Responsible Financial Innovation Act: No More Anonymous Devs

Sens. Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY) are asking their colleagues in the Senate to put an end to anonymous cryptocurrency developers.

That’s one detail contained in the latest version of the Lummis-Gillibrand Responsible Financial Innovation Act, which the bipartisan duo leaked to Barrons this week. Disclosure requirements detailed on page 13 of the proposal would apply to any “issuer engaged in business in or affecting interstate commerce, or that is organized outside of the United States and is not a foreign private issuer, that offers, sells, or otherwise provides a security” as part of an investment contract.

Affected parties would have 1.5 years after they first sold their offering to begin complying with the disclosure requirements. They would have the option of evading the requirement if they owned less than 10 percent of their token or product — and its average daily transactional volume fell below $5 million.

The rule would impact a significant number of cryptocurrency developers who have adamantly clung to their right to remain anonymous — particularly in the GameFi space. That industry alone accounted for $8 billion of crypto’s $1.26 trillion market capitalization as of Monday. To date, the largest projects with developers who have refused to disclose their identities are UFO Gaming — worth $43 million, down from a peak of $1.36 billion in November — and DeFi Kingdoms, worth $36 million, down from a peak of $1.34 billion.

Numerous DeFi protocol and token developers would be similarly affected. Decentralized autonomous organizations, or DAOs, would also be required to register in the United States.

Other changes the bill would make are more clearly defining spot markets as falling under the purview of the Commodity Futures Trading Commission, while placing other areas under the Securities and Exchange Commission. Notably, it would grant the SEC authority over tokens from which investors derive a “profit or revenue share derived solely from the managerial efforts of others,” a definition that would encompass a broad swath of cryptocurrency — particularly gaming.

It would also clarify that in the event of an exchange’s bankruptcy, users funds would not be forfeited to the exchange’s creditors. Coinbase made headlines in May for writing in a regulatory filing that “in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings.”

Gillibrand and Lummis are both scheduled to speak at CoinDesk’s annual consensus conference scheduled to take place June 9-12, so they are likely to receive immediate feedback on the proposal from their audience. And because it is only a draft, an extensive period of lobbying still stands between the bill and its final passage.

The legislation will need to pass at least four different committees in the Senate in order to become law. Gillibrand told CoinDesk she hopes to see it passed “next year at the latest,” meaning it will come after the election — at which time Republicans are likely to hold a majority in the House of Representatives, and a possible majority in the Senate. After winning approval from a Republican-dominated Congress, it would need to obtain a signature from President Joe Biden.