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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.
Activities involving native, wrapped, or entitlement tokens qualify as securities transactions, triggering broker-dealer, exchange, and registration requirements under the Securities Act and Exchange Act.
Issuers of tokenized securities must comply with Securities Act §§ 5, 6, 7, 10, including filing registration statements and delivering prospectuses. Additional disclosures may be needed to address unique tokenization risks.
Sections 12, 13, 15, 17, and 23 of the Securities Act and §§ 9, 10, and 20 of the Exchange Act prohibit manipulative practices and impose liability for material misstatements or omissions, regardless of whether securities are tokenized.
The proposed modernization advocates amending the Custody Rule to allow registered investment advisers (RIAs) to safeguard client crypto assets using non-qualified custodian (non-QC) solutions under a reasonableness standard, ensuring assets remain secure and fiduciary duties are met.
Introducing flexibility to permit both QC and non-QC safeguarding solutions mitigates operational frictions, reduces concentration risk, and aligns custody practices with the unique properties of crypto assets, while maintaining compliance with the Custody Rule’s core tenets.
The model framework leverages multi-signature/multi-party computation (MS/MPC) technology, contractual agreements (MPA), and operational security standards to satisfy policy objectives of segregation, safeguarding, and independent verification without mandatory third-party custody.
SIFMA refuted claims by DeFi Education Fund that it previously supported broad exemptive relief for emerging technologies, clarifying that its advocacy focused on structured regulatory reform through formal rulemaking and statutory authority.
SIFMA opposed the SEC’s 2022 Proposal to redefine “exchange” under Rule 3b-16, citing concerns that the inclusion of undefined terms like “communication protocol systems” would improperly expand regulatory scope to systems operated by broker-dealers and investment advisers.
SIFMA recommended a limited volume exemptive framework under the Exchange Act, tailored to address specific market challenges, rather than blanket exemptions for DeFi platforms.
Zack Tickman, Claude & Friends: Risk Analytics Research Group
Custody, RFI Responses, Safe Harbor, Security Status
Zcash and Aleo rely on zkSNARKs requiring a “trusted setup,” which introduces a permanent trust assumption. If the setup’s entropy (“toxic waste”) is not securely destroyed, it could allow undetectable token counterfeiting, undermining supply integrity.
Zcash’s opt-in privacy model results in most transactions being transparent, enabling deanonymization through statistical analysis. This undermines its claim to privacy-preserving status and exposes users to surveillance risks.
Aleo’s programmable privacy increases protocol complexity, which has led to real-world data leaks (e.g., unencrypted KYC data). This complexity heightens the likelihood of implementation flaws, expanding the attack surface and compromising user privacy.
Securities Industry and Financial Markets Association (SIFMA)
Tokenized securities traded via DeFi or CeDeFi platforms must comply with U.S. securities laws, including the Exchange Act, regardless of claims of decentralization or minimal intermediary involvement.
A clear and nuanced taxonomy is essential to distinguish between natively issued digital securities, wrapped tokens, SBS, and non-security instruments, ensuring proper application of securities laws and investor protections.
Fragmentation between tokenized and traditional securities markets poses risks to market integrity, and regulators must ensure fungibility, consistent trade reporting, and integration with existing infrastructures like Reg NMS, CAT, and SIPC.
The "Chains of Trust" model enables cryptographic self-certification of digital identities and data, which can enhance customer due diligence and reduce synthetic identity fraud in digital asset markets.
Institutions can use VDCs to attest to a customer’s compliance status without transmitting sensitive personal data repeatedly, supporting privacy and interoperability across financial institutions.
Linking legal entity identifiers to VDCs provides cryptographic proofs of beneficial ownership, while immutable provenance records offer regulators and law enforcement reliable audit trails for supervisory and enforcement purposes.
DeFi Education Fund, Andreessen Horowitz, The Digital Chamber, Orca Creative, J.W. Verret, and Uniswap Foundation
The letter argues that Citadel’s attempt to classify all entities and technologies involved in DeFi transactions as SEC-registered intermediaries is legally flawed, as autonomous software and developers without custody or control over user assets do not meet the statutory definitions of “broker” or “dealer.”
The signatories assert that expanding the definitions of “exchange” and “broker-dealer” to include DeFi protocols exceeds the SEC’s statutory authority and risks misclassifying non-intermediary software infrastructure, undermining innovation and regulatory clarity.
The letter supports notice-and-comment rulemaking for tokenized equities but urges the SEC to adopt frameworks—such as safe harbors—that distinguish between centralized and decentralized systems, ensuring that only entities posing traditional risks are subject to registration.
Ondo urges the SEC to support both direct and intermediated pathways for tokenized securities, including models involving securities entitlements held through DTC, and to provide targeted regulatory relief for such models1.
The letter advocates for the SEC to formally recognize and permit the use of public, permissionless blockchains in tokenized securities markets, asserting that such systems align with investor protection goals and ownership rights1.
Ondo supports the SEC’s proposed “innovation exemption” and recommends prioritizing regulatory action to enable tokenized securities products for retail investors, particularly those backed by securities held in DTC1.
The SEC should not grant broad exemptive relief from the statutory definitions of “exchange” and “broker-dealer” for DeFi trading protocols, as doing so would undermine investor protections and create a dual regulatory regime for the same securities.
Many DeFi trading protocols and associated participants (e.g., developers, wallet providers, AMMs) meet the legal definitions of “exchange” or “broker-dealer” and should be regulated accordingly under existing securities laws.
The SEC should pursue a notice-and-comment rulemaking process to evaluate tokenization initiatives, ensuring that any regulatory changes preserve core investor protections and apply equally to tokenized and traditional equities.
Securities Industry and Financial Markets Association (SIFMA)
Broad exemptions from federal securities laws for tokenized securities risk undermining investor protection, fragmenting markets, and creating regulatory arbitrage by allowing functionally identical activities to operate outside established oversight frameworks.
Entities performing intermediary-like functions in tokenized securities markets—whether centralized or decentralized—should be subject to the same regulatory obligations as traditional brokers, dealers, exchanges, and clearing agencies.
Any innovation exemption framework must be narrowly tailored, include investor and transaction limits, and be subject to public notice-and-comment rulemaking to ensure it supplements rather than substitutes for comprehensive regulation.
