House Committees Release Draft Digital Asset Market Structure Legislation

On May 5, 2025, the House Financial Services Committee (HFSC) and House Agriculture Committee (House Ag) released draft legislation establishing a digital asset market structure. The discussion draft was introduced by House Ag Chairman G.T. Thompson (R-PA), HFSC Chairman French Hill (R-AR), HFSC Digital Assets Subcommittee Chair Bryan Steil (R-WI), and House Ag Digital Assets Subcommittee Chair Dusty Johnson (R-SD), and would establish a regulatory framework for digital assets in the United States by defining key terms related to digital assets and blockchain, clarifying the application of securities and commodities laws to “digital commodity” transactions, establishing rules for intermediaries, and carving out certain DeFi activities from registration requirements.

Of note, the proposed framework defines “digital commodity” and “investment contract asset,” and introduces the concept of a “mature blockchain” with criteria to determine when a decentralized “blockchain system” may be certified as “mature.” Overall, the bill would increase Commodity Futures Trading Commission (CFTC) regulatory jurisdiction over digital assets while still maintaining Securities and Exchange Commission (SEC) jurisdiction over capital raising transactions. 

The DeFi Education Fund (DEF) is grateful to HFSC and the House Ag Committee for their tireless work on creating a U.S. regulatory framework for digital asset markets – one that focuses on consumer protection and information transparency, but respects disintermediation, decentralization, and the different technology at issue. 

As HFSC Chair Hill wrote in an op-ed predating the release of the discussion draft, one of the core principles of the legislation is to “ensure that decentralized protocols, which pose different risks and benefits, are not subject to regulations designed for centralized, custodial firms.” And, “in safeguarding decentralized activities, Congress must also protect an individual’s right to self-custody their digital assets.”

In the analysis below, DEF provides background on market structure, and specifically focuses on nuances in the draft text that could directly impact decentralized finance (DeFi), decentralization, and/or self-custodial technology. 

Background on Market Structure 

Market structure refers to how the various players, services, and rules in the financial markets are organized and regulated. Existing market structure laws in traditional finance, such as the Securities Act, Exchange Act, and Commodities Exchange Act, regulate trusted financial intermediaries as “covered registrants” (e.g., exchanges, brokers, dealers, and custodians). 

As explained in a one pager released by HFSC on the legislation, the biggest obstacle to innovation in digital assets is the lack of clear laws and regulations. The crux of the problem is that the existing legal frameworks regulating traditional financial institutions, including the securities statutes, are often incompatible with decentralized blockchain technology and digital assets.

No singular U.S. regulator currently has full authority over the offer and sale of non-security digital assets, which creates regulatory uncertainty. Thoughtfully crafted digital asset market structure legislation would help close the regulatory gap and provide the digital asset industry with much-needed clarity. 

Of note, there have been many past efforts to establish market structure legislation. In May of 2024, the House of Representatives passed the Financial Innovation and Technology for the 21st Century (FIT21) Act with an overwhelming bipartisan vote of 279-136. FIT21 was the first regulatory framework for digital asset market structure to pass a chamber of Congress, which reflected a bipartisan effort to provide regulatory clarity for the industry. Unfortunately, FIT21 was not picked up by the Senate before the closure of the 118th Congress.

The New Draft Market Structure Legislation

On May 5, 2025, HFSC and House Ag Leadership released a new draft of digital asset market structure legislation. 

Summary of the Draft Legislation

As mentioned above, at a high level, the 212-page draft defines key terms, introduces the concept of criteria to determine when a decentralized “blockchain system” may be certified as “mature,” and delineates jurisdiction between the CFTC and SEC with respect to digital assets and capital raising transactions. The bill also imposes certain consumer protection and disclosure requirements on centralized intermediaries while offering exemptions for certain decentralized finance activities. 

Based on the draft market structure text from May 5, the definition of “digital commodity” includes a commodity the “value of which is, or is reasonably expected to be, derived from the relationship of the commodity with the blockchain system to which the commodity relates.” Notably, the draft legislation would amend the Securities Act and Exchange Act by clarifying that the definition of an “investment contract” does not include “investment contract assets.” 

The bill defines an “investment contract asset” as a digital commodity that (i) can be exclusively transferred peer-to-peer via a blockchain, and (ii) is sold or transferred pursuant to an investment contract. This clarifies that a digital asset that is sold through an investment contract is not itself classified as an investment contract. The draft also clarifies that secondary transactions, defined as “transactions made by persons other than the issuer” would not be considered security transactions between the issuer and the purchaser under certain circumstances.

The draft text exempts a digital commodity issuer’s sale of digital commodities under the securities statutes if the underlying blockchain is certified as a “mature” blockchain or the issuer intends the blockchain to be certified as mature within a certain time frame, the aggregate amount of units of the digital commodity sold by the issuer in reliance on this exemption in the preceding 12 months does not exceed $150 million, no purchaser owns more than 10% of the total outstanding units, the issuer is a U.S.-based company that is not expressly excluded, and adequate disclosures are provided at the time of sale. However, the draft allows the SEC to retain authority over fraud, manipulation, and insider trading. 

The discussion draft also contains several productive exclusions for DeFi market participants and activities related to operating or developing blockchain technology, clearly paying mind to the technological differences between DeFi and traditional financial intermediaries. The draft also mandates a study on the risks and benefits of DeFi, and contains self-custody protections. 

Relevant Provisions on DeFi in the Draft Legislation: 

Section 101: Definitions Under the Securities Act of 1933

Section 101 provides definitions under the Securities Act of 1933, including critical definitions which are used throughout the bill, including: 

• “Blockchain”

• “Blockchain Application”

• “Blockchain Protocol” 

• “Blockchain System”

• “Decentralized Governance System” 

• “Digital Asset” 

• “Digital Asset Custodian” 

• “Mature Blockchain System”

• “Permitted Payment Stablecoin”  

Section 103: Definitions Under the Commodity Exchange Act

Section 103 provides definitions under the Securities Act of 1933, including critical definitions used throughout the bill for asset classification, certain centralized covered registrants, and critical definitions necessary to exempt certain decentralized financial activities from regulation meant for centralized intermediaries. For example: 

• “Digital Commodity”

• “Relationship to a Blockchain System” 

• “Digital Commodity Broker,” “Digital Commodity Dealer,” “Digital Commodity Exchange”

• “Decentralized Finance Trading Protocol” 

• “Decentralized Finance Messaging System” 

Section 105: Rulemakings 

Section 105 provides for several rulemakings to implement the legislation by the CFTC and the SEC. Critically, Under Section 105, the Department of Treasury and the Financial Crimes Enforcement Network (FinCEN) are prohibited from making any rule or order to prohibit U.S. individuals from maintaining wallets/facilitating self-custody of digital assets or conducting transactions with self-custodied assets “for any lawful purpose.” 

Section 202: Treatment of Secondary Transactions in Digital Commodities

Section 202 establishes that secondary market digital commodity transactions that do not provide or represent rights in the issuer or another business shall not be considered investment contracts under securities laws, a critical distinction for DeFi. This is particularly noteworthy because during the ‘regulation-by-enforcement’ era under the Biden Administration, the SEC inconsistently claimed that secondary market trading of digital assets constituted unregistered securities transactions. Per Judge Torres in the Ripple case, the SEC failed to adequately support that claim.

Under Section 202, peer-to-peer transactions are not considered investment contracts subject to the securities framework so long as they do not represent or give the purchaser an ownership interest or other interest in the revenues, profits, or assets of the issuer of such digital commodity or another business entity or person, or in assets acquired or to be acquired by any such person.

Section 205. Mature Blockchain System Requirements

Section 205 establishes a process for a digital commodity issuer, related or affiliated person to certify to the SEC that the blockchain system is “mature,” as well as the criteria used to certify maturity. Pursuant to Section 205, an issuer, related person, or affiliated person (and not any person) may certify to the SEC that a blockchain system is “mature,” and in doing so, demonstrate that the blockchain system is not “controlled by any person or group of persons under common control. Further, the Commission may issue rules under which a blockchain system and its related digital commodity can be deemed “mature.” The criteria for system maturity include: 

• “System Value”

  • “Market Value” 

  • “Development of Value Mechanism Substantially Completed”

• “Functional System”

• “Open System”

• “Programmatic System” 

• “System Governance”

• “Impartial System”

Notably, under the draft legislation, blockchain system maturity is a rebuttable presumption. This means that the SEC must notify the certifier if there is insufficient information to determine that the blockchain system is mature, or the blockchain system raises novel or complex issues that require additional time to review. 

Sections 309 and 409: Exclusions for Decentralized Finance Activities

Section 309 and 409 exempt certain DeFi activities related to the operation, function, and maintenance of blockchain systems and DeFi trading protocols from CFTC and SEC regulation. However, both Commissions will retain anti-fraud and anti-manipulation enforcement authorities. Exempt DeFi activities include: 

• Compiling network transactions or relaying, searching, sequencing, validating, or acting in a similar capacity with respect to a contract of sale of a digital asset.

• Providing computational work, operating a node or other services with respect to a contract of sale of a digital asset. 

• Providing user-interfaces that enables a user to read and access data about a blockchain system, send messages, or otherwise interact with a blockchain system. 

• Developing, publishing, constituting, administering, maintaining, or otherwise distributing a blockchain system or a decentralized finance trading protocol.

• Developing, publishing, constituting, administering, maintaining, or otherwise distributing a decentralized finance messaging system or operating or participating in a liquidity pool for the purpose of executing a contract of sale of a digital commodity. 

• Developing, publishing, constituting, administering, maintaining, or otherwise distributing software or systems that create or deploy hardware or software, including wallets or other systems, facilitating an individual user’s own personal ability to keep, safeguard, or custody the user’s digital commodities or related private keys. 

Section 504: Study on Decentralized Finance

Section 504 requires the CFTC and the SEC to conduct a joint study on DeFi. The proposed study would include: 

• An analysis of the size, scope, role, nature, and use of DeFi protocols; 

• The benefits and risks of DeFi; 

• How DeFi has integrated into the traditional financial markets, including the risks of DeFi integration; and, 

• The levels and types of illicit activities in DeFi compared to traditional financial markets. 

The CFTC and SEC have one year after enactment of the legislation to submit a report to Congress. The Government Accountability Office (GAO) is also required to conduct a report on DeFi and submit it to Congress one year after enactment. 

What’s next?

DEF provided feedback to the drafters focused on issues directly impacting DeFi, decentralization, and self-custodial technology. For example, DEF explained that more detail is needed on the exclusion to “DeFi messaging system” so as to ensure various DeFi nodes and software are not improperly excluded from the scope, more should be included to properly incentivize blockchain systems to decentralize, and the draft should include a definition for “control” with respect to user assets and power to alter a blockchain system. DEF also supported additional protections for self-custody and clarity for money services businesses-related regulation.

Discussions and debate around digital asset market structure legislation are ongoing and evolving. DEF is committed to keeping a pulse on the latest (subscribe to our DeFi Debrief for weekly updates), and we will continue to serve as a resource for Committee staff seeking the DeFi industry perspective. Ultimately, as in all our activities, DEF is focused on ensuring DeFi technology and market participants are accurately described, properly classified, and appropriately represented in legislation. 

For a section-by-section summary of the legislation from HFSC, click here. And, for a one page summary of the draft legislation, click here. 

This blog post was written by DEF's Policy Analyst Gavin Zavatone.