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Please find written input submissions to the Crypto Task Force below. The written input is posted without modification. We hope sharing the submissions will help encourage productive dialogue and continued engagement. Please note that the “Key Points” and “Topics” are AI generated. AI can make mistakes, and the Key Points and Topics are not a replacement for you reading the submissions. The Crypto Task Force has not reviewed these AI-generated summaries for accuracy or completeness. If you believe a Key Point or Topic is inaccurate, please email the Crypto Task Force at crypto@sec.gov. The written input provided to the SEC and posted on this page does not necessarily reflect the views of the Crypto Task Force or others in the U.S. Securities and Exchange Commission.
The framework establishes a qualified custody architecture using FIPS 140-3 Level 3 Hardware Security Modules (HSMs) and “Good Control Locations,” aligning with the SEC’s May 2025 guidance to ensure broker-dealer possession and control of tokenized municipal securities.
Tokenized municipal securities are treated as “financial assets” in “securities accounts” under UCC Article 8, providing bankruptcy priority, security interest perfection through control, and enforceable entitlement rights, even where SIPA coverage may not apply.
A legally binding one-to-one mapping between blockchain tokens and standard CUSIP identifiers ensures universal legacy compatibility, enabling seamless conversion to traditional DTCC book-entry form and eliminating stranded asset risk.
Ondo urges the SEC to support both direct and intermediated pathways for tokenized securities, including models involving securities entitlements held through DTC, and to provide targeted regulatory relief for such models1.
The letter advocates for the SEC to formally recognize and permit the use of public, permissionless blockchains in tokenized securities markets, asserting that such systems align with investor protection goals and ownership rights1.
Ondo supports the SEC’s proposed “innovation exemption” and recommends prioritizing regulatory action to enable tokenized securities products for retail investors, particularly those backed by securities held in DTC1.
The SEC should not grant broad exemptive relief from the statutory definitions of “exchange” and “broker-dealer” for DeFi trading protocols, as doing so would undermine investor protections and create a dual regulatory regime for the same securities.
Many DeFi trading protocols and associated participants (e.g., developers, wallet providers, AMMs) meet the legal definitions of “exchange” or “broker-dealer” and should be regulated accordingly under existing securities laws.
The SEC should pursue a notice-and-comment rulemaking process to evaluate tokenization initiatives, ensuring that any regulatory changes preserve core investor protections and apply equally to tokenized and traditional equities.
The SEC must clearly define the boundary beyond which government financial surveillance is illegitimate before endorsing any compliance architecture in decentralized systems.
Broker-dealers should be permitted—and even encouraged—to offer privacy-enhancing tools (e.g., RAILGUN, privacy pools, Zcash shielded transactions) as part of their fiduciary duty to protect clients, especially in post-withdrawal digital asset activity.
The SEC should not adopt international guidelines like the FATF Travel Rule without formal rulemaking under the Administrative Procedures Act, especially while related constitutional challenges are pending.
Custody, Public Offerings, Security Status, Tokenization
Existing federal securities laws (e.g., Securities Act of 1933, Exchange Act of 1934, Investment Company Act of 1940) do not consistently apply to the digital access layer through which institutions engage with tokenized real-world assets (RWA), resulting in fragmented oversight and uneven disclosure standards.
The letter proposes a non-licensing federal framework to standardize expectations for digital access platforms—covering yield presentation, lifecycle reporting, and eligibility criteria—without altering the regulatory treatment of the underlying assets.
A new recognition category is suggested for digital platforms that facilitate access to tokenized exposures, aiming to clarify their role without imposing broker-dealer or custodian obligations, thereby improving regulatory clarity and market integrity.
Custody, Public Offerings, Regulatory Sandbox, Security Status, Tokenization, Trading
The pilot treats all tokenized municipal instruments as securities under existing federal law, operating within the scope of the Securities Act of 1933 and Exchange Act of 1934, without seeking exemptions or novel classifications.
The legal rights and obligations of all parties are governed by a traditional Master Indenture, which prevails over any discrepancies with smart contract behavior or distributed ledger records.
Authorized municipal officials may override smart contract operations under defined conditions (e.g., force majeure, national security), with multi-signature authentication, real-time disclosure, and ex-post audit requirements.
The framework proposes a legally enforceable structure for using tokenized U.S. Treasury bills and GENIUS Act-compliant stablecoins as derivatives margin, with strict eligibility, custody, and redemption standards to ensure investor protection and bankruptcy remoteness.
It recommends a phased regulatory sandbox pilot limited to institutional participants, with conservative concentration caps, enhanced haircuts, and mandatory reporting to validate operational resilience before broader market adoption.
The submission calls for joint rulemaking by the CFTC and SEC to harmonize standards on tokenized collateral eligibility, valuation, and custody, reducing regulatory fragmentation and enhancing legal certainty across overlapping jurisdictions.
Securities Industry and Financial Markets Association (SIFMA)
Broad exemptions from federal securities laws for tokenized securities risk undermining investor protection, fragmenting markets, and creating regulatory arbitrage by allowing functionally identical activities to operate outside established oversight frameworks.
Entities performing intermediary-like functions in tokenized securities markets—whether centralized or decentralized—should be subject to the same regulatory obligations as traditional brokers, dealers, exchanges, and clearing agencies.
Any innovation exemption framework must be narrowly tailored, include investor and transaction limits, and be subject to public notice-and-comment rulemaking to ensure it supplements rather than substitutes for comprehensive regulation.
Exemptive relief should be narrowly tailored and only granted when it is necessary to enable a firm to offer a product or service on a level playing field, without undermining investor protection or market integrity.
Exemptive relief must not be used to bypass core regulatory obligations, especially where it would provide selective competitive advantages or reduce public scrutiny that would otherwise occur through formal rulemaking.
Any granted exemptive relief should be conditional, including requirements such as SEC oversight, AML compliance, governance structures, asset segregation, and demonstrable commitment to fair and orderly markets.
The proposal distinguishes between Participation Tokens (classified as high-risk securities under Regulation D), IP-NFTs (treated as securities representing intellectual property rights), and Utility Tokens (potentially non-securities if used solely for governance and protocol functions).
The Knowledge Provenance Protocol (KPP) seeks inclusion in the SEC’s innovation exemption sandbox, proposing tailored disclosure requirements, DAO registration pathways, and investor protection mechanisms for scientific funding models.
The protocol incorporates GENIUS Act-compliant stablecoins for royalty payments, aligning with the federal regulatory framework for payment stablecoins and ensuring compatibility with U.S. digital asset compliance standards.
