliance. (Discussion Draft §411).

The Discussion Draft permits both new entrants and SEC-registered firms to file a notice of intent with the CFTC to operate provisionally while final CFTC rules are being developed. To qualify, firms must segregate customer assets, join a registered futures association, and maintain baseline public disclosures. Provisional status terminates once the CFTC’s final registration rules are adopted, after which no new notices may be filed (i.e., new registrants will need to rely on actual registration, not provisional registration). (Discussion Draft §106).

Drawing Clearer Boundaries Around DeFi

The Discussion Draft codifies a limited exemption for certain decentralized finance (DeFi) activities that do not, by themselves, trigger registration. Under the proposed language, a person is not required to register solely by reason of: (i) developing or publishing software code; (ii) validating transactions through a consensus mechanism; (iii) providing computing power or storage for a blockchain; or (iv) providing a non-custodial user interface to a protocol, so long as the person does not take possession of customer assets, exercise counterparty discretion, or route orders.

However, the Discussion Draft also expressly identifies when registration is required: where a person acts as a counterparty, exercises custody, discretionary control, or otherwise engages in intermediary functions, registration with the CFTC or SEC may be required, depending on the nature of the asset and activity. This carve‑out does not limit either agency’s ability to bring antifraud or market‑manipulation actions under the Commodity Exchange Act or federal securities laws. (Discussion Draft §309, 409).

Retained SEC Authority, Mixed-Activity Oversight, and SAB121

The SEC retains antifraud and market‑integrity authority when digital commodities or permitted payment stablecoins trade on SEC‑registered broker‑dealers, exchanges, or ATSs. The Discussion Draft also adds new Section 45 to the Exchange Act, directing the SEC to issue rules for “mixed transactions” that involve both restricted digital assets and digital commodities, providing a framework for products or protocols that contain attributes of each asset class.

The Discussion Draft retains FIT21’s Section 310, designed to override SEC Staff Accounting Bulletin No. 121 (“SAB 121”) for banking organizations, which had the effect of requiring banks to record client-custodied crypto assets as on-balance-sheet liabilities and, in practice, discouraged them from offering digital-asset custody services. (Discussion Draft §310; FIT21 §310). While the SEC rescinded SAB 121 in January 2025, continued inclusion of Section 310 could function as a statutory backstop and may work to prevent any future reimposition of SAB 121-style liability recognition by the SEC or banking regulators.

Implementation Timeline and Rulemakings

The Discussion Draft mandates multiple joint rulemakings on a fixed statutory timeline, underscoring the importance of early engagement with the regulatory process. Comment periods on definitions, the DeFi carveout, and intermediary standards will play a key role in shaping how the statute is implemented and enforced.

• Within 30 days of enactment, the SEC and CFTC must jointly issue rules, procedures, or guidance defining key terms (including “restricted digital asset,” “digital commodity,” and “permitted payment stablecoin”) and establishing a delisting process to let intermediaries reclassify assets that no longer meet the criteria for their registered category. (Discussion Draft §105).
• To fund implementation, the CFTC is authorized to impose and collect fees from registrants for a period of four fiscal years following enactment. This temporary fee authority sunsets automatically, creating an incentive for timely rulemaking and transition to a more permanent funding framework. (Discussion Draft §410).
• Creates a statutory safe harbor for self-custody wallets, preempting any future FinCEN or Treasury rule that would prohibit their lawful use. The provision appears to respond to a 2020 FinCEN proposal that would have required banks and custodians to collect identity information for withdrawals to unhosted wallets. (Discussion Draft §105).

¹ The Discussion Draft was introduced jointly by the House Committee on Financial Services Chairman Representative French Hill (R-AR), House Committee on Agriculture Chairman G.T. Thompson (R-PA), House Committee on Financial Services Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence Chair Bryan Steil (R-WI), and House Committee on Agriculture Subcommittee on Commodity Markets, Digital Assets, and Rural Development Chair Dusty Johnson (R-SD).

² The House Financial Services Committee has scheduled a markup for June 10, but has yet to release the legislation to be considered during that hearing.