US Senate Draft Outlines How Crypto Tokens Will Be Classified and Regulated

Senate Draft Sets Framework for Token Classification, Bank Access, and DeFi Rules

The US Senate Banking Committee has released a section-by-section summary of the Digital Asset Market Clarity Act. The document outlines how the proposed legislation would classify digital assets, define what banks can do with them, and draw regulatory boundaries for DeFi protocols and stablecoin issuers.

The full bill text is still in draft form. But the structural decisions visible in the summary have direct implications for how the market is likely to operate once the framework takes effect.

Tokens Default to Commodity Classification

The most consequential provision is in Title I. The bill introduces the concept of an "ancillary asset" - a network token whose value is linked to entrepreneurial or managerial effort - and establishes a rebuttable presumption that any network token is an ancillary asset, meaning it is treated as a commodity rather than a security.

The SEC or an originator can challenge that presumption, but the burden of proof shifts to them. This reverses the approach that has dominated the past several years, where the SEC's default position was that most tokens required securities treatment unless shown otherwise.

Section 103 adds an SEC registration exemption called Regulation Crypto. Under this exemption, a token originator can raise up to $50 million per calendar year for four years, or 10% of outstanding token value - whichever is greater - up to a hard cap of $200 million. Initial and semi-annual disclosures are required. This path allows US retail participation without full securities registration.

Section 104 limits insider resale volumes over a 12-month window. It also explicitly states that DAOs and decentralized governance systems are not treated as a single coordinated actor - a clarification that has been absent from prior regulatory guidance.

Banks Can Integrate Digital Assets Into Existing Business Lines

Title IV addresses the regulatory gap that has slowed institutional adoption. National banks, financial holding companies, state banks, and certain credit unions have lacked a clear federal mandate to use digital assets within their standard operations.

Section 401 resolves this by amending existing banking statutes - the Bank Holding Company Act, the National Bank Act, and others - to confirm that any activity a bank is already permitted to perform can be conducted using digital assets or blockchain technology. This applies to payments, lending, custody, and trading.

This is not a new license. It is a clarification that the existing license already covers these activities. Banks no longer need a separate regulatory approval to integrate digital assets into payment rails or custody products.

Section 402 requires the SEC and CFTC to jointly issue portfolio margining rules across securities, swaps, futures, and digital commodity accounts. For multi-asset traders, this means risk can be netted across a full book rather than calculated in separate silos.

Stablecoins Cannot Pay Yield Like Bank Deposits

Section 404 prohibits covered digital asset service providers and their affiliates from paying US customers passive, deposit-like interest or yield on payment stablecoin balances. Activity-based rewards - such as staking income or transaction rebates - remain permitted under joint rules to be issued by the SEC, CFTC, and Treasury.

The provision draws a clear line between stablecoin issuers and banks. Under existing law, only banks can pay deposit-like interest on dollar balances. The bill preserves that distinction.

If stablecoins paid yield natively, they would compete directly with bank deposits. Bank deposits are the primary funding source for bank lending. The no-yield rule positions stablecoins as payment infrastructure rather than deposit substitutes.

Section 304 adds a recurring Treasury report on offshore stablecoins that use US Treasuries as reserves and operate at significant scale, focusing on illicit finance risks. This creates a legal basis for treating large offshore issuers differently from regulated domestic alternatives.

DeFi Protocols Tested for Decentralization Before Regulation Applies

Title III sets out the most technically detailed provisions. Section 301 directs the SEC to define when a DeFi trading protocol is "non-decentralized," focusing on whether any party has control, discretion, or the ability to alter or censor protocol operations.

Protocols that fail the decentralization test are subject to existing securities intermediary requirements and Bank Secrecy Act obligations. Protocols that pass remain outside that perimeter. Core infrastructure - nodes, validators, relayers - and security councils are excluded from the controlling-actor analysis, provided no single actor holds unilateral or practical control.

Section 302 handles web front-ends separately. A "distributed ledger messaging system" - a web-hosted interface used to interact with a DeFi protocol - is treated as distinct from the protocol itself. Treasury is directed to issue sanctions and AML guidance for US-person-owned or operated front-ends. Regulatory pressure on DeFi will concentrate on the interface layer first, not the underlying smart contracts.

Self-Hosted Wallets and Software Development Receive Explicit Protections

Section 605, the Keep Your Coins Act, states that federal agencies cannot prohibit or restrict the ability of a person to self-custody their digital assets using a self-hosted wallet. Section 307 limits what guidance Treasury can issue for financial institutions dealing with self-hosted wallets - specifically, it cannot require institutions to collect identifying information on wallet controllers who are not their own customers.

Existing illicit-finance and sanctions enforcement authorities are preserved. The protections apply to the act of self-custody, not to financial crime conducted through self-custody.

Title VI addresses software developers. Section 601 states that developers engaged solely in software development - compiling transactions, providing computational work - are not subject to federal or state securities laws for those activities. Section 604 exempts blockchain developers from money-transmitter classification. Criminal liability for knowingly moving criminal proceeds is retained. Civil registration requirements for infrastructure developers are removed.

Tokenized Securities Retain Securities Status

Section 505 addresses a frequently raised question. Tokenized securities - equity or debt instruments represented on a distributed ledger - are regulated the same as the underlying instruments they represent. The SEC retains full authority over them.

Tokenization on its own does not change the legal character of an asset. Wrapping a security in a token does not convert it into a commodity.

Bankruptcy Protections for Exchange Customers

Title VII defines ancillary assets and digital commodities as customer property under Chapter 7 of the bankruptcy code. In an exchange or custodian failure, these assets are treated like other commodities and securities rather than as part of the failed firm's estate.

Section 702 creates a bankruptcy safe harbor for digital commodity transactions, treating them as commodity contracts under federal law. Counterparties can close positions and access collateral outside standard bankruptcy proceedings - similar to protections that already exist for derivatives and securities.

For users of regulated exchanges, this is a structural improvement over the situation that followed the FTX collapse, where customer claims have been disputed in court for an extended period.

Timeline: Rules Arrive at Least One Year After Enactment

Section 905 requires each regulator to adopt implementing rules within one year of enactment. Section 906 sets a general effective date of 360 days after enactment, or 60 days after final rules are published in the Federal Register, whichever is later.

The agencies with rulemaking obligations include the SEC, CFTC, Treasury, FinCEN, OFAC, NIST, and federal banking regulators. The implementation surface is large, and the timeline for the most technically detailed provisions will likely extend beyond one year.

Two areas remain active in negotiation. The anti-manipulation language for DeFi was narrowed in earlier drafts and could change again. The precise definition of "non-decentralized" in Section 301 has not been finalized and will determine which protocols fall inside or outside the regulatory perimeter.

Key Structural Points

The draft establishes several structural positions that are likely to persist into the final text:

Tokens default to commodity classification unless the SEC or an originator demonstrates otherwise. Banks are explicitly permitted to integrate digital assets into their existing licensed activities. Payment stablecoins cannot pay deposit-like yield to US customers. Self-hosted wallets and open-source infrastructure development receive federal protection. Tokenized securities retain their securities classification regardless of the token wrapper. Full implementation is at minimum one year from enactment.

The bill is still in draft. Specific definitions and thresholds remain subject to negotiation. But the broad architecture of US crypto regulation - how assets are classified, who can offer them, and what infrastructure is protected - is now visible in a formal legislative vehicle for the first time.

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