Senator Tim Scott Aims to Clarify Digital Asset Definitions as Regulatory Debate Continues

On July 22, 2025, Tim Scott, Chair of the U.S. Senate Banking Committee, along with several Republican senators, unveiled a preliminary version of

legislation concerning market structure, which aims to establish clearer regulatory guidelines for the rapidly changing sector. This bill addresses matters falling under the committee’s authority and forms part of a broader legislative initiative to clarify how digital assets are classified, governed, and supervised. It also invites input from the public to help refine the proposal. The bill’s objectives include defining types of digital assets, improving regulatory coordination, and bolstering investor safeguards, all while supporting technological progress. Scott pointed out that the current administration’s handling of digital asset oversight has caused confusion and pushed innovation abroad, and asserted that the U.S. needs to stay at the forefront of global digital financial markets.

The draft bill creates a new asset category called “ancillary assets,” described as intangible and commercially interchangeable assets that are issued or traded alongside securities via investment contracts. These differ from standard securities and encompass digital commodities operating on blockchain networks. The Senate draft also specifies exclusions, such as ownership or debt stakes, and makes clear that “ancillary assets” do not include those connected to financial benefits like dividends or rights to liquidation proceeds. In comparison, the CLARITY Act—which the House passed on July 17, 2025, with a 294-134 vote—defines digital assets as “digital commodities,” separating them from traditional securities based on their integration with blockchain technology and their roles in transferring value or governance. While both bills seek to clarify how digital assets are regulated, they use different language and cover different areas.

An important feature of both the Senate and House proposals is the regulation of “investment contracts.” The Senate’s draft requires the Securities and Exchange Commission (SEC) to create a rule, within two years of the bill’s passage, that defines “investment contract” using a framework inspired by the Supreme Court’s Howey test. This framework would involve an investment of funds, an expectation of returns, and reliance on third-party efforts. The CLARITY Act, on the other hand, introduces the term “investment contract assets” to refer to digital commodities issued or exchanged under an investment contract. These distinctions are crucial for determining whether the SEC or the Commodity Futures Trading Commission (CFTC) will oversee particular tokens. Both legislative approaches strive to eliminate uncertainty by laying out more precise standards for digital asset classification.

Beyond defining asset categories, both bills offer exemptions for certain digital asset offerings from securities registration. The Senate’s draft introduces Regulation DA, an exemption for ancillary assets that permits offerings up to $75 million or 10% of the total outstanding ancillary assets over a four-year span. The CLARITY Act provides a comparable exemption for digital commodities under Section 4(a)(8) of the Securities Act, setting a $50 million limit on total proceeds within a 12-month period. These exemptions aim to foster growth and innovation by easing compliance requirements for smaller ventures, while still prioritizing investor safety. Both drafts also lay out requirements for issuer eligibility and network standards, ensuring that only well-managed and responsible projects can utilize these exemptions.

Another notable aspect of the proposed laws is the evaluation of “network control” within blockchain platforms. The Senate draft instructs the SEC to define “common control” by considering factors like governance models, open-source code availability, and how voting authority is distributed among participants. The CLARITY Act establishes a “mature blockchain system” test to determine whether a digital commodity is free from central control. A system qualifies as mature if no single party or group can unilaterally dictate its operation and if governance is decentralized and accessible to all users. These measures are designed to guarantee that digital assets traded within the U.S. operate under transparent, decentralized oversight without undue centralized influence.

The legislative process calls for collaboration between the Senate Banking Committee and the Senate Agriculture Committee, which is responsible for CFTC matters. The Banking Committee plans to complete work on the SEC-related section by September 30, while the Agriculture Committee is expected to put forward its proposal in early September. The ultimate result will depend on how successfully the two committees address overlapping responsibilities and create a cohesive regulatory structure. With digital assets playing a growing role in the U.S. economy and national security, these legislative efforts represent a crucial move toward shaping the landscape of digital finance and investor protection for the future.