New crypto bill draft sets 1% token holding rule to limit big firms

A new draft bill introduced by House Republicans on May 5 aims to reduce the dominance of large cryptocurrency firms by requiring project members to disclose holdings exceeding 1 percent of a digital token’s total supply.

The “Digital Asset Market Structure Discussion Draft,” led by House Agriculture Committee Chair Glenn Thompson and Financial Services Committee Chair French Hill, revises the previous FIT21 Act by lowering the affiliated person threshold from 5 percent to 1 percent ownership.

Justin Slaughter, vice president of regulatory affairs at Paradigm, described the draft as an “incremental, albeit meaningful, rewrite” that could encourage broader participation in the crypto market.

“There are often criticisms of crypto being too dominated by a few large firms. This bill makes clear the regulatory regime proposed is going to push against that fact and strongly encourage more small-d ‘democratisation’ of the space,” Slaughter noted.

The draft also introduces the concept of a “mature blockchain system,” defined as one not under common control by any person or group, and assigns regulatory authority primarily to the Securities and Exchange Commission (SEC) until decentralisation is achieved.

Decentralised finance (DeFi) protocols enabling self-directed financial transactions would be exempt from registering as digital commodity brokers or dealers.

The bill distinguishes digital commodities as “investment contract assets” separate from traditional securities under the Howey test, with securities laws triggered only if secondary token sales transfer ownership or profits in the underlying business.

The draft outlines a pathway for crypto firms to raise funds under SEC oversight and register digital commodities with the Commodity Futures Trading Commission (CFTC).

Committee members emphasised the need for clear regulatory frameworks to foster innovation and maintain U.S. financial leadership, criticising prior enforcement-based approaches for creating legal uncertainty.

“America needs to be the powerhouse for digital asset investment and innovation. For that to happen, we need a commonsense regulatory regime,” said Dusty Johnson, subcommittee chairman.

However, Democratic opposition may delay discussions, as House Financial Services Committee Ranking Member Maxine Waters reportedly plans to block a Republican-led hearing on the draft bill.