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

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 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 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.

• 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.

• The framework provides a falsifiable method for system assessment, enabling empirical validation of compliance architectures and evidence-based policy development.
• It bridges innovation and compliance by demonstrating how decentralized systems can achieve regulatory objectives through architectural design, reducing systemic risk and enhancing transparency.
• The framework supports practical implementation through modular governance models, adaptable systems, and standardized evaluation for regulatory oversight.