Strengthening American Leadership in Digital Financial Technology (President's Working Group on Digital Asset Markets report under EO 14178), 166 pp. (Part 2 of 4)
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Research, not advice. Part of the Bitcoin research archive (October 2026). Claims labelled unverified, contested or fringe are reported, not endorsed; statuses of bills and rules are as of the date checked. Government, court and patent records are public domain; the research notes are CC BY 4.0.
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cleared in accordance with the CEA or entered into by non-retail market participants on a bilateral basis. DCMs
and SEFs are required to comply with core principles under Sections 5 and 5h of the CEA,178 including CFTC
rules related to market integrity, fair access, position limits, pre- and post-trade transparency, and system
safeguards.
Once executed on a DCM or (or voluntarily on a SEF), digital asset derivatives are cleared by a registered
derivatives clearing organization (DCO), which acts a central counterparty to every buyer and seller. DCOs
mitigate counterparty credit risk by guaranteeing the performance of cleared contracts and applying risk
management standards under CEA Section 5b.179 DCOs are required to collect initial and variation margin,
maintain default funds, conduct stress testing, and ensure operational resilience.180
FCMs, IBs, commodity trading advisors (CTAs), and swap dealers must register with the CFTC and comply with
applicable conduct, financial, and recordkeeping requirements under the CEA and CFTC rules. FCMs that
handle customer funds for derivative contracts, including digital asset derivatives, must adhere to segregation
and safeguarding requirements under Section 4d of the CEA181 and Parts 1, 22, and 30 of the CFTC’s
regulations. These protections are designed to ensure that customer property is not misused and that firms
can meet their obligations during periods of market stress.
IBs and CTAs are also subject to registration and supervisory requirements under Part 3 of the CFTC’s
regulations. Additionally, all registered FCMs and IBs must implement and maintain customer identification
programs (CIPs) under CFTC Regulation 42.2,182 which incorporates CIP requirements for FCMs and IBs under
the BSA. CIPs requirements include procedures for identity verification, record retention, and screening
against certain government watch lists for known or suspected terrorists.183
To support regulatory oversight, CFTC registrants and certain market participants are required to report daily
transaction and position data to the CFTC under Parts 16, 17, 18, 20, 43, and 45 of the CFTC’s regulations. These
reporting and recordkeeping requirements enable the CFTC to monitor for systemic risk, large trader activity,
and market abuse, and provide the data infrastructure for effective market surveillance and enforcement.
178 7 U.S.C. §§ 7 and 7b-3.
179 7 U.S.C. § 7a-1.
180 See 17 C.F.R. §§ 39.13, 39.11, and 39.18 (2024).
181 7 U.S.C. § 6d.
182 17 C.F.R. § 42.2 (2024).
183 31 C.F.R. § 1026.220 (2024).
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Digital Asset Market Structure • Establishing a Taxonomy for Digital Assets
Even in the case where no derivatives are listed on a particular digital asset commodity, the CFTC maintains
anti-fraud and anti-manipulation enforcement authority in the spot markets for such commodities under
Section 6(c)(1) of the CEA184 and CFTC Regulation 180.1.185 This authority helps ensure that the CFTC can
protect market integrity and customer interests in connection with a contract of sale of a commodity in
interstate commerce.
The CFTC oversees derivatives on digital asset commodities, primarily bitcoin and ether, on DCMs. For example,
the Chicago Mercantile Exchange lists cash-settled bitcoin and ether futures and options. These derivative
contracts are structured to comply with the CEA and CFTC regulations, focusing on transparency, market
integrity, and contract enforceability, and are subject to surveillance, reporting, and position limit rules under
Section 5 of the CEA.186
Network Tokens
A network token, sometimes called a protocol token, refers to a token that is intrinsically connected to
the functioning of a decentralized network or protocol. Importantly, to the extent that a token’s network
is sufficiently decentralized, its continued value is not dependent on the intervention or control of a single
person or group. Some network tokens are used to pay transaction fees (e.g., gas fees) or to stake to secure
the network’s consensus. Others grant voting rights in a DeFi protocol.187 Examples of network tokens include
bitcoin and ether, each of which derives its value from the blockchain network on which it operates.
Network tokens are issued to allow users to participate in an open decentralized network rather than to provide
holders of the token future profit flows from the efforts of a managerial entity. Unlike securities, network
tokens do not typically grant equity, debt, or profit-sharing rights. Their value is not derived from a corporate
issuer’s revenue, but from the utility within the network (for example, demand for block space or voting power).
When no single company controls the supply or demand of a token and the token is essential to the ongoing
operation of the blockchain network, it begins to resemble a commodity or a type of operational utility token.
Efforts to regulate network tokens should focus on ensuring that tokens, even if initially issued as part of an
investment contract in a securities transaction, are not classified as securities once the network becomes
fully functional and sufficiently decentralized. Criteria for determining what constitutes “fully functional” and
“sufficiently decentralized” should be clear and objective to ensure fairness and provide market participants
with certainty.
Tokens for Commercial and Consumer Use
A commercial or consumer use token provides access to some specific good, service, or privilege, and is
subject to other federal and state laws applicable to commercial transactions. These tokens are usually
non-fungible, meaning they cannot be easily interchanged or substituted with other “like” digital assets. A
commercial use token is a digital representation of traditional commercial instruments, such as warehouse
receipts, documents of title, bills of lading, event tickets, memberships, and identity credentials. Unlike network
tokens, these assets are often not associated with a decentralized network protocol and are usually issued by a
centralized entity. Consumer use tokens also include arcade tokens and loyalty tokens that users can redeem
for a consumptive purpose, usually within a closed system. Examples of these types of tokens include video
game rewards or tokenized loyalty points issued by a company.
184 7 U.S.C. § 9(1).
185 17 C.F.R. § 180.1 (2024).
186 7 U.S.C. § 7.
187 See Vitalik Buterin, Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform (2014), https://ethereum.org/content/whitepaper/
whitepaper-pdf/Ethereum_Whitepaper_-_Buterin_2014.pdf.
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Digital Asset Market Structure • Enabling the Trading of Digital Assets at the Federal Level
Other variations of consumer use tokens include collectible tokens, such as tokenized artwork, trading cards,
and other tokenized versions of traditional collectible items. Often, tokens serve as a record of ownership or
otherwise associate ownership rights with a digital identity.
The value of redeemable tokens is derived from the use they provide the holder when redeemed for the
relevant good, service, or privilege. Other commercial use tokens may have no intrinsic marketable value
(for example, tokens recording identity credentials). Regulation should focus on consumer protections and
ensuring that these types of tokens are marketed with appropriate disclosures while allowing companies to
experiment with blockchain-based systems. To provide clarity to market participants and ensure innovative
uses of blockchain technology for consumer use can continue to grow, regulators may consider some type of
guidance, safe harbor framework, or exemptive relief for this asset class.
Enabling the Trading of Digital Assets at the Federal Level
To ensure that American businesses can compete internationally, the SEC and the CFTC should use their
existing rulemaking and exemptive authorities to enable the trading of digital assets.
Recommendations
Immediate Actions
The SEC should consider using its rulemaking and exemptive authority under the Securities Act to
advance the following initiatives:
• Establish a fit-for-purpose exemption from registration under Section 5 of the Securities Act for securities
distributions involving digital assets.
• Establish a time-limited safe harbor or exemption from certain securities law requirements for transactions
involving digital assets that may be subject to an investment contract because they are not yet fully
functional or associated with a sufficiently decentralized network to allow for progressive functionality or
decentralization.
• Establish a safe harbor for certain airdrops from characterization as “sales” under Section 2(a)(3) of the
Securities Act or an exemption from the corresponding registration requirements under Section 5 of the
Securities Act. Consider also an exemption for distributions of digital assets by decentralized physical
infrastructure (DePIN) providers in securities transactions for purposes of rewarding participation in DePIN
networks, as well as distributions of certain NFT offerings.
The SEC should consider using its rulemaking and exemptive authority under the Exchange Act to
advance the following initiatives:
• Enable non-security digital assets188 that are tied to an investment contract to be traded on non-SEC
registered trading platforms immediately following the primary distribution of the digital asset.
• Provide relief for certain DeFi service providers from the broker-dealer (Section 15), exchange (Sections 5
and 6), and clearing agency (Section 17A) registration provisions of the Exchange Act.
• Amend Regulation ATS to (or create a framework similar to Regulation ATS that would) better
accommodate trading of non-security digital assets alongside securities under a regulatory framework that
is fit-for-purpose for digital asset trading.
• Create a conditional “innovation exemption” under the Exchange Act to allow SEC registrants to engage in
innovative new business models.
188 As used in this report, “non-security digital asset” does not include payment stablecoins. See supra note 97 (defining “payment stablecoin”).
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• Address the definition of “facility” under Section 3(a)(2) of the Exchange Act to consider business models
used in digital asset trading.
• Consider amendments to Regulation NMS (or to applicable national market system plans) to better
accommodate tokenization of national market system (NMS) securities, or trading of non-security
digital assets alongside NMS securities, including requirements applicable to transaction reporting and
mechanisms for collecting bids, offers, quotation sizes, and other national market system information. This
may include consideration of how amendments could facilitate the use of oracles, aggregators, and other
DeFi constructs in the trading of NMS securities and/or non-security digital assets.
• Modernize transfer agent rules to clearly permit the use of blockchain technology by transfer agents.
• Provide clarity regarding whether and when self-hosted wallet providers would be acting as broker-dealers
subject to SEC registration.
The SEC should consider using its rulemaking and exemptive authority under the Investment Advisers
Act, the Investment Company Act, and other applicable laws to advance the following initiatives:
• Provide clarity on the custody of digital assets that are securities for Registered Investment Companies and
Registered Investment Advisers by updating the rules under Section 17(f) of the Investment Company Act
and Rule 206(4)-2 of the Investment Advisers Act.
• Evaluate whether certain state-chartered trusts should be deemed “qualified custodians,” as defined within
Advisers Act Rule 206(4)-2(a)(6) or a “bank” under the Investment Company Act.
The CFTC should consider using its rulemaking, interpretative, and exemptive authority under the
Commodity Exchange Act (CEA) to advance the following initiatives:
• Provide guidance to designated contract markets (DCMs) regarding the listing of leveraged, margined, or
financed spot retail commodity transactions on digital assets pursuant to CEA section 2(c)(2)(D).
• Provide guidance as to how digital assets may be considered commodities under Section 1a(9) of the CEA. For
example, the agency can consider expanding upon prior guidance on “actual delivery” of virtual assets.189
• To the extent that digital asset investment vehicles or their managers may be considered “Commodity
Pools” or prompt registration of “Commodity Pool Operators,” the CFTC will consider updating rules and
guidance as appropriate.
• Collaborate with FinCEN to provide guidance regarding customer identification programs (CIPs) utilizing
new technologies for eligible intermediaries and other market participants who carry customer accounts
holding digital assets on behalf of customers.190 This collaboration can explore intermediaries’ and other
market participants’ reliance on other financial institutions’ identification and verification functions.
• Enable firms to provide bundled trading and custody services.
• Provide clarity on the applicability of various CFTC registration requirements to DeFi activities, smart contract
protocols, or decentralized autonomous organizations (DAOs) consistent with technology-neutral principles.
• Provide guidance to FCMs in calculating and administering segregation obligations when digital assets are
held on behalf of customers, including separate account treatment under Regulation 1.44.
• Provide clarity on haircuts on digital assets held by registered intermediaries (including FCMs, swap
dealers, and DCOs) for purposes of calculating and reporting margin, financial resources/capital,
189 See 85 Fed. Reg. 37734, supra note 96. Furthermore, the CFTC’s Global Markets Advisory Committee considered a variety of digital assets issues,
including proposing a taxonomy for digital assets. See CFTC Global Markets Advisory Committee Digital Asset Markets Subcommittee, Digital Assets
Classification Approach and Taxonomy (Mar. 6, 2024), https://www.cftc.gov/media/10321/CFTC_GMAC_DAM_Classification_Approach_and_Taxonomy_for_Digital_
Assets_030624/download.
190 See 31 C.F.R. § 1026.220(a)(6) (2024); Anti-Money Laundering: Customer Identification Programs, CFTC, https://www.cftc.gov/IndustryOversight/
AntiMoneyLaundering/dsio_aml_cia.html (last visited July 13, 2025).
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segregation, and settlement obligations, including working with the SEC around the non-marketable
securities haircut framework and its applicability to non-security digital assets.
• Review the application of eligible depository rules to accounts holding digital assets as collateral under
CFTC Regulation 1.49.
• Provide guidance for DCO acceptance of digital asset collateral (including payment stablecoins)191 including
DCO financial resource requirements, valuation of assets and haircuts for margin purposes, settlement
finality, treatment of digital asset custodians and self-custody, systems safeguards requirements, end-of-
day reporting for assets that trade 24/7, and legal risk considerations in such areas as netting and interests
in collateral under CFTC Regulations 39.11, 39.13, 39.14, 39.15, 39.18, 39.19, and 39.27.
• Provide guidance on the adoption of tokenized non-cash collateral as regulatory margin to implement the
CFTC’s GMAC DAMS recommendation.
• Provide guidance on the classification of swaps on digital assets to address application of margin, reporting,
and other requirements under CFTC Regulations 1.3, 23.154, 43.2, and 45.1.
• Consider allowing the use of blockchain technology to satisfy recordkeeping obligations under CFTC
Regulation 1.31.
The SEC and the CFTC should coordinate to ensure efficient rulemaking processes. The SEC and CFTC
should coordinate on seeking comments from the public on suggestions for rulemaking.
If the SEC and CFTC establish a regulatory sandbox or safe harbor, it should have clear criteria to
determine which types of digital assets and market participants are eligible for the sandbox or safe harbor.
Moreover, there should be a clear pathway for entities to graduate from the sandbox or safe harbor.
In coordination with the SEC, the CFTC should consider using its authority within CEA section 1a(18)
to establish a category of eligible contract participants (ECPs) with the ability to engage in certain
types of derivatives, including perpetual contracts, through additional regulated intermediaries (e.g.,
persons that are counterparties to a specified transaction conducted on or pursuant to the rules of an
alternative trading system).
Longer-Term Considerations
The SEC and CFTC should explore offering flexibility to allow registrants to offer multiple services
within a single user interface.
• The Working Group encourages regulatory exploration of more vertically integrated business models in the
digital asset space. These business models should include appropriate structural safeguards, governance
mechanisms, and disclosures to mitigate conflicts of interest.
• While addressing conflicts and ensuring existing registrants are not disadvantaged, regulators may
consider adopting regulatory regimes that allow registrants to integrate multiple financial services in one
business model, which could further reduce frictions and enhance user experience.
◆ Combining exchange services with custody of trading assets allows for real-time settlement. The
custodian holds the assets, and the exchange matches orders to buy and sell those assets. Additionally,
the digital assets custodied by an exchange should be cryptographically verifiable.
◆ Combining exchange and broker services allows for economies of scale and reduces operational
complexity by permitting straight-through processing of customer orders with the same technology stack.
◆ Exchanges and intermediaries must segregate customer property away from proprietary funds, subject
to reasonable exceptions.
191 See supra note 97 (defining “payment stablecoin”).
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Digital Asset Market Structure • Creating a Lasting Framework for Digital Asset Market Structure
The CFTC should consider how existing rules could be amended to enable the use of blockchain-based
derivatives.
• Such considerations should include evaluating the benefits of blockchain-based derivative transactions or
systems with respect to the regulatory requirements of central clearing, and frameworks around reporting
obligations, margin levels, and contract listings in a non-intermediated environment.
Absent congressional action, the SEC and CFTC should use their existing authorities to provide
fulsome regulatory clarity that best keeps blockchain-based innovation within the United States.
• As discussed below, the Working Group strongly recommends that Congress expeditiously advance
market structure legislation to the President’s desk.
• However, as market structure deliberations continue in Congress, the Working Group similarly recognizes
that the market regulators can work to provide appropriate accommodation for digital asset trading and
innovation in their rules to ensure responsible innovation occurs in the United States.
Creating a Lasting Framework for Digital Asset Market Structure
Due to the underlying distributed ledger technology, digital asset markets function differently from markets
for stocks, bonds, commodities, and derivatives. Traditional financial markets require a series of third-
party intermediaries between a buyer and a seller to execute and settle a trade. In digital asset markets,
programmable smart contracts allow buyers and sellers of certain digital assets on decentralized exchanges to
be matched and ownership to change hands without a custodial third-party. Other platforms offering trading
of digital assets are structured in a more centralized way, but differences remain that need to be addressed in
crafting a market structure framework.
The House of Representatives’ Digital Asset Market Clarity Act of 2025 (CLARITY)192 proposes a division of
digital asset market jurisdiction between the SEC and CFTC. It protects the right of Americans to self-custody
their digital assets. By requiring the SEC and CFTC to jointly promulgate rules for portfolio margining, it
facilitates a system where investors, both retail and institutional, can efficiently trade digital assets without
artificial costs imposed by regulatory barriers.
CLARITY also importantly recognizes decentralized governance systems, which are an innovation in how
individuals collectively reach agreement on development and administration of blockchain systems. Much as
joint stock corporations provided an avenue for shareholders to engage in common undertakings, decentralized
governance systems are a further evolution in decision-making. CLARITY recognizes the promise of
decentralized finance and the ability of software to allow individuals to freely transact with one another.
Lastly, CLARITY provides legal certainty in highlighting the treatment of digital assets on banking institutions’
balance sheets, providing federal pre-emption for jurisdiction over digital asset intermediaries, and explaining
the criteria by which institutions can be considered Qualified Custodians of digital assets.
Altogether, CLARITY represents an excellent foundation for digital asset market structure in the United States.
However, the Working Group encourages Congress to consider a handful of additional factors when finalizing
this legislation to ensure American markets for digital assets help enshrine the United States as the crypto
capital of the world.
192 H.R. 3633, 119th Cong. (2025).
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Recommendations
Congress should consider the following when finalizing provisions of market structure legislation to ensure
the most cost-efficient and pro-innovation regulatory structure for digital assets.
Jurisdiction of Market Regulators
The CFTC should have clear authority to regulate spot markets in non-security digital assets. SEC
and CFTC registrants should be permitted to engage in multiple business lines under the most
efficient licensing structure possible, ensuring a clear and simple regulatory framework for digital
asset market activities.
• Regulation should be crafted to avoid regulatory arbitrage between the SEC and CFTC digital asset
regulatory regimes, understanding that the regulation of digital asset securities is necessarily different than
that applied to non-security digital assets. Interagency coordination could guide these efforts.
• Registrant platforms should have the flexibility to offer a broad range of digital asset and other regulated
products within a single user interface, subject to clearly defined regulatory oversight of the registrant.
• SEC registrants should be able to offer the trading of digital asset securities and be able to engage in non-
security digital asset transactions pursuant to the licensing structure defined by Congress.
• CFTC registrants should be able to offer the trading of digital commodity derivatives, retail digital
commodity transactions, and other CFTC-jurisdictional products alongside non-security digital assets, as
specified by Congress.
• To the extent Congress permits activity in non-security digital assets outside CFTC registrants, Congress
should direct the market regulator leading the rulemaking process to set rules for market conduct and
activities for non-security digital assets in consultation with the SEC or CFTC, as appropriate.
• Rules for digital assets should include portfolio margining standards, as suggested by CLARITY.193
• The SEC and CFTC should adopt rules ensuring customer asset segregation for digital assets.194
• Trading venues for non-security digital assets should be required to report market data, subject to reporting
obligations established by the CFTC. If a trading venue is engaged solely in the provisioning of non-security
digital assets, there should only be reporting obligations to the CFTC.
◆ Prior to the enactment of any reporting obligations, the CFTC should consult with the SEC on the data
to be reported and the format in which it is reported to minimize industry burden.
Congress should provide that federal law preempts state law with respect to securities and
commodities laws applicable to SEC- and CFTC-registered intermediaries, including in the areas of
state virtual currency business, “blue sky,” and commodity broker laws.
193 See H.R. 3633, 119th Cong. § 105(e) (2025).
194 Note that the CFTC-registered futures commission merchants (FCMs) already have segregation obligations under current law. See CFTC, Futures
Commissions Merchants (FCMs): Segregation of Customer Funds, https://www.cftc.gov/IndustryOversight/Intermediaries/FCMs/fcmsegregationfunds
(last visited July 13, 2025). In 2020, the Division of Swap Dealer and Intermediary Oversight of the CFTC issued a staff letter advisory as to how FCM
segregation obligations apply to virtual currency. CFTC Letter No. 20-34, Accepting Virtual Currencies from Customers into Segregation (Oct. 21, 2020),
https://www.cftc.gov/csl/20-34/download.
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Digital Asset Market Structure • Creating a Lasting Framework for Digital Asset Market Structure
Guidelines for Market Intermediaries
Digital asset trading platforms, brokers, dealers, custodians and other registrants should be subject to
a tailored registration regime that is fit-for-purpose under the SEC or CFTC, as appropriate and based
upon the intermediary’s activities.
• Consistent with the existing financial markets regulatory framework, the regime should include principles-
based requirements that are no more onerous than those safeguards applied to existing registrants.
Intermediaries should be allowed to lend against, net, and hedge securities against non-securities, as
risk characteristics permit.
• Coordinated regulatory treatment can ensure appropriate market oversight, while recognizing economic
equivalence across different asset types.
• The SEC and CFTC should have appropriate flexibility in setting applicable rules for their registrants.
Issuers of digital asset securities, and of securities involving digital assets, should be subject to
disclosure requirements that are appropriately tailored to address the novel characteristics of digital
assets and blockchain technology. Digital asset trading platforms, brokers, dealers, and other CFTC-
registered intermediaries that make available non-security digital assets should be required to disclose
any such information that the CFTC determines to be appropriate for non-security digital assets.
• Further, these parties should not be subject to ongoing disclosure requirements other than those required
by Congress in future legislation or by the relevant market regulator. Furthermore, any such ongoing
disclosures should be fit-for-purpose and guided by publicly available information, such as open-source
code, whenever possible.
• Digital asset trading platforms, and other intermediaries as appropriate, should publish the criteria that
govern the listing of digital assets that are traded.
◆ In addition, digital asset trading platforms, and other intermediaries as appropriate, should consider
prominently disclosing features that may be unique to digital assets, such as token economics (i.e.,
allocation percentages and rationales) and source code, if applicable.
For institutional over-the-counter block trades of digital assets that occur offchain through regulated
intermediaries, there should be similar reporting and disclosure requirements to those that apply to
similar activities in traditional markets.
• These reporting and disclosure requirements need not be instantaneous, but it is critical to ensure there are
not loopholes or “blind spots” associated with digital asset trading activity that occurs offchain.
Digital asset trading platforms, brokers, dealers, and other SEC and CFTC registrants should disclose
the capacity in which they are acting on behalf of the customer, client, or counterparty (i.e., dealer,
broker, counterparty, routing to an order book, etc.).
• Digital asset firms may serve in a variety of capacities when offering digital asset trading. Congress should
consider disclosure requirements or standards depending on the nature of the relationship between the
firm and the market participant (e.g., retail, institutional, customer, client, counterparty, etc.).
Trading platforms should be permitted to custody customer digital assets with appropriate controls.
• Safeguards may include requirements for asset segregation, disclosures, principles-based cybersecurity
standards, bankruptcy remoteness, separation of legal entities, separation from margin and rehypothecation
entity, capital requirements, liquidity and redemption requirements, and regulatory supervision.
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• Trading platforms should also enable users engaging in self-custody to transact, and should be prohibited
from discriminating against third-party custodians who offer products that compete with those provided
by the trading platform or an affiliate.
Market intermediaries should be subject to principles-based rules regarding the margin and leverage
they can extend to retail participants, based on the functions of margin and leverage in their respective
activities. Congress should clearly define the rules and responsibilities between the SEC and CFTC
regarding margin and leverage, but allow the regulators appropriate flexibility in setting such rules.
• Financing rates offered to retail customers should be publicly disclosed by the party offering leverage.
Congress should consider extending Exchange Act Section 31 fee structures to all SEC-registered
products offered on SEC-regulated platforms.
• Intermediaries offering digital asset services should pay fees equivalent to those that traditional finance
intermediaries pay in the equity markets.
SEC and CFTC registrants should be required to adopt best practices for cybersecurity standards.
• These standards may be adopted as part of a principles-based regulatory framework or proposed as
industry best practices.
Regulatory Treatment of DeFi
By embracing and supporting the option of DeFi for investors, policymakers can help position the United
States as a leader in the global crypto economy. Encouraging the development of regulatory frameworks
that balance innovation with security will pave the way for a robust financial future. The integration of DeFi
into mainstream finance has the potential to unlock new economic opportunities and drive significant
advancements across various industries and sectors.
There are ongoing discussions regarding whether non-controlling blockchain developers, DeFi service
providers, and DeFi apps or front ends can or should be required to comply with institutional obligations
under the Bank Secrecy Act (BSA), either as money services businesses (MSBs), broker-dealers, FCMs, or
some other category of “financial institution” under the BSA.195 Such considerations are discussed further
in the Further Improvements to the AML/CFT Regime section of Chapter VI, covering topics related to
countering illicit finance.
As contemplated in provisions of CLARITY,196 Congress should consider the following factors when
determining the regulatory treatment of DeFi:
• The extent to which a given software application exercises “control” over user assets.
◆ Without the ability to exercise control over user assets or funds, a software application may not transmit
money or exchange currency, and therefore might not be subject to the BSA as an MSB. Importantly,
without control, software applications generally lack the ability to misappropriate user assets.
• The extent to which a given software application, once built or deployed, is technologically capable of being
modified.
195 See 31 U.S.C. § 5312(a)(2) and 5312(c).
196 See Press Release, Representative Tom Emmer, Emmer’s Securities Clarity Act and Blockchain Regulatory Certainty Act Pass House Financial Services
Committee Markup (June 11, 2025), https://emmer.house.gov/media-center/press-releases/emmer-s-securities-clarity-act-and-blockchain-regulatory-certainty-
act-pass-house-financial-services-committee-markup (noting that the ”elements of the Blockchain Regulatory Certainty Act that are include in the
CLARITY Act codify that digital asset developers and service providers that do not custody consumer funds are not money transmitters.”).
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◆ Software applications in DeFi use smart contracts. In many cases, smart contracts cannot be modified
or withdrawn once deployed. Implementing changes in those cases requires the creation of entirely new
smart contracts.
◆ The operations of a software application, including the smart contracts or the economics of the service
more broadly, may be administered by a single actor or a group of actors working together.
◆ As such, Congress should consider the degree to which a single actor, or group of actors working
together, has the unilateral ability to upgrade a software application’s smart contracts or change its
economics in a manner not previously disclosed in the software or protocol rules.
• The extent to which a software application is controlled by, or operates with, a centralized structure or
management.
◆ If a product or service is operated, managed, or otherwise controlled by a business and facilitates
access to a DeFi system engaged in otherwise regulated activity, that product or service should be
subject to regulation accounting for underlying regulated activity and pursuant to the principles of fair
competition, customer protection, conflicts of interest, integrity of code, cybersecurity standards, and
other principles as appropriate.
• The extent to which a given software application is technologically or logistically capable of complying with
current regulatory obligations.
◆ Many DeFi protocols and non-controlling blockchains do not have the functional ability to register as
MSBs or otherwise comply with MSB obligations under the BSA, while businesses (as described above)
could register. Nevertheless, Congress could consider how obligations can be fit-for-purpose to the
technology and embrace the unique characteristics of DeFi, rather than placing the current financial
regulatory regime on top of DeFi services.
◆ Care should be taken to ensure that actors are not permitted to structure products to subvert legal
responsibilities.
Accounting Recommendations
Financial Accounting Standards Board (FASB)197 processes include outreach to a broad set of stakeholders
including investors, preparers, accounting firms, academics, and regulators.198 The FASB issued accounting
guidance in December 2023 addressing the subsequent measurement of certain digital asset holdings
at fair value.199 It has also specifically requested stakeholder input on any additional accounting guidance
needed to address digital asset matters under U.S. Generally Accepted Accounting Principles (GAAP).200
The Working Group observed that many questions on the accounting for digital asset transactions relate to
the following key concepts that FASB should consider for further consultation through public engagement:
• Recognition and derecognition: Whether an entity should recognize or derecognize digital asset tokens
when entering into certain transactions. For example, should a lender of digital assets derecognize such
assets, and should there be symmetry in accounting between a lender and borrower? Similar questions
may arise related to wrapping tokens or transacting with decentralized lending or exchange protocols.
197 The SEC has recognized the FASB’s accounting standards as authoritative since 1973. See SEC, Policy Statement: Reaffirming the Status of the FASB as a
Designated Private-Sector Standard Setter (Apr. 25, 2003) https://www.sec.gov/rules-regulations/policy-statements/33-8221.
198 See Financial Accounting Standards Board (FASB), Rules of Procedure: Amended and Restated Through February 12, 2025 (2025), https://www.fasb.org/
page/ShowPdf?path=Rules%20of%20Procedure-Feb%202025.pdf&title=Rules%20of%20Procedure-February%202025.
199 FASB, Accounting Standards Update No. 2023-08, Accounting for and Disclosure of Crypto Assets (Dec. 2023), https://www.fasb.org/page/
PageContent?pageId=/projects/recentlycompleted/accounting-for-and-disclosure-of-crypto-assets.html.
200 FASB, Invitation to Comment: Agenda Consultation (Jan. 3, 2025), https://fasb.org/page/ShowPdf?path=ITC%E2%80%94Agenda%20Consultation.
pdf&title=Invitation%20to%20Comment%E2%80%94Agenda%20Consultation.
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Digital Asset Market Structure • Creating a Lasting Framework for Digital Asset Market Structure
• Issuer accounting. How an entity should account for digital asset tokens it creates and issues. The
accounting by the token issuer will depend on the issuer’s facts and circumstances, and the enforceable
rights and obligations of the parties involved. To the extent a token conveys rights or obligations that
align with traditional assets or instruments (e.g., ownership of tangible commodities, debt, or equity),
then established accounting guidance already exists. Additionally, FASB should consider whether to treat
payment stablecoins as cash equivalents under GAAP. Further clarification is required in cases where
tokens provide utility or access without clearly enforceable rights – particularly when tied to the future
development of a platform. There is no explicit guidance to address the accounting for those types of token
issuances.
Additionally, the principles-based nature of the Public Company Accounting Oversight Board’s (PCAOB’s)
audit standards and guidance published by the PCAOB, as well as non-authoritative guidance from the
American Institute of Certified Public Accountants (AICPA), have allowed auditors of public companies and
broker dealers to adapt traditional procedures to address digital asset tokens. As the technology and its use
continues to develop, there may be value in additional or new standards to promote consistency in application
and execution and help align regulatory and stakeholder expectations (avoiding expectation gaps).
International Regulatory Standards and Landscape
The Working Group advises the United States to reassert global leadership on digital assets. Reassertion
of such leadership depends on establishing a clear and robust policy framework for digital asset activity.
Large financial centers like the European Union (EU), Japan, Singapore, and the United Kingdom (UK) are
finalizing and implementing their own digital asset frameworks, offering a foundation upon which they
seek to attract firms and grow their markets. The United States has a window of opportunity to shape the
way these frameworks intersect and interact, fostering a level playing-field on which American firms and
markets can compete with the rest of the world. As such, the Working Group advises the United States to
engage and lead internationally to achieve these objectives.
In parallel, some digital asset firms have chosen to operate globally out of smaller jurisdictions, some
of which have become significant centers for digital asset activity, but which may lack adequate
regulation, effective supervision, or enforcement capacity to oversee that activity, including illicit
finance controls (see Chapter VI), which discusses the regulatory framework around illicit finance as
pertains to digital assets). A clear and robust U.S. framework will serve as a standard and indicator of
credibility for firms that onshore their activities in the United States. Paired with active U.S. leadership in
international engagement, an American regulatory framework will also serve to discourage firms from
operating in jurisdictions that compete with inadequate regulation, supervision, and enforcement.
International Standards
U.S. regulators, including the Department of Treasury and its Office of International Financial Markets,
have been active in international discussions to shape emerging regulatory standards for digital assets,
recognizing emerging best practices as authorities develop their respective domestic regulatory
frameworks. In July 2023, the Financial Stability Board (FSB) published its global regulatory framework
for digital asset activities. The framework includes high-level recommendations for the regulation,
supervision, and oversight of digital asset activities and markets and of widely used stablecoins. These
recommendations promote the creation of risk-based regulatory regimes, in which digital asset issuers
and service providers have adequate governance, risk management, and disclosure obligations,
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Digital Asset Market Structure • Creating a Lasting Framework for Digital Asset Market Structure
including for potential conflicts of interest.201 The Working Group suggests that the United States
advance policies at the FSB aligned with recommendations for digital asset regulatory frameworks
outlined in this report.
In addition, the Financial Action Task Force (FATF), the international standard setting body for AML/
countering the financing of terrorism (CFT), clarified under the 2018 U.S. presidency that its standards
apply to virtual assets and virtual asset service providers (VASPs).202 The FATF recommended that
jurisdictions must assess risk associated with virtual assets and require that VASPs in their jurisdiction
are regulated and supervised for implementation of AML/CFT obligations. The Working Group would
be supportive of adopting several FATF standards for virtual assets, consistent with recommendations
in this report, and advises the United States to remain a leader on FATF efforts on this topic.
Other financial sector standard-setting bodies have also addressed market conduct and capital
standards for digital assets activity in financial markets and banking. The International Organization of
Securities Commissions in 2023 published high-level guidance for, among other policies, addressing
market abuse, digital asset custody arrangements, and trading disclosures.203 In 2022, the Basel
Committee on Banking Supervision (BCBS) published capital standards for banks’ exposure to
cryptoassets and stablecoins.204 This framework, which was later amended in 2024205 and is discussed
in further detail later in this report, assigns risk weights reflecting the BCBS’s assessment of different
types of cryptoassets and the ledgers on which they trade; it assigns the highest risk weight to
cryptoassets traded on permissionless ledgers. Where standards are misaligned, the Working Group
advises that the United States assert leadership and advocate that relevant bodies develop guidance
in line with the goals of the Working Group to establish the United States as a global leader on digital
assets regulation.
Evolving Regulatory Landscape
Large financial-center jurisdictions have developed their own separate regimes for the regulation of
digital assets, with some common features.206 Common elements of current and proposed stablecoin
regimes in the EU, Hong Kong, Singapore, Japan, and the UK include: a licensing regime; reserve
and other prudential requirements; requirements to segregate customer assets from those of the
digital asset service provider itself; provisions for client redemption rights; mandatory disclosures and
periodic audits; varying prohibitions on algorithmic stablecoins; and AML/CFT obligations. Similarly,
emerging digital asset market structure regimes around the world restrict advertising for consumer
protection and prevent market abuse, broadly equivalent to traditional financial market rules, although
the details of these restrictions vary.
However, many regulatory regimes are not comprehensive and may require expansion or updating. The
EU’s Markets in Crypto-Assets (MiCA) Regulation exemplifies a comprehensive global digital assets
201 See Financial Stability Board, High-Level Recommendations for the Regulation, Supervision and Oversight of Crypto-Asset Activities and Markets: Final
report (July 17, 2023), https://www.fsb.org/2023/07/high-level-recommendations-for-the-regulation-supervision-and-oversight-of-crypto-asset-activities-and-
markets-final-report.
202 See generally Financial Action Task Force, Updated Guidance for a Risk-Based Approach: Virtual Assets and Virtual Asset Service Providers (Oct. 2021),
https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/Updated-Guidance-VA-VASP.pdf.coredownload.inline.pdf.
203 See generally International Organization of Securities Commission, Policy Recommendations for Crypto and Digital Asset Markets: Final Report (Nov. 16,
2023), https://www.iosco.org/library/pubdocs/pdf/IOSCOPD747.pdf.
204 Basel Committee on Bank Supervision (BCBS), Prudential Treatment of Cryptoasset Exposures (Dec. 2022), https://www.bis.org/bcbs/publ/d545.pdf.
205 BCBS, Cryptoasset Standard Amendments (July 2024), https://www.bis.org/bcbs/publ/d579.pdf.
206 For an overview of global approaches to digital assets policy, see Cryptocurrency Regulation Tracker, The Atlantic Council, https://www.atlanticcouncil.org/
programs/geoeconomics-center/cryptoregulationtracker (last visited July 13, 2025).
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Digital Asset Market Structure • Creating a Lasting Framework for Digital Asset Market Structure
regime currently in force.207 European authorities adopted MiCA in late 2024, but some European policy
makers have already called for a “MiCA 2” to address gaps in the new rules. These gaps include, at least,
limited jurisdiction over digital asset service providers operating from outside Europe and omission of
DeFi, NFTs, and digital asset lending.
Similarly, Japan was an early leader in the regulation of digital asset activities and was, in 2014, among
the first countries to legally define and classify digital assets. However, Japan has subsequently
amended its framework to accommodate the maturing global digital asset market. In April 2025,
Japan’s Financial Services Agency announced a new approach to digital assets, including reclassifying
these assets as financial products and has signaled its intention to recalibrate its stablecoin reserve
requirements to retain global competitiveness.
The evolution of digital asset frameworks in other large financial centers across the globe creates an
opportunity for the United States to shape global regulatory standards and norms in ways that align
with U.S. interests. It also creates an opportunity for the United States to support a less fragmented
digital asset ecosystem, with fewer unwarranted regulatory frictions, which can better support the
allocation of capital to its most efficient use.
Regulatory Fragmentation
Regulatory fragmentation among jurisdictions with different—or even conflicting—regimes could
impact market flows of digital assets. For stablecoins, a lack of broad, coherent, and robust oversight can
undermine stablecoins’ reliability as a payment instrument, limiting their circulation, their stability, or their
ability to circulate without discount. Regulatory fragmentation can also lead to market fragmentation,
and to reduced or trapped liquidity within specific stablecoin arrangements; this, in turn, can limit
market depth in ways that can affect the broader health of digital asset markets. More fundamentally,
fragmentation may impose inefficient compliance and operational costs on U.S. stablecoin issuers and
other registrants operating internationally, making them less competitive and the international playing
field less even. This is true also for digital asset markets, in which existing frameworks diverge with
respect to legal classifications, taxation, margin trading, staking, and other areas.
A robust U.S. policy framework for digital assets can help minimize these risks and promote the growth
of the digital asset industry globally. U.S. engagement on these issues must prioritize U.S. interests—
including an innovative, fair, open, and efficient digital asset ecosystem.
207 See Financial Stability Board, FSB Notes Significant Progress in Monitoring, Regulating and Supervising Crypto-Asset Activities in France (Dec. 11, 2024),
https://www.fsb.org/2024/12/fsb-notes-significant-progress-in-monitoring-regulating-and-supervising-crypto-asset-activities-in-france.
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IV. Banking and Digital Assets
CHAPTER IV
Banking and Digital Assets
STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY
Banking and Digital Assets •
Banking and Digital Assets
Commerce on the Internet has come to rely almost exclusively on financial institutions serving
as trusted third parties to process electronic payments. While the system works well enough
for most transactions, it still suffers from the inherent weaknesses of the trust based model.
Introduction from Bitcoin: A Peer-to-Peer Electronic Cash System
Satoshi Nakamoto, October 2008208
The genesis block of Bitcoin, the first block ever mined, famously contains a headline from the day it was
created: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”209 Though Satoshi was
cautious of banks, the technology and industry that evolved from his work would come to interact with the
banking system in unexpected ways. Some banks, recognizing the promise of the space, began providing
core banking services to growing crypto enterprises. Others, building on their banking-as-a-service offerings
to fintech companies, supported new clients engaged in digital assets. Additionally, some “crypto banks”210—
chartered financial institutions offering the ability to buy, sell, and custody digital assets alongside traditional
banking services, such as access to traditional fiat payment rails—emerged and blurred the line between the
TradFi and crypto-native worlds.211 Outside the traditional banking sector, the growth in retail access to digital
assets has created opportunities for unbanked Americans to access the financial system. A survey from
May 2025 indicated that 10% of cryptocurrency owners stated they owned cryptocurrency before opening a
checking account, savings account, or an account with certain common payments apps.212
Although many in the banking industry supported the growth and development of the crypto ecosystem,
regulatory leadership set up roadblocks. The Biden Administration’s Operation Choke Point 2.0 resulted in the
widescale debanking of digital asset firms and their founders. As Acting Federal Deposit Insurance Corporation
(FDIC) Chairman Travis Hill noted in February 2025 when publishing internal documents related to the FDIC’s
supervision of banks that engaged in, or sought to engage in, crypto-related activities:
[T]he FDIC’s approach “has contributed to a general perception that the agency was closed
for business if institutions are interested in anything related to blockchain or distributed
ledger technology.” . . . The documents that we are releasing today show that requests from
these banks were almost universally met with resistance, ranging from repeated requests
for further information . . . to directives from supervisors to pause, suspend, or refrain from
expanding all crypto- or blockchain-related activity. Both individually and collectively, these
and other actions sent the message to banks that it would be extraordinarily difficult—if not
impossible—to move forward. As a result, the vast majority of banks simply stopped trying.213
208 Nakamoto, supra note 18.
209 See mempool.space (Jan. 3, 2009), https://mempool.space/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f. See also Jon
Southurst, Bitcoin Genesis Block Constructed 11 Years Ago Today, CoinGeek (Jan. 3, 2020), https://coingeek.com/bitcoin-genesis-block-constructed-11-
years-ago-today.
210 Note that such “crypto banks,” which either hold state charters or an OCC national trust bank charter, do not necessarily offer the full range of traditional
banking services, absent additional approvals.
211 Coin World, Crypto Firms Expand into Traditional Finance, Blurring Lines with New Offerings, AInvest (Apr. 25, 2025, 2:07 PM ET), https://www.ainvest.com/
news/crypto-firms-expand-traditional-finance-blurring-lines-offerings-2504.
212 Justin Slaughter & Dominique Little, Paradigm Policy Market Mapping Exercise Spring 2025, Paradigm (July 1, 2025), https://www.paradigm.xyz/2025/07/
paradigm-policy-market-mapping-exercise-spring-2025.
213 See FDIC, FDIC Releases Documents Related to Supervision of Crypto-Related Activities, (Feb. 5, 2025), https://www.fdic.gov/news/press-releases/2025/
fdic-releases-documents-related-supervision-crypto-related-activities; see also Hist. Assocs. Inc. v. FDIC, No. 1:24-cv-1857-ACR (D.D.C.).
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Banking and Digital Assets •
Under the Trump Administration, Operation Choke Point 2.0 is dead—not just in spirit, but in substance.
The Securities and Exchange Commission (SEC) staff rescinded Staff Accounting Bulletin (SAB) No. 121, an
accounting guidance that effectively prohibited publicly traded banks from offering custody services for digital
assets.214 The FDIC rescinded a prior-notification requirement for supervised institutions in March 2025, and
affirmed that banks under their purview “may engage in permissible activities, including activities involving
new and emerging technologies such as crypto-assets and digital-assets, provided that they adequately
manage the associated risks.”215 That month, the Office of the Comptroller of the Currency (OCC) published
Interpretive Letter No. 1183, confirming that national banks and federal savings associations may engage in
digital asset custody, stablecoin-related activities, and use blockchains to facilitate payments without seeking
prior approval.216 The OCC also announced that it would no longer examine banks for “reputation risk,” and the
Board of Governors of the Federal Reserve System (FRB) announced the same in June.217 Then, in April, the FRB
rescinded two supervisory letters related to banks’ “crypto-asset and dollar token activities,” with the express
purpose of ensuring the FRB’s “expectations remain aligned with evolving risks and further support innovation
in the banking system.”218
By April 2025, the OCC, FDIC, and FRB had all withdrawn from joint statements issued in January and February
2023 cautioning banking organizations against engaging in digital asset activity.219 And in July 2025, the OCC,
FDIC, and FRB issued a new joint statement reaffirming the legal permissibility for banks to custody digital
assets.220 In contrast to the Trump Administration’s leadership, the Biden Administration endorsed that now-
214 SAB No. 121 mandated that certain entities safeguarding digital assets record both a liability and a corresponding asset on their balance sheets at the fair
value of the assets held, even if such assets were never lent by the entities. Staff Accounting Bulletin No. 121, 87 Fed. Reg. 21015 (Apr. 11, 2022) (formerly
codified at 17 C.F.R. pt. 211 (2024)). SAB No. 121 was rescinded by a new staff accounting bulletin, SAB No. 122. Staff Accounting Bulletin No. 122, 90 Fed.
Reg. 8492 (Jan. 30, 2025) (codified at 17 C.F.R. pt. 211 (2024)). SEC Staff Accounting Bulletins are not rules or interpretations of the SEC, nor are they
published as bearing the SEC’s official approval. They represent interpretations and practices followed by the SEC Division of Corporation Finance and
the SEC Office of the Chief Accountant in administering the disclosure requirements of federal securities laws. Note that the Guiding and Establishing
National Innovation for U.S. Stablecoins Act (GENIUS), which was signed into law by President Trump on July 18, 2025 prohibits the SEC, FDIC, OCC, FRB,
and NCUA from adopting rules for public and private depository institutions similar to SAB No. 121. S. 1582, 119th Cong. (2025) § 16(c) (enacted).
215 Press Release, FDIC, FDIC Clarifies Process for Banks to Engage in Crypto-Related Activities (Mar. 28, 2025), https://www.fdic.gov/news/financial-institution-
letters/2025/fdic-clarifies-process-banks-engage-crypto-related.
216 OCC, Interpretive Letter No. 1183, OCC Letter Addressing Certain Crypto-Asset Activities (Mar. 7, 2025), https://www.occ.gov/topics/charters-and-licensing/
interpretations-and-actions/2025/int1183.pdf. The OCC subsequently issued Interpretive Letter No. 1184, which provided further clarity on permissible
custody activities. See OCC, Interpretive Letter No. 1184, Clarification of Bank Authority Regarding Crypto-Asset Custody Services (May 7, 2025), https://
www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1184.pdf.
217 OCC Ceases Examinations for Reputation Risk, OCC (Mar. 20, 2025), https://www.occ.gov/news-issuances/news-releases/2025/nr-occ-2025-21.html; Federal
Reserve Board Announces That Reputational Risk Will No Longer Be a Component of Examination Programs in Its Supervision of Banks, FRB (June 23,
2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250623a.htm. The FDIC is also “working on a rulemaking related to reputation risk
that would prohibit FDIC supervisors from (1) criticizing or taking adverse action against institutions on the basis of reputational risk and (2) requiring,
instructing, or encouraging institutions to close, modify, or refrain from offering accounts on the basis of political, social, cultural, or religious views.”
Acting Chairman Travis Hill, FDIC, Speech at American Bankers Association Washington Summit: View from the FDIC: Update on Key Policy Issues (Apr.
8, 2025), https://www.fdic.gov/news/speeches/2025/view-fdic-update-key-policy-issues.
218 Press Release, FRB, Federal Reserve Board Announces the Withdrawal of Guidance for Banks Related to Their Crypto-Asset and Dollar Token Activities
and Related Changes to Its Expectations for These Activities (Apr. 24, 2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250424a.htm.
219 See id.; see also FRB, FDIC & OCC, Joint Statement on Crypto-Asset Risks to Banking Organizations (Jan. 3, 2023), https://www.federalreserve.gov/
newsevents/pressreleases/files/bcreg20250424a1.pdf; FRB, FDIC & OCC, Joint Statement on Liquidity Risks to Banking Organizations Resulting from
Crypto-Asset Market Vulnerabilities (Feb. 23, 2023), https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a2.pdf. Silvergate
Capital Corporation, the parent company of one of the banks that failed in March 2023, disclosed risk in a public filing on March 1, less than two
weeks before it announced plans to wind down and self-liquidate, that “the safety and soundness concerns expressed by the federal banking
agencies regarding banking institutions with business models that are concentrated in digital asset related activities” could cause its financial
performance to differ materially from its projections. Silvergate Capital Corporation, Form 12b-25 (Mar. 1, 2023), https://www.sec.gov/Archives/edgar/
data/1312109/000110465923027353/tm238251d1_nt10k.htm. Similarly, former Congressman Barney Frank, one of the Board members of Signature Bank,
which was forcibly closed by the New York State Department of Financial Services (NYDFS) in March 2023, speculated that NYDFS was “using us as a
poster child to say ‘stay away from crypto.’” Jen Wieczner, Barney Frank Talks More About the Surprise Shuttering of Signature Bank, N.Y. Magazine (Mar.
15, 2023), https://nymag.com/intelligencer/2023/03/barney-frank-says-more-shuttering-signature-bank.html.
220 FRB, FDIC & OCC, Crypto-Asset Safekeeping by Banking Organizations (July 14, 2025), https://www.occ.gov/news-issuances/news-releases/2025/nr-ia-2025-68a.pdf.
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Banking and Digital Assets • Bank Engagement with Digital Assets
rescinded January 2023 guidance and encouraged regulators to continue efforts designed to “limit financial
institutions’ exposure to the risks of digital assets.”221
Regulatory efforts to deny banking services to the digital asset industry have ceased under the Trump
Administration. With growth now in focus, the Working Group supports banks’ participation in digital asset-
related activities and the ability for banks to use blockchain technologies to improve their services.
This section details how banks222 and credit unions (collectively, “depository institutions”) are engaging
with digital assets and outlines the prudential regulatory framework applicable to: (i) depository institutions
engaging in digital asset activities or offering banking services to digital asset firms; and (ii) digital asset firms
interested in offering bank-like services. It then makes recommendations that would help ensure depository
institutions can continue to innovate to meet customer demand for engagement in digital asset markets and
use DLT throughout this new opportunity for growth.
Bank Engagement with Digital Assets
Banks have primarily engaged with the digital asset industry through: (i) providing core banking products and
services to digital asset market participants; and (ii) facilitating customer access to digital asset markets through
services such as custody, trade execution, and settlement. Due to general skepticism or concerns about risk,
banks were initially slow to engage with digital assets. However, interest in digital asset-related product lines
accelerated in 2020 and 2021 as the broader digital asset market experienced a period of substantial price gains
and opportunities to leverage DLT became more apparent. This was accompanied by the OCC’s issuance of a
series of interpretive letters toward the end of President Trump’s first administration related to the permissibility
of certain digital asset activities, which added some regulatory certainty.223 However, in 2022, a series of
market events, including a substantial decrease in the value of digital assets, 224 and the onset of the Biden
Administration’s Operation Choke Point 2.0 impacted many banks’ interest in pursuing or increasing engagement
with digital assets. Though banking agencies have steadily removed many of the previous regulatory
impediments, certain areas of regulatory uncertainty remain and need to be addressed.225
221 Brian Deese, Arati Prabhakar, Cecilia Rouse & Jake Sullivan, The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks, The White House (Jan. 27,
2023), https://bidenwhitehouse.archives.gov/nec/briefing-room/2023/01/27/the-administrations-roadmap-to-mitigate-cryptocurrencies-risks.
222 As used in this chapter of the report, “banks” broadly refers to and includes insured depository institutions and OCC-chartered trust banks.
223 OCC, Interpretive Letter No. 1170, Authority of a National Bank to Provide Cryptocurrency Custody Services for Customers (July 22, 2020), https://occ.gov/
topics/charters-and-licensing/interpretations-and-actions/2020/int1170.pdf; OCC, Interpretive Letter No. 1172, OCC Chief Counsel’s Interpretation on National
Bank and Federal Savings Association Authority to Hold Stablecoin Reserves (Sept. 21, 2020), https://occ.gov/topics/charters-and-licensing/interpretations-
and-actions/2020/int1172.pdf; OCC, Interpretive Letter No. 1174, OCC Chief Counsel’s Interpretation on National Bank and Federal Savings Association
Authority to Use Independent Node Verification Networks and Stablecoins for Payment Activities (Jan. 4, 2021), https://occ.gov/topics/charters-and-
licensing/interpretations-and-actions/2021/int1174.pdf.
224 See Financial Stability Oversight Council (FSOC), Report on Digital Asset Financial Stability Risks and Regulation 27 (2022), https://home.treasury.gov/
system/files/261/FSOC-Digital-Assets-Report-2022.pdf (noting that “... the substantial decline in crypto-asset prices during late 2021 and early 2022
reportedly coincided with some key market developments” and throughout the report referring to the failure of the hedge fund Three Arrows Capital,
the collapse of the TerraUSD stablecoin and associated liquidation of the Luna Foundation Guard’s bitcoin holdings, and the bankruptcies of Celsius and
Voyager Digital). Additionally, the cryptocurrency exchange FTX filed for bankruptcy in November 2022. FTX Trading Ltd., Form 201, No. 22-11068-JTD
(D. Del. Nov. 11, 2022).
225 See FSOC, supra note 224, at 18 (noting that “some banks have indicated publicly that they have interest in offering crypto-asset products and services
but are waiting on regulatory clarity before doing so.”).
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Banking and Digital Assets • Bank Engagement with Digital Assets
Current Products and Services
Banks provide a variety of traditional banking products and services to digital asset firms such as commercial
deposit accounts, loans, and capital markets advisory services. Some banks also offer other services, directly
or indirectly, related to the trading, settlement, and custody of native digital assets, though uptake is currently
limited. The use of third parties commonly serves as a vehicle for banks to leverage new technologies, access
greater expertise for a particular activity, or enter new marketplaces. Community banks in particular often
find that they can harness the resources of third parties to leverage emerging technologies and create new
opportunities for the bank and its customers. In recent years, banks have explored a range of business lines
through external relationships, including custody services, facilitating customer purchases and sales of digital
assets, loans involving digital assets, and DLT payments networks. Additionally, some banks and digital asset
market participants partner to offer hybrid traditional banking and digital asset products, such as debit or
credit cards that provide digital asset rewards.
Adopting new technologies or offering new products or services are business decisions. Regulatory guidance
from the OCC, FDIC, and FRB (collectively, the “Banking Agencies”) would be helpful for banks to evaluate
digital asset activities. In any event, it is imperative that any banking regulatory framework not reflect a
regulatory preference for a particular technology or sector so that banks may determine the mix of products
and services to offer based on their business strategies and risk management capabilities and consistent with
applicable law.
Traditional (Core) Banking Services
Depository institutions play a valuable role in providing traditional banking services to digital asset market
participants. Access to traditional banking services (e.g., deposit accounts, payments, lending) is essential for
any company or individual. It enables them to manage cash flows, pay employees and vendors, and conduct
their operations efficiently. For digital asset firms, maintaining a reliable banking relationship provides them
with the critical infrastructure to interact with the broader economy. Those core banking services are provided
to digital asset firms by depository institutions in accordance with their individual risk appetites and business
decisions, while operating within a regulated framework.
In the past, regulatory uncertainty contributed to reduced availability or stability of banking relationships
for firms and individuals operating in digital asset markets. However, regulators have recently reiterated that
banks are neither prohibited nor discouraged from providing banking services to customers of any specific
class or type, as permitted by law or regulation. Therefore, banks themselves should make risk-based business
decisions regarding each potential customer relationship based on the banks’ specific risk management
capabilities and tolerances.
Payments
Some banks are seeking to harness DLT to facilitate faster payments. For example, some banks have formed
consortia to establish new networks leveraging DLT for low-cost, real-time payment capabilities available
24/7/365.226 Such DLT-based solutions, sometimes relying on third-party providers, may also have the
capability to facilitate smart contracts that can extend functionality. Other banks are utilizing DLT to facilitate
payments within a banking organization. Some are exploring leveraging public blockchains.
226 See, e.g., Regulated Settlement Network Proof-of-Concept, Securities Industry and Financial Markets Association, https://www.sifma.org/resources/
general/regulated-settlement-network-proof-of-concept (last visited July 13, 2025); Big Banks Explore Interoperable Stablecoin, PYMNTS.com (May 23,
2025), https://www.pymnts.com/cryptocurrency/2025/big-banks-eye-consortium-backed-stablecoin-to-counter-fintech-threat; How It Works, Fnality, https://
fnality.com/how-it-works (last visited July 13, 2025).
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Tokenization
Tokenization entails bringing traditional products and services onchain using DLT. This enables both the
bank and its clients to benefit from capabilities that are commonly implemented on distributed ledgers,
such as the potential to encode rules or conditions into the tokenized assets and liabilities themselves (i.e.,
programmability). Tokenization has the potential to transform execution, settlement, and other banking
activities that could benefit from these efficiencies.227 Clarity within the regulatory perimeter may contribute to
dislocation of legacy system intermediaries and traditional financial market infrastructures (FMIs).
When deciding which traditional products to tokenize, banks and their clients generally appear to be focusing
on the financial activities they view as most reliant on inefficient market structures and on products that align
with their core competencies. Although tokenization is occurring across all financial services, bank tokenization
projects garnering the most public attention are tokenized deposits, digital foreign exchange (FX), custody
of tokenized securities, tokenized repurchase agreements, and tokenized private funds.228 Tokenization also
presents an opportunity for banks to bring loans onchain, potentially improving operational efficiency and access
to capital,229 especially for lending to small and medium-sized enterprises (including by community banks).
Tokenized Deposits
Tokens may represent a range of different kinds of assets and liabilities, including commercial bank deposits.
Banks are generally permitted to tokenize deposits in the U.S., as tokenization can be viewed as a form of
technology to record bank deposits;230 nonetheless, further clarity on this point from the Banking Agencies
would be helpful.231
A tokenized deposit may offer the familiarity and safety of a bank deposit, with the added functionality of
instantaneous settlement of DLT. Depository institutions are actively exploring and deploying use cases; some
banks have used tokenization and tokenized deposits to facilitate 24/7, real-time, intra-bank transfers or have
expressed interest in pursuing the tokenization of deposits. These improvements to internal systems may
enable more efficient transfers of funds, as well as new types of financial products. Others are seeking to use
tokenized deposits to facilitate transfers among trusted participants in a network. For example, as discussed
below, some are pursuing tokenized deposits to facilitate wholesale, cross-border payments.
Tokenization of deposits, like any novel technology, may raise certain questions regarding practical
implementation and broader impact on the banking system. For example, banks should establish certainty for
227 Many of the product designs under development have the potential to integrate features from different sources. For example, a bank-owned distributed
ledger platform could leverage components and solutions developed in house or by third-party providers. Likewise, a bank may decide to tokenize its
products through white-label offerings on third-party platforms. Finally, a bank could choose to provide services to clients through connectivity to a DeFi
FMI platform using dApps. A quality known as “composability,” similar to but more expansive than mere interoperability, enables clients or customers to
design new or unique financial products using off the shelf templates and tools, presenting both opportunities and risks for firms.
228 See Oliver Wyman & J.P. Morgan Chase & Co., Deposit Tokens: A Foundation for Stable Digital Money (2022), https://www.jpmorgan.com/kinexys/
documents/deposit-tokens.pdf; Citigroup, Bringing Traditional Assets to Digital Networks: Exploring the Tokenization of Private Markets (2024), https://
www.citigroup.com/rcs/citigpa/storage/public/Fund-Tokenization-Summary-Report.pdf; Citi and Fidelity International Demonstrate Tokenized Money Market
Fund and Digital Foreign Exchange Swap Solution, Citigroup (Nov. 4, 2024), https://www.citigroup.com/global/news/press-release/2024/citi-and-fidelity-
international-demonstrate-tokenized-money-market-fund-and-digital-foreign-exchange-swap-solution; Reinventing Asset Servicing with Distributed Ledger
Technology, HSBC (May 20, 2024), https://www.gbm.hsbc.com/en-gb/insights/market-and-regulatory-insights/reinventing-asset-servicing-with-distributed-
ledger-technology; BNP Paribas Trades Intraday Repo on J.P. Morgan’s Onyx Digital Assets Platform, BNP Paribas (May 16, 2022), https://globalmarkets.cib.
bnpparibas/bnp-paribas-trades-intraday-repo-on-j-p-morgans-onyx-digital-assets-platform-2.
229 See Tokenization in Financial Services: Delivering Value and Transformation, PwC (Mar. 11, 2024), https://www.pwc.com/us/en/tech-effect/emerging-tech/
tokenization-in-financial-services.html (“Historically illiquid assets, such as private credit and private equity, can also be viable tokenization candidates. In
the roughly $1.5 trillion private credit market, for example, it can take a tremendous amount of time and effort to match buyers and sellers. When private
credit starts utilizing tokenization, lenders can “fractionalize” loans, making them into a variety of sizes, increasing the pool of potential borrowers.”).
230 See Acting Chairman Hill, supra note 217 (“From the FDIC’s perspective, we should provide certainty that ‘deposits are deposits, regardless of the
technology or recordkeeping deployed.’”) (quoting Vice Chairman Travis Hill, FDIC, Speech at Mercatus Center, Banking’s Next Chapter? Remarks on
Tokenization and Other Issues (Mar. 11, 2024), https://www.fdic.gov/news/speeches/2024/spmar1124.html).
231 Whether any particular tokenized deposit product meets the statutory or regulatory definitions of “deposit” for purposes under 12 U.S.C. § 1813(l) or 12
C.F.R. pt. 204 (2025) (commonly referred to as Regulation D) depends on a fact-specific analysis of the product.
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their customers regarding the ability to transfer tokenized deposits. Additionally, banks and their customers
must have confidence in the reliability and security of the underlying technology, and in the privacy of any
confidential information shared when making a payment. Further, if there are many different ledgers, banks
must consider how these ledgers interact or interoperate so that customers are able to transfer value freely.232
Finally, programmability associated with tokenized deposits may increase the speed and automation of
transactions, which may have an ancillary effect of increasing the speed of, and herding behavior leading
to, bank runs. Conversely, programmability could also be used to introduce frictions into the transaction or
settlement processes to reduce the speed of bank runs or otherwise provide incentives to mitigate the risk of
herding behavior.233
Payments showcase how stablecoins234 and tokenized bank deposits can be used for the same general purpose
but differ significantly in implementation and legal treatment. Both stablecoins and tokenized deposits could
be used as means of payment and operate on the same underlying technology. However, tokenized deposits
are intended to evidence a bank’s deposit liability and a holder’s deposit claim against a regulated bank as
recorded on a digital ledger. Bank deposits (including tokenized deposits) are supported by the bank’s balance
sheet and therefore can be subject to federal deposit insurance. Additionally, in the event of insolvency,
the disposition of bank deposits would be addressed through receivership, which features special rules for
deposit claims, rather than through bankruptcy proceedings. Stablecoins, on the other hand, may represent
a liability of a bank subsidiary or nonbank counterparty or a claim on reserve assets. Certain customers and
counterparties may value the added security of tokenized deposits, while others may value the full reserve-
based nature of certain stablecoins and their currently wider interoperability and acceptance within the digital
asset ecosystem.
Digital Asset Custody
As the digital asset market has grown, there has been an increasing demand for trusted institutions to provide
custody services for digital assets, including safekeeping (e.g., controlling the cryptographic keys of customers’
digital assets, transaction processing, and settlement).235 Depository institutions have long provided custody
services for a wide variety of physical and electronic assets, including assets that are unique and hard to
value. As digital assets generally consist of entries on distributed ledgers, providing custody typically entails
maintaining control of cryptographic keys (and potentially other sensitive information) used to transfer the
assets on these ledgers. As in traditional custody services, customers may seek to engage the custodian to
undertake ancillary services. In the digital asset context, ancillary services that customers may seek from
a custodian include staking, facilitating digital asset lending, and DLT governance services. Depository
institutions may provide custody services themselves or through sub-custodians to hold cryptographic keys or
white-labeling digital asset custody platforms.
Currently, only a small number of banks offer digital asset custody, with a focus primarily on institutional
customers. Several factors likely contributed to the relatively small number of banks that have decided to
engage in this activity—most notably, the now-rescinded SEC SAB No. 121 to the extent such banks were (or
were subsidiaries of) companies required to file certain periodic reports under applicable securities laws. The
Biden Administration’s Operation Choke Point 2.0 further contributed by creating additional procedural steps
and costs to engage in digital asset activities alongside statements from federal banking regulators and the
232 The potential availability of multiple distributed ledgers or blockchains has some potential benefits, including offering redundancies in systems that
improve system-wide resilience.
233 See Vice Chairman Hill, Banking’s Next Chapter? Remarks on Tokenization and Other Issues, supra note 230 (discussing the potential for tokenization to
exacerbate and mitigate risks of speed and intensity of bank runs).
234 See Chapter V.
235 See OCC, Interpretive Letter No. 1170, supra note 223, at 7, 8 (noting that providing custody services for digital assets falls within longstanding authorities
to engage in safekeeping and custody activities, and that providing such services is permissible in both non-fiduciary and fiduciary capacities).
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White House discouraging such engagement.236 Digital asset companies interested in providing custody
services as banks also faced strong difficulty in receiving bank charters from the OCC.237 The need for custody
expertise, competence with digital assets, and cybersecurity implications may also have reduced engagement
by banks in such activities. Interest may also have been chilled by long-term volatility within the digital asset
market and specific market events in 2022.238 Finally, other factors that may have impacted a bank’s decision
to offer digital asset custody include competition (especially given that established digital asset companies
frequently provide custody solutions—sometimes for little or no cost—and have substantial market share),
significant capital requirements, the availability of self-custody options, the nascent nature of the technology
in banking, and perceived risk implications. In July 2025, however, the Banking Agencies jointly reaffirmed the
legal permissibility for banks to custody digital assets under existing laws, regulations, and risk-management
principles without creating any new supervisory expectations.239
Facilitating Digital Asset Trading
Banks offer customers digital asset trading in varying forms. Some banks provide trade execution geared
towards institutional and high net worth customers interested in gaining exposure to certain digital assets,
supplementing custody services offered. Banks interested in offering retail customers exposure to digital asset
markets may seek to provide these services through a third party. This simplest form of this arrangement
enables bank customers to access the third party’s digital asset trading service through the bank’s website or
app. In some cases, this falls within a banking organization’s finder authority, which generally encompasses a
bank bringing together parties to a transaction that the parties themselves negotiate and execute.240 Other
types of arrangements related to digital asset trading may not fall within such authority,241 but may, depending
on the facts of the arrangement, fall under other authorities or require additional regulatory approvals.
A bank’s role in such an arrangement depends on the relationship. In certain cases, it may include providing a
variety of the third party’s disclosures and statements to customers, providing customer service and complaint
resolution, and performing requisite transaction compliance functions for the third party. Banks may receive
a portion of the transaction fees paid by their customers and pay fees to the third party. Several banks have
expressed an interest in expanding trade facilitation services. However, very few banks are currently using their
finder authorities to provide digital asset trading to their customers.
Digital Asset-Related Lending
Some banks have entered into business arrangements to extend credit in transactions that involve digital
assets. Examples include loans secured by digital assets or digital asset mining equipment, or loans used to
fund the borrower’s digital asset-related operations. While loan structures vary, such lending generally has
unique credit administration considerations compared to traditional lending, including perfecting a security
interest in digital asset collateral or providing for self-execution of loan terms. As such, banks looking to offer
this line of business often engage a third party to custody collateral, provide valuations, manage margin calls,
develop smart contracts, or provide other services as appropriate.
Digital asset-related lending activities by banks has so far been limited. Several factors likely contributed to
this low interest, including the Biden Administration’s Operation Choke Point 2.0, regulatory uncertainty, and
236 See supra note 221; infra notes 266-270.
237 See supra note 102.
238 See supra note 224.
239 Crypto-Asset Safekeeping by Banking Organizations, supra note 220.
240 See, e.g., 12 C.F.R. § 7.1002 (2025) (national bank and federal savings association acting as finder); 12 C.F.R. § 225.86(d)(1) (2025) (financial holding
company acting as finder).
241 For example, an arrangement under which a bank purchased digital assets as agent or principal or negotiated a purchase or sale may be inconsistent with
a bank’s finder authority. Finders bring together interested parties for a transaction that the parties themselves negotiate and execute.
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difficulties managing volatility of valuations (both for digital assets and mining equipment). However, as digital
asset markets continue to mature and bank customers increasingly hold digital assets, interest in using those
assets as collateral is likely to increase.
Current Regulatory Framework
Federal law provides the Banking Agencies with authorities related to: (i) the supervision and regulation of
banks, including the activities they can engage in and applicable requirements; (ii) the examination of banks to
ensure compliance with applicable laws and regulations; and (iii) the imposition of corrective actions for unsafe
or unsound practices or violations of law or regulation. In implementing federal law, the Banking Agencies may
adopt rules and regulations to achieve the law’s objectives and have also issued guidance, policy statements,
and other supervisory directives to provide further direction to banks and to provide transparency and
direction on how activities will be supervised.
In adapting the current banking regulatory framework to incorporate digital assets, it is imperative that the
Banking Agencies employ a technology-neutral approach. Technological transformation does not necessarily
alter the risk profile of an activity, and the same business presenting the same risk should be governed by the
same rules. Banks should be able to engage in permissible digital asset activities in a safe and sound manner
without prior regulatory approval or notice. Further, the Banking Agencies should monitor banks’ digital asset
activities through an appropriate supervisory process.
Legal Permissibility
Banks and their holding companies are subject to limitations on what types of activities they may conduct. The
National Bank Act (NBA) generally defines the permissible activities for national banks and is administered by
the OCC. The OCC’s determination of whether a new activity is permissible for a national bank often involves
consideration of whether that activity is part of, or incidental to, the “business of banking” under 12 U.S.C. § 24.242
One of the clearest benefits of the U.S. dual banking system, in which banks can be chartered at either the state
or federal level, is the ability for states to “serve as laboratories for innovation,”243 which has resulted in state
banks “[taking] the lead in safe and sound product innovations, including variable-rate mortgages and home
equity loans.”244 The OCC itself has stated that “[s]tate banking does not deliver the benefits of having separate
state systems serve as ‘laboratories’ if state bank powers simply copycat national bank powers.”245 Nonetheless,
since 2023, the permissible activities engaged in as principal by state non-member banks246 and state member
banks247 are generally limited to those permitted under the NBA as interpreted by the OCC.
242 For federal savings associations, the permissibility of an activity typically depends on the Home Owners’ Loan Act, 12 U.S.C. § 1461 et seq.
243 OCC, National Banks and the Dual Banking System 8, 9 (Sept. 2003), https://www.occ.gov/publications-and-resources/publications/banker-education/files/
pub-national-banks-and-the-dual-banking-system.pdf.
244 Julie L. Stackhouse, Why America’s Dual Banking System Matters, Federal Reserve Bank of St. Louis (Sept. 18, 2017), https://www.stlouisfed.org/on-the-
economy/2017/september/americas-dual-banking-system-matters.
245 OCC, supra note 243, at 11.
246 Section 24 of the Federal Deposit Insurance Act generally prohibits all insured state banks (member and non-member) and their subsidiaries from
engaging as principal in activities that are not permissible for national banks and their subsidiaries, unless (i) the FDIC has determined that the activity
would pose no significant risk to the Deposit Insurance Fund; and (ii) the state bank is, and continues to be, in compliance with applicable capital
standards. 12 U.S.C. § 1831a. See also 12 U.S.C. § 1831e with respect to activities of state savings associations. Additionally, under certain circumstances, the
FDIC may approve additional activities for insured state-chartered banks. See 12 C.F.R. § 362 (2025).
247 Under Section 9(13) of the Federal Reserve Act, a state member bank retains its full charter and statutory rights as a state bank and may continue to
exercise all corporate powers granted it by the state in which it was created. However, the Board may limit the activities of state member banks and their
subsidiaries in a manner consistent with Section 24 of the Federal Deposit Insurance Act. See supra note 246. The Board issued a policy statement, which
it ultimately codified in Regulation H, interpreting Section 9(13) of the Federal Reserve Act to create a rebuttable presumption against permissibility of
“novel and unprecedented” activities, including crypto-asset-related activities. Policy Statement on Section 9(13) of the Federal Reserve Act, 88 Fed.
Reg. 7848 (Feb. 7, 2023) (codified at 12 C.F.R. pt. 208 (2025)).
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In February 2023, as a continuation of the Biden Administration’s Operation Choke Point 2.0 efforts to shut
down interest from state member banks in engaging in digital asset-related activities and other “novel and
unprecedented” activities, the FRB issued a policy statement interpreting Section 9(13) of the Federal Reserve
Act to “set out a rebuttable presumption that it will exercise its discretion under that provision to limit state
member banks to engaging as principal in only those activities that are permissible for national banks—in each
case, subject to the terms, conditions, and limitations placed on national banks with respect to the activity—
unless those activities are permissible for state banks by federal statute or under part 362 of the Federal Deposit
Insurance Corporation’s regulations.”248 State member banks interested in engaging in such activities are now
required to demonstrate to the FRB a “clear and compelling rationale” for permitting the activities and that the
bank has “robust plans for managing the risks” of such activities in accordance with principles of safe and sound
banking. The FRB then revised Regulation H, which defines the membership requirements for state-chartered
banks, to incorporate the 2023 policy statement, effectively codifying the rebuttable presumption into law.249
As a consequence, the activities that the OCC has authorized for national banks, if permitted under state
law, generally represent the full breadth of activities in which a state member bank may engage as principal
without limitation under Section 9(13), contrary to the longstanding tenet that the dual banking system should
promote innovation in new banking products on the state level. The FRB’s utilization of Section 9(13) and its
discretionary powers under § 208.3(d)(2) of Regulation H has resulted in a de facto prohibition by state member
banks from engaging in most digital asset related activities.
At the organizational level, the Bank Holding Company Act, which is administered by the FRB, generally
governs the permissibility of the activities of bank holding companies (BHCs) and financial holding companies
(FHCs).250 The BHC Act primarily restricts the activities of BHCs and their subsidiaries to activities that are
closely related to banking.251 In addition, BHCs that elect to be treated as FHCs (per the Gramm-Leach-Bliley
Act) can engage in a broader range of nonbanking activities that are “financial in nature,” “incidental to a
financial activity,” or “complementary to a financial activity.”252 Any significant acquisitions or expansions into
new activities by BHCs and FHCs generally require FRB approval.
In July 2020, the OCC issued Interpretive Letter No. 1170 that concluded that national banks and federal
savings associations (FSAs) may provide digital asset custody services, including the safekeeping of
cryptographic keys for customers.253 In September 2020, the OCC issued Interpretive Letter No. 1172 that
concluded that national banks and FSAs may hold deposits that serve as reserves backing stablecoins.254 Then,
in January 2021, the OCC issued Interpretive Letter No. 1174 that concluded that national banks and FSAs may
use DLT and related stablecoins to conduct bank-permissible payment activities.255 Later, the OCC issued
Interpretive Letter No. 1179, which set forth a supervisory non-objection process for engaging in the activities
described in Interpretive Letters Nos. 1170, 1172, and 1174.256 In March 2025, the OCC issued Interpretive Letter
No. 1183, which rescinded Interpretive Letter No. 1179 thereby eliminating the supervisory non-objection
248 88 Fed. Reg. 7848, supra note 246.
249 12 C.F.R. § 208.112 (2025).
250 The Home Owners’ Loan Act governs the activities of savings and loan holding companies. 12 U.S.C. § 1467a(c).
251 This includes extending credit and related activities, leasing personal or real property, trust company functions, financial and investment advisory
activities, agency transactional services for customer investments (e.g., securities brokerage), management consulting, certain insurance activities, and
data processing.
252 12 U.S.C. § 1843(k)(1). For example, FHCs may, among other things, act as finder in bringing together one or more buyers and sellers of a product or service;
engage in merchant banking and certain insurance underwriting activities; and engage in underwriting, dealing in, or making a market in securities.
253 OCC, Interpretive Letter No. 1170, supra note 223.
254 OCC, Interpretive Letter No. 1172, supra note 223.
255 OCC, Interpretive Letter No. 1174, supra note 223.
256 OCC, Interpretive Letter No. 1179, Chief Counsel’s Interpretation Clarifying: (1) Authority of a Bank to Engage in Certain Cryptocurrency Activities;
and (2) Authority of the OCC to Charter a National Trust Bank (Nov. 18, 2021), https://www.occ.treas.gov/topics/charters-and-licensing/interpretations-and-
actions/2021/int1179.pdf.
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process described in that letter. Interpretive Letter No. 1183 also reaffirmed that the activities addressed in
Interpretive Letters Nos. 1170, 1172, and 1174 are permissible.257 In May 2025, the OCC issued Interpretive Letter
No. 1184, which confirmed that national banks and FSAs could buy and sell digital assets held in custody at the
customer’s direction and outsource bank-permissible digital asset activities to a third party.258 Finally, in July
2025, the Banking Agencies issued a joint statement reaffirming the legal permissibility for banks to custody
digital assets under the existing regulatory framework without creating any new supervisory expectations.259
In November 2021, the Banking Agencies issued a joint statement outlining plans to provide greater clarity
on whether certain activities related to digital assets conducted by banks are legally permissible and to
describe expectations for safety and soundness, consumer protection, and compliance with existing laws and
regulations related to a number of digital asset related activities, specifically highlighting custody, facilitation
of customer purchases and sales, digital asset collateralized lending, stablecoin activities, and holding digital
assets on balance sheet. However, under the Biden Administration, the Banking Agencies did not carry out
those plans to provide guidance specific to those digital asset activities, and as mentioned above, the Federal
Reserve’s policy statement on Section 9(13) and corresponding revisions to Regulation H further complicated
the degree to which state member banks could engage in digital asset-related activities.
Therefore, there remains significant outstanding uncertainty regarding the permissibility of digital asset-related
activities at the bank level, especially beyond those addressed in OCC Interpretive Letters Nos. 1170, 1172, 1174,
1183, and 1184, and outside the bank chain within a BHC/FHC structure. For example, banks are interested in
acquiring and using digital assets to pay transaction fees (e.g., gas fees) to conduct bank-permissible activities
on public blockchains. Likewise, banks are seeking clarity on whether and how they may purchase and sell digital
assets as riskless principals for customers and whether banks may make markets in digital assets. Similarly, banks
are seeking clarity regarding their authority to act as finders and lenders in the context of digital asset-related
activities, and whether some activities are permissible only at the BHC/FHC level.
Depository Institution and Market Participant Concerns
A clear regulatory framework is required to ensure that depository institutions can continue to innovate
responsibly to facilitate customer engagement with digital assets and to use digital asset technology in
a safe and sound manner that complies with applicable laws and regulations. Any regulatory framework
should be derived from a clear statutory basis and be efficient and fair. Therefore, it is essential that
the Banking Agencies ensure that they employ a technology-neutral approach to bank regulation and
supervision when incorporating digital assets into the current banking regulatory framework. As a policy
matter, and from the perspectives of efficiency and competition, it could be detrimental to innovation in
the financial system for the Banking Agencies to treat decentralization and permissionless infrastructure as
categorically negative given the potential benefits of this technology. While the regulators have retracted
much of the Biden Administration’s approach to digital asset supervision that may have hampered banks’
ability to engage with digital assets, additional work is needed to address many of the remaining concerns
expressed by depository institutions.
Depository institutions have expressed many concerns regarding the current regulatory framework, most
notably:
■ A lack of legal clarity on whether banks can offer certain digital asset-related products and services and
use DLT technology in certain areas. Specifically, banks have asked for further clarity as to whether they
may use public, permissionless blockchains now that the effective prohibition of such use under the Biden
257 OCC, Interpretive Letter No. 1183, supra note 216.
258 OCC, Interpretive Letter No. 1184, supra note 216.
259 Crypto-Asset Safekeeping by Banking Organizations, supra note 220.
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Administration has been lifted.260 Additionally, banks have asked for guidance on how they can safely and
soundly engage in such activities.
■ A lack of clear standards on safe and sound engagement with digital assets; the Banking Agencies have not
ensured supervisory consistency and expertise in bank digital asset engagement.
■ A lack of clear capital standards on balance sheet treatment for many digital assets and concern that the
BCBS standards may not accurately reflect current risks.
■ Difficulties reported by some digital asset market participants in either finding or maintaining banking
services.
■ A lack of clarity for eligible firms on the expectations and process for obtaining a bank charter or a Reserve
Bank master account.
Recommendations
Relaunch agency crypto innovation efforts—as appropriate—to address outstanding bank activities.
• These efforts should prioritize providing clarity on the activities that banks are most interested in
conducting with a clear process for considering other or new activities. The objectives would be to:
◆ Clarify or expand the recognized, permissible digital asset activities in which banks may engage,
consistent with applicable law;
◆ To the extent possible, and consistent with applicable law, ensure parity in permissibility between bank
charter types; and
◆ Clarify supervisory expectations on safe and sound conduct that protects consumers and is compliant
with applicable laws and regulations in bank engagement with digital assets, private and permissionless
blockchains, tokenized deposits, and where to conduct principal bank activities (e.g., in the insured
depository institution or the holding company).
• The initial activities and topics to consider include:
◆ Custody of Digital Assets. While the Banking Agencies have clarified permissibility and certain risk
management considerations,261 it could be beneficial to provide additional guidance on technical best
practices.
◆ Third Parties. While the Banking Agencies have clarified the permissibility of using third parties as
sub-custodians,262 it may be beneficial to ensure any additional guidance on permissibility or risk
management for other digital asset activities reiterates the ability to use third parties as infrastructure
providers or for other digital asset services.
◆ Holding Stablecoin Reserves as Deposits. While the OCC has clarified permissibility,263 it could be
beneficial to offer additional guidance now that GENIUS has been enacted.
◆ Principal Activities. Provide clarity on the permissibility for depository institutions to hold digital assets
on their balance sheet and any associated safety and soundness concerns.264
260 See Acting Chairman Hill, supra note 217 (“One specific area that merits attention is the use of public, permissionless blockchains by banks. Other
jurisdictions have allowed banks to interact with public chains for many years, but the U.S. banking agencies have effectively prohibited it . . . . The
banking agencies will need to formally revisit the January 2023 and February 2023 interagency guidance and develop durable standards for the
responsible use of public chains, as well as other activities implicated by the guidance.”)
261 Crypto-Asset Safekeeping by Banking Organizations, supra note 220; OCC, Interpretive Letter No. 1170, supra note 223; OCC, Interpretive Letter No. 1183,
supra note 216; OCC, Interpretive Letter No. 1184, supra note 216.
262 Crypto-Asset Safekeeping by Banking Organizations, supra note 220; OCC, Interpretive Letter No. 1170, supra note 223; OCC, Interpretive Letter No. 1184,
supra note 216.
263 OCC, Interpretive Letter No. 1172, supra note 223; OCC, Interpretive Letter No. 1174, supra note 223; OCC, Interpretive Letter No. 1183, supra note 216.
264 Banks have also expressed interest in holding and using small amounts of cryptocurrency to pay transaction or gas fees for customers and in conducting
riskless principal cryptocurrency transactions.
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◆ Pilots. Clarity is needed on the ability for depository institutions to participate in pilots and experiments
related to digital assets.
◆ Tokenization. Provide clear risk-based guidelines that consider underlying risk and asset features to
determine the permissibility of bank tokenization activities, including tokenization of deposits.
◆ Permissionless Blockchains. Provide clarity regarding the use of permissionless blockchains that
ensures a technology-neutral approach focusing on underlying risks of the activity or technology versus
using technology alone as a proxy for risk.
Encourage innovation in banking technologies and products by state-chartered banks.
• The FRB should rescind the 2023 Section 9(13) Policy Guidance and 12 C.F.R. § 208.112 (which effectively
codifies the Policy Guidance into Regulation H), to ensure that state member banks are permitted to
explore innovative banking technologies and products.
Develop guidance and best practices to support banks and supervisors that is technically sound and
principles-based.
• Risk management principles and best practices described in existing agency issuances generally
provide flexible guidance for banking organizations’ considerations that can apply to the safe and sound
implementation of innovative technologies and products, including those related to digital assets and
DLT.265 Nonetheless, it is important that agency examination teams and banks are properly equipped to
adopt current risk management principles to digital asset technologies.
• This could involve engagement with NIST and others to identify applicable standards or best practices that
could be used in guidance for some digital asset activities such as providing digital asset custody services,
ensuring compliance with applicable AML/CFT obligations (see Chapter VI, which discusses the AML-
specific regulatory duties for digital assets for more details), or managing cyber risks particular to digital
assets.
• This could also include best practices or standards applicable to banks’ use of third parties in the provision
of digital asset services.
• Finally, the Banking Agencies and state regulators should ensure that their examination teams are
adequately educated on issues related to digital assets and the consistent application of best practices and
standards across institutions.
Supervision
Bank supervisors should expect bank risk management processes to be applied based on risk, with the
intensity and rigor of risk management corresponding to, among other things, the complexity, criticality, and
magnitude of the technological change or new activity. Banks considering the adoption of new technologies
should consider their overarching business strategy, policy objectives, and existing risk management
and compliance frameworks when identifying whether and how existing controls may be adapted and
supplemented. Similarly, the Banking Agencies should examine banks’ activities from a technology-neutral
approach, focusing on such activities’ material risks and the banks’ abilities to manage such risks.
While certain digital asset activities were legally permissible in the past, many banks were deterred in part to
the Biden Administration’s supervisory framework governing such activities. Following the issuance of the
OCC’s interpretive letters in 2020 and 2021 clarifying the permissibility of certain digital asset activities at
the end of President Trump’s first administration, the Banking Agencies subsequently effected notification
265 See, e.g., OCC, Bulletin 2017-43, New, Modified, or Expanded Bank Products and Services: Risk Management Principles (Oct. 20, 2017), https://www.occ.
treas.gov/news-issuances/bulletins/2017/bulletin-2017-43.html.
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and non-objection processes for banks seeking to engage in digital asset activities and issued statements
highlighting heightened risks associated with certain digital asset activities.
As noted above, in November 2021, the OCC issued Interpretive Letter No. 1179 which set forth a supervisory
non-objection process for engaging in certain crypto-related activities;266 in April 2022, the FDIC issued
Financial Institution Letter 16-2022 requesting that supervised institutions notify the FDIC prior to engaging
in crypto-related activity;267 and in August 2022, the FRB issued SR Letter 22-6 requesting that supervised
institutions notify Federal Reserve supervisors prior to engaging in crypto-related activity.268 In January 2023,
the Banking Agencies jointly issued a statement on digital asset risks to banking, asserting that business
models that are concentrated in digital assets raise significant safety and soundness concerns and that
issuing or holding as principal digital assets that are issued, stored, or transferred on an open, public, and/or
decentralized network is highly likely to be inconsistent with safe and sound banking practices.269 In February
2023, the Banking Agencies jointly issued a statement on the liquidity risks to banks presented by certain
sources of funding from digital asset related entities.270
The Biden Administration’s approach severely curtailed bank engagement in digital assets. However, as
previously mentioned, the Banking Agencies rescinded their notification and non-objection processes in early
2025 to clarify that banks may engage in permissible digital asset related activities without receiving prior
regulatory approval.271 The Banking Agencies also withdrew the January 2023 and February 2023 joint statements
to provide further clarity that banks may engage in permissible digital asset activities and provide products and
services to persons and firms engaged in digital asset-related activities, consistent with safety and soundness
and applicable laws and regulations.272 Those series of actions have moved the supervision of bank digital assets
activities back to the regular supervisory process. Nonetheless, some banks have indicated that additional
guidance, such as on best practices, could provide additional clarity on supervisory expectations for risk
management related to specific aspects of digital asset activities (e.g., custody, BSA/AML, and cyber security).273
Recommendations
Clarify the role of supervisors and banks in offering banking services to potential customers.
• The Banking Agencies should ensure that existing and new best practices or guidance on risk management
and bank engagement are technology-neutral and that expectations regarding offering banking services
do not discriminate against lawful businesses solely due to their industry. For example, OCC Bulletin 2014-
58: Banking Money Services Businesses: Statement on Risk Management, which makes clear that the OCC
expects OCC-regulated banks to assess the risks posed by an MSB customer on a case-by-case basis
rather than to consider all MSBs high risk, could be extended, and the FRB and FDIC could issue similar
guidance.274
266 OCC, Interpretive Letter No. 1179, supra note 256.
267 FDIC, FIL 16-22, Notification of Engaging in Crypto-Related Activities (Apr. 7, 2022), https://www.fdic.gov/news/inactive-financial-institution-letters/2022/
fil22016.html.
268 FRB, SR 22-6, Engagement in Crypto-Asset-Related Activity by Federal Reserve-Supervised Banking Organizations (Aug. 16, 2022), https://www.
federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a3.pdf.
269 Joint Statement on Crypto-Asset Risks to Banking Organizations, supra note 219.
270 Joint Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities, supra note 219.
271 See FDIC Press Release, supra note 215; FRB Press Release, supra note 218; Press Release, OCC, OCC Clarifies Bank Authority to Engage in Certain
Cryptocurrency Activities (Mar. 7, 2025), https://www.occ.treas.gov/news-issuances/news-releases/2025/nr-occ-2025-16.html.
272 See Press Release, FDIC, Agencies Withdraw Joint Statements on Crypto-Assets (Apr. 24, 2025), https://www.fdic.gov/news/press-releases/2025/agencies-
withdraw-joint-statements-crypto-assets.
273 See Chapter VI.
274 See OCC, Bulletin 2014-58, Banking Money Services Businesses: Statement on Risk Management (Nov. 19, 2014), https://www.occ.gov/news-issuances/
bulletins/2014/bulletin-2014-58.html.
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◆ Notably, much work has already been done in in this area as the Banking Agencies withdrew previous
guidance on bank engagement with digital assets that did not fully adhere to that principle.275
◆ Additionally, the removal of reputation risk as a basis for supervisory criticism by the Banking Agencies
is also underway and should be finalized as soon as possible.276
Access to Providing Banking Services
Some digital asset firms that provide payments, lending, or custody services may consider obtaining a bank
charter to provide additional services in a prudentially regulated environment and to reduce reliance on third-
party banks. Digital asset firms may consider a bank charter (including certain uninsured state or national
charters) to gain strategic autonomy and cost efficiencies, allow better integration with the mainstream
financial system, and gain regulatory credibility which could increase trust from both retail and institutional
clients. Additionally, some firms may seek bank charters to obtain Federal Reserve Bank (Reserve Bank) master
accounts and payment service access, which could reduce costs, delays, and counterparty risks in processing
payments. These benefits could offer those digital asset firms a competitive advantage over other digital asset
firms and fintech companies, and a level playing field with traditional financial institutions.
Charters
A bank charter is a legal authorization that allows a legal entity to operate as a bank. Banks generally accept
deposits, make loans, and provide other financial services such as payments, wealth management, custody,
and currency exchange. While some charters (and relevant federal and state laws) permit banks to engage
in all of these activities, some may be limited to a subset of commercial bank services. A bank also generally
meets the legal threshold for a Reserve Bank master account and payment services access,277 and applicable
laws may make an institution eligible to apply for FDIC insurance (but do not necessarily require it for some
novel charters) and provide eligibility for other U.S. banking infrastructure. States may charter general-purpose
commercial banks that must be federally insured before commencing operations; these state-chartered banks
are regulated by both the state chartering authority and a federal regulator. The FRB is the primary federal
regulator for state-chartered banks that are members of the Federal Reserve System (FRS), and the FDIC is
the primary federal regulator for federally-insured state-charted institutions that are not members of the FRS.
The OCC charters national banks and federal savings associations and is their primary federal regulator. The
FDIC also has back up examination authority over insured banks for which either the OCC or FRB is the primary
federal regulator.
Chartered banks are subject to, among other things, prudential regulation, capital and liquidity requirements,
consumer protection laws, and regulatory supervision and enforcement. Chartering authorities may charter
institutions that do not provide the full range of commercial bank services or that are not required to obtain
deposit insurance. For example, certain banks engage in a more limited business model, such as special-
purpose credit-card banks or banks with activities limited to those of a trust company and activities related
thereto. States may also charter depository institutions that have the authority to take deposits but are
not required to obtain federal deposit insurance. Different resolution frameworks would apply as well. The
activities undertaken by the institution determine the necessary type of charter, regulatory framework, and
275 See OCC, Bulletin 2025-2, Bank Activities: OCC Issuances Addressing Certain Crypto-Asset Activities (Mar. 7, 2025), https://occ.gov/news-issuances/
bulletins/2025/bulletin-2025-2.html; FDIC Press Release, supra note 272.
276 The OCC and the Board have announced that they will no longer examine banks for reputation risk. Supra note 217. The FDIC is also “working on a
rulemaking related to reputation risk that would prohibit FDIC supervisors from (1) criticizing or taking adverse action against institutions on the basis
of reputational risk and (2) requiring, instructing, or encouraging institutions to close, modify, or refrain from offering accounts on the basis of political,
social, cultural, or religious views.” Acting Chairman Hill, supra note 217.
277 As explained in further detail below, the FRB has established guidelines for the Reserve Banks to use when evaluating whether to exercise their discretion
to grant access to master accounts or payments services.
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federal safety nets under which a bank is supervised. A bank charter is essential for firms looking to provide
a full suite of banking products and services as it grants certain needed legal authorities while often allowing
the opportunity to apply for FDIC deposit insurance (or requiring the application) and obtain Reserve Bank
payment services.
Obtaining a bank charter and FDIC insurance is a detailed, rigorous process designed to ensure that the
financial institution applying will be financially sound, well-capitalized and well-managed, and capable of
operating safely and in compliance with applicable banking rules and regulations.278 Federal and state agencies
generally use the Interagency Charter and Federal Deposit Insurance Application to collect information for
and evaluate a de novo charter (a charter for a newly formed bank) and deposit insurance application, where
applicable. While there are some differences in what is required and evaluated across different bank charter
types, the interagency application gives a general overview of what banks are required to consider.279 Some
firms considering a bank charter have expressed frustration with a lack of clarity on timing for completing the
process and transparency on the application process.280
Master Accounts
A Reserve Bank master account is a deposit account maintained by a bank or other type of depository
institution at a regional Reserve Bank and provides a gateway to the Federal Reserve’s balance sheet, which is
used to promote financial stability and conduct monetary policy. A master account “is both a record of financial
transactions that reflects the financial rights and obligations of an account holder and of the Reserve Bank
with respect to each other, and the place where opening and closing balances are determined.”281 The Federal
Reserve Act authorizes the FRS to hold deposits—which, as noted, are held in master accounts—for depository
institutions, FRS member banks, and certain U.S. branches and U.S. agencies of foreign banks.282 Depository
institutions and other eligible entities use deposits held in a master account at the Federal Reserve for the
settlement of interbank payments.
Institutions seeking a master account must request access from their regional Reserve Bank. The Reserve
Banks utilize guidelines approved by the FRB in 2022 when evaluating requests for a master account.283 Some
firms that may be eligible for a master account have expressed frustration with a lack of clarity on timing for
completing the process though the FRB is providing transparency on process outcomes.
278 See 12 C.F.R. § 5.20 (2025); OCC, Comptroller’s Licensing Manual: Charters (Dec. 2021), https://www.occ.treas.gov/publications-and-resources/publications/
comptrollers-licensing-manual/files/charters.pdf; 12 C.F.R. pt. 303 (2025); FDIC, Applying for Deposit Insurance: A Handbook for Organizers of De Novo
Institutions (Dec. 2019), https://www.fdic.gov/regulations/applications/depositinsurance/handbook.pdf; FDIC, Deposit Insurance Applications: Procedures
Manual Supplement - Applications from Non-Bank and Non-Community Bank Applicants (Dec. 2019), https://www.fdic.gov/regulations/applications/
depositinsurance/procmanual-supplement.pdf.
279 See Andrew P. Scott, An Analysis of Bank Charters and Selected Policy Issues, CRS R47014 (2022) (“The application’s basic structure covers the following
areas: overview of institution’s business model, activities, public and private offerings, and the articles of association or incorporation and bylaws; description
of the management, including directors, executives, officers, board members, conflicts of interest, and stock benefit plans; details of the institution’s capital
plans, including capital to be raised, class and amount of stock to be issued, capital adequacy projections, and corporate tax status; description of how
the institution meets the needs of the community, consistent with its business plan, and a separate plan to meet obligations pursuant to the [Community
Reinvestment Act]; description of the premises and fixed assets, security plans to protect property, plans to establish branches, and identification of
the main office; records of the information systems used, including a description of the physical and logical components of security systems used; other
information, such as functions to be outsourced, fidelity coverage, a plan to comply with the Bank Secrecy Act, and the organization’s planned expenses.”).
280 The OCC’s Licensing Manual states that the OCC seeks to make a decision within 120 days after receipt of a complete application via a standard
submission. OCC, supra note 278, at 36.
281 FRB, Reserve Maintenance Manual 5 (Nov. 2019), https://www.federalreserve.gov/monetarypolicy/files/reserve-maintenance-manual.pdf.
282 12 U.S.C. §§ 342, 347d. Section 19(b)(1)(A) of the Federal Reserve Act defines depository institution for purposes of the Federal Reserve Banks’ authority to
maintain deposits. 12 U.S.C. § 461(b)(1)(A). The Reserve Banks are also permitted to maintain accounts for other entities, including foreign banks, foreign
states or as fiscal agent of the United States. 12 U.S.C. §§ 358 and 391.
283 Guidelines for Evaluating Account and Services Requests, 87 Fed. Reg. 51099 (Aug. 19, 2022).
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Recommendations
• Provide clarity and transparency regarding the process for eligible institutions to obtain a bank charter
or a Reserve Bank master account.
◆ The relevant Banking Agencies should clarify and define in regulation the expected timelines for
decision-making on completed applications for charter licensing (including federal deposit insurance
where applicable) and requesting a Reserve Bank master account.
◆ If regulatory timelines are not met for a given application, the application should be deemed approved
absent extraordinary circumstances.
◆ The Banking Agencies should also confirm that otherwise eligible entities are not prohibited from
obtaining bank charters, obtaining federal deposit insurance, or receiving Reserve Bank master
accounts or services solely because they engage in digital asset-related activities.
◆ Finally, the Banking Agencies should provide additional transparency, as appropriate, on the number of,
and average time to review, complete applications, including new charter applications, federal deposit
insurance applications, and Reserve Bank master account applications, on both an aggregated and
annual basis.
Federal Credit Unions
Some credit unions have engaged in the digital asset ecosystem primarily as service providers to digital
asset market participants or as intermediaries facilitating member access to these markets.
■ Traditional (Core) Financial Services: Similar to banks, some credit unions offer core financial
services to digital asset-related businesses, including deposit accounts, payment services,
and settlement capabilities. NCUA share insurance only covers member shares (akin to bank
deposits) at most credit unions. As a result, digital asset firms frequently partner with credit unions
designated as low-income (LICUs), as share insurance covers both member and non-member
shares at these institutions.
■ Custody and Member Access Services: A small but growing number of credit unions have explored
partnerships to facilitate digital asset custody. Several credit unions facilitate digital asset exchange
services (buy, sell, and hold cryptocurrency assets) through third-party platforms, with information
relating to digital asset holdings integrated into the credit union’s digital banking experience.
■ Tokenization and DLT Use: Select credit unions and Credit Union Service Organizations (CUSOs)
are exploring the use of DLT to improve internal operations, streamline settlement, and participate
in stablecoin operations (issuing payment stablecoins through a CUSO and serving as a depository
institution for fiat currency reserves). A small number of credit unions are exploring but have not
yet implemented tokenization of financial assets or member shares.
■ Digital Asset Lending: A limited number of credit unions have expressed interest in originating
loans secured by certain digital assets.
Current Regulatory Framework
■ Legal Permissibility: The NCUA has issued guidance that affirms that credit unions are not
prohibited from using DLT if they comply with applicable laws and regulations.284
284 NCUA, 22-CU-07, Federally Insured Credit Union Use of Distributed Ledger Technologies (May 2022), https://ncua.gov/regulation-supervision/letters-credit-
unions-other-guidance/federally-insured-credit-union-use-distributed-ledger-technologies.
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◆ Federally chartered and insured credit unions are subject to field-of-membership requirements
and statutory limits on permissible activities, raising unique questions related to share
insurance coverage. In 2024, the NCUA updated the Share Insurance FAQs to clarify that share
insurance does not cover digital assets or cryptocurrencies.285
◆ The Federal Credit Union Act (FCUA) only provides limited authority for federal credit unions to
provide custody services. The FCUA does not provide explicit authority for federal credit unions
to provide custody or safekeeping services, and these custody services are provided through
third parties. Additionally, state-chartered and privately insured credit unions may be permitted
to provide custody services if permitted by state law.
■ Supervision: Credit unions would like additional clarity on risk-management and compliance
expectations.
■ Capital and Other Applicable Regulatory Treatment: The NCUA Final Rules on Risk Based Capital
(RBC) and Complex Credit Union Leverage Ratio (CCULR) do not specifically address risk weights
for digital assets. Therefore, if credit unions hold these assets, they would fall into the catch-all
category, which is 100%.
◆ Only complex credit unions with total assets of $500 million or more are subject to risk-based
capital requirements under NCUA’s RBC and CCULR frameworks.
Access to Providing Banking Services
CUSOs play a key role in expanding access to digital asset services for credit unions and their
members. These entities have piloted offerings in custody, payments, and tokenization. However, many
CUSOs seek clarity around what services they can provide on behalf of credit unions and what level of
NCUA oversight or registration is required for such activities.
Capital and Other Applicable Regulatory Treatment
The U.S. risk-based capital framework does not contain any provisions specific to cryptoasset286 exposures.
Under the current U.S. capital framework, the risk weight assigned to a novel exposure, such as an exposure to
a cryptoasset depends on several factors, including whether the asset is a security or a commodity. The U.S.
Banking Agencies and Treasury should advocate for modernization of the international Basel Committee on
Banking Supervision (BCBS) standards to incorporate new data on digital asset market performance and risk
and recent DLT technological innovations.
BCBS Cryptoasset Exposures Capital and Liquidity Standards
In December 2022, the BCBS published its standard on the prudential treatment of cryptoasset exposures.287
The standard was later amended in July 2024.288 The BCBS framework divides cryptoassets into two groups.
Group 1 assets, which are cryptoassets that reference or are otherwise backed by other traditional assets or
exposures and meet several specified conditions, are subject to capital requirements based on the risk weights
285 Frequently Asked Questions About Share Insurance: Digital Assets and Cryptocurrencies, NCUA, https://ncua.gov/consumers/share-insurance-coverage/
frequently-asked-questions-about-share-insurance (last modified May 28, 2024).
286 This section (Capital and Other Applicable Regulatory Treatment) uses the term “cryptoasset” instead of “digital asset” to match the term used by BCBS.
However, the terms are intended by this report to be interchangeable. Note, however, that BCBS understands the terms to differ slightly in meaning. BCBS,
supra note 204, at 5 (“Cryptoassets are defined as private digital assets that depend on cryptography and distributed ledger technologies (DLT) or similar
technologies. Digital assets are a digital representation of value, which can be used for payment or investment purposes or to access a good or service.”).
287 BCBS, supra note 204.
288 BCBS, supra note 205.
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of the underlying exposures.289 Group 1 assets are further divided into Groups 1a and 1b.290 Group 1a includes
tokenized traditional assets, and Group 1b includes stablecoins that meet certain classification conditions.291
Group 2 comprises cryptoassets that fail to meet at least one Group 1 classification condition.292 Within Group
2, cryptoassets that meet hedge recognition criteria would fall under Group 2a, and those that do not would fall
under Group 2b.293
Generally, cryptoassets that are grouped into Group 1a are subject to the existing capital rules for traditional
assets.294 For Group 1b assets, banks must analyze all the risks that could cause a loss (e.g., credit risk from
reference assets, risk of default of the redeemer, etc.) and capitalize for those risks individually using the credit
risk standards. In addition to the capital requirement, there is a potential add-on for infrastructure risk for
Group 1 assets.295 The standard sets the initial add-on at 0, but national authorities can initiate or increase the
add-on based on observed weakness in the infrastructure of specific cryptoassets.296
Capital treatment for Group 2a involves adapted market risk rules and a 100% capital charge on the exposure’s
net position.297 Group 2b cryptoassets are those that do not meet hedging criteria and thus are not permitted
to recognize hedging and are subject to a 1250% risk weight.298 Examples of Group 2 cryptoassets include
bitcoin and ether,299 which together comprise over 70% of the total value of the digital asset market.300
289 BCBS, supra note 204, at 1.
290 At a high level, in order to be classified as Groups 1a or Group 1b, a cryptoasset must meet the following classification conditions: (i) the cryptoasset
must either be a tokenized traditional asset or have a stabilization mechanism that is considered effective at all times in linking its value to a traditional
asset or a pool of traditional reference assets; (ii) all rights, obligations and interests arising from the cryptoasset arrangement are clearly defined and
legally enforceable in all the jurisdictions where the asset is issued and redeemed, and the applicable legal framework ensures settlement finality;
(iii) the functions of the cryptoasset and the network on which it operates, including the distributed ledger or similar technology on which it is based,
are designed and operated to sufficiently mitigate and manage any material risks; and (iv) entities that execute redemptions, transfers, storage, or
settlement finality of the cryptoasset, or manage or invest reserve assets, must be regulated and supervised, or subject to appropriate risk management
standards, and have in place and disclose a comprehensive governance framework. Id. at 1.
291 Id. at 6, 9-10.
292 Id. at 1.
293 There are three hedge recognition criteria for Group 2a cryptoassets. First, the exposure needs to be either (i) a direct holding of a spot Group 2
cryptoasset where there is a derivative or ETF that is traded on a regulated exchange and solely references the cryptoasset; (ii) a derivative or ETF/
exchange-traded note (ETN) that references a Group 2 asset, and that derivative has been explicitly approved by market regulators or a qualifying
central counterparty; (iii) a derivative, ETF, or ETN that references a derivative meeting the previous requirement; or (iv) a derivative, ETF, or ETN, that
references a related reference rate that is published by a regulated exchange. Second, the exposure or reference exposure must have at least a $10 billion
average market cap over the previous year and the 10% trimmed mean of daily trading volume with major fiat currencies must be at least $50 million
over the prior year. Third, sufficient data availability is required. Specifically, there need to at least 100 “real” price observations over the previous year and
there must be sufficient data on trading volumes and market capitalization. Id. at 1, 17-18.
294 Id. at 12.
295 Id. at 13.
296 Id. at 17.
297 Id. at 17-19.
298 Id. at 17, 21.
299 Global Financial Markets Association, et al., Re: Comments in Response to the Second Consultation on the Prudential Treatment of Cryptoasset
Exposures (Sept. 23, 2022), https://www.icmagroup.org/assets/Joint-TA-response-to-BCBS-2nd-consultation-crypto-assets-30092022.pdf.
300 See CoinMarketCap.com, https://coinmarketcap.com/ (last visited July 13, 2025).
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Categorizing Cryptoassets into Basel Group 1 or Group 2301
The BCBS framework also includes a limit for a bank’s Group 2 exposures.302 Both direct (cash and derivatives)
and indirect holdings (e.g., those via investment funds, exchange-traded funds (ETFs)/exchange-traded
notes (ETNs), or any legal arrangements designed to provide exposure to cryptoassets) should not amount
to more than 1% of Tier 1 capital and functionally cannot exceed 2%.303 Any breach that does occur must be
communicated to the supervisor, and until compliance with the 1% limit is restored, a bank’s exposures that
exceed the threshold are subject to the capital requirements that apply to Group 2b cryptoasset exposures.304
If the threshold of 2% is actually exceeded, all Group 2 cryptoasset exposures (not just those in excess of 1%)
will be subject to the capital requirements that apply to Group 2b cryptoasset exposures.305
Cryptoassets are included in the BCBS leverage ratio exposure measure according to their value for financial
reporting purposes, based on applicable accounting treatment for exposures that have similar characteristics.
For the cases where the cryptoasset exposure is an off-balance sheet item, the relevant credit conversion
factor set out in the leverage ratio framework will apply in calculating the exposure measure.306
Under the BCBS liquidity standards,307 Group 1a cryptoasset and crypto-liability exposures are generally
treated consistent with exposures involving their equivalent non-tokenized traditional assets and liabilities,
301 BCBS, supra note 204, at 6.
302 Id. at 28.
303 Id.
304 To reduce cliff effects, which can create a significant increase in regulatory capital required once a bank crosses a given threshold, if a bank breaches the
1% limit, the Group 2b 1250% risk weight would apply to only the amount which exceeds the limit and not to all Group 2 exposures, but if the 2% limit is
breached the whole of Group 2 exposures would be subject to the 1250% risk weight. Id. at 32.
305 Id. at 28.
306 Id. at 27.
307 Such standards are the liquidity coverage ratio and net stable funding ratio.
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including qualification as high-quality liquid assets (HQLA).308 Group 1b and Group 2 cryptoassets do not
qualify as HQLA,309 and corresponding asset and liability exposures are treated with inflow and outflow rates
and required stable funding and available stable funding factors tied to the maturity of the coin (i.e., 30 days, 6
months, 1 year) and the underlying collateral (HQLA vs non-HQLA).310
The second consultation on the BCBS standard (published before the standards were finalized in December
2022) states that “as currently specified, it is highly unlikely that any cryptoassets based on permissionless
blockchains will be able to meet the classification conditions to be included in Group 1.”311 However, in the
final standard, the Committee notes that the BCBS will continue to reflect on whether the risks posed by
cryptoassets that use permissionless blockchains can be sufficiently mitigated to allow for their inclusion in
Group 1 and, if so, what adjustments to the classification conditions would be needed.312
The BCBS does not possess any formal supranational authority, and its decisions do not have legal force. In
principle, the “standards” set by the BCBS are determined by consensus of BCBS members.313 It is important for the
United States to lead in such international forums to ensure transparency of any such consensus decision making.
Recommendations
• The Banking Agencies should clarify the circumstances, using risk-based guidelines, under which
tokenized assets and tokenized asset collateral would be subject to the same capital and liquidity
treatment as the underlying asset or collateral.
• The United States should adopt capital requirements for bank digital asset activities that accurately
reflect the risk of the asset or activity. Additionally, the United States should advocate that the BCBS
revisit the cryptoasset standards to ensure similar treatment to U.S. capital requirements.
In adopting capital requirements for bank digital asset activities, the following actions should be taken to
evaluate and improve the BCBS cryptoasset standards:
• Simplification of the cryptoasset grouping.
◆ BCBS’s four groups of cryptoassets should be simplified. Applying a separate classification to traditional
assets due to the use a specific technology does not adhere to the principle of technology-neutrality.
Furthermore, the treatment of tokenized traditional assets as cryptoassets is misleading and may
create unintended negative consequences.314 Additionally, the BCBS distinction between Group 2a and
Group 2b cryptoassets does not create a clear enough distinction between cryptoassets widely used for
payment and investment purposes and other cryptoassets, such as memecoins.
◆ The U.S. prudential cryptoasset framework should: (i) clarify when tokenized traditional assets are
equivalent to traditional assets and are subject to the same capital and liquidity requirements as
traditional assets; (ii) work to align the BCBS definition of stablecoins eligible for Group 1b treatment
with requirements set forth in GENIUS; and (iii) simplify the classification of Group 2 cryptoassets and
address the treatment of cryptoassets outside of Group 2.
308 Group 1a tokenized claims of a bank not secured by an underlying pool of assets would be treated under BCBS liquidity standards as unsecured funding,
with the outflow rates and ASF factors linked to the type of customer (retail, wholesale, financial) and the term (30 days, 6 months, 1 year), and cannot be
treated with as stable retail deposit or certain preferential operational deposits. Id. at 24.
309 Id.
310 Id. at 26-27.
311 BCBS, Second Consultation on the Prudential Treatment of Cryptoasset Exposures 4 (June 2022), https://www.bis.org/bcbs/publ/d533.pdf.
312 BCBS, supra note 204, at 4.
313 BCBS, Basel Committee Charter § 8.4 (updated June 5, 2018), https://www.bis.org/bcbs/charter.htm.
314 For example, treating tokenized traditional assets differently from traditional assets may hinder their eligible collateral status.
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 82 •
Banking and Digital Assets • Capital and Other Applicable Regulatory Treatment
• Use of permissionless blockchain for all groups of cryptoassets.
◆ Under the BCBS standards, cryptoassets relying on permissionless blockchains pose risks that
may prevent them from being included in Group 1. However, experimentation and testing with
permissionless blockchains by regulated financial institutions suggests that technical solutions to
mitigate the risks identified by the BCBS are being actively developed and implemented.315 The BCBS
also raises concerns with the probabilistic settlement of permissionless blockchains.316 However, over
the last several years, market participants have been developing industry standards for determining
when a settlement has completed on probabilistic blockchains.
◆ The United States should consider incorporating those standards to inform the prudential treatment of
those characteristics of distributed ledger technology.
• Review the calibration of capital requirements for credit risk, market risk, operational risk, and liquidity
risk to incorporate empirical evidence of recent changes in cryptoasset performance and risk.
◆ Changes in the grouping of cryptoassets may not fully modernize the BCBS cryptoasset prudential
standards. The United States should also revisit the calibration of the prudential standards to consider
incorporating recent innovations and changes in the cryptoasset market since the BCBS standards
were first published in 2022.
◆ The Banking Agencies should undertake a comprehensive data analysis on the performance and risk of
cryptoassets informed by issuing a request for information from the public, inclusive of representatives
from cryptoasset data vendors, distributed ledger infrastructure providers, banking organizations of
all sizes, and industry associations. The analysis would assist the Banking Agencies in determining the
appropriate calibration for cryptoasset capital and liquidity standards.
Insurance and Digital Assets
Insurance is important for U.S. consumers, the economy, and the financial system.
Digital assets can be a significant part of the net worth of an individual or business. The cost and
availability of adequate digital asset insurance affects the growth and stability of the digital asset market.
Insurability
Insurable events have four characteristics that are relevant to the analysis of the insurability of digital
assets. First, insurable events must be “pure risks,” meaning they cannot result in gain, only loss. Thus,
events like a decline in a business’s revenues or the market value of an asset are generally not insurable.
Second, they must be defined, reasonably uncorrelated, measurable, and limited. An insurer must
be able to measure a loss objectively and limit that loss contractually. Third, insurable events must be
unpredictable individually, but predictable in the aggregate. Finally, insurable events must be random
and unintentional from the standpoint of an insured.317 These principles inform what events can and
cannot be covered, as discussed further below.
315 For example, depending on the programmability of the cryptoasset, the cryptoasset can be permissioned by smart contracts (e.g., an ERC1400 token
on Ethereum). Such standards allow the role of a “controller” (i.e., an actor that can control access, freeze, reverse, or destroy cryptoassets or block
transactions), enabling compliance with know-your-customer, anti-money laundering, and countering the financing of terrorism checks.
316 Specifically, it noted that in many permissionless distributed ledger technologies, settlement remains probabilistic, meaning the probability that
a transaction could be revoked converges to, but never reaches, zero with the passage of time. This could create settlement risk in permissionless
blockchains.
317 See Judy Feldman Anderson & Robert L. Brown, Risk and Insurance, Education and Examination Committee of the Society of Actuaries 5-6 (2005),
https://www.soa.org/globalassets/assets/files/edu/P-21-05.pdf.
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Banking and Digital Assets • Capital and Other Applicable Regulatory Treatment
Coverages
There are broadly two types of insurance relevant to the digital asset market. The first is insurance
provided for individuals, or “personal lines.”318 The second is insurance provided for businesses and
organizations, or “commercial lines.”319 The personal lines market for digital assets is currently limited.
The lack of a robust personal lines market for digital assets may be caused by various factors, including
regulatory uncertainty both domestically and globally, the lack of historical underwriting experience,
potential volatility in certain types of digital assets, uncertainty regarding how courts will interpret
insurance policy language, and questions regarding whether digital assets would be classified as
currencies or personal property.320 However, there is a small but growing commercial lines market.
Treasury’s Federal Insurance Office estimates that twenty insurers provide various types of commercial
insurance for digital assets with limits up to $1 billion. Gross revenue has been estimated to be between
$1.94 billion and $3.11 billion.321 Large commercial insurance brokerages and both new and established
insurance companies all participate in the digital asset insurance market.
The following types of insurance coverage for commercial entities, such as digital asset exchanges,
custodians, asset managers, commercial mining operations, etc. are generally available, with generally
broader coverage terms and limits for cold storage versus hot storage:
■ Various forms of theft, such as embezzlement, fraud, malicious destruction of digital assets,
kidnap, ransom, or extortion, etc. This type of coverage would indemnify, for example, a digital
asset custodian if an employee destroyed a cold wallet.
■ Damages incurred because of professional errors (referred to as errors and omissions coverage) or
errors in software (known as cyber or tech errors and omissions coverage). For example, this type
of coverage could indemnify a software company whose code inadvertently allowed for a malicious
outside actor to steal digital assets from a hot wallet.
■ Accidental loss or destruction of digital assets or keys. This insurance coverage would, for example,
indemnify a digital asset manager for the loss of a cold storage wallet.
■ Other standard coverages for any commercial entity, such as property, directors and officers,
general liability, etc. Directors and officers insurance indemnifies the board of directors and
senior officers of a company for certain damages awarded in the event of shareholder litigation.
Property insurance would cover a warehouse and air conditioning system for a digital asset mining
operation. General liability would indemnify a mining operation for damages accidentally sustained
by a third party due to the negligence of the mining operation.
318 Facts + Statistics: Commercial Lines, Insurance Information Institute, https://www.iii.org/fact-statistic/facts-statistics-commercial-lines (last visited July 13, 2025).
319 Id.
320 Chantal M. Roberts, Crypto Is a Popular Cybercrime Target, but Insurance Options Remain Limited, Bankrate (May 5, 2025), https://www.bankrate.com/
insurance/cryptocurrency-insurance-options-remain-limited/.
321 Joe Toppe, How Insurance Plays a Role in Cryptocurrency Risks, PropertyCasualty360 (Mar. 25, 2025 at 11:15 AM), https://www.propertycasualty360.
com/2025/03/25/how-insurance-plays-a-role-in-cryptocurrency-risks.
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Banking and Digital Assets • Capital and Other Applicable Regulatory Treatment
Examples of Estimated Digital Asset Insurance Capacity and Relative Cost322
$1,200
Specie
$1,000
Estimated Capacity (USD Millions)
$800
Property for Miners
$600
Deposit/Credit
Crime
$400 Cyber/Tech Errors &
Omissions
Directors & Officers
$200
Errors & Omissions
Kidnap and Ransom
Staking
$0
Relative Insurance Cost per Unit of Exposure
State Regulation of Insurance
The business of insurance in the United States is primarily regulated at the state level.323 Insurance
laws are enacted by state legislators and governors and are implemented and enforced by state
regulators. Broadly speaking, state regulation is divided into prudential regulation (frequently referred
to as “solvency” regulation) and marketplace regulation. Prudential regulation consists of oversight
of an insurer’s financial condition and its ability to satisfy policyholder claims. Marketplace regulation
governs an insurer’s business conduct, such as the pricing of premiums, advertising, minimum
standards governing the terms of insurance policies, and licensing of insurance agents and brokers
(producers), together with general issues of consumer protection and access to insurance.
Regulatory and Market Issues or Challenges
Some regulatory and market issues or challenges for digital asset insurance are:
■ Existing federal regulations such as the CFTC’s definition of a “swap” require that insurance
products have a beneficiary with an insurable interest in the insured asset, limit payout to the
insurable interest, and have the same beneficiary with an insurable interest throughout the
duration of the insurance product. This definition is relevant because an insurance product cannot
cover the loss of market value of a digital asset, such as a stablecoin. Any “insurance” policy
marketed as covering a loss in market value of a digital asset would fall out of the insurance safe
harbor of federal regulations.324
■ As noted above, homeowners insurance policies generally do not cover, or highly restrict, digital
assets.
322 Graphic based on information provided by Aon plc.
323 U.S. Department of the Treasury Federal Insurance Office, How to Modernize and Improve the System of Insurance Regulation in the United States 1 (2013).
324 Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap Agreement
Recordkeeping, 77 Fed. Reg. 48208 (Aug. 13, 2012).
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Banking and Digital Assets • Capital and Other Applicable Regulatory Treatment
■ Insurers must match their forecasted liabilities to their assets. State prudential regulations require
insurance companies to invest the vast majority of their assets in stable forms so that insurers can
eventually pay claims. Insurers that take payment in digital assets but pay claims in fiat currency, or
vice versa, take on volatility risk that may undermine their regulatory compliance.
Potential Policy Actions
There are various steps Treasury and state regulators could take to help improve regulatory certainty
and develop a more robust market for digital asset insurance:
■ Engage with the appropriate regulatory agencies to establish or amend legal definitions of
securities, property, or currency so that insurance policies explicitly cover digital assets.
◆ Treasury could also work with the insurance sector to create standardized terms, conditions,
and policy language for digital assets.
■ Engage with the National Association of Insurance Commissioners (NAIC) and state insurance
regulators on potential revisions to state regulations relating to digital assets, including allowing
insurers to invest in digital assets, as appropriate.
■ Prioritize engagement between the public and private sector to help develop a robust insurance
market for digital assets.
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 86 •
V. Stablecoins and Payments
CHAPTER V
Stablecoins and Payments
STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY
Stablecoins and Payments •
Stablecoins and Payments
With e-currency based on cryptographic proof, without the need to trust a third party
middleman, money can be secure and transactions effortless.
P2P Foundation Forum Post re: “Bitcoin open source implementation of P2P currency”
Satoshi Nakamoto, February 2009325
Stablecoins are natively digital assets that seek to maintain a stable value relative to a reference asset, most
often a fiat currency. Dollar-denominated stablecoins seek to combine the accessibility and frictionless use
of digital assets with the stability and benefits of a dollar-based payment system. For many years, stablecoins
operated in a legal gray area. But the Guiding and Establishing National Innovation for U.S. Stablecoins Act
(GENIUS)326 , which President Trump signed into law on July 18, 2025, provides regulatory clarity for this
growing market, as well as incentives to bring stablecoin innovation onshore.
In the midst of debugging version 0.1.0, Satoshi sent the first test transaction of 10 bitcoin to Hal Finney, a
renowned cypherpunk and early collaborator in building out the network. With the United States’ long history
of innovating in the payments space, it is rather fitting that the first peer-to-peer transaction employing a
distributed ledger went to an American (and possibly from one, as well). With Bitcoin, Satoshi pioneered peer-
to-peer transactions using digital currency. Stablecoins leverage the same technological concept to facilitate
instantaneous transactions using digital dollars. GENIUS brings this groundbreaking payment technology into
the financial mainstream.
U.S. consumers and businesses benefit from reliable processing of trillions of dollars of payments daily. But as
Satoshi highlighted, there are inefficiencies in the legacy systems that support most of this volume. Payments,
particularly retail payments, may take several days to process and ultimately settle. This lag increases the risk
that one party to the transaction fails to perform (i.e., a “settlement failure”) and increases costs for businesses
and consumers. These inefficiencies are even more pronounced for cross-border payments, where costs are
significantly higher (e.g., 6.4% for a small remittance payment in 2024) and delays significantly longer (e.g., only
33.5% of retail payments settled within one hour).327 Technology has enabled commerce and communication
to be delivered 24/7/365 globally, and Americans are increasingly looking for payments that match this ease of
use and access. Distributed ledger technology (DLT) offers potential avenues to reduce these costs and delays.
Stablecoins are one of the most promising DLT solutions.
GENIUS marks a watershed moment for stablecoins and digital payments. Befitting its name, GENIUS lays the
regulatory groundwork for new financial rails that could significantly increase the scope and influence of the
U.S. dollar system. Under President Trump’s leadership, GENIUS was passed with strong bipartisan support by
Congress and signed into law on July 18, 2025. The Working Group supports GENIUS and applauds Congress
and President Trump for delivering this critical legislation, which will bolster the U.S. economy and cement
global dollar dominance.
GENIUS establishes a clear licensing regime to ensure oversight and compliance with anti-money laundering
laws and regulations. It promotes stability and transparency by requiring stablecoin issuers to maintain full
reserves backed by high quality liquid assets, such as U.S. Treasuries, and to publish monthly reports of the
composition of their reserves. And it protects consumers by, among other things, prioritizing stablecoin
325 satoshi, Comment to Bitcoin open source implementation of P2P currency, P2P Foundation (Feb. 11, 2009 at 10:27 PM), https://web.archive.org/
web/20110415095236/https://p2pfoundation.ning.com/forum/topics/bitcoin-open-source.
326 S. 1582, 119th Cong. (2025) (enacted).
327 Financial Stability Board (FSB), G20 Roadmap for Enhancing Cross-Border Payments: Consolidated Progress Report for 2024 23 (Oct. 21, 2024),
fsb.org/uploads/P211024-1.pdf.
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Stablecoins and Payments •
holders’ claims in insolvency, prohibiting issuers from rehypothecating reserves for speculative purposes, and
requiring custodians of stablecoin reserves to segregate their own funds from the reserves.
GENIUS also clarifies that stablecoins are neither a security nor a commodity, opening the door to stablecoins
being used for consumer payments in the United States and across the world. It encourages continued
stablecoin adoption, which will reinforce the strength of the global dollar system over the coming decade.
GENIUS aligns with the principles of this report and is a critical first step in establishing a comprehensive
framework for the digital asset industry.
Payment Systems
Generally speaking, a payment system connects a broad range of financial institutions and customers, facilitates
the movement of funds from one account to another, and includes rules and processes for transferring funds.
As a simplified explanation, to make a payment, a sender must first provide instructions to a financial institution.
After the instructions are received, the transaction must be “cleared” by a financial institution, such as bank
or clearing house, which then facilitates the transfer of funds by performing functions such as reconciling
and confirming payment details, ensuring the availability of funds, and complying with applicable regulatory
requirements. Payment is then “settled” when funds are actually transferred from the sender to the recipient.
Payment systems can be either retail or wholesale. Retail payment systems are designed to process high volumes
of smaller value transactions, and typically settle some hours or days after clearing. Wholesale payment systems
are designed for high-value transactions and typically settle more quickly than retail payments.
Innovation in payments seeks to address inefficiencies in existing systems and provide products and services
that improve customer experience. Some innovators are building solutions on top of legacy payment systems,
often accessed through mobile apps. These products can offer an enhanced customer experience but,
because they typically rely on legacy payment systems, may not enhance the efficiency of the underlying
systems and, in some cases, may increase the number of intermediaries required to process a payment.
Both public sector and private sector actors are seeking to build new payment systems. For example, in 2017,
The Clearing House, a consortium of large banks, launched an instant (real-time) payment system called
RTP.328 Since its launch, RTP has expanded to nearly 900 participating banks and conducts approximately 100
million transactions per quarter for over $160 billion.329 In 2023, the Federal Reserve System (FRS) launched
its own instant (real-time) payment system called FedNow, which, as of July 2025, has over 1,400 participating
banks.330 As was the case with the establishment of other new payment systems, such as Automated Clearing
House (ACH) payments in the 1970s and 1980s,331 initial adoption of instant payment systems has been modest
due to the resources banks need to deploy to fully integrate them. Instant payment systems currently also
have relatively high per transaction costs relative to ACH and other systems. Internationally, there is significant
interest and experimentation across jurisdictions in building new or improving existing financial market
infrastructures (FMIs) for cross-border payments or financial transactions utilizing new technologies.
Finally, institutions are also pursuing innovation in money-like payments products. Some banks are interested
in offering a tokenized form of deposit that could be used as a settlement asset on existing or future payment
systems. Stablecoins, likewise, are used to pay for other digital assets on trading platforms and may be
used more widely in payments in the future. Blockchain or DLT-based assets present material opportunities
328 RTP: Frequently Asked Questions, The Clearing House, https://www.theclearinghouse.org/payment-systems/rtp/institution (last visited July 13, 2025).
329 RTP: Real Time Payments for All Financial Institutions, The Clearing House, https://www.theclearinghouse.org/payment-systems/rtp (last visited July 13, 2025).
330 See FedNow Service Participants and Service Providers: Participating Financial Institutions (XLSX), FRBservices.org, https://www.frbservices.org/binaries/
content/assets/crsocms/financial-services/fednow/fednow-live-participants.xlsx (updated July 7, 2025).
331 See Automated Clearing House Payments, Federal Reserve History (Sept. 28, 2023), https://www.federalreservehistory.org/essays/automated-clearing-house
(“Despite high initial hopes for ACH payments, checks remained enduringly popular and ACH transaction volume remained limited for many years.”).
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Stablecoins and Payments • Innovation in Payments
to improve functionality in payments. Through smart contracts, payments utilizing DLT can be executed
automatically when certain conditions are met. Some foreign central banks are also issuing or in the process
of developing Central Bank Digital Currencies (CBDCs), with objectives varying from increasing efficiency of
clearing and settlement across financial institutions to surveilling the financial activities of private citizens.
Innovations in payments have the potential to strengthen America’s leadership, reduce costs for businesses
and consumers, and bring the benefits of technological advancements to payments. Both domestically
and internationally, the United States has the opportunity to shape the development of new payment
arrangements and, through this effort, reinforce U.S. global financial leadership. If U.S. leadership is absent, new
types of alternative payment arrangements could be developed that may not share U.S. interests and values
and could pose risks to U.S. economic and national security.
Innovation in Payments
Stablecoins
Many stablecoins derive their value from a pool of liquid, high-quality reserve assets, but some different forms
of stablecoins are backed by other types of assets (e.g., digital assets, precious metals, corporate bonds with
lower credit ratings), and others attempt to maintain a stable value through pre-programmed responses to
market actions rather than maintaining a pool of reserve assets (called “algorithmic stablecoins,” which are
typically endogenously collateralized).332 In practice, stablecoins “pegged” to the U.S. dollar dominate the
market, accounting for more than 99% of the more than $258B stablecoins outstanding by value as of July
2025, with the vast majority of issued stablecoins backed by a pool of reserve assets.333
Process of Minting Stablecoins334
Customer Issuer
Payment
setup
1. Customer links their bank 2. The Issuer does the necessary checks and, on successful
account with the Stablecoin linking, provides instructions to initiate payment
Issuer
Customer Issuer’s settlement/reserve account Issuer
6. Issuer does preliminary
checks to ensure customer is
Payment in good standing. If checks
fail, then payment is
3. Customer sends USD to Issuer’s bank 4. Issuer receives USD at 5. Issuer gets notified of manually reviewed and may
account using the instructions its settlement/ the settlement get returned
Note: Funds are sent/pulled via supported payment reserve bank
rails such as wires
Customer
Stablecoin
settlement
8. Issuer settles stablecoin to customer’s 7. Triggers Issuer process to mint
account stablecoin on chain
Note: This process assumes customer has gone through a stablecoin issuer’s KYC process and met the onboarding requirements.
332 There are a variety of different stablecoin products. As discussed, the primary form of stablecoin is a “fiat-backed” stablecoin product that seeks to track
to the U.S. dollar (e.g., USDT, USDC, BUSD, TUSD, USDP). There are also asset-collateralized stablecoins (e.g., PAXG, GLC, XAUT), crypto-collateralized/
over-collateralized stablecoins (e.g., DAI, MIM), and algorithmic stablecoins (e.g., FEI, Frax, USDN, USDD, USN) that are linked to or are redeemable for
other cryptocurrencies.
333 See Stablecoins (Filtered by Pegged USD), DefiLlama, https://defillama.com/stablecoins?pegtype=PEGGEDUSD (last visited July 13, 2025); Stablecoins,
DefiLlama, https://defillama.com/stablecoins (last visited July 13, 2025).
334 Graphic prepared by Circle.
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 90 •
Stablecoins and Payments • Innovation in Payments
Growth in Market Capitalization of Dollar-Backed Stablecoins335
Historical Stablecoin Market Cap
$250b
Total
Mkt Cap
$238b
$200b
$150b
$100b
$50b
$b
2018 2019 2020 2021 2022 2023 2024 2025
Today, stablecoins are used primarily to facilitate trading in other digital assets or to interact with smart
contracts, but they could be more widely adopted as a form of payment in the future. Some stablecoin issuers
have partnered with existing payment services. These partnerships seek to offer customers an alternative
payment mechanism that can be used with a range of merchants and potentially offer novel features, such
as programmable payments. Additionally, stablecoins could facilitate real-time peer-to-peer cross-border
payments, potentially improving the current system for retail cross-border payments. Stablecoins also
facilitate access to U.S. dollar denominated assets, including in areas where that access may be limited today.
Stablecoin reserve assets often include U.S. Treasuries and deposits in commercial banks, which creates a
connection between the traditional financial system and the digital asset ecosystem. Although stablecoins
have been used in illicit finance, traditional means of money laundering and terrorist financing remain more
prevalent.336 A unique feature of stablecoins is that stablecoin issuers can coordinate with law enforcement to
freeze and seize assets to counter illicit use.
335 Graphic prepared by DefiLlama. Data cover fiat-backed stablecoins (as opposed to crypto-backed or algorithmic stablecoins) that are pegged to the U.S.
dollar as of July 14, 2025.
336 See U.S. Department of the Treasury (Treasury), 2024 National Terrorist Financing Risk Assessment (Feb. 2024), https://home.treasury.gov/system/
files/136/2024-National-Terrorist-Financing-Risk-Assessment.pdf; U.S. Department of the Treasury, 2024 National Money Laundering Risk Assessment (Feb.
2024), https://home.treasury.gov/system/files/136/2024-National-Money-Laundering-Risk-Assessment.pdf.
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Stablecoins and Payments • Innovation in Payments
Stablecoin Freeze and Seize Process337
Stablecoin issuers operating in the United States are generally subject to certain federal requirements, such
as those stipulated under the Bank Secrecy Act (BSA).338 Many states have also developed money transmitter
frameworks under which nonbank stablecoin issuers must acquire a