Anticipating immediate action by the regulators, digital asset firms should take heed and proactively address the Report's recommendations
Yesterday, the White House released a major Report on how digital assets will be regulated in the United States along with a substantial series of recommendations for their near-term future development "to support the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy." The Report, 166 pages long with nearly 500 footnotes, is critical of the past Administration's "regulatory overreach" and strikes an optimistic, indeed energetic, note about the future of digital assets in the United States. It takes seriously the President's pledge to adopt a pro-innovation mindset toward digital assets and blockchain technologies and make the United States the "crypto capital of the world." We offer this initial overview of the principal provisions of the Report and what we believe are its high points. We will follow with a more detailed analysis and critique in the very near future. We hope you find this digest valuable and look forward to sharing a more thorough analysis and commentary in the next few days.
Overview
The Report covers the digital asset ecosystem, digital asset market structure, banking and digital assets, stablecoins and payments, countering illicit finance, and taxation, setting forth a laundry list of recommendations for Congress and financial regulators for immediate as well as longer-term action. The Report provides a robust overview of crypto and its novel characteristics within the digital asset ecosystem, including the key regulators and their respective areas of oversight, tokenization, potential risks to consumers and market participants, and establishing a digital asset taxonomy. In its discussion of establishing a taxonomy for digital assets, the Report calls for a clear and comprehensive classification system, sharply moving away from the prior Administration's approach of "regulation by enforcement" resulting in disparate interpretations by various federal courts of what constitutes a security. Instead, the Report recommends an approach that focuses on the economic function of each particular digital asset, recognizing their differences, and segmenting digital assets into the general categories of security tokens, commodity tokens, and tokens for commercial and consumer use.
Digital Asset Market Structure Recommendations
The Report calls for the SEC and CFTC to coordinate and take immediate action utilizing their respective rulemaking and exemptive authority to advance a number of initiatives, as well as to establish a regulatory sandbox or safe harbor.
The recommended initiatives for the SEC to consider advancing are:
- Providing for exemptions or safe harbors for securities distributions involving digital assets, digital assets that may be subject to an investment contract that are not yet fully functional or decentralized, certain airdrops from being characterized as sales under the Securities Act;
- Creating a conditional "innovation exemption" to permit SEC registrants to engage in innovative business models;
- Enabling non-security digital assets tied to an investment contract to be traded on SEC-registered trading platforms immediately after the primary distribution of the digital asset, and providing relief to certain DeFi service providers under the Exchange Act; and
- Amending current securities regulations to accommodate trading of non-security digital assets and tokenization of national market system securities; providing clarity on the custody of digital assets that are securities; and evaluating whether certain state-chartered trusts should be deemed qualified custodians.
The recommended initiatives for the CFTC to consider advancing are:
- Providing clarity and guidance on the listing of leveraged, margined, or financed spot retail commodity transactions on digital assets; how digital assets may be considered commodities; calculating and administering segregation obligations; haircuts on digital assets held by registered intermediaries; applicability of registration requirements to DeFi activities, smart contract protocols, or decentralized autonomous organizations; acceptance of digital asset collateral and the adoption of tokenized non-cash collateral; and the classification of swaps on digital assets;
- Collaborating with FinCEN for guidance regarding customer identification programs;
- Enabling firms to provide bundled trading and custody services; and
- Considering allowing the use of blockchain technology to satisfy recordkeeping obligations.
While the Report supports the Digital Asset Market Clarity Act of 2025 ("Clarity Act") recently passed by the House of Representatives as providing an "excellent" foundation for digital asset market structure in the U.S. for trading digital assets without artificial costs imposed by regulatory barriers, the Report also suggests a handful of additional factors for consideration in finalizing this legislation. Among its recommendations, the Report calls for the CFTC to be given clear authority to regulate spot markets in non-security digital assets, allow SEC and CFTC registrants to engage in multiple business lines under the "most efficient licensing structure possible," create guidelines for market intermediaries, and adopt a regulatory treatment that will integrate DeFi into mainstream finance. The Report's support of the Clarity Act, and in particular its recommendation that the CFTC have jurisdiction over spot market crypto trading, will undoubtedly influence the forthcoming discussion draft that is expected from the Senate Agriculture Committee in September as well as the negotiations between the Senate Agriculture Committee and Senate Banking Committee as they coordinate and reconcile their respective discussion drafts building upon the Clarity Act.
Banking Recommendations
The Report also calls for the current banking regulatory framework to be modified to incorporate digital assets using a technology-neutral approach. The Report recommends:
- The relaunch of agency crypto innovation efforts to address outstanding bank activities (including custody, third parties, holding stablecoin reserves as deposits, and principal activities);
- Rescinding the Federal Reserve's 2023 Section 9(13) Policy Guidance to ensure state member banks can explore innovative banking technologies and products; and
- The development of guidance and best practices to support banks and supervisors that are technically sound and principles-based.
The Report also recommends clarifying the role of supervisors and banks in offering banking services to potential customers to be technology-neutral, as well as the process for eligible institutions to obtain a bank charter or a Reserve Bank master account. While the current U.S. capital framework does not contain any provisions specific to crypto, the Report calls for the U.S. Banking Agencies and Treasury to advocate for the modernization of the International Basel Committee on Banking Supervision standards to incorporate new data on digital asset market performance and risk and recent DLT technological innovations as well as for the Banking Agencies to clarify the circumstances under which tokenized assets and tokenized asset collateral would be subject to the same capital and liquidity treatment as the underlying asset or collateral. How quickly U.S. and BCBS liquidity requirements can be coordinated likely will have a significant impact on capital and liquidity planning over the next 12 months.
Stablecoin and GENIUS Act Recommendations
Noting the enactment of the GENIUS Act, the Report urges all relevant federal agencies, including Treasury, to faithfully and expeditiously implement the GENIUS Act to promote the development and growth of legitimate dollar-backed stablecoins worldwide. Agencies are discouraged from taking any action to establish, issue or promote any central bank digital currencies in the U.S. or abroad. Emphasizing the importance cross-border payments and financial transactions, the relevant agencies are encouraged to promote U.S. leadership in developing innovative cross-border payments and financial technologies, including establishing international legal, regulatory, and technical standards for new payment technologies and payment solutions. The Report recommends that digital asset market structure legislation consider creating digital asset specific financial institution types within the Bank Secrecy Act applicable as well to foreign-located actors, custody and control, and for FinCEN to update its guidance related to the digital asset sector to reflect legislative and regulatory changes. Treasury is also called upon to identify areas of uncertainty for traditional financial institutions providing services to digital asset actors and digital asset services to customers, and modernizing Suspicious Activity Report reporting and OFAC compliance guidance.
Advancing Privacy Through Digital Identity
The Report also addresses advancing privacy through digital identity and related tools balancing protections for individual privacy against AML/CFT and sanctions compliance. Treasury is called upon to issue requests for information on sanctions compliance and innovative tools to detect illicit activity, as well as coordinate with the National Institute of Standards and Technology to identify emerging approaches to implement, define, mandate, and enforce customer identification programs for digital assets. Should truly secure privacy-preserving technologies through digital identity come to fruition, the sense of security of using crypto and transacting on DeFi protocols would increase dramatically and significantly expedite the widespread adoption of crypto and DeFi.
Taxation Priority Guidance
The Report also addresses areas of priority guidance for Treasury and the IRS covering financial accounting to address unrealized gains and losses on crypto, whether a trust holding digital assets that stakes those assets and receives staking rewards qualifies as an investment trust treated as a grantor trust, whether wrapping and unwrapping transactions are taxable transactions, de minimis receipts of digital assets, and for the IRS's FAQs on digital assets to be updated. The Report also recommends that legislation be enacted that would treat digital assets as a new class of assets subject to modified versions of tax rules applicable to securities or commodities for federal income tax purposes, how payment stablecoins would be treated for federal income tax purposes, reporting, and adding digital assets (except for payment stablecoins) to the list of assets subject to the wash sale rules.
Conclusion
The Report sets forth a comprehensive digital asset framework in the United States, which is certain to be advanced by federal financial regulators as part of their ongoing functions while the crypto market structure legislation works its way through Congress. Given the priority that the current administration has given to crypto, digital asset firms should take heed and proactively address the Report's recommendations. As many of the recommendations in the Report suggest immediate rulemaking by the various financial regulators, firms can directly engage with the financial regulators by, inter alia, providing fulsome and comprehensive comments to proposed rules supported by robust data and detail for regulators' education and consideration, raising potential areas that may overlap or conflict so that rules can be effectively harmonized across agencies, and proposing constructive solutions that take stakeholder concern into account.
[View source.]
