Crypto Task Force Written Input

• 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.

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.