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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.
The response urges the SEC to revise Regulation NMS and Regulation ATS to accommodate blockchain based market structures, recognizing that Crypto ATSs deviate materially from traditional CLOB centered architectures.
It recommends formal withdrawal of the “Three Step Process” and clarifying that Crypto ATSs may engage in clearing and settlement activities, removing unnecessary barriers created under earlier staff interpretations.
It advocates maintaining a clear legal distinction between software development and regulated financial intermediation, ensuring that non custodial, permissionless protocols and code publication alone do not constitute operating a regulated venue.
The comment argues that cryptographic non‑custody (via 2PC‑MPC) creates a legally distinct category under securities law because it makes unilateral asset control mathematically impossible, materially strengthening the non-broker and non-custodial analysis.
It asserts that smart-contract‑bound compliance—which prevents non‑compliant transactions at the signing layer—should be recognized as equivalent to, or stronger than, organizational controls, supporting outcome‑based rather than structure‑based regulation.
It maintains that Threshold‑FHE enables compliant market transparency by allowing targeted regulatory disclosure and aggregate reporting without exposing individual transaction data, satisfying regulatory objectives while preserving execution privacy.
AMMs that meet defined criteria (no discretionary control, full transparency, deterministic settlement, non‑discriminatory access) are not “exchanges” under the Exchange Act because they lack an organization or group of persons operating or maintaining a marketplace, and do not perform functions traditionally associated with stock exchanges.
Liquidity Providers on such AMMs are not “dealers” under the statutory dealer–trader distinction, as they trade solely for their own accounts, have no customers, and do not solicit orders or provide two‑sided quotes, making dealer registration requirements inapplicable.
The SEC could lawfully permit tokenized‑securities trading on AMMs by adopting a conditional innovation exemption, including whitelisting, volume caps, and required disclosures, to ensure market integrity while enabling compliant tokenization architectures.
SEC should not require issuer consent for third‑party tokenization because existing securities law frameworks already allow secondary‑market infrastructure to develop without issuer approval, and imposing such a requirement would create an unjustified barrier to lawful market activity.
Conditioning tokenization on issuer consent would distort competition by granting incumbents an effective veto over settlement infrastructure, contrary to principles of technology‑neutral regulation and the SEC’s historical approach to secondary‑market operations.
A time‑ and volume‑limited innovation exemption would allow the SEC to evaluate tokenized securities in real‑world conditions while avoiding overbroad regulatory changes and ensuring consistent, principles‑based treatment across tokenization models.
SEC should not require issuer consent for third‑party tokenization because existing securities law frameworks already allow secondary‑market infrastructure to develop without issuer approval, and imposing such a requirement would create an unjustified barrier to lawful market activity.
Conditioning tokenization on issuer consent would distort competition by granting incumbents an effective veto over settlement infrastructure, contrary to principles of technology‑neutral regulation and the SEC’s historical approach to secondary‑market operations.
A time‑ and volume‑limited innovation exemption would allow the SEC to evaluate tokenized securities in real‑world conditions while avoiding overbroad regulatory changes and ensuring consistent, principles‑based treatment across tokenization models.
The request seeks assurance that no enforcement action will be recommended if a broker‑dealer and transfer agent use a public blockchain (Ethereum Mainnet) solely as a recordkeeping mechanism for tokenized security entitlements, while maintaining Alpaca’s off‑chain books and records as the official ledger.
The proposal preserves the existing Article 8 and DTC indirect holding system, ensuring that all fully‑paid and excess‑margin securities remain at a “good control” location and that tokenized entitlements do not alter the legal character of the underlying securities or OGM products.
The model incorporates established broker‑dealer and transfer‑agent supervisory frameworks, asserting compliance with Exchange Act Rules 17a‑3, 17a‑4, and 15c3‑3, and limiting blockchain use to controlled reconciliation, collateral monitoring, and operational efficiency functions.
The Safe Harbor Proposal establishes a rebuttable presumption of non–broker dealer status for strictly non custodial, non discretionary DeFi front end applications that do not solicit transactions and only interface with decentralized protocols.
The Proposal asserts that such apps do not create the agency risks (custody, discretionary execution, conflicts of interest, solicitation) that the Exchange Act’s broker dealer regime is designed to mitigate, thereby rendering full registration economically inefficient and legally misaligned.
The framework preserves SEC enforcement authority by allowing intervention when an app is DeFi In Name Only (DINO) and functions as a de facto centralized intermediary, ensuring investor protection principles remain intact.
The submission argues that DeFi protocol developers, validators, front end interfaces, liquidity providers, and other non custodial technology participants do not satisfy statutory definitions of “exchange,” “broker,” or “dealer” because they neither exercise discretion, custody assets, nor intermediate transactions.
The letter asserts that the SEC possesses clear authority under Section 36 to provide targeted exemptive relief for tokenized equity trading, consistent with longstanding incremental regulatory practice such as no action relief and conditional exemptions leading up to Regulation AB and Regulation ATS.
The analysis contends that Citadel’s expansive reading of securities intermediary obligations lacks statutory support and would improperly extend regulation to neutral technology providers, contradicting case law including SEC v. Coinbase and Risley v. Uniswap.
The broker‑dealer’s use of Dinari’s blockchain system is permissible only if the off‑chain books and records remain the authoritative records fully compliant with Exchange Act Rules 17a‑3 and 17a‑4, with on‑chain tokens serving strictly as secondary, non‑economic representations.
The blockchain‑based tokens must be entirely duplicative, non‑transferable, and without independent economic or governance rights to ensure they do not alter customer ownership rights or create a separate asset class.
Broker‑dealers must maintain policies and supervisory procedures ensuring continuous alignment between on‑chain and off‑chain records, including reconciliation and exception reporting to prevent false or misleading customer information.
Custody, Public Offerings, RFI Responses, Security Status, Tokenization, Trading
SEC Release No. 33‑11412 establishes the binding five‑category digital‑asset taxonomy and confirms OTCM’s ST22 instruments as Category 1 Model B Digital Securities, with the DLT ledger serving as the authoritative shareholder record
OTCM’s migration from Preferred Series “M” shares to Common Class B Shares ensures full shareholder rights (voting, dividends, liquidation) and directly satisfies Model B’s requirement that tokenized securities represent true equity ownership.
Empire Stock Transfer is formalized as the sole qualified custodian and onboarding authority, centralizing KYC/KYB/AML/OFAC compliance and custody under SEC‑regulated oversight for all ST22 issuers.
