Crypto Task Force Written Input

• Regulatory frameworks for tokenized securities must preserve core investor protections—such as best execution, custody safeguards, and conflict-of-interest disclosures—by adapting existing securities laws rather than bypassing them.
• Any innovation exemption or regulatory sandbox must include public input, clear disclosure requirements, and structural guardrails (e.g., transaction caps, duration limits, and exit criteria) to prevent regulatory arbitrage and protect market integrity.
• Tokenization does not alter the legal nature of an asset; thus, tokenized securities and derivatives must remain subject to existing securities and derivatives laws, with regulatory treatment based on economic substance rather than technological form.

• FIA PTG urges the SEC to formally recognize that the Howey test must be applied on a transaction-by-transaction basis, and that most secondary-market crypto transactions do not constitute securities transactions unless under exceptional circumstances.
• The group supports a safe harbor framework, as proposed by Commissioner Peirce, to provide legal certainty for crypto projects during their development phase, emphasizing decentralization based on control rather than ownership thresholds.
• FIA PTG recommends that tokenized assets and stablecoins be explicitly recognized as eligible collateral under SEC rules, provided appropriate risk management policies are in place.

• The SEC should not create a new registration category for platforms trading tokenized securities; instead, it should adapt existing frameworks (e.g., NSE, ATS) to accommodate blockchain-based trading infrastructure.
• The SEC should clarify or amend rules to permit side-by-side and pairs trading of securities and non-securities (e.g., stablecoins, bitcoin) on a single platform, treating such transactions as securities trades when appropriate.
• A principles-based approach to best execution should be adopted for both offchain and onchain environments, emphasizing transparency, operational integrity, and flexibility in execution standards.

• The SEC’s May 2025 Staking Guidance affirms that Solo Staking, Delegated Staking, and certain Staking Services do not constitute securities transactions, supporting the legal viability of using LSTs in ETPs under existing frameworks.
• LSTs, such as JitoSOL, function as decentralized technological utilities where any expectation of profit arises from autonomous protocol operations rather than third-party managerial efforts, aligning with the SEC’s criteria for non-security classification.
• Incorporating LSTs into ETPs does not require altering the traditional grantor trust structure used for cryptoasset ETPs, as LSTs can be treated analogously to direct staking or staking services under current SEC interpretations.

• Direct lenders generally use typical lending structures, and securities laws are only implicated when securities are lent or when collateral that is a security is rehypothecated.
• Custodial crypto lending platforms involve bilateral contractual arrangements with the platform and borrowers, with interest shared proportionately among lenders.
• Non-custodial liquidity protocols and NCCMPs operate without legal relationships between users, with transactions governed by smart contracts and algorithmic rules.

• The Commission should only exercise jurisdiction over transactions that include lending of securities and should clarify what assets are and are not securities.
• The Commission should take a balanced approach, mindful of the impacts of regulation on the development of technology and the limits of its jurisdiction.
• The Commission should establish clear and workable guidelines around disclosure, collateral treatment, and capital requirements for crypto lending platforms.

• 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.

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.

• 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.

• Clarify that decentralized finance protocols do not constitute "exchanges" or "broker-dealers" under the Exchange Act if there is no meaningful human intermediation or custodial control.
• Establish a safe harbor framework for DeFi trading and lending protocols that are progressing toward decentralization, modeled on Commissioner Peirce’s proposed Rule 195.
• Exclude neutral frontend interfaces from broker-dealer rules if they merely facilitate user access to DeFi protocols without exerting control over user assets or transaction execution.