Crypto Task Force Written Input

• The letter expresses concerns about the lack of enforcement of federal securities laws and rules regarding tokenized securities and urges the SEC to apply the law and reject requests for exemptions or no-action relief.
• It highlights the importance of applying existing securities laws to tokenized financial products, emphasizing that tokens of securities are securities and should be regulated as such.
• The letter argues against creating a two-tiered regulatory system for tokenized securities, warning that it could lead to regulatory arbitrage and undermine market integrity and stability.

Suggests that the SEC develop a “fit for purpose” regulatory framework that is flexible, adaptive, and principles-based, and that is technologically neutral while accounting for the unique nature of blockchain technology.

The letter makes the following specific recommendations and arguments:

• General enabling rule- blockchain in and of itself does not violate the law.
• Allow blockchain ledgers to serve as record of ownership.
• Confirm that B-Ds holding tokenized securities can serve as qualified custodians.
• Confirm that transfer agents can comply with requirements by keeping records on-chain.
• Determine that tokenized book entries by custodians are not separate securities.
• Consider where modifications are necessary to permit use of blockchain within existing national market structure framework.
• Allow shareholder self-custody of tokenized securities.
• Appy securities laws at the application level, not the layer 1 network level.
• Interpret the GENIUS act to mean that yield-bearing stablecoins are under the jurisdiction of the SEC.
• Take steps that allow for exploration of atomic settlement, including a potential sandbox.

Create a sandbox for tokenized securities potentially covered by Reg NMS, and adopt a process for expedited rule changes, relief, and guidance in that area.

The document is a letter submitted to the U.S. Securities and Exchange Commission (SEC) in response to a letter from Citadel Securities regarding tokenized U.S. equities and distributed ledger technologies. The author, Aleksander Polzer, argues that Citadel's opposition to tokenized equity markets is driven by self-preservation and a desire to maintain its market dominance.

Polzer criticizes Citadel's claims that tokenized markets would lead to investor harm and capital formation disruptions, stating that blockchain-based systems can automate compliance, reduce counterparty risk, and enhance market transparency. He also argues that Citadel's framing of tokenized markets as a "shadow market" is misleading and ignores the benefits of fairer, rule-based access mechanisms.

Polzer highlights several points where Citadel's letter appears to conflate risk awareness with risk creation, and argues that the SEC should encourage innovation that enhances systemic robustness, reduces counterparty risk, and promotes immutable audit trails.

He also notes that Citadel's historical regulatory infractions, market share dominance, and resistance to technologies that reduce asymmetric informational advantages should be taken into account when evaluating their objections to tokenization.

Polzer concludes by urging the Crypto Task Force and the Commission to prioritize encouraging pilot programs under strict disclosure and audit standards, enabling interoperability with legacy systems, and ensuring that any exemptions granted to digital platforms are merit-based

Proposed legislative language for an amendment to the Securities Act of 1933 that would codify an exemption for certain transactions relating to DePIN. This proposed legislative language includes a definition of DePIN and the requirements for qualifying for such an exemption.

The letter argues that tokenized U.S. equities should be treated in the same manner as traditional equity securities from a regulatory perspective, particularly when it comes to principles such as best execution, fair access, and pre- and post-trade transparency. The letter also emphasizes the importance of investor protection, capital formation, and market liquidity and efficiency.

The letter identifies several areas of concern, including:

1. The potential for tokenized U.S. equities to siphon liquidity away from U.S. equity markets and create new liquidity pools that are inaccessible to many U.S. equity market participants.
2. The impact on competition amongst markets if vertically integrated digital asset trading venues control onboarding, pre-funding, and settlement rails on blockchains that are not interoperable with the rest of the equities markets.
3. The potential for issuers to lose transparency regarding their shareholder base and for investors to be confused about the fact that they are not issued by, or endorsed by, the relevant company.
4. The potential for tokenized U.S. equities to further reduce the incentives of companies to secure capital from our public markets.

The letter concludes by urging the SEC to reject broad exemptive requests and instead pursue targeted refinements to a limited set of Commission rules and regulations to accommodate specific immutable characteristics of tokenized U.S. equities. The letter also encourages the SEC to partner with the CFTC and foreign regulators to ensure global coordination and safeguard U.S. equity markets from other novel products referencing U.S. underliers.

The letter addresses two main questions:

1. How should a given crypto asset be evaluated to assess whether it is readily convertible into cash?
2. How should crypto assets be evaluated to determine the appropriate haircut to apply?

The letter provides a comprehensive framework for evaluating crypto assets and proposes the following:

• Crypto assets should be considered for the same deductions as traditional financial assets to the extent that the same liquidity concerns or operational risks exist.
• A broker-dealer should be required to establish, maintain, and enforce reasonably designed written policies, procedures, and controls to demonstrate title to and exclusive control over the crypto assets it holds in custody.
• A ready market exists for any crypto asset that has maintained market capitalization above a specified level over at least the previous six months, based on data from one or more Covered Exchanges.
• The haircut for crypto assets should be based on a balance between liquidity, simplicity, and consistency or parity across comparable asset categories.

The letter also addresses recordkeeping requirements for broker-dealers and proposes that:

• The Commission should consider clarifying that blockchains or distributed ledgers can be used as electronic recordkeeping systems for the purposes of Rule 17a-4.
• Broker-dealers who rely on a blockchain or distributed ledger for recordkeeping should be required to specify in writing the types of records enumerated under Rule 17a-3 and Rule 17a-4 for which they rely on the blockchain.
• The Commission should consider setting forth its expectations on what constitutes "easy access" or "produceability to the Commission and its staff" for the purposes of Rules 17a-4(a) and 17a-4(b).

The letter concludes by expressing appreciation for the opportunity to provide comments and looking forward to continued engagement with the Commission.

The document provides comments and recommendations on various aspects of tokenized securities, including:

1. Tokenization and its benefits: a16z explains that tokenization enables dematerialized securities to be mobilized and used in new blockchain-based transactions and applications. It highlights the potential benefits of tokenization, such as increased efficiency, reduced costs, and improved accessibility.
2. Transfer agents and blockchain technology: a16z discusses the role of transfer agents in the tokenization process and how blockchain technology can enhance their functions. The firm recommends that the SEC provide guidance on the use of blockchain technology by transfer agents and clarify the application of existing rules.
3. Tokenized securities and the Investment Company Act: a16z addresses the unique issues raised by the tokenization of redeemable registered investment company securities, such as mutual funds and money market funds. The firm recommends that the SEC provide guidance on the application of Section 22(d) and Rule 22c-1 of the Investment Company Act to secondary market transactions in tokenized mutual fund shares.
4. Tokenized securities and the National Market System (NMS) requirements: a16z argues that Regulation NMS should not be implicated in connection with peer-to-peer transactions in tokenized securities occurring through blockchain networks that are not controlled. The firm recommends that the SEC clarify the requirements and provide relief from any requirements under Regulation NMS.
5. Atomic settlement: a16z discusses the benefits of atomic settlement, which enables instant or simultaneous settlement of transactions on the same blockchain. The firm recommends that the SEC issue guidance on atomic settlement standards, launch a no-action framework for settlement innovations, and address margin and short-selling compatibility.
6. Regulatory framework for tokenized securities: a16z recommends that the SEC establish a regulatory framework for tokenized securities that is consistent with the existing securities law framework. The firm suggests that the SEC provide guidance on the treatment of tokenized securities across corporate forms and clarify the "swap" and "security-based swap" status of tokenized securities.

This is a "Concept Draft" of the proposed safe harbor for non-fungible membership interests presented to the Crypto Task Force on July 14, 2025. The proposed rules aim to exempt certain equity interests from being considered "securities" under the Securities Act.

The key points of the proposed regulations are:

1. To be exempt from being considered a "security," the equity interests must meet four conditions:
   1. Issuance is restricted to participants in the entity's business or its affiliates.
   2. Distributions of dividends are restricted to dividends derived from the holder's participation in the business.
   3. Transfers of equity interests are restricted to transfers at a price determined by the entity's governing body.
   4. Holders of equity interests have voting control of the entity.
2. An investment of money is not considered participation in the business for the purposes of these conditions.
3. The proposed regulations also amend the definition of an "accredited investor" to include entities where all equity interests are exempt from being considered "securities" and at least one member of the governing body is an accredited investor.

• A Sandbox can help mitigate regulatory complexity and uncertainty, allowing businesses to experiment and iterate.
• The Sandbox should be designed with flexibility, minimal costs, and broad eligibility.
• Participants should have a clear understanding of post-Sandbox expectations and be exempt from state licensure and registration rules.
• A cross-border Sandbox could address challenges faced by U.S. and non-U.S. firms innovating in multiple jurisdictions.

• This paper, "Crypto Regulation in the Time of Trump", examines the regulatory environment for cryptocurrencies in the United States, particularly in the context of the Trump administration's policies and actions.
• The paper seeks to analyze the impact of the Trump administration's deregulatory approach on the crypto industry, including the potential risks and benefits of reduced oversight and the role of key regulatory bodies such as the SEC.
• The paper aims to provide a comprehensive understanding of the current state of crypto regulation in the US, highlighting key issues such as the classification of cryptocurrencies as securities, the role of regulatory sandboxes, and the need for clear guidance on tokenization and trading, with the goal of informing policymakers and regulators as they navigate the complex and rapidly evolving landscape of crypto regulation.