Republican lawmakers unveiled legislation slashing crypto firm affiliate ownership limits to 1%, aiming to curb market concentration while clarifying regulator roles amid rising decentralized platform adoption.
House Republicans introduced sweeping crypto legislation on 10 July 2024 that would impose 1% ownership caps on affiliate entities, challenging current SEC guidelines while decentralized exchanges capture record market share.
Regulatory Earthquake Hits Crypto Markets
The ‘Decentralized Digital Asset Regulation Act’ proposed by House Financial Services Committee Republicans would reduce permissible affiliate ownership from the SEC’s current 5% threshold to 1% – the most restrictive cap in global crypto regulation. According to the bill text released 10 July 2024, the rules apply to all registered digital asset trading platforms and custodians.
Enforcement Mechanism Controversy
The legislation grants both SEC and CFTC new audit powers, with CFTC assuming primary oversight of non-security tokens. SEC Chair Gary Gensler stated in a 12 July memorandum that the framework ‘modernizes investor protections for blockchain-based markets.’ However, Blockchain Association CEO Kristin Smith countered that ‘arbitrary caps could force restructuring of compliant US firms while foreign rivals operate unchecked.’
Decentralized Platforms Gain Momentum
CoinGecko data shows decentralized exchanges like Uniswap and dYdX now control 15% of spot trading volume, up from 9% in 2023. The bill specifically exempts truly decentralized networks from ownership limits, a provision Coinbase CEO Brian Armstrong called ‘critical for protocol-level innovation’ in his 11 July blog endorsement.
Global Regulatory Divergence
The proposal contrasts sharply with Europe’s Markets in Crypto-Assets (MiCA) framework implemented in June 2024, which focuses on centralized entity supervision. A 14 July Blockchain Association report notes 23 new decentralized protocols launched in Q2 2024 – a 53% annual increase suggesting developers are prioritizing regulatory arbitrage strategies.Historical analysis shows the SEC’s 5% ownership threshold, established in 2022 following the FTX collapse, initially aimed to prevent concentrated control of crypto infrastructure. However, critics argue the rules inadvertently encouraged complex corporate structures that maintained de facto control through multiple sub-5% entities. The 2024 bill attempts to close these loopholes through stringent affiliate aggregation rules.Comparisons emerge with 2017’s ‘Bitcoin Big Bang’ when Japan implemented strict crypto exchange licensing, inadvertently pushing innovation to offshore jurisdictions. Similarly, the new US rules risk fragmenting liquidity across decentralized platforms while traditional financial institutions like BlackRock and Fidelity expand their crypto custody operations under existing frameworks.
