New Crypto Regulation Draft Aims to Curb Industry Giants, Promote Market Transparency

A newly released draft of U.S. crypto legislation could significantly reduce the dominance of major crypto firms and open the door to broader market participation. The “Digital Asset Market Structure Discussion Draft,” introduced by House Republicans on May 5, includes a requirement for crypto project insiders to disclose token holdings above 1% of the total supply — a move expected to enhance transparency and limit outsized influence.

The bill, led by House Agriculture Committee Chair Glenn Thompson and Financial Services Committee Vice Chair French Hill, marks a significant revision of the earlier Financial Innovation and Technology for the 21st Century Act (FIT21). According to Justin Slaughter, Vice President of Regulatory Affairs at venture firm Paradigm, the updated draft is an “incremental, albeit meaningful, rewrite” of FIT21 that could foster a more equitable crypto ecosystem.

Lower Disclosure Threshold Targets Industry Concentration

One of the most notable changes in the new draft is the definition of an “affiliated person” — now anyone holding over 1% of a digital commodity, down from 5% in the earlier FIT21 version. Slaughter said this adjustment aims to diminish the influence of large stakeholders and “strongly encourage more small-d ‘democratization’ of the space.”

One-pager of the digital asset market structure discussion draft submitted by House Republicans on May 5. Source: US House Agriculture Committee

“This is a portent of the entire bill,” Slaughter noted in a May 5 post on X (formerly Twitter). “There are often criticisms of crypto being too dominated by a few large firms. This bill makes clear the regulatory regime proposed is going to push against that fact.”

SEC Role, DeFi Clarifications, and Regulatory Divisions

Under the draft framework, the Securities and Exchange Commission (SEC) would maintain primary oversight of digital asset activities until a project becomes “sufficiently decentralized.” This provides clearer guidance to projects navigating the regulatory gray zone between centralized offerings and decentralized platforms.

The bill also includes critical updates for decentralized finance (DeFi), stating that protocols enabling users to conduct financial transactions in a “self-directed manner” would be exempt from registration as digital commodity brokers or dealers.

To further distinguish crypto assets from traditional financial instruments, the draft redefines digital commodities as “investment contract assets.” This terminology signals that existing securities laws—such as the Howey Test—would only apply if the sale of a token includes ownership or profits in the issuing entity.

Source: Justin Slaughter

Bridging SEC and CFTC Oversight

The draft also outlines a dual-pathway framework, allowing crypto projects to raise capital under SEC oversight while offering a clear process to register digital commodities with the Commodity Futures Trading Commission (CFTC). According to a joint May 5 statement from House committee members, this setup aims to streamline compliance and reduce regulatory uncertainty.

If a registered digital asset falls out of compliance, the SEC and CFTC would be required to issue joint guidance on delisting procedures—another attempt at building a collaborative regulatory structure between agencies.

Republicans Call for Clear Crypto Rules, Slam Biden-Era Enforcement Tactics

In announcing the bill, House Republicans emphasized the urgency of crafting a comprehensive regulatory framework for digital assets, positioning it as a strategic tool to modernize U.S. financial infrastructure and maintain the U.S. dollar’s global leadership.

The lawmakers criticized the Biden administration and SEC Chair Gary Gensler for relying on a “regulation-by-enforcement” strategy, which they argue has stifled innovation and driven crypto companies offshore due to legal uncertainty.

“America needs to be the powerhouse for digital asset investment and innovation,” said Rep. Dusty Johnson, Chair of the Subcommittee on Commodity Markets, Digital Assets, and Rural Development. “For that to happen, we need a commonsense regulatory regime.”

Paradigm’s Slaughter echoed this sentiment, calling the draft “the bill that will, finally, provide a clear regulatory regime on crypto that many have been calling for.”

Political Pushback Emerges Over Draft Bill

Despite momentum from Republican lawmakers, the draft faces early political resistance. Rep. Maxine Waters, Ranking Member of the House Financial Services Committee, reportedly plans to block a GOP-led hearing scheduled for May 6 that would focus on the discussion draft.

Titled “American Innovation and the Future of Digital Assets,” the hearing aims to explore the impact and implications of the proposed legislation. However, according to a Democratic committee staffer, the event may violate procedural rules requiring bipartisan agreement for such hearings.