Crypto Task Force Written Input

• 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.
   

• The letter urges the SEC to recognize convertible digital instruments, such as SAFTs and token warrants, as "qualifying investments" under Rule 203(l)-1 of the Investment Advisers Act of 1940, arguing that these instruments are functionally and economically similar to traditional venture investments.
• It highlights the operational and compliance burdens created by the current regulatory definitions, which exclude these digital asset structures, thereby hindering capital formation and innovation within the blockchain sector.
• The letter proposes that regulatory clarity on the treatment of these digital assets would enhance U.S. competitiveness, bring more activity onshore, and prevent the exodus of innovation.

• Solana has experienced multiple network outages and degraded performance, raising concerns about its reliability and decentralization.
• Solana is mentioned as an unregistered security in several SEC lawsuits, questioning the legitimacy of its ETF consideration.
• The pending class action lawsuit claiming Solana is an unregistered security needs to be resolved before ETF approval.

• Proposes adaptive regulatory mechanisms integrating high-trust identity layers, dynamic behavioral mapping, technical contract certification, contextual compliance, critical infrastructure protection, and civic transparency.
• Suggests a distributed technical certification authority to validate smart contracts handling significant financial values, including analysis of hidden logical gates, failure predictability, manipulation traces, and compliance with cryptographic standards.
• Recommends new regulatory criteria for entities moving digital value, ensuring non-imposing harmonization with global regulatory blocs to maintain effectiveness without stifling innovation.