The Financial Innovation and Technology for the 21st Century Act (FIT21), passed by the House of Representatives on May 22, 2024, with a bipartisan vote of 279-136, represents one of several Congressional efforts to establish a comprehensive regulatory framework for digital assets. The legislative landscape has advanced rapidly: the GENIUS Act was enacted to provide a federal framework for payment stablecoins, and in March 2026 the SEC and CFTC jointly issued interpretive guidance establishing a formal token taxonomy — with Chair Paul Atkins stating that “most crypto assets should not be considered securities outright.” The legislation would fundamentally alter the SEC’s jurisdiction over digital assets by creating a statutory distinction between “digital commodities” and “restricted digital assets” — replacing the fact-intensive Howey test analysis with categorical rules based on network decentralization metrics.
Core Framework
FIT21 divides digital asset regulation between the SEC and the Commodity Futures Trading Commission (CFTC) based on a functional analysis of the asset’s network:
Digital Commodities
A digital asset qualifies as a “digital commodity” — subject to CFTC regulation — if its underlying blockchain is “functional” and “decentralized.” FIT21 defines decentralization through three specific tests:
- No single entity controls 20% or more of the token supply (excluding tokens locked in smart contracts or burned).
- No single entity has unilateral authority to modify the blockchain’s core functionality.
- The blockchain’s operations are not primarily dependent on a single entity’s efforts.
Digital commodities would be regulated by the CFTC under the Commodity Exchange Act, with registration and disclosure requirements adapted for digital asset characteristics. This treatment would exempt these assets from SEC securities registration requirements.
Restricted Digital Assets
Tokens that do not meet the decentralization thresholds remain “restricted digital assets” subject to SEC jurisdiction under the Securities Act and the Exchange Act. These tokens must be offered and sold under existing exemptions — Reg D, Reg A+, Reg S — or through a new streamlined registration process proposed by the legislation.
Certification Process
FIT21 creates a certification process whereby a digital asset issuer can apply for a determination that its network has achieved sufficient decentralization to qualify as a digital commodity. The certification would be filed with the CFTC and subject to SEC review, creating a joint determination mechanism.
This certification process directly addresses the ambiguity left by the Hinman speech — providing, for the first time, a formal mechanism for confirming a token’s transition from security to non-security status.
Consumer Protection Provisions
FIT21 includes consumer protection requirements for digital asset intermediaries:
Segregation of customer assets. Digital asset exchanges and custodians must segregate customer assets from proprietary holdings — a requirement directly responsive to the FTX collapse in November 2022, where commingling of customer deposits with Alameda Research’s proprietary trading resulted in approximately $8 billion in customer losses.
Prohibition on trading against customers. Exchanges may not use customer deposits for proprietary trading or lending without explicit customer consent.
Disclosure requirements. Issuers must publish detailed information about token economics, governance, insider holdings, and development roadmaps — adapted from the SEC’s 2019 Framework factors. These disclosures would be required regardless of whether the asset is classified as a digital commodity (CFTC jurisdiction) or a restricted digital asset (SEC jurisdiction), establishing a baseline transparency standard across both regulatory tracks.
SEC Concerns
The SEC, under Chairman Gensler, publicly opposed FIT21, arguing that the legislation would create regulatory gaps and undermine investor protection. Specific concerns included:
Decentralization metrics are gameable. The 20% supply concentration test could be circumvented through nominal token distributions that maintain de facto control through governance mechanisms, development influence, or economic arrangements not captured by token supply metrics.
CFTC lacks investor protection infrastructure. The CFTC’s regulatory framework, designed for commodity derivatives markets, does not include the disclosure, registration, and antifraud protections that the Securities Act provides for retail investors purchasing tokens.
Transition risk. The certification process could create periods of regulatory uncertainty as tokens transition between SEC and CFTC jurisdiction, potentially leaving investors without clear regulatory protection during the transition.
Senate Status and Outlook
As of early 2026, the Senate has not voted on companion legislation. The Senate Banking Committee and the Senate Agriculture Committee share jurisdiction over digital asset regulation, complicating the legislative process. Multiple Senate bills — including the Lummis-Gillibrand Responsible Financial Innovation Act and the Hagerty-Stabenow Digital Commodities Consumer Protection Act — propose different approaches to the same jurisdictional questions.
The change in administration has improved the legislative outlook. The current White House has signaled support for comprehensive digital asset legislation, and bipartisan negotiations in the Senate are reported to be active. However, the specific framework that emerges may differ significantly from the House-passed FIT21 in its jurisdictional boundaries, decentralization metrics, and consumer protection requirements.
For a detailed comparison of SEC and CFTC jurisdictional approaches, see our analysis of SEC vs. CFTC digital asset jurisdiction. For current enforcement trends that may be affected by legislative changes, see our enforcement section. For information on how existing platforms operate within the current framework pending legislation, review our profiles of tZERO, Prometheum, and INX.
Impact on Security Token Issuers
For issuers of tokenized securities — equity tokens, debt tokens, real estate tokens, fund tokens — FIT21’s practical impact depends on whether these assets would be classified as “restricted digital assets” (remaining under SEC jurisdiction) or could eventually achieve “digital commodity” status.
Most security tokens would remain classified as restricted digital assets under FIT21 because they represent interests in identifiable enterprises with centralized management teams. A tokenized real estate fund managed by a general partner, for example, does not meet FIT21’s decentralization criteria and would continue to require Reg D or Reg A+ exemptions. However, FIT21’s streamlined registration alternative could reduce the cost and timeline for issuers who currently face the burdensome Section 5 registration process.
| FIT21 Classification | Regulator | Token Examples | Offering Path |
|---|---|---|---|
| Digital commodity | CFTC | Sufficiently decentralized protocol tokens | CFTC registration |
| Restricted digital asset | SEC | Equity tokens, debt tokens, fund tokens | Reg D, Reg A+, or new streamlined registration |
| Transitioning asset | Joint SEC/CFTC | Tokens in certification process | Dual oversight during transition |
| Payment stablecoin | Banking regulators | USD-pegged stablecoins | Separate stablecoin legislation |
Interaction with Existing Exemptions
FIT21 does not repeal Regulation D, Regulation A+, or Regulation S. Instead, it supplements the existing exemption framework with additional options. Token issuers would retain the ability to conduct private offerings under existing exemptions while also having access to FIT21’s new registration pathway if enacted.
The legislation would, however, significantly affect the integration doctrine. Tokens transitioning from SEC to CFTC jurisdiction through the certification process would need clear rules governing how prior SEC-exempt offerings interact with subsequent CFTC-regulated distributions. The current Rule 152 safe harbors do not contemplate cross-agency transitions.
Market Infrastructure Implications
FIT21 would also reshape the market structure for tokenized securities by creating a new category of regulated intermediaries:
Digital commodity exchanges. Platforms trading digital commodities would register with the CFTC rather than the SEC, potentially reducing the regulatory burden compared to ATS registration or national securities exchange registration. Existing platforms like tZERO and INX would need to evaluate whether dual registration with both agencies is necessary to trade both restricted digital assets and digital commodities.
Digital commodity brokers. A new registration category for entities facilitating digital commodity transactions would operate alongside existing broker-dealer registrations. Firms currently registered as broker-dealers under FINRA could apply for digital commodity broker status to expand their service offerings.
Custody framework. FIT21 addresses digital asset custody directly, potentially providing an alternative to the SAB 121 framework that has constrained bank participation in crypto custody. The legislation’s custody provisions would establish segregation requirements and risk management standards tailored to digital assets.
Comparison with International Approaches
FIT21’s categorical approach — distinguishing between centralized and decentralized tokens — parallels regulatory frameworks adopted by other jurisdictions. The EU’s MiCA regulation similarly creates categories of crypto-assets with different regulatory treatments, though MiCA’s classification criteria differ significantly from FIT21’s decentralization metrics. For a detailed comparison, see our analysis of US vs. EU tokenized securities regulation. Switzerland’s functional classification — dividing tokens into payment, utility, and asset categories — offers another comparative framework.
The convergence of international regulatory approaches toward categorical classification (rather than pure principles-based analysis like the Howey test) suggests that FIT21 or similar legislation aligns with a global regulatory trend. For enforcement context on how the current Howey-based regime has operated, see our tracker. For the SEC’s own digital asset engagement through FinHub, see our analysis. For the SEC’s official legislative proposals page, see SEC Regulatory Actions.
Key Stakeholder Positions
The FIT21 debate has revealed distinct positions among key stakeholders:
SEC position. Under Chair Gensler, the SEC formally opposed FIT21, arguing the bill would create a “regulatory gap” by moving assets to CFTC oversight without adequate investor protection infrastructure. The new SEC leadership under the Crypto Task Force has adopted a more neutral stance, participating in Congressional consultations without formally endorsing or opposing the legislation.
CFTC position. The CFTC has expressed willingness to accept expanded jurisdiction over digital commodities, provided Congress appropriates additional funding. CFTC Chair testimony estimated that regulating the spot digital commodity market would require $100-150 million in additional annual appropriations and 200+ additional staff positions.
Industry support. The Blockchain Association, Digital Chamber, and most major crypto companies have endorsed FIT21’s framework, viewing it as preferable to the current enforcement-driven regime. The bill’s bipartisan House passage (279-136) reflected broad industry lobbying across both parties.
Investor advocacy concerns. Organizations including Better Markets and Americans for Financial Reform have opposed the bill, arguing that the CFTC lacks the disclosure requirements, antifraud protections, and examination authority that the Securities Act provides for retail investors. These groups argue that moving tokens from SEC to CFTC jurisdiction reduces investor protection.
Technical Implementation Challenges
Beyond policy debates, FIT21’s implementation would require resolving several technical challenges:
Decentralization measurement. The 20% supply concentration test requires a reliable method for measuring token supply distribution. For tokens with complex supply mechanics — staking locks, vesting schedules, bridge-wrapped tokens, burned tokens — determining whether any entity “controls” 20% of supply involves interpretive questions that the statute does not address. The digital asset classification taxonomy provides context on how supply mechanics affect regulatory treatment.
Real-time compliance monitoring. Unlike traditional securities classification (which is generally determined once at the time of offering), FIT21’s decentralization criteria could theoretically change at any time as token holdings shift. A token that is a digital commodity today could become a restricted digital asset tomorrow if a single buyer accumulates 20% of the supply. This dynamic classification creates compliance monitoring challenges for ATS platforms, broker-dealers, and transfer agents.
Cross-chain visibility. Tokens that exist on multiple blockchains (through bridges, wrapping, or native multi-chain deployment) present measurement challenges. An entity might hold 10% of a token’s supply on Ethereum and 12% on Solana — exceeding the 20% threshold in aggregate but not on any single chain. FIT21 does not specify whether cross-chain holdings are aggregated for purposes of the decentralization test.
For the SEC’s official guidance on the Howey test framework that FIT21 would supplement, see the SEC Framework for Investment Contract Analysis. For Wells Notice procedures that may apply to projects operating without clear classification, see our enforcement guide.
For security token issuers currently operating under SEC exemptions, FIT21’s enactment would not eliminate the need for Reg D 506(c), Reg A+, or Reg S compliance during the restricted digital asset period. Only tokens that successfully complete the decentralization certification — demonstrating 20% supply dispersion and functional network operation — would transition to CFTC oversight. Most security tokens, which represent equity, debt, or fund interests in identifiable issuers, would likely remain permanently under SEC jurisdiction regardless of FIT21.
The FIT21 Act represents the strongest Congressional signal that the Howey-based, enforcement-driven regulatory approach may eventually yield to a statutory framework purpose-built for digital assets. Whether this legislative vision becomes law — and what compromises shape the final text — will determine the regulatory trajectory for the entire tokenized securities industry for the next decade.