Crypto Task Force Written Input

• NSCP urges the SEC to provide clear, objective criteria for determining whether a digital asset is a security or commodity, warning that current reliance on subjective “facts and circumstances” tests places undue interpretive burdens on compliance officers.
• NSCP requests detailed guidance on how SEC-registered investment advisers can comply with Custody Rule 206(4)-2 when using digital asset custodians, particularly regarding the use of omnibus accounts, self-custody, and multi-party computation (MPC) key management.
• NSCP emphasizes the need for coordinated rulemaking between the SEC, CFTC, and other regulators to avoid duplicative or conflicting compliance obligations, especially as Congress considers legislation that may assign overlapping jurisdiction.

• Wintermute urges the SEC to affirm that broker-dealers may trade tokenized securities for their own account, self-clear and settle such trades, and custody proprietary positions using wallet software, without triggering customer protection rules.
• The SEC should clarify that providing liquidity or trading tokenized securities on DeFi protocols—whether by U.S. or non-U.S. participants—does not, by itself, require broker-dealer registration or trigger U.S. jurisdiction, absent targeted solicitation.
• The SEC should confirm that network tokens (e.g., Bitcoin, Ethereum), which are essential to decentralized protocols, are not securities under the Howey Test, even if initially distributed in fundraising transactions or traded speculatively.

• Cryptocurrencies, despite lacking traditional security characteristics, should be subject to disclosure and protection standards akin to those under the Securities Act of 1933 and the Investment Company Act of 1940 due to their accessibility to unsophisticated investors.
• The absence of intrinsic value, backing, or cash flow in cryptocurrencies makes them particularly risky and difficult to value using conventional corporate finance methods, necessitating enhanced regulatory scrutiny.
• The SEC is urged to initiate a formal notice-and-comment rulemaking process to ensure inclusive public participation and to establish clear regulatory frameworks that promote responsible innovation and market integrity.
   

• Ava Labs proposes a new regulatory category—“Protocol Tokens”—defined as intangible, commercially fungible assets integral to the functioning of a protocol. These tokens should not be classified as securities, regardless of whether they are in a pre-functionality or functional state.
• The SEC should adopt a rulemaking framework that presumes offers and sales of Pre-Functionality Protocol Tokens are investment contracts, but allows for rebuttal and provides a new exemption (“Regulation PT”) with tailored disclosure, AML/KYC, and filing requirements.
• SEC-registered intermediaries (e.g., broker-dealers, ATSs, NSEs) should be permitted to support Protocol Token activities under existing frameworks, with targeted amendments and interpretive guidance. A transitional grace period should allow such activities pending final rulemaking.
   

• Proposes a tailored safe harbor under Category 3 of Regulation S for token offerings, addressing challenges like continuous token distributions and flowback restrictions.
• Suggests updates to Category 1 of Regulation S to make it workable for FPIs of crypto assets, including adjustments to the "substantial U.S. market interest" test and Exchange Act registration thresholds.
• Recommends digital-native compliance methods such as geoblocking, on-chain controls, and electronic purchaser certifications to satisfy Regulation S requirements for crypto assets.

• 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.

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.

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.