Senators Lummis and Gillibrand Introduce Responsible Financial Innovation Act (RFIA)

Like the finest porterhouse steak at Peter Luger’s, Senator Cynthia Lummis (R, WY) and Senator Kirsten Gillibrand (D, NY) formally delivered to the U.S. Senate yesterday their new, meaty, digital assets legislation titled, “Responsible Financial Innovation Act (RFIA).”

Is this steak a history in the making? The blockchain community appeared ravenous and ready to inhale it.

The scope of the bill is sweeping and mostly favors Commodity Futures Trading Commission (CFTC) jurisdiction versus the Securities and Exchange Commission (SEC) and therefore applies a commodities classification for many digital assets.

Blockchain Association’s Jake Chervinsky noted in a tweet yesterday that the CFTC leadership role in crypto in the new bill syncs with the House’s Digital Commodity Exchange Act (DCEA) efforts driven by the House Ag Committee and its Ranking Member Glenn Thompson (R, PA). Bi-partisan, bicameral ‘kumbaya’ reigns as Chervinsky pointed out. Similarly, Senator Gillibrand is on the Senate’s Ag Committee, Senator Lummis is on Banking.

From the medium post by Senators Lummis and Gillibrand: “Digital assets that meet the definition of a commodity, such as bitcoin or ether, which comprise more than half of digital asset market capitalization, will be regulated by the CFTC.” This has been never more clearly defined by the a U.S. government entity. But, if you have a security token, fear not, you’ll be in the SEC’s purview.

Overall, this bill sweeps into its pages many of the bills from both sides of Congress – such as the aforementioned DCEA – that have already been introduced including those around stablecoins and crypto tax guidance to name a few.


The very first part of the bill seeks to define the different parts of the growing financial blockchain ecosystem. Some definitions, like many parts of the bill, appear purposefully broad at this stage which allows for input and editing as the bill receives feedback across government, business and the public.

The  ‘smart contracts’ definition in the bill sounds a bit dry as “blockchain” is swapped for its doppelganger, “digital ledger technology:”

“SMART CONTRACT.—The term ‘smart contract’—

(A) means—

(i) computer code deployed to a distributed ledger technology network that executes an instruction based on the occurrence or nonoccurrence of specified conditions; or

(ii) any similar analogue; and

(B) may include taking possession or control of a digit”

Compare this definition from IBM’s website: “Smart contracts are digital contracts stored on a blockchain that are automatically executed when predetermined terms and conditions are met.” This definition might make more sense to the “lay” congressperson.

Or, Ethereum’s blockchain-centric definition: “A program that runs on the Ethereum blockchain. It’s a collection of code (its functions) and data (its state) that resides at a specific address on the Ethereum blockchain.” This definition would make sense to the congressperson with ETH bags.

Regardless, smart contracts etal. are being discussed on Capitol Hill in the form of a bill – a huge step.

Sooner rather than later for some

In fact, there are so many critical pieces to this bill that one wonders if this can – or should – all be put through at once which might delay passage of the bill.

Would it make sense to expedite some of the studies or IRS clarifications, for instance?

One such IRS component which would be appreciated today appears in Section 201 and is described in the Section-by-Section Overview as the “De Minimis Exclusion.” It’s likely born out of the Cryptocurrency Tax Fairness Act and its ilk.  There would be an allowance of up to $200 USD worth of cryptocurrency to be used for payments without incurring (and imposing the need for record keeping) a tax gain or loss for trading out of such currencies.

While crypto HODLers won’t care, crypto holders who use their crypto for payments (and their accountants) look forward to this one given the reams of paperwork required to keep track of every little thing that might be bought with crypto as if one was selling a stock. Mind you, you can’t redeem your $200 of crypto for cash, stock or other crypto according to the bill – that still appears taxable in the bill.


The stablecoin part of the bill – Section 601 and 602, in particular – makes clear that private stablecoins will be allowed to thrive and will be regulated to ensure an effective 1:1 backing with the US dollar which ultimately protects consumers. The only mention a Central Bank Digital Currency (CBDC) gets directly in the bill is the Chinese CBDC or Digital Yuan. China’s CBDC strategy will be reviewed and monitored due to its “national security implications.”

A US CBDC appears to be referenced in Sec. 701 (DLT Study on Reduction of Risk) as the Fed continues its own CBDC research which may result in bank-to-bank use at best.

Other highlights among highlights from the Overview:

    • DAOs get their due – Decentralized Autonomous Organizations (DAOs) in Section 204 get normalized as businesses with clear requirements for becoming LLCs, corporations and more. It was only a year ago that the state of Wyoming was the first state in the U.S. to use “DAO” in legislation.
    • Staking, the accounting nightmare – Staking is covered in Section 208 as another bit of IRS guidance: stakers won’t get taxed until staking assets are sold.
    • Beyond the finance vertical – Energy Consumption is reviewed in Section 806 and enlists the services of Federal Energy Regulatory Commission and therefore expands blockchain technology beyond the finance vertical. No doubt there is a connection here to the ESG trend.
    • Self-regulation – The possibilities of self-regulation for the blockchain industry are dangled in Section 808 in the form of a study. The CFTC and SEC use many self-regulatory bodies today in other realms such as futures and financial advisory organizations.
    • DeFi – Decentralized Finance or DeFi will get a study of its own by the Treasury Department. Is a KYC AML oracle requirement in DeFi’s future courtesy of the U.S. Treasury Department?

Blockchain’s Hottest Committee

Finally, the very last section – Section 809 – creates the “Advisory Committee on Financial Innovation.”  It would seem Senators Lummis and Gillibrand have purposefully echoed the naming of the Senate’s own blockchain caucus, the “Financial Innovation Caucus,” which is currently co-chaired by Senator Lummis and Senator Kyrsten Sinema (D, AZ).

With the new Advisory Committee, one cannot imagine the sharp elbows involved for at least a few of these appointments. Yet, the bill makes it clear that each party only gets 5 appointees and thereby maintains bi-partisan tone which the blockchain industry and its congressional proponents have been pursuing to-date:

    • 2 members appointed by the President from the financial technology industry.
    • 4 members appointed by the President with specializations in consumer protection, consumer education, financial literacy or financial inclusion.
    • A commissioner from the Securities and Exchange Commission, as designated by the Chair of the Commission.
    • A commissioner from the Commodity Futures Trading Commission, as designated by the Chair of the Commission.
    • A member of the Board of Governors of the Federal Reserve System, as designated by the Chair of the Board.
    • A State financial regulator, as jointly designated by the National Association of State Securities Administrators and the Conference of State Bank Supervisors.

Let the hearings begin!

Senator Gillibrand (D, NY) and Senator Lummis (R, WY)
yesterday on CNBC