1/ I have been in crypto a long time now and I have never been as excited about our prospects. With GENIUS and stables behind us, the sprint is now on to get market structure done.  The House opened the door by passing CLARITY with strong bipartisan support.  We wouldn’t be here without that great work.   In August 2025 though, all eyes turn to the Senate Banking Committee to build on CLARITY and give us a practical, workable and, most importantly, understandable, market structure framework.  So what does the Senate Banking’s discussion draft of the Responsible Financial Innovation Act (RFIA) look like?     A 🧵.

2/ The foundation of the RFIA is the common-sense concept of “ancillary assets”. Rather than getting tangled up in a seemingly endless series of nested technology-dependent definitions, the RFIA cuts right through the Gordian Knot by answering a simple question: why does crypto create such confusion when looked at through the securities laws?

3/ We have trouble understanding what crypto is because, going back to the Ethereum crowd sale, crypto has served two functions: First, the sale of new crypto assets was a great way to fundraise for new projects. But then, once live, crypto assets were also functional. They can be used for the governance of a blockchain system, to create incentives for economic participation in a system, or to access or pay for services on a system. The first function looks a lot like a securities transaction under Howey. The second looks like … a commodity – so what gives?

4/ “Ancillary assets” in the RFIA tackles this conundrum head on. An “ancillary asset” is an intangible, fungible asset (most often, a crypto asset) that is sold in an investment contract transaction. In one simple stroke, the RFIA distinguishes an investment scheme from the object of that scheme – the non-security asset people buy in an initial fundraising (securities) sale. No nested technology-dependent definitions needed.

5/ Unfortunately, there has been some unnecessary confusion about how this definition works. Can a traditional business somehow circumvent our securities laws by selling stock and calling it an “ancillary asset”?

6/ No.

7/ And why not? Because “ancillary asset” in the RFIA expressly excludes any asset that provides its owners an equity, debt or other interest in a company or other entity. So, no – Amazon will not stop being an SEC reporting company and start selling their stock and calling it an “ancillary asset”.

8/ But the edge cases, you ask! Surely, there must be something that could slip through the cracks? What about the FTT tokens issued by FTX, for example? Sorry – FTX promised to use its trading profits to redeem the tokens. The RFIA definition excludes that from “ancillary asset” status.

9/ Of equal importance, the RFIA sensibly balances the public interest in disclosures about the project related to the asset with the practicalities of not imposing burdens on token sellers where disclosures serve no meaningful purpose. Under RFIA, disclosures by “ancillary asset originators” only kick in if a minimum about of funds have been raised ($5 mm), and if the asset’s daily average trading volume exceeds $5 mm. So small, below-the-radar projects don’t get caught in a bureaucratic net.

10/ Not only that, the RFIA also tracks a well-known securities concept and clearly excludes bona fide foreign originators from having to provide US-focused disclosures where the originator never triggered US jurisdiction. Nice.

11/ There’s even a simple rule to determine which entity will have disclosure obligations – it’s the entity that conducted the initial fundraising sale but, if that entity did not receive the largest amount of the ancillary assets, then the person who did receive the largest share is equally responsible for ensuring that the required disclosures are made. Makes sense (and avoids confusing “issuers” of securities with originators (i.e., those who deploy the code that creates or “originates” the crypto assets).

12/ Of course, for those crypto assets considered “ancillary assets” under the RFIA, the statute would make clear that the asset itself is not a security for any of our federal securities laws, closing the book once and for all on the theory that something that is not itself a security but which was originally sold in an investment contract transaction somehow absorbs the securities character of the original transaction, even when the asset is sold between third parties having nothing to do with the original transaction. As perhaps everyone reading this will be aware, we pioneered this (at the time novel and unaccepted!) theory in our “Ineluctable Modality” article, available here:

13/ So what are these disclosures? There’s a long list you can read in the RFIA, but the disclosures focus on what matters to buyers of ancillary assets (including both buyers seeking to use or consume the utility of the asset and those who believe that the asset would make a good investment). Things like the experience of the asset originator in its field, actions taken by the originator to promote the use, value or resale of the asset, and the originator’s funding to continue its proposed activities.

14/ Most project teams I have spoken with would be fine providing common sense disclosures to the market if it meant that a crypto asset they once sold is unconditionally not a security. How good does it feel when you stop banging your head against the wall?

15/ And when do these disclosures end? When they are no longer relevant to someone owning the asset – whether that owner is a “consumer” of the asset or in investor who believes that, like any commodity in scarce supply, increased future demand for the asset will result in a higher market price (and thus profit opportunity). Translate that into Howey-speak, it is when the originator and certain affiliates no longer provide the “essential entrepreneurial or managerial efforts” that primarily determine the value of the asset.

16/ Let’s drill down a little deeper: if you are an asset owner who is a user of a blockchain system, your number one concern is whether there is someone out there that controls the system and who could impact you when using the system – fair enough. But what about all those owners of crypto assets who are primarily holding the asset with the hope of receiving yield, price appreciation, or both? For example, all the ETPs and DATCOs out there. Whether someone controls the blockchain system is of much less concern to them. These owners want to know where the demand drivers for growth of the system are coming from. If owners are looking toward the “entrepreneurial efforts” of a labs or foundation, shouldn’t they have a sense of what is going on at those entities?

17/ There’s a bit more to the story. RFIA, like CLARITY, includes a fundraising safe harbor that allows projects to raise up to $75 mm per year for four years through the sales of ancillary assets with disclosures adapted to the needs of users of, and investors in, these assets. This is similar to the proposed Rule 195 originally suggested by SEC Commissioner @Hester Peirce back in 2020. Certain insiders in these sales have limitations on resales the restrictiveness of which depends on, if there is a related blockchain system, whether that system is under the “common control” of a single entity.

18/ Many are starting to ask what common control of a blockchain network by a single person has to do with restricting resales of the related asset by insiders and finding the connection between the two ideas to be a bit opaque. A more straightforward standard would be to use a concept analogous that of a “statutory underwriter” as found in our existing securities laws and require that those acquiring ancillary assets in the primary market hold those assets for a period (not longer than one year) or risk being considered to be a distribution party of the original (securities) offering, and thus potentially liable to investors for poor disclosures.

19/ Because the RFIA emerged from Senate Banking, it is still only half of the story. A huge part of a “market structure” framework for crypto would be new federal rules around the activities of exchanges, brokers, dealers, custodians and other third parties acting as intermediaries for crypto assets. Fortunately, the House Agriculture Committee did amazing work on this aspect, which constitutes the latter part of CLARITY. Perhaps RFIA and the House Ag parts of CLARITY can get hooked up? Here’s looking at you, kid.