A quick look at the Lummis-Gillibrand Bill, a comprehensive regulatory bill for crypto assets in the United States

In the past two days, a comprehensive legislative document on crypto assets from the U.S. Senate has been circulated online. It comes from Senators Kirsten Gillibrand and Cynthia Lummis, and the name of the bill is tentatively named "Lummis-Gillibrand Crypto Bill". The document is 67 pages long and covers crypto assets, taxation, allocation of regulatory power, crypto asset exchanges, consumer protection, stablecoins and banks, DeFi, etc. Of course, the document has not yet passed both houses and may be further revised in the future, but we might as well take a brief look at the overall regulatory framework and logic of crypto assets in the United States.

1. The bill formally defines a payment stablecoin, which must be (1) redeemable at any time for US dollar legal tender or other countries' legal tender (2) issued by a commercial entity (3) collateralized by one or more financial assets, but not crypto assets (4) intended to be a medium of exchange. Under this definition, USDT and USDC can be counted as payment stablecoins, but on-chain collateral stablecoins such as Dai and algorithmic stablecoins will not be payment stablecoins.

2. Comprehensive regulations on tax issues related to crypto assets. For example, taxes are imposed on the purchase of goods and services using crypto assets, and the Ministry of Finance is required to impose corresponding taxes on forks, airdrops, mining, pledges, etc.

3. Require the U.S. General Accounting Office to submit a report by March 2023 to study the pros and cons of incorporating crypto assets into U.S. pension funds, related asset allocation recommendations, risks, and required investor education and training.

4. A new concept has been introduced into the U.S. Securities Exchange Act (SEA) - Ancillary Assets, which are assets that have no voting rights, no dividend rights, are not debts or stocks, and have no liquidation rights or other financial powers. According to this definition, traditional native tokens such as Bitcoin and Ethereum will fall into this category. The bill will make detailed provisions for the information disclosure of the issuers of ancillary assets.

5. The concept of crypto assets was formally introduced in the U.S. Commodity Exchange Act (CEA). According to the current definition, most tokens without dividends and control rights (including Bitcoin and Ethereum, etc.) will be classified as commodities and regulated by the U.S. Commodity Futures Trading Commission (CFTC).

6. The supervision of crypto asset exchanges is becoming stricter. Exchanges must submit applications to the CFTC and obtain approval. Exchanges cannot provide any derivative services involving crypto assets. They can only provide trading services for crypto assets that are not controlled. When providing trading services, they must carefully consider the purpose, creation method, consensus method, management structure, holder distribution, function and other factors of crypto assets. Crypto assets that belong to customers and are held by the exchange must be managed separately from self-held assets. It is strictly forbidden to use crypto assets or legal currency assets held by customers for other purposes. A system firewall must be established, and good financial conditions and management capabilities must be maintained. And so on and so forth. . .

7. A large number of new provisions have been revised in terms of consumer protection, including prior information disclosure, seeking consumer consent, source code related to crypto assets, repeated mortgage and lending of crypto assets, etc.

8. Banks and savings institutions are allowed to issue their own payment stablecoins, but they must be 100% collateralized by high-quality liquid assets (such as reserves or US Treasury bonds). At the same time, in order to maintain competition within the industry, non-savings institutions are also allowed to apply to become savings institutions and then issue their own stablecoins. This seems to mean that the management of USDT and USDC needs to apply to become a savings institution.

9. The Federal Reserve and the Currency Office are required to study the risks that blockchain poses to depository institutions. The bill specifically mentions that Congress believes that blockchain settlement is much faster than traditional settlement, which may lead to the transfer of payment settlement to the field of crypto assets.

10. Within one year after the bill is promulgated, the Treasury Department, CFTC, and SEC need to jointly submit a report analyzing the current status of DeFi development in the United States and other countries around the world, the opportunities and challenges of DeFi, DeFi's rates and liquidity, transparency, and security.

In general, the regulation of crypto assets follows the American proverb "If it walks like a duck, it quacks like a duck, it's a duck", and different types of crypto assets are regulated according to the traditional financial assets that they are most similar to. Although the regulations seem very strict, they also leave room for innovation and competition. There are two interesting points. One is that the relevant regulation of algorithmic stablecoins has not been mentioned yet, and the other is that the bill specifically requires the US Treasury to investigate the use of E-CNY within the US government.