NASAA Pushes Back on Crypto Market Structure Bills as State Regulators Fight to Preserve Enforcement Power

A coalition of state securities regulators is making its voice heard in Washington as Congress debates landmark crypto legislation. On May 27, 2025, the North American Securities Administrators Association (NASAA) submitted formal principles for SEC crypto-asset regulation, pushing back against provisions in pending federal bills that could strip states of their ability to investigate and prosecute crypto-related fraud.

TL;DR

• NASAA published its Principles for SEC Crypto-Asset Regulation on May 27, urging Congress to preserve state antifraud enforcement authority
• The Responsible Financial Innovation Act (RFIA) proposes codifying the definition of “investment contract,” which NASAA warns could narrow the Howey test
• SEC Chairman Paul Atkins stated that most crypto assets are not securities, signaling a shift in federal enforcement posture
• CFTC Acting Chairman Caroline Pham announced an initiative to permit CFTC-registered exchanges to list spot crypto contracts
• The GENIUS Act stablecoin legislation continues advancing through Congress, with industry and banking groups weighing in

NASAA’s Warning: Don’t Tie the Hands of State Regulators

The backbone of NASAA’s submission is a straightforward argument: state regulators have brought over 300 enforcement cases against fraudulent crypto offerings, and Congress should think carefully before curtailing that track record. The coalition’s concerns center on the Responsible Financial Innovation Act (RFIA), a Senate-authored market structure bill that directs the SEC to adopt rules defining “investment contract” with specific codified elements.

Under current law, whether a crypto arrangement qualifies as a security depends on the Howey test, a judicial standard the Supreme Court designed to be flexible and intentionally broad. NASAA cautions that the RFIA’s approach of locking in rigid definitions risks narrowing the breadth of Howey jurisprudence that states have relied on for decades to pursue fraud investigations. The concern is not abstract. By specifying that an investment contract requires an investment of money, a common enterprise, an expectation of profits, and the efforts of others, the RFIA could inadvertently create loopholes that clever actors exploit to evade securities classification.

For state regulators who investigate scams targeting retail investors, this is not a theoretical exercise. These are the agencies that typically first encounter Ponzi schemes masquerading as crypto mining operations, or fraudulent initial coin offerings targeting unsophisticated investors in their jurisdictions. Weakening their enforcement toolkit could leave the most vulnerable investors without adequate protection.

SEC and CFTC Chart Divergent Paths on Crypto Oversight

NASAA’s intervention arrives at a moment of significant regulatory flux. SEC Chairman Paul Atkins recently voiced his opinion that most crypto assets are not securities, a statement that represents a dramatic departure from the agency’s historical posture under previous leadership. If the SEC itself is pulling back from classifying crypto tokens as securities, the question of who protects investors from fraudulent offerings becomes even more pressing.

Meanwhile, CFTC Acting Chairman Caroline Pham announced an initiative to allow CFTC-registered exchanges to list spot crypto asset contracts for trading. This move signals a potential expansion of the CFTC’s role in crypto oversight, creating what some observers describe as a dual-regulator framework where the CFTC handles commodities and the SEC focuses on securities. The practical implications are significant: if more crypto assets are deemed commodities rather than securities, the enforcement landscape shifts from the SEC’s disclosure-heavy regime to the CFTC’s lighter-touch approach.

For the crypto industry, this regulatory divergence creates both opportunity and uncertainty. Clearer jurisdictional lines could reduce compliance costs and encourage institutional participation, but the transition period between the old and new frameworks leaves significant gray areas that could take years to resolve through rulemaking and litigation.

Stablecoin Legislation Advances Amid Banking Sector Scrutiny

The GENIUS Act, which establishes a federal framework for stablecoin issuance, continues to advance through Congress with broad bipartisan support. On May 27, the American Bankers Association (ABA) submitted comments on the legislation through the Cipher Bloc Coalition, highlighting the banking sector’s growing engagement with crypto policy.

Stablecoins have emerged as the clearest use case for blockchain technology in payments. In 2024, stablecoins moved over $15 trillion in value globally, effectively matching Visa’s annual payment volume. The GENIUS Act aims to create a regulatory framework that protects consumers while enabling innovation, but banks are keen to ensure that traditional financial institutions are not disadvantaged relative to crypto-native issuers.

The stablecoin debate also intersects with broader questions about monetary sovereignty and the role of commercial banks in a digital asset economy. As stablecoins increasingly function as a parallel payment system, regulators face the challenge of integrating these instruments into the existing financial architecture without destabilizing traditional banking relationships.

Mango Markets Ruling Raises Questions About Protocol Exploitation

Adding to the regulatory complexity, a federal judge overturned fraud convictions against Mango Markets exploiter Avraham Eisenberg, ruling that there was insufficient evidence of falsity to support wire fraud charges. The court found that because the platform’s terms and conditions did not make intent to repay a condition of borrowing, Eisenberg’s manipulation of an oracle to inflate collateral values did not constitute fraud under existing law.

The ruling highlights the difficulty of applying traditional fraud frameworks to decentralized protocol exploits where algorithms, not humans, are the primary counterparties. While Eisenberg remains imprisoned on other charges he pleaded guilty to, the overturned convictions raise profound questions about how the legal system should handle manipulation of permissionless protocols. The government may appeal, which could create binding appellate precedent defining the boundaries of “code is law” in American jurisprudence.

Why This Matters

May 27, 2025, marks a critical inflection point in crypto regulation. The simultaneous push from state regulators to preserve enforcement authority, federal agencies’ divergent approaches to classification, and Congress’s ambitious legislative agenda create a regulatory environment that will shape the industry for years to come. The NASAA intervention is particularly noteworthy because it represents the collective voice of regulators who have actual experience investigating crypto fraud at the ground level. As Bitcoin trades near $109,000 and the crypto industry gains mainstream acceptance, the outcome of these regulatory debates will determine whether investor protection keeps pace with market growth, or whether the gap between innovation and oversight widens into a chasm that leaves retail investors exposed.

Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Regulatory developments can change rapidly. Always consult qualified professionals for guidance on compliance matters.