On January 20, 2021, an American Bar Association (ABA) Derivatives and Futures Law Committee sub-committee recently released an update to its “Digital and Digitized Assets: Federal and State Jurisdictional Issues” white paper, which features Perkins Coie attorneys Anna Smith-Sandy and Ernest Simons as contributors. The white paper was initially created by members of the Innovative Digital Products and Processes Subcommittee (IDPPS) Jurisdiction Working Group in March 2019. The IDPPS has a membership of over 80 attorneys who work extensively in the areas of derivatives law and securities law and related legal fields.

The updated white paper is the result of a significant collaborative effort and provides a comprehensive updated legal analysis of the jurisdictional issues concerning digital products. Topics covered by the white paper include the following:

• Background on digital assets and blockchain technologies and characteristics of digital assets and virtual currencies;
• Regulation by the Commodity Futures Trading Commission (“CFTC”) and the CFTC’s approach to classifying and regulating virtual currencies and related derivatives;
• Regulation by the Securities and Exchange Commission’s (“SEC”) under securities laws, including the SEC’s approach to classifying a digital asset as a “security”;
• The interplay between SEC and CFTC regulations;
• Financial Crimes Enforcement Network (FinCEN) regulation of digital assets, including in relation to anti-money laundering and know-your-customer requirements;
• International regulation of digital assets and blockchain technology throughout Europe, Asia, and Australia; and
• State law considerations with respect to digital assets and blockchain technologies, including state law licensing requirements and state-specific regulations.

The Commodity Futures Trading Commission (CFTC) recently released a Digital Assets Primer that provides updated information to the public about emerging concepts in digital assets. The primer is part of a series issued by the CFTC’s innovation office, LabCFTC, and is the second to delve into issues surrounding digital assets.

The Digital Assets Primer is a helpful high level overview of the digital asset marketplace, and regulatory considerations under the U.S. Commodity Exchange Act and related CFTC regulations.

Here are a few observations that we believe are noteworthy:

• The Primer establishes Digital Assets as a broad term that may encompass physical or virtual assets, a value, or a use right/service, and can include smart contracts.
• While the CFTC has referred to Digital Assets before, such as in the Final Interpretive Guidance regarding Retail Commodity Transactions Involving Certain Digital Assets, this is the first time that a CFTC document specifically identifies Virtual Currencies, Digital Tokens, and Digital Assets.

• • The primer describes Virtual Currency as “a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value”, and places it as a subset of Digital Assets, alongside Digital Tokens.

• • A Digital Token is defined as a “digital asset that requires another blockchain network to operate and may serve a variety of functions beyond virtual currency, e.g., utility tokens.”
• The CFTC Primer specifies that : “Depending on its design, function, and use, a digital asset may be characterized differently, including as a commodity, swap or other derivative” depending upon its characteristics, and describes potential considerations in any evaluation of a Digital Asset to determine which regulatory frameworks may apply.
• The Primer also walks through its jurisdiction over Digital Assets and Digital Asset market oversight.

A full press release from the CFTC announcing the release of the Primer can be found here.