A group of 21 state attorneys general has formally urged the U.S. Securities and Exchange Commission (SEC) to establish clear definitions for digital assets. In a joint letter, the state officers argued that precise federal rules are essential to define what constitutes a security, prevent federal overreach, and protect the authority of states to regulate emerging technologies.

The letter emphasizes that a lack of clarity in federal securities law risks undermining state sovereignty and consumer safeguards. “Clear and precise federal definitions are critical to maintaining the balance of power between federal and state governments, protecting consumers from harm, and allowing States to innovate,” the officials stated.

Protecting State Authority and Consumer Interests

The attorneys general voiced concerns that ambiguous federal regulations could improperly preempt state authority. The letter highlights the principles of federalism, noting that states possess broad power to legislate for the public good, including consumer protection and economic regulation, while the national government holds limited, specified powers.

According to the coalition, federal overreach could disrupt regulatory frameworks that states have specifically tailored to digital assets. They argue that such clarity is also vital for supporting states’ operational needs in areas like unclaimed property administration.

States Forge Ahead with Local Regulations

The letter points out that many states are already actively developing their own rules for the digital asset industry. To date, approximately 40 states have introduced or enacted relevant legislation. Notable examples include Kentucky’s framework for blockchain activities, Wyoming’s creation of special-purpose depository institutions (SPDIs) for digital assets, New York’s BitLicense regime, and Montana’s Financial Freedom and Innovation Act.

The attorneys general contend that these state-led initiatives provide the regulatory certainty needed to foster innovation. They believe such frameworks attract businesses, create jobs, and generate tax revenue. The letter from Iowa’s attorney general was co-signed by officials from Alabama, Alaska, Arkansas, Florida, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, and West Virginia.