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
AICPA

RE: Request for Comment on There Must Be Some Way Out of Here 		Crypto Lending, Custody, Regulatory Sandbox, Security Status, Tokenization, Trading
  • The AICPA emphasizes the need for clear accounting and auditing guidance for digital assets, highlighting the importance of collaboration with FASB to establish standards.
  • The AICPA's Auditing Subgroup is focused on developing guidance for auditors of entities that hold or transact in digital assets, with specific attention to client acceptance, risk assessment, and valuation.
  • The Attestation Subgroup is working on criteria for stablecoin reporting and controls, aiming to enhance transparency and build trust among stakeholders.
Amar Purushotham Bhat

SUBJECT: - Laws/Rules for preventing fraud by Centralized Exchange acting as Crypto Custodian 		Custody, Security Status
  • Wazirx, a centralized cryptocurrency exchange, was hacked, resulting in the theft of $234 million worth of ETH and ERC20 tokens.
  • Wazirx's claim of fungibility across different blockchains to justify withholding unaffected non-Ethereum crypto assets is misleading and false.
  • Request for the US SEC to formulate laws to prevent misuse of users' crypto assets by centralized exchanges acting as custodians.
ComBoox DAO LLC

How To Build A New Web3.0 Financial Market 		Custody, Security Status, Tokenization, Trading
  • The document proposes using blockchain and smart contracts to record property rights and automatically control legal acts, eliminating human intervention and addressing issues like minority shareholder protection and insider control.
  • It introduces a system architecture consisting of three types of smart contracts: Registers, Code of Conduct, and Keeper of Books, to automate the control and recording of book-entry assets and commercial legal acts.
  • The implementation method involves deploying smart contracts onto the blockchain network, setting up access control configurations, and validating preconditions for legal acts to ensure compliance with predefined rules
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.
Neel Maitra, Dechert LLP

Crypto Asset Custody By Investment Advisers After The Sec’s Proposed Safeguarding Rule 		Custody, Safe Harbor, Security Status, Tokenization, Trading
  • The SEC's proposed Safeguarding Rule aims to expand the Custody Rule by requiring RIAs to maintain all client assets, including crypto assets, with qualified custodians.
  • The Safeguarding Rule introduces new definitions for "possession or control" of assets and specifies several assurances that RIAs must receive from custodians.
  • The Rule proposes exemptions for certain assets, such as privately offered securities and physical assets, from the qualified custodian requirement, provided specific conditions are met.
     
Charles W. Mooney, Jr., University of Pennsylvania Carey Law School

Final Report on the Work of the Task Force on Securities Holding Infrastructure: Part Two* 		Custody, Security Status, Trading
  • The intermediated securities holding infrastructure in the United States has been developed to address the problems of the direct-holding system, primarily to facilitate trading, clearance, and settlement for securities transactions in the public securities markets.
  • The Task Force recommends an independent benefit-cost analysis and study of the securities holding infrastructure to assess the problems and potential modifications, including the preservation of current benefits and the roles of existing market participants.
  • The report identifies two main problems with the current infrastructure: the lack of transparency in identifying beneficial owners and the absence of privity between beneficial owners and issuers, which impairs the exercise of legal entitlements.
     
Charles W. Mooney, Jr., University of Pennsylvania Carey Law School

Beyond Intermediation: A New (Fintech) Model For Securities Holding Infrastructures 		Custody, Security Status, Tokenization, Trading
  • The article presents a comprehensive analysis of the legal attributes and implications of intermediated securities holding infrastructures, highlighting the risks and costs imposed by these systems.
  • It proposes a new platform system (NPS) that would connect investor holdings directly to issuers, reducing intermediary risk and facilitating the shortening of custody chains across international borders.
  • The article discusses the potential for distributed ledger technology (DLT) to improve securities holding infrastructures by reducing intermediary risk and enhancing transparency.
     
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
Grace H. Lin & Tris R. Sebesta, The George Washington University Law School

Change Is Calling: A Contemporary Commission To Confront Cryptic Crypto Conditions 		Custody, Public Offerings, Regulatory Sandbox, Security Status, Trading
  • The proposal suggests establishing a new agency, the Federal Digital Asset Commission (FDAC), to provide clear regulatory guidelines and oversight specifically tailored to digital assets.
  • FDAC will implement a tiered licensing structure for crypto-asset service providers (CASPs) and enforce compliance through audits, cybersecurity measures, and financial stability requirements.
  • The document emphasizes the importance of creating a digital asset classification framework to prevent prolonged disputes and ensure market regulation clarity.
Tyler Gellasch, Healthy Markets Association

Re: Submission to the Securities and Exchange Commission Crypto Task Force Roundtable - Between a Block and a Hard Place: Tailoring Regulation for Crypto Trading 		Custody, Security Status, Trading
  • The SEC should apply existing rules from equities and derivatives trading markets to digital assets to promote competition, efficiency, integrity, and fairness.
  • Digital asset managers should be subject to fiduciary duties, custody rules, operational resiliency, and standardized disclosures similar to those for registered investment advisers.
  • Brokers and market makers in digital assets should register with regulators, meet training and expertise requirements, and adhere to best execution and order handling obligations.