Crypto Task Force Written Input

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.

Date Written Input Topic(s) Key Points
Lilya Tessler, Sidley Austin LLP on behalf of Ava Labs, Inc. and Owl Explains

RE: Asset-Based Classification; Decentralization; Regulatory Status of Technology Functions; Treatment of Infrastructure Providers 		RFI Responses, Safe Harbor, Security Status, Tokenization
  • The document proposes a high-level framework for token classification based on the nature of the asset, advocating for an asset-based approach to evaluating tokens under federal securities laws.
  • It explains why technology functions inherent to the operation of blockchains do not constitute or result in securities and why infrastructure providers on blockchain networks are not securities intermediaries.
  • The submission discusses the importance of regulatory clarity and consistency across different technologies and regulatory agencies, emphasizing that the nature of the asset should determine its legal and regulatory treatment.
     
Paradigm

The Key Neutrality of Baselayer Markets A Response to Questions Posed in SEC Commissioner Hester Peirce’s “There Must Be Some Way Out of Here” 		RFI Responses, Security Status, Trading
  • MEV (Maximal Extractable Value) does not meet the legal standards for securities fraud, insider trading, or best execution violations under U.S. law.
  • Regulatory intervention in MEV could disrupt a self-correcting market structure, and a tech-neutral, flexible approach is recommended.
  • MEV activity does not involve the scienter required for claims under Section 10(b), Rule 10b-5, or Section 9 of the Exchange Act.
     
DeFi Education Fund

Re: Token Safe Harbor Guiding Principles 		RFI Responses, Safe Harbor, Security Status, Tokenization, Trading
  • The Safe Harbor should be technology-agnostic, focusing on substance over form and associated risks rather than specific technologies.
  • Eligibility criteria for the Safe Harbor should be broad and inclusive, accommodating a wide range of technologies and projects.
  • Disclosure requirements should be carefully calibrated to provide material information to token holders while being commercially feasible for initial development teams.
OpenZeppelin

Recommendations Regarding Independent Security Audit Reports 		Custody, RFI Responses, Safe Harbor, Security Status, Tokenization, Trading
  • Implement mandatory third-party security audits for blockchain protocols to ensure compliance with security standards and reduce risks.
  • Require detailed documentation of protocols, including governance mechanisms, technical specifications, and security measures.
  • Establish a global organization to formalize auditing standards and certify qualified auditors for blockchain technology.
Metrika, Inc.

Re: Operational Risk Considerations for Digital Asset Innovation in Traditional Financial Markets 		Custody, Public Offerings, RFI Responses, Tokenization, Trading
  • Tokenization of traditional securities on blockchain protocols introduces new operational risks and challenges that need to be addressed to ensure robust investor protection and minimal disruption to capital formation.
  • The SEC should consider implementing specific digital asset custody requirements for investment advisers and broker-dealers, encompassing key management and risks inherent to blockchain networks.
  • Real-time risk management strategies are essential for investment advisers, broker-dealers, and custodians dealing with digital asset securities to promptly identify and respond to emerging threats
Andreessen Horowitz, a16z

Re: Comments on the SEC Crypto Task Force’s Questions Concerning the Custody of Crypto Assets 		Custody, RFI Responses, Security Status

  • The Commission should provide new guidance to facilitate custody arrangements for crypto assets, even if only as a temporary measure until it issues new rules.

  • The Commission should permit RIAs to self-custody security tokens and clarify that the self-custody of crypto assets by RIAs would not conflict with the Custody Rule or fiduciary duties.

  • Custodial requirements should clearly distinguish between different categories of crypto assets while ensuring that non-security crypto assets are custodied in a manner that is substantially as secure as crypto asset securities.
Chelsea Pizzola, Cumberland DRW

Re: Crypto Task Force Input: Secondary-Market Trading 		RFI Responses, Safe Harbor, Security Status, Tokenization, Trading

  • Cumberland believes that many secondary-market transactions in native crypto assets are not securities transactions, even if the crypto asset was initially offered and sold as part of an investment contract.

  • Cumberland supports adoption of Commissioner Peirce’s proposed safe harbor or similar relief to alleviate concerns for primary issuance and secondary-market trading of Natively Digital Securities.

  • Cumberland suggests that the SEC should consider providing interpretive or no-action relief from certain aspects of the tests for determining whether securities have a ready market, limited
Margaret Rosenfeld, Everstake, Inc.

Letter to the Crypto Task Force 		Custody, RFI Responses, Safe Harbor, Security Status, Trading

  • Everstake requests clear guidance affirming that staking and appropriately structured non-custodial staking services do not constitute securities offerings.
  • The letter outlines why staking and non-custodial staking services meet the criteria of an investment contract under the Howey Test.
  • Everstake urges the Commission to issue formal guidance regarding the application of federal securities laws to non-custodial staking services.
     
Kecheng Lai, Knowpia Inc.

RE: The Future is Here, Now! A Comprehensive Examination of the STO+ Framework and its Regulatory Implications 		Custody, Public Offerings, Regulatory Sandbox, RFI Responses, Safe Harbor, Security Status, Tokenization, Trading
  • The STO+ token model aims to ensure compliance with existing legal frameworks while fostering innovation that benefits both investors and users.
  • The conversion mechanism between ST and ST+ tokens is designed to be lawful and beneficial to investors, aligning with existing securities law requirements.
  • The application of SEC Rule 144 one-year lock-up period to ST+ tokens is deemed inappropriate and counterproductive for the STO+ framework.
Kiln

Re: There Must Be Some Way Out of Here 		Crypto ETPs, Crypto Lending, RFI Responses, Security Status, Tokenization, Trading
  • Kiln argues that Proof-of-Stake (PoS) blockchain activities, such as staking, do not involve the offer and sale of securities under the Securities Act and Exchange Act.
  • Kiln emphasizes that staking rewards are protocol-defined and not derived from the managerial efforts of others, thus falling outside the scope of the Howey test for investment contracts.
  •  Kiln supports regulatory clarity that distinguishes between core blockchain infrastructure activities and traditional securities transactions.