US Crypto Market-Structure Legislation, Explained: Dividing SEC and CFTC Oversight

In the United States, digital asset market structure has historically operated in a regulatory gray area, prompting legislative efforts to explicitly divide oversight between the Securities and Exchange Commission and the Commodity Futures Trading Commission. Congress has proposed comprehensive frameworks to define whether a digital asset functions as an investment contract under SEC jurisdiction or a digital commodity under CFTC purview ¹. These proposals attempt to resolve years of jurisdictional overlap by establishing objective tests for decentralization and setting tailored disclosure requirements for crypto issuers.

The Jurisdictional Divide

The core of U.S. crypto legislation centers on categorizing digital assets. The SEC regulates securities, which generally include investment contracts where individuals invest money in a common enterprise with the expectation of profit derived from the efforts of others, a standard known as the Howey test ². The CFTC oversees derivatives and commodities, but historically lacked comprehensive regulatory authority over spot markets for non-security digital commodities ³.

Market structure bills aim to close this gap by granting the CFTC exclusive jurisdiction over digital commodity spot markets while affirming the SEC's authority over digital assets offered as part of an investment contract. See our overview on How Crypto Is Regulated in the US for foundational context. This division requires a clear mechanism for an asset to transition from a security to a commodity as its underlying network evolves.

Decentralization Tests

To bridge the gap between an early-stage project (often reliant on a central team) and a mature, self-sustaining network, lawmakers have proposed certification processes based on network decentralization ¹. If a network becomes sufficiently decentralized, the asset may no longer represent an investment in the original creator's efforts, thus shedding its security classification.

Legislative drafts typically define decentralization through quantitative and qualitative thresholds. For example, a framework might require that no single person or affiliated group has controlled more than 20% of the network's voting power or token supply over the previous 12 months.

Numeric Example: If a protocol has a total supply of 100 million tokens, the decentralization test might dictate that the founding team and its affiliates cannot collectively hold more than 20 million tokens. If the founders hold 25 million tokens, the network remains centralized, and the asset remains under SEC jurisdiction until the founders' stake is diluted or distributed below the 20% threshold.

SEC Disclosure Rules for Crypto Issuers

For assets classified as securities, legislation proposes modified disclosure regimes. Traditional equity disclosures—such as executive compensation and quarterly financial statements—often do not neatly apply to decentralized protocols or utility tokens. Proposed frameworks direct the SEC to create tailored disclosure requirements focusing on protocol economics, source code audits, token distribution schedules, and affiliated party holdings ². This ensures investors receive material information relevant to digital assets without forcing developers into incompatible corporate reporting structures.

CFTC Oversight of Digital Commodities

Once an asset is certified as a digital commodity, its trading on spot exchanges falls under the CFTC's expanded authority. The CFTC would require digital commodity exchanges to register, implementing rules for market surveillance, conflict of interest mitigation, and custody standards ³. This includes separating trading execution functions from asset custody to prevent commingling of customer funds, drawing on traditional derivatives market standards.

Common Misconceptions

• Tokens are permanently categorized: A core feature of proposed market structure legislation is that asset classifications can change. A token sold initially as a security can transition to a digital commodity if the network achieves certified decentralization.
• The SEC will lose all crypto authority: Even with a clear digital commodity definition, the SEC retains enforcement authority over token sales that violate securities laws, fraud in securities transactions, and the oversight of registered broker-dealers handling digital asset securities.
• Decentralization relies solely on nodes: While node distribution is a factor, legal decentralization tests heavily weigh governance token concentration and the ongoing managerial efforts of the founding team.

What to Watch

The implementation of any market structure legislation depends heavily on the rulemaking process. Both the SEC and CFTC must draft specific regulations to enforce congressional mandates, a process that includes public comment periods and can take years. Market participants should monitor joint rulemakings and interpretive guidance regarding the exact thresholds for decentralization and the specific data required in modified SEC disclosures. As these rules take shape, they will dictate the compliance costs for exchanges and the legal pathways for token issuers seeking to access U.S. markets.