Witnesses Advocate for Tailored Regulation of Digital Assets

Before the United States Senate Subcommittee on Digital Assets, witnesses offered recommendations for improving the digital asset regulatory framework.

The following witnesses, among others, testified:

• Lewis Rinaudo Cohen, Partner at Cahill Gordon & Reindel LLP, recommended that a technology-neutral ancillary asset framework is the best approach for determining when digital asset transactions should be regulated as securities. He said that such a framework would allow for: (i) the implementation of clear, technology-neutral definitions; (ii) the creation of an ancillary asset category; and (iii) tailored disclosure requirements. To combat current regulatory uncertainty, he also proposed, among other things, appropriate oversight of secondary market activities and coordination with international regulators.
• Jonathan Jachym, Global Head of Policy and Government Relations at Kraken, a cryptocurrency exchange, emphasized the need for legislation to regulate centralized digital asset intermediaries. Mr. Jachym argued that such legislation would complement existing AML requirements. He criticized the US for lagging behind other jurisdictions in establishing fundamental market regulations for centralized intermediaries.
• Jai Massari, Cofounder and CLO of Lightspark Group Inc., stated that there is a need for a balanced regulatory framework for digital assets, particularly stablecoins. She argued that stablecoins should be treated as digital cash, with strong reserve backing and clear regulatory oversight to ensure fungibility. She also advocated for legal clarity in crypto market regulation, urging for a more tailored approach. She noted: "the application of the Howey test to crypto assets is an ill fit."
• Timothy G. Massad, Research Fellow and Director of the Digital Assets Policy Project at the Harvard Kennedy School, proposed the following framework for considering stablecoin regulation and legislation: (i) basic prudential and other requirements necessary to make stablecoins truly stable; (ii) preventing the use of stablecoins for financial crime and evasion of sanctions; (iii) the allocation of licensing, regulatory and supervisory responsibilities between federal and state authorities; (iv) issues pertaining to competition, concentration of power and achieving a level playing field; and (v) enforcement. He criticized the proposal to create a government-held bitcoin reserve.