Sen. Tim Scott Seeks to Define Digital Assets Amid Regulatory Divide

On July 22, 2025, U.S. Senate Banking Committee Chairman Tim Scott and a group of Republican senators released a discussion draft of digital asset market structure legislation aimed at providing regulatory clarity for the fast-evolving industry. The bill, which focuses on issues under the committee's jurisdiction, comes as part of broader legislative efforts to address the classification, regulation, and oversight of digital assets. It also includes a request for public comments to inform further development. The proposed legislation seeks to define categories of digital assets, streamline regulatory oversight, and ensure investor protections while encouraging innovation. Scott emphasized that the Biden administration’s approach to digital asset regulation had created uncertainty and sent innovation overseas, and that the U.S. must remain competitive in the global digital finance landscape.

The draft introduces a new classification called “ancillary assets,” which are defined as intangible, commercially fungible assets offered or sold in connection with the purchase or sale of a security through an investment contract. These assets differ from traditional securities and include digital commodities linked to blockchain systems. The Senate’s proposal also outlines exclusions, such as debt or equity interests, and clarifies that “ancillary assets” cannot qualify if they are tied to financial claims like dividends or liquidation rights. In contrast, the House-passed CLARITY Act, which was approved on July 17, 2025, by a vote of 294-134, classifies digital assets as “digital commodities” and distinguishes them from traditional securities by their intrinsic connection to blockchain systems and their use in value transfer or governance. Both legislative efforts aim to clarify the regulatory status of digital assets, but they differ in terminology and scope.

One of the key elements in both the Senate and House proposals is the regulation of “investment contracts.” The Senate draft mandates that the Securities and Exchange Commission (SEC) issue a rule defining the term within two years of enactment, using a test inspired by the Supreme Court’s Howey decision. This test would require an investment of money, expectation of profit, and reliance on the efforts of others. The CLARITY Act, meanwhile, introduces a separate category called “investment contract assets,” which are digital commodities sold or transferred under an investment contract. These definitions are critical in determining which tokens fall under the SEC’s jurisdiction and which are subject to the Commodity Futures Trading Commission (CFTC). The proposed frameworks aim to reduce regulatory ambiguity by providing clearer criteria for classifying digital assets.

In addition to defining asset classes, both bills include provisions for exempting certain digital asset offerings from securities registration requirements. The Senate’s proposal creates a new exemption for ancillary assets, known as Regulation DA, which allows for offerings up to $75 million or 10% of the total outstanding value of such assets over four years. The CLARITY Act offers a similar exemption for digital commodities under Section 4(a)(8) of the Securities Act, capping the total consideration at $50 million over a 12-month period. These exemptions are intended to support innovation by reducing compliance burdens for smaller projects while still protecting investors. Both drafts also include criteria for issuer qualifications and network-related requirements, ensuring that only responsible and well-governed projects can take advantage of these exemptions.

Another significant component of the proposed legislation is the assessment of “network control” in blockchain systems. The Senate draft calls for the SEC to define “common control” by evaluating factors such as governance structures, open-source code, and the distribution of voting power among participants. The CLARITY Act introduces a “mature blockchain system” test to determine whether a digital commodity is not controlled by a centralized group. A system is considered mature if no single entity or group has unilateral authority to alter its operations, and if its governance is decentralized and open to all participants. These provisions aim to ensure that digital assets traded in the U.S. are not subject to undue influence and are governed by transparent, decentralized mechanisms.

The legislative process will require coordination between the Senate Banking Committee and the Senate Agriculture Committee, which has jurisdiction over the CFTC. While the Senate Banking Committee aims to finalize the SEC-related portion of the legislation by September 30, the Agriculture Committee is expected to release its draft in early September. The final outcome will depend on the ability of both committees to reconcile jurisdictional overlaps and ensure a unified regulatory framework. Given the importance of the digital asset market to the U.S. economy and national security, the proposed legislation represents a pivotal step in shaping the future of financial innovation and investor protection in the digital era.