Strengthening American Leadership in Digital Financial Technology (President's Working Group on Digital Asset Markets report under EO 14178), 166 pp. (Part 1 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.
STRENGTHENING AMERICAN
LEADERSHIP IN DIGITAL
FINANCIAL TECHNOLOGY
Contents
I. Introduction ...................................................................................................................................... 4
II. The Digital Asset Ecosystem................................................................................................................ 14
Market Size and Trends................................................................................................................................................. 16
Market Participants....................................................................................................................................................... 18
Key Regulators and Oversight........................................................................................................................................ 29
Market Activities ........................................................................................................................................................... 31
III. Digital Asset Market Structure............................................................................................................ 42
Establishing a Taxonomy for Digital Assets.................................................................................................................... 45
Enabling the Trading of Digital Assets at the Federal Level............................................................................................. 51
Creating a Lasting Framework for Digital Asset Market Structure.................................................................................. 54
IV. Banking and Digital Assets................................................................................................................. 62
Bank Engagement with Digital Assets............................................................................................................................ 65
Current Regulatory Framework..................................................................................................................................... 70
Access to Providing Banking Services ............................................................................................................................ 76
Capital and Other Applicable Regulatory Treatment...................................................................................................... 79
V. Stablecoins and Payments.................................................................................................................. 87
Payment Systems .......................................................................................................................................................... 89
Innovation in Payments ............................................................................................................................................... 90
Central Bank Digital Currencies.................................................................................................................................... 94
Promoting the Competitiveness of the U.S. Dollar Through Digital Asset Payments and Capital Markets....................... 95
VI. Countering Illicit Finance................................................................................................................... 99
Illicit Finance Risks....................................................................................................................................................... 101
Improving the AML/CFT and Sanctions Frameworks..................................................................................................... 103
Equipping Digital Asset Actors to Mitigate Risk.............................................................................................................. 113
Disrupting and Mitigating Systemic Illicit Finance Risks............................................................................................... 115
VII. Taxation............................................................................................................................................. 123
Current Tax Guidance on Digital Assets ......................................................................................................................... 125
Substantive Tax Issues................................................................................................................................................... 126
Taxpayer Reporting....................................................................................................................................................... 134
Third-Party Information Reporting.............................................................................................................................. 137
Table of Recommendations....................................................................................................................... 141
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY
Acronyms and Abbreviations
ACH Automated Clearing House DOJ U. S. Department of Justice
Advisers Act Investment Advisers Act of 1940 DPRK Democratic People’s Republic of Korea
AEC Anonymity-Enhanced Cryptocurrency ECB European Central Bank
AFSI Adjusted Financial Statement Income ECP Eligible Contract Participant
AICPA American Institute of Certified Public ETF Exchange-Traded Fund
Accountants ETN Exchange-Traded Note
AML Anti-Money Laundering ETP Exchange-Traded Product
AML Act Anti-Money Laundering Act of 2020 EU European Union
API Application Programming Interface Exchange Act Securities Exchange Act of 1934
ASIC Application-Specific Integrated Circuit FASB Financial Accounting Standards Board
ATIF Automated Threat Information Feed FATCA Foreign Account Tax Compliance Act
ATS Alternative Trading System FATF Financial Action Task Force
BCBS Basel Committee on Banking FBAR Report of Foreign Bank and Financial
Supervision Accounts
BHC Bank Holding Company FBI Federal Bureau of Investigation
BSA Bank Secrecy Act FBIIC Financial and Banking Information
CAMT Corporate Alternative Minimum Tax Infrastructure Committee
CARF Crypto-Asset Reporting Framework FCM Futures Commission Merchant
CBDC Central Bank Digital Currency FCUA Federal Credit Union Act
CCP Central Counterparty FDIC Federal Deposit Insurance Corporation
CCULR Complex Credit Union Leverage Ratio FHFA Federal Housing Finance Agency
CEA Commodity Exchange Act FHC Financial Holding Company
CEX Centralized Digital Asset Exchange FinCEN Financial Crimes Enforcement Network
CFT Countering the Financing of Terrorism FINRA Financial Industry Regulatory Authority
CFPB Consumer Financial Protection Bureau FIPS Federal Information Processing
CFTC Commodity Futures Trading Standards
Commission FMI Financial Market Infrastructure
CIP Customer Identification Program FRB Board of Governors of the Federal
CLARITY Digital Asset Market Clarity Act of 2025 Reserve System
CSD Central Securities Depository FRS Federal Reserve System
CTA Commodity Trading Advisor FSA Federal Savings Association
CUSO Credit Union Service Organization FSB Financial Stability Board
CVC Convertible Virtual Currency FSOC Financial Stability Oversight Council
DAMS CFTC GMAC Digital Asset Markets FX Foreign Exchange
Subcommittee GAAP Generally Accepted Accounting
DAO Decentralized Autonomous Organization Principles
dApp Decentralized Application GENIUS Guiding and Establishing National
DCM Designated Contract Markets Innovation for U.S. Stablecoins Act
DCO Derivatives Clearing Organization GMAC CFTC Global Markets Advisory
Committee
DeFi Decentralized Finance
HQLA High-Quality Liquid Assets
DePIN Decentralized Physical Infrastructure
IB Introducing Broker
DEX Decentralized Exchange
ICO Initial Coin Offering
DIF Deposit Insurance Fund
IEC
International Electrotechnical Commission
DLT Distributed Ledger Technology
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY
IEEE Institute of Electrical and Electronics OFAC Office of Foreign Assets Control
Engineers OTC Over-the-Counter
IEEPA International Emergency Economic P2P Peer-to-Peer
Powers Act PCAOB Public Company Accounting Oversight
IIJA Infrastructure Investment and Jobs Act Board
Investment PoS Proof-of-Stake
Company Act Investment Company Act of 1940 PoW Proof-of-Work
IRS Internal Revenue Service PQC Post-Quantum Cryptography
ISO International Organization for RBC Risk Based Capital
Standardization RFI Request for Information
IVAN Illicit Virtual Asset Notification RPC Remote Procedure Call
JCT Joint Committee on Taxation SAB SEC Staff Accounting Bulletin
LICU Low-Income Credit Union SAFT Simple Agreement for Future Tokens
MEV Maximum Extractable Value SAR Suspicious Activity Report
MFA Multifactor Authentication SDO Standards Development Organization
MiCA Markets in Crypto-Assets SEC Securities and Exchange Commission
MSB Money Services Business Securities Act Securities Act of 1933
NAIC National Association of Insurance SEF Swap Execution Facility
Commissioners
SIPA Securities Investor Protection Act of 1970
NBA National Bank Act
SMS Short Message Service
NCUA National Credit Union Administration
SRO Self-Regulatory Organization
NFA National Futures Association
SWIFT Society for Worldwide Interbank
NFT Non-Fungible Token Financial Telecommunication
NIST National Institute for Standards and TradFi Traditional Finance
Technology
Treasury U.S. Department of the Treasury
NMS National Market System
TVL Total Value Locked
NSPA National Stolen Property Act
TWEA Trading with the Enemy Act of 1917
NYDFS New York State Department of
UK United Kingdom
Financial Services
VASP Virtual Asset Service Provider
OCC Office of the Comptroller of the
Currency W3C World Wide Web Consortium
OCCIP Office of Cybersecurity and Critical Working Group President’s Working Group on Digital
Infrastructure Protection Asset Markets
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY
STRENGTHENING AMERICAN LEADERSHIP
IN DIGITAL FINANCIAL TECHNOLOGY 1
Executive Order 14178 of January 23, 2025
The digital asset industry plays a crucial role in innovation and economic development in the United States,
as well as our Nation’s international leadership. It is therefore the policy of my Administration to support the
responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors
of the economy, including by:
(i) protecting and promoting the ability of individual citizens and private-sector entities alike to access
and use for lawful purposes open public blockchain networks without persecution, including the ability
to develop and deploy software, to participate in mining and validating, to transact with other persons
without unlawful censorship, and to maintain self-custody of digital assets;
(ii) promoting and protecting the sovereignty of the United States dollar, including through actions to
promote the development and growth of lawful and legitimate dollar-backed stablecoins worldwide;
(iii) protecting and promoting fair and open access to banking services for all law-abiding individual
citizens and private-sector entities alike;
(iv) providing regulatory clarity and certainty built on technology-neutral regulations, frameworks that
account for emerging technologies, transparent decision making, and well-defined jurisdictional
regulatory boundaries, all of which are essential to supporting a vibrant and inclusive digital economy
and innovation in digital assets, permissionless blockchains, and distributed ledger technologies; and
(v) taking measures to protect Americans from the risks of Central Bank Digital Currencies (CBDCs),
which threaten the stability of the financial system, individual privacy, and the sovereignty of the United
States, including by prohibiting the establishment, issuance, circulation, and use of a CBDC within the
jurisdiction of the United States.
There is hereby established within the National Economic Council the President’s Working Group on Digital
Asset Markets (Working Group). The Working Group shall be chaired by the Special Advisor for AI and
Crypto (Chair).
Within 180 days of the date of this order, the Working Group shall submit a report to the President, through
the Assistant to the President for National Economic Policy, which shall recommend regulatory and legislative
proposals that advance the policies established in this order.
DONALD J. TRUMP
P R E S I D E N T O F T H E U N I T E D S TAT E S
1 Exec. Order No. 14178, Strengthening American Leadership in Digital Financial Technology, 90 Fed. Reg. 8647 §§ 1, 4 (Jan. 31, 2025). Executive Order
excerpted for brevity.
STREN GTH EN I N G AMERI CAN L EADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 1 •
MEMBERS OF THE WORKING GROUP2
Chair David Sacks, Special Advisor for AI and Crypto
Scott Bessent, Secretary of the Treasury
Pam Bondi, Attorney General
Howard Lutnick, Secretary of Commerce
Kristi Noem, Secretary of Homeland Security
Russell Vought, Director of the Office of Management and Budget
Marco Rubio, Acting Assistant to the President for National Security Affairs
Robin Colwell, Deputy Assistant to the President for National Economic Policy
Stephen Miller, Homeland Security Advisor
Paul Atkins, Chairman of the Securities and Exchange Commission
Caroline Pham, Acting Chairman of the Commodity Futures Trading Commission
Robert “Bo” Hines, Executive Director of the Working Group
2 Exec. Order No. 14178, supra note 1, at § 4(a) establishes the President’s Working Group on Digital Asset Markets, which is chaired by the Special Advisor
for AI and Crypto and includes the following officials, or their designees: the Secretary of the Treasury, the Attorney General, the Secretary of Commerce,
the Secretary of Homeland Security, the Director of the Office of Management and Budget, the Assistant to the President for National Security Affairs,
the Assistant to the President for National Economic Policy, the Assistant to the President for Science and Technology, the Homeland Security Advisor,
the Chairman of the Securities and Exchange Commission, and the Chairman of the Commodity Futures Trading Commission. The Working Group, while
formulating its recommendations, also consulted with the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency,
the Federal Deposit Insurance Corporation, and the National Credit Union Administration, and their designees.
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 2 •
Staff Acknowledgments
The Working Group would like to thank the staff of each department and agency for their contributions
to this report. Specifically, the Working Group would like to thank the following:
Tyler Williams, Andrew Rittenhouse, Thomas Weidner, Jonathan Hurowitz, and Frank Sensenbrenner from
the Department of the Treasury; Chris DeLorenz from the Department of Justice; Patrick Butler, Dylan
Clement, and Chris Netram from the Department of Commerce; Joseph Alm from the Department of
Homeland Security; Dr. Mark Calabria from the Office of Management and Budget; Jeff Wrase from the
National Economic Council; Emily Underwood, Special Assistant to the President and Policy Advisor; Taylor
Asher, Michael Selig, and Philip Raimondi from the Securities and Exchange Commission; and Harry Jung,
Meghan Tente, and Brigitte Weyls from the Commodity Futures Trading Commission.
STREN GTH EN I N G AMERI CAN L EA DERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 3 •
I. Introduction
CHAPTER I
Introduction
STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY
Introduction •
Introduction
The American story is one of innovation. From the railroads that linked sea to shining sea, to the internet that
connected the entire world, American entrepreneurs have led the buildout of next generation technologies in
every generation since our founding. Crypto3 should be no different.
The Working Group, as the author of this report, endorses the notion that digital assets and blockchain
technologies can revolutionize not just America’s financial system, but systems of ownership and governance
economy-wide. American entrepreneurs who pioneer new industries using these technologies deserve both
clarity on the policies that affect their efforts and praise for the progress they have made. The Working Group
further believes that the movement underpinning crypto’s development—largely grassroots and dedicated
to building a more open and efficient financial system for all—should be recognized. No President gave this
movement the recognition it deserves until President Trump.
As of June 2025, President Trump’s approval rating among investors in cryptocurrencies was 72%.4 For context,
private surveys suggest that more than one in five Americans, or over 68 million people, own cryptocurrencies.5
82% of these investors believed June 2025 to be a good time to invest in cryptocurrencies,6 and 64% said
President Trump’s policies made them more likely to do so.7 The optimism extended to institutional investors
too; 83% planned to increase their allocations to digital assets in 2025 per a survey conducted after the election.8
The first quarter of 2025 saw venture capitalists deploy $4.8 billion into crypto and blockchain-focused startups,9
supporting industry forecasts of a 70% year-over-year increase in total venture dollars invested.10
The difference from prior years is stark. The Biden Administration’s approach to crypto was marked by
regulatory overreach11 that countered the American tradition of embracing new technologies. Operation Choke
Point 2.012 saw regulators push banks to cut off lawful crypto businesses, effectively debanking the industry.13
This aggressive strategy of regulation by enforcement created a hostile environment for crypto entrepreneurs14
3 In this report, the term “crypto” is used to describe the ecosystem and technologies built around digital assets and blockchains, including the users,
developers, businesses, and enthusiasts engaged in these domains.
4 HarrisX Crypto Policy Study June 2025, HarrisX, https://www.harrisx.com/posts/crypto-policy-june-25 (last visited July 13, 2025).
5 National Cryptocurrency Association, 2025 State of Crypto Holders Report (Apr. 2, 2025), https://nca.org/report.pdf; 2025 Cryptocurrency Adoption and
Consumer Sentiment Report, Security.Org, https://www.security.org/digital-security/cryptocurrency-annual-consumer-report (last updated Jan. 31, 2025);
Introducing the 2025 Global State of Crypto Report, Gemini (May 27, 2025), https://www.gemini.com/blog/introducing-the-2025-global-state-of-crypto-report.
6 HarrisX, supra note 4.
7 Id.
8 Prashant Kher & Scott Mickey, Growing Enthusiasm Propels Digital Assets into the Mainstream, EY Parthenon (Mar. 18, 2025), https://www.ey.com/en_us/
insights/financial-services/growing-enthusiasm-and-adoption-of-digital-assets.
9 Alex Thorn, Crypto & Blockchain Venture Capital - Q1 2025, Galaxy (May 1, 2025), https://www.galaxy.com/insights/research/crypto-venture-capital-q1-2025.
10 Leah Hodgson, Sygnum Rides VC Crypto Wave to Unicorn Status, PitchBook (Jan. 14, 2025), https://pitchbook.com/news/articles/sygnum-rides-vc-crypto-
wave-to-unicorn-status.
11 See, e.g., Crypto Freedom All. of Tex. v. SEC, No. 24-cv-361 (N.D. Tex. Nov. 21, 2024) (vacating the SEC’s rulemaking to expand the definition of the term
“dealer” for exceeding the SEC’s statutory authority).
12 See generally Hearing on Operation Choke Point 2.0: The Biden Administration’s Efforts to Put Crypto in the Crosshairs, Before the H. Comm. on Fin.
Servs., 119th Cong. (2025).
13 See, e.g., David H. Thompson et al., Operation Choke Point 2.0: The Federal Bank Regulators Come For Crypto, Cooper & Kirk (Mar. 24, 2023), https://www.
cooperkirk.com/wp-content/uploads/2023/03/Operation-Choke-Point-2.0.pdf; The Debanking of the Crypto Industry: Examining the Role of the FDIC, Hearing
Before the Subcomm. On Oversight & Investigations of the H. Comm. On Fin. Servs., 119th Cong. (Feb. 6, 2025) (statement of Paul Grewal, Chief Legal
Officer, Coinbase), https://www.congress.gov/119/meeting/house/117858/witnesses/HHRG-119-BA09-Wstate-GrewalP-20250206.pdf.
14 See, e.g., Commissioners Hester M. Peirce & Mark T. Uyeda, U.S. Securities and Exchange Commission (SEC), Omakase: Statement on In the Matter of
Flyfish Club, LLC (Sept. 16, 2024), https://www.sec.gov/newsroom/speeches-statements/peirce-uyeda-statement-flyfish-091624 (stating that addressing crypto
“in an endless series of misguided and overreaching cases has been and continues to be a consequential mistake”); Commissioners Hester M. Peirce &
Mark T. Uyeda, SEC, On Today’s Episode of As the Crypto World Turns: Statement on ShapeShift AG (Mar. 5, 2024), https://www.sec.gov/newsroom/speeches-
statements/peirce-uyeda-statement-crypto-world-turns-03-06-24 (stating that the SEC’s enforcement action “adds to the ambiguity that hangs over the
crypto world”); Commissioners Hester M. Peirce & Mark T. Uyeda, SEC, Collecting Enforcement Actions: Statement on Stoner Cats 2, LLC (Sept. 13, 2023),
https://www.sec.gov/newsroom/speeches-statements/peirce-uyeda-statement-stonercats-091323 (stating that the SEC’s analysis of non-fungible tokens lacked
“any meaningful limiting principle. It carries implications for creators of all kinds. Were we to apply the securities laws to physical collectibles in the same
way we apply them to NFTs, artists’ creativity would wither in the shadow of legal ambiguity.”).
STREN GTH EN I N G AMERI CAN L EA DERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 5 •
Introduction •
that at times drove their projects and ventures overseas. Although a great deal of the early innovation in the
crypto space occurred in the United States, much of the industry’s corporate infrastructure migrated offshore
to avoid the unfavorable regulatory environment. This approach nearly eliminated the opportunity for the
United States to lead in this revolutionary technology due to mere political whims.
President Trump’s election marked an end to this misstep. It was America’s hard fork—the end of one chain of
poor policy decisions in favor of an updated, better approach. The Working Group encourages the Federal
government to operationalize President Trump’s promise to make America the “crypto capital of the world”15
and adopt a pro-innovation mindset toward digital assets and blockchain technologies. The following core
recommendations, if implemented, will ensure crypto becomes a hallmark of the new American Golden Age.
American citizens and businesses should be able to own digital assets and use blockchain
technologies for lawful purposes without fear of prosecution. Likewise, American entrepreneurs and
software developers should have the liberty, and regulatory certainty, to upgrade all sectors of our
economy using these technologies.
• Congress should enact legislation affirming that individuals can custody their own digital assets without a
financial intermediary and engage in lawful peer-to-peer transactions using those assets.
• Congress should codify principles regarding how control over an asset impacts Bank Secrecy Act
(BSA) obligations, particularly for money transmitters. A software provider that does not maintain total
independent control over value should not be considered as engaged in money transmission for purposes
of the BSA.
• The Financial Crimes Enforcement Network (FinCEN) should evaluate whether and how its existing
guidance related to the digital asset sector, including the guidance issued in 2013 and 2019, should be
rescinded, modified, or updated to reflect legislative and regulatory changes. As part of this effort, FinCEN
could consider whether additional guidance would be helpful for particular market segments or for
application of particular BSA obligations.
Policymakers and market regulators should lay the groundwork for American digital asset markets to
become the deepest and most liquid in the world.
• The Securities and Exchange Commission and the Commodity Futures Trading Commission should use
their existing authorities to immediately enable the trading of digital assets at the Federal level.
• Congress should enact legislation that grants the Commodity Futures Trading Commission clear authority
to regulate spot markets in non-security digital assets. This legislation should permit both market
regulators’ registrants to engage in multiple business lines under the most efficient licensing structure
possible.
• Policymakers should embrace decentralized finance as an option for individuals and investors and
appreciate the extent to which a given software application: (i) exercises “control” over assets; (ii) is
technologically capable of being modified; (iii) operates with a centralized structure or management; and
(iv) is logistically capable of complying with current regulatory obligations when determining its regulatory
treatment.
15 Issues: Technology & Innovation, The White House, https://www.whitehouse.gov/issues/tech-innovation (last visited July 13, 2025).
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 6 •
Introduction •
Banking regulators should never again pursue the Biden Administration’s policies of Operation Choke
Point 2.0 and should instead embrace the opportunities digital assets and blockchain technologies
offer to banks nationwide.
• Federal banking regulators 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.
• These regulators should relaunch crypto innovation efforts to provide clarity on the activities that banks
want to pursue, with a clear process for considering additional activities. To support these efforts, the
United States should adopt capital requirements for bank digital asset activities that accurately reflect the
risk of the asset or activity.
• The relevant Federal banking regulators should provide clarity and transparency regarding the process for
eligible institutions to obtain a bank charter or a Reserve Bank master account.
U.S. dollar-backed stablecoins represent the next wave of innovation in payments, and policymakers
should encourage their adoption to advance U.S. dollar dominance in the digital age.
• All agencies to which Congress delegated responsibilities under the GENIUS Act should faithfully and
expeditiously execute those responsibilities.
• Relevant U.S. agencies, including Treasury, should promote U.S. private sector leadership in the responsible
development of cross-border payments and financial markets technologies. These agencies should also
promote U.S. leadership in establishing international legal, regulatory, and technical standards and best
practices for new payments technologies that reflect U.S. interests and values.
• Congress should enact legislation prohibiting the adoption of any CBDCs in the United States.
Internationally, the United States should urge other countries to adopt policies that promote the role of the
private sector in upgrading payments and financial systems.
U.S. law enforcement agencies should have the tools and authorities to hold those who use digital
assets for illegal activities accountable. These tools should never be misused to target the lawful
activities of law-abiding citizens.
• Congress should consider clarifying language regarding the BSA’s application to foreign-located actors,
taking into consideration the extent to which a foreign-located actor’s conduct, and the effect of such
conduct on the United States, warrants reach of U.S. law.
• Treasury should undertake efforts to encourage greater information sharing between the private and public
sectors to more effectively target bad actors operating in the digital asset ecosystem. This information
sharing must only be used for the purpose prescribed in law of targeting illicit finance and terrorist activity.
• Treasury and the agencies to which it has delegated responsibility for AML/CFT examinations should
identify areas of uncertainty for traditional financial institutions providing services to digital asset actors
and digital asset services to customers. Agencies, including Treasury and the Federal banking agencies,
should provide needed guidance or other materials to help clarify AML/CFT obligations and expectations
with regards to those actors and services.
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 7 •
Introduction •
Federal tax policy should recognize the unique characteristics of digital assets and address
longstanding requests for guidance from investors and entrepreneurs.
• Treasury and the IRS should publish guidance on several topics, including the determination of “adjusted
financial statement income” with respect to financial accounting unrealized gains and losses on investment
assets other than stock and partnership interests, whether wrapping and unwrapping transactions are
taxable transactions, and de minimis receipts of digital assets.
• Treasury and the IRS should review previously issued guidance related to the timing of income from staking
and mining and consider whether to clarify, modify, or reverse that guidance.
• Congress should enact legislation that: (i) adds digital assets to the list of assets subject to wash sale rules;
(ii) amends Section 1058 to provide that it applies to loans of actively traded fungible digital assets; and (iii)
treats digital assets as a new class of assets subject to modified versions of tax rules applicable to securities
or commodities for federal income tax purposes.
All recommendations, and further details on the above, can be found throughout the report. Much of the
discussion leading up to the recommendations assumes a baseline understanding of crypto and its novel
characteristics. The following box provides an overview, focusing particularly on the blockchain technology at
its foundation.
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 8 •
Introduction •
Crypto 101
Writing a description for this thing for general audiences is bloody hard. There’s nothing to
relate it to.
BitcoinTalk Forum Post Re: “Slashdot Submission for 1.0”
Satoshi Nakamoto, July 201016
The broader ecosystem of crypto derives its name from cryptocurrencies—digital currencies that can
be transferred peer-to-peer over the internet. Satoshi Nakamoto, a pseudonymous developer active
in the wake of the 2008 financial crisis, created Bitcoin,17 the first cryptocurrency, using a pioneering
concept known as distributed ledger technology (DLT).18
Bitcoin’s implementation of DLT solved the double-spending problem that earlier attempts at digital
cash tried to address.19 If Satoshi wanted to send $10 to Hal online, there had to be some authoritative
way to debit $10 from Satoshi’s account and credit $10 to Hal’s. Traditionally, that would be a
centralized, trusted intermediary (e.g., a bank) who controlled the ledger of both accounts.
To eliminate the need for a centralized intermediary, and make the system both decentralized and
permissionless, the Bitcoin network accomplished the following:
1. Distributed the ledger among all participants in the network—meaning, each transaction would be
recorded publicly with other transactions occurring around the same time in a list of transactions
called a block.
2. Incentivized nodes, computers running access to the network, to solve a difficult math problem
required to mine, or produce, a valid block through transaction fees and rewards.
3. Required other nodes in the network to validate the miner’s work by checking the proposed
block to ensure: (i) no double-spending transactions occurred, (ii) the sender of each transaction
cryptographically proved the sender’s ownership of the funds being sent, and (iii) the miner’s
solution to the math problem was correct.
If each node in the network confirmed that the proposed block passed these checks, it would be added
to each node’s copy of the distributed ledger as an update to the account balances—the act of reaching
consensus.20 As more blocks were created and accepted, the ledger would become a chain of blocks
recording the full sequential transaction history—hence, a blockchain.
The account numbers on a blockchain are known as addresses. Anyone can create a new address
to send and receive cryptocurrencies. A user first creates a private key, effectively a password, that
provides the holder the ability to digitally sign transactions. This private key has a paired public key,
which is used to create the address. An important feature of these key pairs is that a private key can
16 satoshi, Comment to Re: Slashdot Submission for 1.0, BitcoinTalk (July 5, 2010, at 9:31 PM), https://bitcointalk.org/index.php?topic=234.msg1976#msg1976.
17 As a general note, throughout this report there are references to “Bitcoin” and “bitcoin.” When “Bitcoin” is capitalized, the Working Group refers to the
Bitcoin network; when “bitcoin” is not capitalized, the Working Group refers to the unit used for transactions.
18 See Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (Oct. 31, 2008), https://bitcoin.org/bitcoin.pdf.
19 Esin Syonmez, What Is Double Spending: The Problem and How Blockchain Prevents It, Morpher (Jan. 31, 2025), https://www.morpher.com/blog/double-
spending.
20 Consensus is the process by which all the participants in a blockchain network (e.g., Bitcoin) agree to the at-time state of the blockchain. This ensures
(i) that all nodes have the same version of the ledger, and (ii) the integrity and security of the blockchain. See Kraken Learn Team, What Is a Blockchain
Consensus Mechanism, Kraken (Feb. 4, 2025), https://www.kraken.com/learn/what-is-blockchain-consensus-mechanism.
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 9 •
Introduction •
create a public key, but it is computationally intractable for conventional computers to use a public key
to derive its private key.21 This stems from a feature of the underlying math, which allows the private key
to “unlock” the public key, but not the other way around.
Anyone with access to a private key can move the cryptocurrencies associated with its corresponding
address. As such, digital asset custody is focused primarily on protecting private keys from being
leaked, hacked, or lost. To facilitate storage of private keys, developers created different types of
wallets. Software wallets hold private keys in a password-protected encrypted file and provide
capabilities for users to sign transactions. Hardware wallets include a software package on a dedicated
hardware device used only for storing keys and sending transactions to a blockchain. These wallets can
be hot, meaning they operate on a live device connected to the internet; warm, meaning they maintain
partial or selective internet connectivity; or cold, meaning they have no internet connection.
21 See Chapter II, Cryptocurrency and the Technical Standards Landscape for a further discussion of how quantum technology may impact the security of
blockchain networks.
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 10 •
Introduction •
Software Wallets vs. Hardware Wallets22
Since the creation of Bitcoin’s peer-to-peer payments system, the number of projects expanding
the scope of these technologies has dramatically expanded. Entirely new blockchain networks, like
Ethereum and Solana, support smart contracts—self-executing programs that automatically enforce
agreements between users. Stablecoins, a special type of token23 designed to maintain a stable value
relative to a reference asset like the U.S. dollar, often rely on smart contracts for different aspects of
their functionality.
22 Graphic prepared by Consensys.
23 “A token represents an asset issued on an existing blockchain; the transfer of tokens and the addresses that currently hold them are the subject of the
network’s consensus activities.” A Blockchain Glossary for Beginners: Definitions of Crypto and Web3 Terminology, Consensys, https://consensys.io/
knowledge-base/a-blockchain-glossary-for-beginners#token (last visited July 13, 2025).
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 11 •
Introduction •
Oracles connect external data sources to blockchain networks. This enables smart contracts
to execute onchain agreements based on real world prices and events. Smart contracts make
decentralized applications (dApps) possible as tools for trading, lending, earning rewards, and other
activities. Some dApps serve as cross-chain bridges, which transfer assets or data across blockchain
networks. Assets that exist on one chain and pass through a cross-chain bridge to be represented on
another are referred to as wrapped, and the ecosystem that operates around dApps is broadly known
as decentralized finance (DeFi).
Some traditional finance (TradFi) institutions have explored using smart contracts to power new
financial products or streamline agreements with counterparties.24 They often build these products
on permissioned blockchains, which allow an administrator to control or reverse parts of onchain
transactions.25
Blockchain Oracles26
It is important to acknowledge that blockchain technology, and the opportunities it provides, did
not emerge from TradFi or Washington, D.C. think tanks. Conversations on open internet forums
and mailing lists27 were the launchpads for figures like Satoshi Nakamoto to outline and debate core
principles for a new, decentralized system of trust. Throughout the report, there are references to
original posts to anchor the topics discussed.
24 Press Release, Citigroup Inc., Citi Develops New Digital Asset Capabilities for Institutional Clients (Sept. 18, 2023), https://www.citigroup.com/global/
news/press-release/2023/citi-develops-new-digital-asset-capabilities-for-institutional-clients; see Franklin OnChain U.S. Government Money Fund, Franklin
Templeton, https://www.franklintempleton.com/investments/options/money-market-funds/products/29386/SINGLCLASS/franklin-on-chain-u-s-government-
money-fund/FOBXX (last visited July 13, 2025).
25 Graeme Moore, The Future of Tokenization? Permissioned Blockchains, Blockworks (May 6, 2024), https://blockworks.co/news/future-tokenization-
permissioned-blockchains.
26 Graphic prepared by Chainlink.
27 The Cypherpunk mailing list was an influential pre-Bitcoin online forum where cryptographers and privacy enthusiasts discussed ideas around digital
cash, decentralization, use cases for public key cryptography. It was on this list that Satoshi Nakamoto first shared the Bitcoin whitepaper in 2008. Satoshi
Nakamoto publicly announced Bitcoin on the P2P Foundation forum in 2009, before creating BitcoinTalk—a central hub for discussions around developing
and debugging Bitcoin and a convening ground for the growing Bitcoin community. See generally Satoshi Nakamoto, Bitcoin P2P E-Cash Paper, Satoshi
Nakamoto Institute (Oct. 31, 2008), https://satoshi.nakamotoinstitute.org/emails/cryptography/1; Satoshi Nakamoto, Bitcoin Open Source Implementation of
P2P Currency, Satoshi Nakamoto Institute (Feb. 11, 2009), https://satoshi.nakamotoinstitute.org/posts/p2pfoundation/1; BitcoinTalk Forum, https://bitcointalk.
org (last visited, July 13, 2025).
STREN GTH EN I N G AMERI CAN L EA DERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 12 •
Introduction •
STREN GTH EN I N G AMERI CAN L EA DERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 13 •
Phases of Cryptocurrency and Digital Asset Market Adoption28
Regulatory clarity and
frameworks drive further
adoption
Crypto treasury companies
More IPOs by crypto firms
Tokenization expands
Blockchain scalability
improves
28
Sovereign adoption,
Phases of Cryptocurrency and Digital Asset Market Adoption
competition increases
2025 &
2008-2010 2011-2013 2014 - 2016 2017 2018 - 2019 2020 - 2021 2022 - 2023 2024
Beyond
Cypherpunks First Trading “Blo ckch ain , The Big Bub ble Infrastructure The Great Bull FTX Meltdown Bitcoin on t he Adoption,
Satoshi releases The early years. Not Bitcoin” Bitcoin awareness A new wave of Run Collapse of Terra Ballot Innovation
the whitepaper, Bitcoin undergoes Bear market & reaches the entrepreneurs Central bank Luna and FTX BTC & ETH ETFs are Bitcoin and
distributes first its first “bubble.” negative mainstream. Retail arrives to fill the policies lead create contagion approved by the crypto treasury
version of Euromaidan perceptions of exchanges infrastructure gaps investors to across the sector. SEC. Memecoins company sector
software, sends protestors bitcoin lead to dominate. ICOs the Big Bubble laid Bitcoin. Public Major lending drive on-chain expands.
first transaction fundraise with hype around grow and bring bare. Custody, mining companies firms go bankrupt. activity. Bitcoin L2s Regulatory clarity
to Hal Finney. BTC. First altcoins “blockchain attention to trading, emerge. DeFi “Operation Choke capture VC emerges.
Code originally on appear. Bitcoin technology,” Ethereum. New derivatives, ecosystem Point 2.0” hits interest. Politicians Congress works
SourceForge, miners add GPUs, which banks and networks launch. lending, expands. industry. New embrace Bitcoin on legislation.
discussions then FPGAs, and corporations Security token settlement, Stablecoins arrive. narratives emerge: and crypto. Trump Tokenization
happen on the first ASICs in explore. hype drives many market making, Alt L1s launch. DeSoc, Restaking, election starts heats up.
BitcoinTalk forum. 2013. Ethereum startups. and data solutions NFTs emerge. Data Availability, crypto regulatory Stablecoin
launches. developed. RWA. renaissance. adoption grows.
28 Graphic prepared by Galaxy.
II. The Digital Asset Ecosystem
CHAPTER II
The Digital Asset Ecosystem
STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY
The Digital Asset Ecosystem •
The Digital Asset Ecosystem
A purely peer-to-peer version of electronic cash would allow online payments to be sent
directly from one party to another without going through a financial institution. Digital
signatures provide part of the solution, but the main benefits are lost if a trusted third party
is still required to prevent double-spending. We propose a solution to the double-spending
problem using a peer-to-peer network. The network timestamps transactions by hashing
them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be
changed without redoing the proof-of-work. The longest chain not only serves as proof of the
sequence of events witnessed, but proof that it came from the largest pool of CPU power. As
long as a majority of CPU power is controlled by nodes that are not cooperating to attack the
network, they’ll generate the longest chain and outpace attackers. The network itself requires
minimal structure. Messages are broadcast on a best effort basis, and nodes can leave
and rejoin the network at will, accepting the longest proof-of-work chain as proof of what
happened while they were gone.
Abstract from Bitcoin: A Peer-to-Peer Electronic Cash System
Satoshi Nakamoto, October 200829
Since the launch of the Bitcoin network, the crypto ecosystem has grown to include far more than digital
currencies. Smart contracts, computationally efficient consensus mechanisms, and the open-source spirit of
the developer community resulted in a proliferation of digital assets and methods to transfer them.30
But what are digital assets? Given the range of use cases digital assets offer, it is appropriate to define them
in terms of the underlying technology. As such, a digital asset refers to any digital representation of value that
is recorded on a distributed ledger.31 Consensus regarding ownership of these assets is achieved through
a mathematically verifiable process—one that records the “proof of the sequence of events witnessed” as
Satoshi explained. It is from this baseline that the evolution of the market can be best understood.32
29 Nakamoto, supra note 18.
30 See generally Why Are There So Many Cryptocurrencies and Why Do We Need Them, Coinbase, https://www.coinbase.com/learn/crypto-basics/why-are-
there-so-many-cryptocurrencies-and-why-do-we-need-them (last visited July 13, 2025).
31 Exec. Order No. 14178, supra note 1, at § 2(a). The Executive Order also defines a blockchain as “any technology where data is: (i) shared across a network
to create a public ledger of verified transactions or information among network participants, (ii) linked using cryptography to maintain the integrity of
the public ledger and to execute other functions, (iii) distributed among network participants in an automated fashion to concurrently update network
participants on the state of the public ledger and any other functions, and (iv) composed of source code that is publicly available.” Id. at § 2(b). This report
uses the term “blockchain” interchangeably with distributed ledger technology (DLT), unless the specific context requires a more precise distinction.
Strictly speaking, a blockchain is a type of distributed ledger technology, while a distributed ledger may or may not be a blockchain.
32 Nakamoto, supra note 18.
STREN GTH EN I N G AMERI CAN L EA DERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 15 •
The Digital Asset Ecosystem • Market Size and Trends
Market Size and Trends
Cryptocurrency Market Cap Throughout Time33
Digital assets have grown exponentially since 2009, moving from a topic of interest among computer science
hobbyists to an ecosystem supporting trillions of dollars in payments and trades. Retail users played the
primary role in driving adoption, but institutions have increasingly sought ways to gain exposure. This exposure
takes multiple forms—financial investment in the underlying assets and protocols, venture investment in
companies serving the space, and in-house investment in products and services that blockchain technology
enables.34 The advent of crypto exchange-traded products (ETPs)35 in early 2024—after the Securities and
Exchange Commission (SEC) finally granted approval following more than twenty denied requests and
protracted legal action over several years—allowed investors to obtain exposure to certain digital assets
without the need to provision a wallet to hold them.36
33 Graphic prepared by Messari.
34 See generally Real-World Use Cases for Smart Contracts and dApps, Crypto Council For Innovation (Sept. 15, 2022), https://cryptoforinnovation.org/real-
world-use-cases-for-smart-contracts-and-dapps.
35 Exchange-traded funds (ETFs) are a type of ETP. See Exchange-Traded Funds and Products, FINRA, https://www.finra.org/investors/investing/investment-
products/exchange-traded-funds-and-products (last visited July 13, 2025).
36 See McVicker et. al., Road to Bitcoin Investment Cleared with SEC’s Approval of 11 Spot Bitcoin ETFs, Winston & Strawn LLP (Jan. 11, 2024), https://www.
winston.com/en/blogs-and-podcasts/non-fungible-insights-blockchain-decrypted/road-to-bitcoin-investment-for-sec-registered-investment-advisors-cleared-
with-secs-approval-of-11-spot-bitcoin-etfs#:~:text=The%20SEC%27s%20approval%20of%2011,free%20to%20flow%20into%20bitcoin.
STREN GTH EN I N G AMERI CAN L EA DERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 16 •
The Digital Asset Ecosystem • Market Size and Trends
Cumulative Bitcoin Spot Exchange-Traded Fund (ETF) Balances37
Further, institutions as varied as sports clubs and video game developers have started to experiment with non-
fungible tokens (NFTs)38 as representations of loyalty to a team or in-game assets.
Activity in digital asset markets is often characterized as borderless, reflecting the ease of transacting
worldwide. While this offers significant benefits, it makes the levels of activities in specific jurisdictions hard to
measure. That said, the number of successful, monthly transactions on public blockchains reached highs of 3.8
billion in early 2025—a 96% increase year-over-year—around the return of the Trump Administration.39
37 Coinbase Institutional & Glassnode, Charting Crypto: Q2 2025, 17 (Apr. 23, 2025), https://coinbase.bynder.com/m/576175a8cce59ea9/original/Charting-Crypto_
Q2-2025.pdf.
38 “A non-fungible token is a type of token that is a unique digital asset and has no equal token.” A Blockchain Glossary for Beginners: Definitions of Crypto
and Web3 Terminology, Consensys, https://consensys.io/knowledge-base/a-blockchain-glossary-for-beginners#nft (last visited July 13, 2025).
39 State of Crypto Index, a16zcrypto, https://a16zcrypto.com/stateofcryptoindex (last visited July 13, 2025). These data serve as a proxy for activity across certain
blockchains (specifically, Ethereum, Polygon, Solana, Avalanche, Fantom, Celo, Optimism, Base, and Arbitrum).
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The Digital Asset Ecosystem • Market Participants
Market Participants
The digital asset ecosystem includes a range of market participants, each playing a role in providing products,
offering services, or supplying capital. Some categories of key market participants are listed below.40
Participant Description
Issuers Individuals or groups that create and distribute digital assets.
Retail Participants Individuals participating in the digital asset ecosystem and a driving
force behind the market’s growth.
Institutional Investors Entities such as hedge funds, venture capital firms, and asset
managers that invest in digital assets.
Centralized Trading Platforms Centralized exchanges, or trading venues where market participants
can buy or sell digital assets; often provide vertically integrated
services including trading, custody, and broker-dealer services.
Decentralized Protocols41 and Developers and protocols associated with the technologies that
Development Teams underpin the digital asset market, including blockchains, wallets,
smart contracts, and other dApps.
Blockchain Network Support Various actors (such as miners, stakers, validators, and node
providers)42 involved in the operation, maintenance, and security of a
blockchain network.
Issuers
Digital asset issuers are the individuals, organizations, or entities responsible for creating and launching tokens
on blockchains. Issuers play a central role in shaping the utility, governance, and economic models of the
digital asset ecosystem. Depending on the digital asset’s purpose, issuers may range from individuals and tech
startups launching utility tokens43 for decentralized applications to traditional financial institutions issuing
tokenized44 securities or stablecoins. While some issuers retain control over the digital asset’s development
and distribution, others deploy tokens into decentralized environments where future changes are governed by
community consensus.
Retail Participants
Retail participants have been a driving force behind the growth of digital asset markets, often forging market
trends, adoption of new protocols, and the spread of innovation. They largely access these markets directly
through trading platforms where they can buy, sell, and “HODL” 45 digital assets or by engaging with onchain
applications.
40 This list is not exhaustive, and each of these categories of digital asset market participants can be broken down further into subgroups.
41 Protocols are sets of rules that govern how data is shared among computers. Regarding digital assets, protocols establish the rules for sharing data on a
blockchain. See What is a protocol?, Coinbase, https://www.coinbase.com/learn/crypto-basics/what-is-a-protocol (last visited July 13, 2025).
42 See Chapter II, Mining and Staking for a further discussion of actors supporting the operation of a blockchain’s network.
43 A utility token is a token that provides access to a product or service within a specific blockchain ecosystem. See Utility tokens vs. security tokens: what are
the differences?, Coinbase, https:/www.coinbase.com/learn/crypto-basics/utility-tokens-vs-security-tokens-what-are-the-differences (last visited July 13, 2025).
44 Tokenization is the use of blockchain technology to represent ownership rights in a given asset. See Asset Tokenization: What It Is and How It Works,
Chainlink, https://chain.link/education/asset-tokenization (last updated May 21, 2025); see also Chapter II, Tokenization.
45 “HODL” first appeared in a post on the BitcoinTalk forum as a misspelling of “hold.” The post, and subsequent discussion, was in reference to a user’s
decision to maintain a long position in Bitcoin rather than try to time market movements. Since then, the term has become common among retail
participants, signaling their conviction to “hold on for dear life”, which has turned the misspelling into an acronym. See HODL: The Cryptocurrency
Strategy of “Hold on for Dear Life,” Explained Investopedia (May 18, 2024), https://www.investopedia.com/terms/h/hodl.asp.
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 18 •
The Digital Asset Ecosystem • Market Participants
Recent Trends in Retail Interest in Crypto46
Number of Downloads of US- Based Crypto Apps
Jan. 2023 Jul. 2023 Jan. 2024 Jul. 20 24 Jan. 2025
Source: SensorTower , Crypto App Downloads, aggregated and analyzed by Payward, Inc (d/b/a Kraken).
Institutional Investors
The increased participation of institutional investors is driven largely by the growing acceptance of digital
assets as an asset class, the introduction of regulatory frameworks, and the emergence of institutional-grade
infrastructure such as custody services.
Prime brokers and over-the-counter (OTC) trading desks play a significant role for institutional investors. OTC
desks enable large transactions with flexible costs and may provide an additional layer of privacy. Prime brokers
provide financing, order routing, and custody services. They offer margin financing based on overall portfolio
risk, which can include securities, derivatives, and non-security digital assets.
Centralized Trading Platforms
Centralized trading platforms facilitate activities in various types of digital assets. They serve as a primary
venue for users to enter digital asset markets, offering tools for trading, price discovery, and liquidity. The
number and prevalence of these platforms has grown alongside the proliferation of digital assets as more
consumers and investors entered the space.
Registered exchanges, broker-dealers, and Swap Execution Facilities (SEFs) are among the various TradFi
entities engaging in the digital asset space. Designated Contract Markets (DCMs)—overseen by the
Commodity Futures Trading Commission (CFTC)—may offer digital asset futures and options contracts that
allow users to hedge positions in, or gain indirect exposure to, a variety of digital assets.47
Centralized digital asset exchanges (CEXs) primarily facilitate the direct (or spot) trading of digital assets
offchain48 by users, though CEXs may also offer users the ability to trade in digital asset-based derivatives.
CEXs offer supporting features, such as cash deposits and withdrawals, and advanced trading tools. These
46 Graphic prepared by Kraken.
47 See CFTC, Digital Assets Primer (Dec. 2020), https://www.cftc.gov/media/5476/DigitalAssetsPrimer/download.
48 Offchain transactions refer to cryptocurrency transactions that are not processed on the settlement layer of a given blockchain. For more information on
the settlement layer, see Chapter II, Architecture of DeFi.
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The Digital Asset Ecosystem • Market Participants
platforms are often vertically integrated, consolidating multiple layers of the digital asset value chain, such
as custody, trading, brokerage, wallet services, and staking.49 This integrated model allows them to offer a
seamless user experience, reduce reliance on third-party providers, and capture more value within their
ecosystems.
Unlike SEC-registered exchanges, CEXs generally have no exchange member firms or other intermediaries
and have no self-regulatory organizations. However, CEXs may be required to become licensed under various
state-level money transmitter laws and are generally subject to federal laws governing money services
businesses (MSBs), including the Bank Secrecy Act (BSA) and its implementing regulations.50 CEXs that are
treated as MSBs under the BSA must register with the U.S. Department of the Treasury’s Financial Crimes
Enforcement Network (FinCEN) and must implement certain Anti-Money Laundering (AML) compliance
measures, including customer identification.51
Decentralized Protocols
The term “decentralized” typically refers to the use of blockchain technologies to provide financial or non-
financial services on a peer-to-peer basis. After the 2015 launch of Ethereum, developers could build smart
contracts and applications on the Ethereum blockchain that permitted several peer-to-peer activities,
including the trading and lending of digital assets.52 DeFi protocols, which can include platforms, applications,
and exchanges, are an emerging segment of the digital asset ecosystem that uses smart contracts to automate
transactions and enforce transparently encoded rules. DeFi applications and platforms offer users the ability to
interact with these protocols through web interfaces or mobile apps and access different services.
A commonly used metric to gauge the health of a given DeFi project or DeFi broadly is Total Value Locked
(TVL). TVL represents the U.S. dollar value of digital assets locked, or deposited into, a given DeFi protocol, all
protocols on a blockchain, or all DeFi protocols.53 While aggregate TVL still sits below 2021 highs, utilization
continues to increase, with the total number of protocols and services expanding significantly. As of July 2025,
TVL approached $130 billion.54
49 Staking is the process of using the native asset of a blockchain to secure the network. See What Is Staking?, Coinbase, https://www.coinbase.com/learn/
crypto-basics/what-is-staking (last visited July 13, 2025); see also Chapter II, Mining and Staking.
50 The term “Bank Secrecy Act” refers to a collection of statutes, including certain parts of the Currency and Foreign Transactions Reporting Act, Pub. L. No. 91-508,
its amendments, and the other statutes relating to the subject matter of that Act. These statutes are codified at 12 U.S.C. § 1829b, 12 U.S.C. §§ 1951-1960, 18 U.S.C. §
1956, 18 U.S.C. § 1957, 18 U.S.C. § 1960, and 31 U.S.C. §§ 5311-5314 and §§ 5316-5336 and notes thereto with implementing regulations at 31 C.F.R. ch. X (2024).
51 See generally 31 C.F.R. § 1022 (2024).
52 Nathan Reiff, A Brief History of Defi, Decrypt (Feb. 9, 2023), https://decrypt.co/resources/a-brief-history-of-defi-learn.
53 Loke Choon Khei, What Total Value Locked (TVL) and Why Users Monitor This Metric, CoinGecko, https://www.coingecko.com/learn/total-value-locked (last
updated Nov. 21, 2024).
54 DefiLlama, https://defillama.com (last visited July 13, 2025).
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 20 •
The Digital Asset Ecosystem • Market Participants
Total Value Locked in DeFi Protocols55
Total Value Locked in DeFi
$200b
$180b
$160b
$140b Total TVL
$130b
$120b
$100b
$80b
$60b
$40b
$20b
$b
2019 2020 2021 2022 2023 2024 2025
Decentralized exchanges (DEXs) are one of the most popular DeFi applications, leveraging smart contracts to
facilitate the trading of digital assets. DEX activity has grown significantly, with spot trading volumes surging
from less than 1% of CEX volume in 2020 to nearly 30% by June 2025.56 In the first quarter of 2025, the monthly
volume of transactions on DEXs averaged just under $400 billion.57
55 Graphic prepared by DefiLlama.
56 DEX to CEX Spot Trade Volume (%), The Block, https://www.theblock.co/data/decentralized-finance/dex-non-custodial/dex-to-cex-spot-trade-volume (updated
July 13, 2025).
57 DEX Volume, DefiLlama, https://defillama.com/dexs (last visited July 13, 2025).
STREN GTH EN I N G AMERI CAN L EA DERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 21 •
The Digital Asset Ecosystem • Market Participants
Architecture of DeFi
Understanding the DeFi technology stack58 is integral to understanding the DeFi ecosystem.
DeFi Technology Stack59
58 DeFi Stack: Getting a Grip on the DeFi Ecosystem, Hedera, https://hedera.com/learning/decentralized-finance/defi-stack (last visited July 13, 2025).
59 Graphic prepared by The DeFi Education Fund.
STREN GTH EN I N G AMERI CAN L EA DERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 22 •
The Digital Asset Ecosystem • Market Participants
Application / Interface Layer
The application / interface layer is comprised by dApps that consumers use to interface with DeFi,
including front-end user interfaces and application programming interfaces (APIs).
Broadcast Layer
This layer broadcasts transactions to the blockchain network. Remote procedure call (RPC) nodes in
this layer act as servers, sending requests from the application / interface layer to layers further down
the stack and receiving responses.
Smart Contract Protocol Layer
This layer consists of smart contracts deployed on a given blockchain and is used to integrate
blockchains into various DeFi services.
Asset Layer
The asset layer consists of tokens (and the wallets that contain them) that are issued on a given
blockchain.
Base Layer
The base layer, also referred to as the settlement layer, serves as the foundation of the stack. Base
layers are where the blockchain obtains consensus and transactions are recorded. Multiple blockchain
layers may comprise a base layer. For example, a Layer 1 blockchain is a foundational network layer that
may support an additional Layer 2 blockchain, deployed on top of the Layer 1 blockchain to improve
the efficiency of transactions. The base layer is often viewed in conjunction with a blockchain’s native
token60—for example, Ethereum (a Layer 1 blockchain) is a base layer, and ETH is its native token.
Like their centralized counterparts, DEXs offer users the ability to trade digital assets. In the absence of a
central intermediary, DEXs typically rely on liquidity pools61 and automated market-making62 to provide trading
services. DEXs tend to have lower transaction costs, greater transparency, and reduced settlement risks when
compared to centralized exchanges, which typically utilize central limit order books.
60 A blockchain’s native token is the token the network uses to pay transaction fees and issue rewards for participating in its consensus mechanisms. See
Native Token, CoinAPI.io, https://www.coinapi.io/learn/glossary/native-token (last visited July 13, 2025).
61 A liquidity pool is a portfolio of digital assets that is algorithmically bound and traded based on smart contracts. Liquidity pools operate differently than
central limit order book exchanges: in pools, liquidity providers and takers interact with liquidity pools by adding assets that the liquidity pools trades and
receive a liquidity pool (or LP) token in return that is proportionate to the percentage of assets they have contributed to the liquidity pool. See Multi.io
Research, DeFi Explained: Automated Market Makers, Medium (Aug. 6, 2020), https://medium.com/multi-io/automated-market-makers-amm-breakdown-
d3338f027230.
62 Automated market makers are a type of decentralized exchange that rely on smart contracts to construct a liquidity pool. See What are Automated
Market Makers (AMM)?, Gemini (Jun. 5, 2025), https://www.gemini.com/cryptopedia/amm-what-are-automated-market-makers.
STREN GTH EN I N G AMERI CAN L EA DERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 23 •
The Digital Asset Ecosystem • Market Participants
Example Liquidity Pool63
Developers and Protocol Teams
Developers and protocol teams build and maintain (i.e., propose upgrades to the relevant chain or protocol)
blockchain networks and decentralized applications.
Blockchain Developers
Open-source software developers maintain and upgrade the software that powers blockchain networks. They
are often responsible for writing or auditing the code that governs the creation, mining, or distribution of
digital assets. While decision-making for many blockchain networks is decentralized and community-driven,
individual open-source developers provide core contributions to their security and functionality. Further,
formal development organizations and foundations often coordinate these efforts.
Development companies are software companies that develop, maintain, and improve blockchain protocols,
dApps, and related infrastructure. Unlike open-source developers, these companies often operate as
structured entities with dedicated teams, funding, and roadmaps. They may be responsible for launching and
scaling networks or creating tokens that power specific platforms.64 These entities may oversee the initial
issuance of a token and manage the token’s supply via sales and supply schedules. While some development
companies retain influence over the direction of the networks they build, many aim to decentralize control over
time, transitioning governance to communities or decentralized autonomous organizations (DAOs), which are
described in more detail in the next section.
Protocol foundations support the development, governance, and promotion of specific blockchain networks.
They (or a related entity) may issue a native digital asset to incentivize contributing to the stability and block
production of the broader network. When new blockchains launch, they often offer, sell, or issue some portion
of their token supply to investors or users to both raise capital and circulate the new token.
The United States has been the preeminent country for blockchain development. That said, the total share of
open-source software developers in the United States dropped from 25% in 2021 to 18% in 2025.65 Many crypto
63 Pools, Uniswap, https://docs.uniswap.org/contracts/v2/concepts/core-concepts/pools (last visited July 13, 2025).
64 See Emily Ekshian, Explainer: What’s the difference between Coins and Tokens?, Crypto Council for Innovation (Aug. 16, 2024), https://cryptoforinnovation.
org/how-do-coins-and-tokens-shape-the-crypto-ecosystem (Observing that “[t]okens are digital assets that rely on an existing blockchain, offering a variety
of uses within platforms” and that “[c]oins are digital currencies that operate on their own, independent blockchains” and are “fundamental to the security
and operation of their native networks…”).
65 Total Developer Share by Country, Developer Report by Electric Capital, https://www.developerreport.com/geography (last visited July 13, 2025).
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The Digital Asset Ecosystem • Market Participants
firms turned their attention overseas due to regulatory uncertainty, regulation-by-enforcement, and systematic
debanking—the results of Biden-era policies toward the crypto industry.66 Reversing the decline of blockchain
development in the United States is central to the goal of making America the crypto capital of the world.67
Decentralized Autonomous Organizations (DAOs)
DAOs are community-governed administrative systems that operate according to a set of encoded and
transparent rules. These autonomous bodies allow holders of the DAO’s governance token68 to make
collective decisions about protocol governance. Once these token holders make governance decisions—such
as collateral policies or fee structures in the case of financial protocols—smart contracts can automatically
execute the terms and enforce them, creating a self-governing environment. The process by which token
holders can introduce and vote on decisions varies, depending on voting rules in the code, smart contract
design, and community interaction. DAOs typically hold and manage collective financial resources in corporate
treasuries to fund operations, initiatives, and rewards.
Blockchain Network Support
Protocol Consensus Mechanisms
For a transaction to be added to a blockchain, it must be validated and agreed upon by the various nodes in
the network. The different protocols utilized by blockchains, referred to as consensus mechanisms, can be
predominantly characterized as either Proof-of-Work (PoW) or Proof-of-Stake (PoS).
PoW blockchains require miners to solve a particular math problem to mine a new block.69 Once a miner
assembles a list of transactions and finds a valid solution (the act of “proposing a block”), the miner broadcasts
it to all nodes, who determine whether the proposed block is valid. If the nodes reach consensus on the validity
of the miner’s block, the miner is rewarded with transaction fees and an amount of the blockchain’s native token
previously not in circulation. At this point, the miner’s block is added to the blockchain as the authoritative
update to the onchain transaction history.
With PoS blockchains, selected validators are responsible for verifying transactions and producing the next
block. In practice, this process involves the validators staking a given amount of the blockchain’s native token
as surety that the validator will not produce an inaccurate block.70 The chosen validators receive a reward in the
native token they stake, known as a staking reward.
Many PoS blockchains require the number of native tokens a validator stakes to meet a minimum threshold. If
an individual does not possess the minimum required stake amount or does not wish to operate as a validator,
he or she may delegate assets to one or more validators. In return, the delegator earns a pro-rata share of any
staking rewards the validator may earn, after accounting for any commission the validator may charge. The
following box covers mining and staking in more detail.
66 Sheila Chiang, Ripple CEO Says More Crypto Firms May Leave U.S. Due to “Confusing” Rules, CNBC, https://www.cnbc.com/2023/05/18/ripple-ceo-says-
more-crypto-firms-may-leave-us-due-to-confusing-rules.html (updated May 18, 2023, 1:52 AM EDT).
67 The White House, supra note 15.
68 Governance tokens are cryptocurrencies that grant token holders voting rights on a project’s development and future direction through onchain voting
specified in the protocol or smart contract. See What is a governance token?, Coinbase, https://www.coinbase.com/learn/crypto-basics/what-is-a-governance-
token (last visited July 13, 2025).
69 For more background on PoW and PoS, see Evan Wyatt (@oxlchigo), Proof of History, Proof of Stake, Proof of Work – Explained, Helius Blog (Sept. 21,
2023), https://www.helius.dev/blog/proof-of-history-proof-of-stake-proof-of-work-explained.
70 “Slashing” occurs when a validator’s collateral is debited due to validator misbehavior or negligence, such as validator downtime (where it cannot verify a
block) or acting maliciously. See Matthew Saint Olive & Simran Jagdev, Understanding Slashing in Ethereum Staking: Its Importance & Consequences,
Consensys (Feb. 7, 2024), https://consensys.io/blog/understanding-slashing-in-ethereum-staking-its-importance-and-consequences.
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The Digital Asset Ecosystem • Market Participants
Mining and Staking
Mining and Proof-of-Work
Mining is the process of solving complex cryptographic equations to propose “blocks” of transactions
which, if valid, are appended to the blockchain. The consensus mechanism that operates using mining
to validate transactions is called Proof-of-Work (PoW). The Bitcoin network and its token of the same
name represents the most well-known example of the PoW blockchain and will be the focus of PoW
discussions in this report.
Miners who successfully propose valid blocks earn native tokens from transaction fees, rewards, or
both.71 After successfully solving the puzzle necessary to propose a valid block, the miner will broadcast
its solution to other miners in the network to validate the miner’s solution. After validation, all nodes in
the network add the new block to their copies of the distributed ledger, and the miner who proposed
the accepted block will receive the reward. With respect to the Bitcoin network, there is a fixed
supply of bitcoin (21 million). The only way new bitcoin are created is through the issuance of rewards
in this mining process. Once the supply limit is hit, transaction fees will become the main source of
compensation for nodes in the network.
The difficulty of solving the puzzle necessary to propose a valid block scales up or down depending on
the supply of miners. For Bitcoin, this difficulty level adjusts every 2,016 blocks (approximately every
two weeks as of this writing) to target an average block creation time of ten minutes. If block times are
too short in a given period, the difficulty rises to match the increased computing power available from
the miners. This also ensures high levels of security for the blockchain, as the PoW mining process
would require significant compute resources to rewrite history on the network. The most common
theory for total control in the PoW blockchain is a “51% attack,” which would require a single entity or
mining group to control over 50% of the network’s mining power and create a series of blocks with
fraudulent transactions before the community could respond.72
The primary costs for miners include electricity, hardware in the form of chips, racks, and servers,
and cooling and facility infrastructure. Miners require specialized hardware designed to propose
valid blocks as quickly as possible. Commonly, that takes the form of purpose-built chips known as
application-specific integrated circuits (ASICs).
While the Bitcoin network started off with individual miners using home computers, the mining
industry now consists of large mining firms and mining pools. These pools often combine the efforts
of many smaller miners. The scale of these operations allows the companies to drive down costs and
increase efficiency, especially from an energy perspective.
Bitcoin miners do not hold accounts, deposits, or token balances for their users, nor do they have any
customer information at the protocol level. Miners have no role in custody, lending or token issuance,
and operate similarly to a data center business with low-uptime requirements. Such makes them well-
suited partners for utility load response programs and grid stability.
71 How Bitcoin Fees Work, River, https://river.com/learn/how-bitcoin-fees-work/#what-are-bitcoin-transaction-fees (last visited July 13, 2025).
72 What is a 51% attack and what are the risks?, Coinbase, https://www.coinbase.com/learn/crypto-glossary/what-is-a-51-percent-attack-and-what-are-the-risks (last
visited July 13, 2025).
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The Digital Asset Ecosystem • Market Participants
Staking and Proof-of-Stake
For blockchains that utilize a Proof-of-Stake (PoS) architecture, staking is the process of locking up
digital asset tokens that are native to a particular blockchain in a node to assist in the validation of
transactions. Rather than spending compute resources in a race to produce a valid block, nodes proffer
their own tokens, subjecting them to “slashing” or forfeiture if they fall offline or propose an invalid block.
The Ethereum and Solana networks are among several prominent examples of blockchains that operate
using PoS. For those PoS networks, any holder of the network’s native token can stake and validate
transactions.73 In return for their staking efforts, and for acting in accordance with network technical
requirements, participants are often granted rewards and transaction fees of native network tokens.
Sequencing is a necessary process of ordering transactions within a block to ensure the transactions
do not conflict. This is a complicated process involving multiple actors ultimately aimed at creating a
block with the highest fees or Maximum Extractable Value (MEV). This process typically leads to both
the most efficient use of block space and the highest fees to the validators. However, users can offer
high fees to influence their preferred sequence of transactions. This process can be abused in attacks
against users (such as front-running), or leveraged to protect users with price-stabilizing actions (such
as back-running). Protocols are working to deploy the right mix of incentives and technology updates
to protect users and ensure optimal transaction sequencing.
Those seeking to obtain staking rewards can run their own validators or they can provide capital, in the
form of native tokens, to another party that handles the technical requirements of running a staking
node. Staking-as-a-service consists of a third-party that stakes assets and manages the technological
aspects of staking in exchange for a management fee. Liquid staking is a financial product offered by
large stakers, who issue a receipt token that users can redeem for their amount staked and any rewards,
or trade on a secondary market.
When a token holder delegates its staking power to a validator, the act of delegation occurs via smart
contracts and protocol-level mechanisms.74 Assuming the token holder self-custodies digital assets,
this act of delegation typically does not entail transferring control of the token; the tokens remain
locked in smart contracts. The delegated validator handles the technical requirements to stake, and
the token holder acts in a capital provider-like capacity. When rewards are distributed, they come into
possession of both the token holder and the designated validator in proportions determined by the
arrangement between the two. No entity is transmitting funds on behalf of another so long as rewards
are distributed onchain via protocol logic or smart contracts.
The United States is home to several crypto exchanges and custodians that operate validators on
behalf of their customers. In recent years, some U.S-headquartered companies have offered custodial
staking services only to non-U.S. customers due to regulatory uncertainty.75 The industry landscape
also includes non-custodial staking infrastructure companies, several of which were founded in the
United States with backing from institutional venture capital investors. Decentralized, permissionless
73 Each PoS blockchain has a different mechanism for how it selects the validators employed to verify transactions. For example, Ethereum uses an
algorithm called “RANDAO” to generate a random number used to select validators. See Block Doc, RANDAO: Under the Hood, Substack (Sept. 13, 2022),
https://blockdoc.substack.com/p/randao-under-the-hood.
74 See Staking vs. Delegating in Crypto, Messari, https://messari.io/copilot/share/staking-vs-delegating-in-crypto-5edee0a3-a57b-489b-9d88-4ce0f6ff764c (last
visited July 13, 2025).
75 See Commissioner Hester M. Peirce, SEC, Providing Security is not a “Security” – Division of Corporation Finance’s Statement on Protocol Staking (May 29,
2025), https://www.sec.gov/newsroom/speeches-statements/peirce-statement-protocol-staking-052925 (“uncertainty about regulatory views on staking discouraged
Americans from doing so for fear of violating the securities laws.”); see also Press Release, SEC, Kraken to Discontinue Unregistered Offer and Sale of Crypto
Asset Staking-As-A-Service Program and Pay $30 Million to Settle SEC Charges (Feb. 9, 2023), https://www.sec.gov/newsroom/press-releases/2023-25.
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The Digital Asset Ecosystem • Market Participants
staking protocols compete with staking services provided by entities organized under a more
traditional corporate structure.
The hardware and software required to run a validator varies by network. Companies and staking
infrastructure providers often rely on traditional hardware and cloud services from data centers to
operate validators. Some blockchain protocols have light node requirements allowing users to run
a node on a server at home, but many protocols require industry-grade servers to meet storage,
processing, and latency requirements.
Staking does not rely on large amounts of energy consumption. When the Ethereum blockchain
converted from PoW to PoS in 2022, the Ethereum Foundation estimated that energy use fell by over
99.9%.76 On a per-transaction basis, the Ethereum network is estimated to use 50kWh versus 830kWh
estimated for the Bitcoin network.77 These numbers will likely continue to evolve with the development
of blockchain scaling architectures and increasing hardware performance capabilities.
Infrastructure Providers and Tools
Various other infrastructure providers and tools are integral to the functioning of blockchain networks.
Key Infrastructure Providers and Tools
Entity Type Function
Oracles Provide data external to the blockchain (offchain data) to onchain smart
contracts, serving as a conduit for blockchains to receive outside information.
DEX Aggregators Pool liquidity from multiple DEXs and market makers to provide efficient
trading for participants and avoid issues associated with liquidity
fragmentation.
Bridge Providers Enable the transfer of assets or data between two or more blockchain
networks, allowing for interoperability across blockchain ecosystems.
Node Providers Provide access to blockchain networks for users and developers without
requiring them to operate their own blockchain infrastructure.
Onchain Data Providers Supply data, such as asset prices, from blockchain and offchain providers to
decentralized applications, supporting the autonomous functioning of DeFi.
Digital Identity Providers Support the authentication and verification of user identities when interacting
with DeFi protocols and other digital asset market participants.
Smart Contract Auditors Review and analyze smart contracts to identify vulnerabilities, bugs, or
inefficiencies before they are deployed to a live network.
Front-End User Interface Allow individuals to easily interact with decentralized applications and
Operators blockchain protocols, usually through web-based portals or mobile
applications.
76 Ethereum Roadmap: Merge, Ethereum Foundation, (Feb. 21, 2025), https://ethereum.org/en/roadmap/merge/.
77 Amy Kalnoki, Is Proof-of-Stake Really More Energy-Efficient Than Proof-of-Work?, Bitwave, https://www.bitwave.io/blog/is-proof-of-stake-really-more-
energy-efficient-than-proof-of-work (last visited July 13, 2025).
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The Digital Asset Ecosystem • Key Regulators and Oversight
Key Regulators and Oversight
Federal
Market Regulators
The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC)
are the primary federal regulators of secondary78 digital asset markets. The SEC has a mission to protect
investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. The SEC enforces federal
securities laws and oversees securities market participants including brokers, dealers, exchanges, investment
advisers, clearing agencies, transfer agents, and security-based swap dealers. Through its oversight of persons
who offer or sell securities involving digital assets, the SEC engages with entrepreneurs and firms that raise
capital in connection with novel business models via digital asset sales and enforces federal securities law
requirements that mandate disclosure of material information.
After relying primarily on enforcement actions to regulate digital assets during the Biden Administration, the
SEC launched a Crypto Task Force to assist in “developing a comprehensive and clear regulatory framework for
crypto assets” led by Commissioner Hester Peirce.79 This action, announced in January 2025, marked a clear
turning point for the SEC. Moving forward, the SEC would prioritize drawing clear regulatory lines, and crafting
sensible frameworks, to foster the growth of digital assets in the United States.
The CFTC’s mission is to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through
sound regulation.80 The CFTC’s jurisdiction includes commodity futures (and options on futures), as well as
futures on financial assets, indices, and interest rates, swaps, and derivatives on other financial, commercial,
or economic contingencies. The CFTC has jurisdiction over all digital asset commodity futures markets,
commodity derivatives generally, swap dealers, and authority over certain retail commodity transactions
offered on leverage, or margined or financed by the offeror.
Additionally, self-regulatory organizations (SROs),81 including the Financial Industry Regulatory Authority (FINRA)
and the National Futures Association (NFA), help regulate and oversee certain financial industry participants.
Given their respective statutory functions, the SEC maintains oversight of FINRA, while the CFTC maintains
oversight of the NFA. These SROs generally aim to establish and enforce standards, guidelines, and best practices
that promote integrity, transparency, and consumer protection amongst their regulated members.
Banking Regulators
The primary federal depository institution regulators are the Board of Governors of the Federal Reserve System
(FRB), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC),
and the National Credit Union Administration (NCUA).
The FRB supervises state-chartered banks that are members of the Federal Reserve System (“state member
banks”), bank holding companies, certain U.S. operations of foreign banking organizations, savings and loan
holding companies, financial holding companies, and financial market utilities designated by the Financial
Stability Oversight Council (FSOC) as systemically important. The FRB also supervises any nonbank financial
companies that FSOC designates for Federal Reserve supervision and prudential standards.
78 The SEC regulates investment funds and broker dealers who engage in digital asset markets, while the CFTC regulates digital asset futures; for more on
secondary markets. See Kevin Dowd, Secondary Markets, Carta (July 11, 2024), https://carta.com/learn/equity/liquidity-events/secondary-transactions.
79 Press Release, SEC, SEC Crypto 2.0: Acting Chairman Uyeda Announces Formation of New Crypto Task Force (Jan. 21, 2025), https://www.sec.gov/
newsroom/press-releases/2025-30.
80 About the Commission, CFTC, https://www.cftc.gov/About/AboutTheCommission (last visited July 13, 2025).
81 SROs are authorities that enforce industry standards amongst their members. For more information, see Adam Hayes, Self-Regulatory Organization (SRO):
Definitions and Examples, Investopedia (Feb. 11, 2025), https://www.investopedia.com/terms/s/sro.asp.
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The Digital Asset Ecosystem • Key Regulators and Oversight
The OCC is the primary prudential regulator for national banks, federal savings associations, and federal
branches and agencies of foreign banks.
The FDIC insures bank and savings association deposits and maintains the Deposit Insurance Fund (DIF). The
DIF is funded through insurance assessments collected from insured banks and savings associations. The
FDIC acts the primary federal regulator for insured state-chartered banks that are not members of the Federal
Reserve System and insured state-chartered savings institutions. The FDIC also has back up examination
authority over insured banks for which either the OCC or the FRB is the primary federal regulator. Notably, the
FDIC also helps resolve banking institution failures.
The NCUA regulates, charters, and supervises all federal credit unions, and supervises federally insured, state-
chartered credit unions in conjunction with state regulators. The NCUA is primarily funded through operating
fees collected from federal credit unions and transfers from the National Credit Union Share Insurance Fund,
which is funded by all federally insured credit unions.
U.S. Department of the Treasury
Within the U.S. Department of the Treasury (Treasury), FinCEN administers the BSA.82 FinCEN’s mission is to
safeguard the financial system from illicit activity, counter money laundering and the financing of terrorism,
and promote national security through strategic use of financial authorities and the collection, analysis, and
dissemination of financial intelligence. The BSA and its implementing regulations require covered financial
institutions, including banks and MSBs, to establish AML programs and file certain reports on financial
activity that are highly useful for, inter alia, criminal, tax, and regulatory investigations or for intelligence or
counterterrorism.
The Office of Foreign Assets Control (OFAC) administers and enforces Treasury’s economic and trade
sanctions programs established by executive orders issued pursuant to the International Emergency Economic
Powers Act (IEEPA) and the Trading with the Enemy Act of 1917 (TWEA), among other statutes.83 These
sanctions are primarily issued against countries and groups of individuals, such as terrorists and narcotics
traffickers, who are involved in activities related to threats to national security. Chapter VI provides more details
on FinCEN and OFAC authorities.
The Internal Revenue Service (IRS) is responsible for collecting revenue to fund government agencies and
programs and for enforcing federal tax laws through taxpayer assistance, audits and criminal investigations.
The IRS has been delegated authority through Treasury to examine certain nonbank financial institutions as
defined in the BSA, including MSBs.84 The IRS also investigates criminal money laundering and BSA violations
through its criminal investigation division.
States
Many state financial services agencies have applied state-level money transmitter laws to digital asset
custodians and trading platforms. Such laws generally require these intermediaries register as money
transmitters with the agency to provide services to customers located within the relevant state. However, some
states exempt digital asset transactions from their money transmission laws, and firms engaging exclusively
in digital asset transactions may not, in those states, be subject to licensing requirements. Other states have
established bespoke regulatory regimes for digital assets. For example, the New York State Department of
82 FinCEN has delegated certain functions, including examination for compliance with the BSA, to other federal agencies. See, e.g., 31 C.F.R. § 1010.810(b) (2024).
83 The International Emergency Economic Powers Act (IEEPA), Pub. L. No. 95-223, 91 Stat. 1626 (1977) (codified at 50 U.S.C. § 1701); The Trading With the
Enemy Act (TWEA), Pub, L, No, 65-91 ch. 106, 40 Stat. 411 (1917) (codified at 50 U.S.C. App. §§ 5, 16).
84 31 C.F.R. § 1010.810(b)(8) (2024).
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The Digital Asset Ecosystem • Market Activities
Financial Services (NYDFS) has created a licensing regime for digital asset firms operating in New York.85 This
system, known as the BitLicense, imposes regulatory requirements for businesses involved in digital assets and
includes both intermediaries and custodians (often organized as trusts).86 While the BitLicense has provided
a source of regulatory certainty, market participants have also criticized it due to both its cost and the length
of the licensing process.87 Wyoming also has a specific regime for “special purpose depository institutions,”
setting standards for digital asset custodians.88 In addition, Wyoming has established laws that recognize non-
profit DAOs as legal entities.89 California’s digital asset-specific regime takes effect in July 2026.90
Market Activities
New tokens can be issued and subsequently traded, existing digital assets can be saved, lent or staked to
power consensus mechanisms, and some non-fungible digital assets can be collected. There are additional
use cases, like payments, which will be discussed at length. A few major market activities that require further
regulatory clarity are considered below.
Issuance
The initial stage in the lifecycle of a digital asset is its issuance. Projects often disclose how their token issuance
process occurs in their whitepaper, which describes technical aspects of the project, contractual rights of
the token holders, and other pertinent details. In the early days of the digital asset industry, projects used an
Initial Coin Offering (ICO) to publicly offer tokens to investors, normally in exchange for other digital assets.91
In general, there have been numerous methods by which digital assets have been issued or otherwise made
available to U.S. persons in a particular blockchain ecosystem. Over the past several years, the issuance or
“launch” methods of digital assets have taken many forms, including ICOs, airdrops,92 and forks.93
Within the United States, offerings of digital asset securities are subject to the registration requirements
of the Securities Act of 1933 (Securities Act) and corresponding SEC regulations. The issuance of digital
asset securities must either be registered under the Securities Act or rely on an available exemption from
registration.94 The listing of a derivatives contract on a digital asset that meets the definition of a “commodity”95
falls within the Commodity Exchange Act (CEA) and the CFTC’s regulatory framework. However, with certain
85 Virtual Currency Business Licensing, N.Y. State Department of Financial Services, https://www.dfs.ny.gov/virtual_currency_businesses (last visited July 13, 2025).
86 See id.
87 Sarah Aberg, New York’s Superintendent of Financial Services Address BitLicense Delays, Sheppard Mullin: Law of the Ledger (Apr. 28, 2022), https://www.
lawoftheledger.com/2022/04/articles/cryptocurrency/new-yorks-superintendent-of-financial-services-addresses-bitlicense-delays.
88 Wyo. Division of Banking, Special Purpose Depository Institutions, (last visited July 13, 2025), https://wyomingbankingdivision.wyo.gov/banks-and-trust-
companies/special-purpose-depository-institutions.
89 Wyo. Stat. Ann. § 17-32-101 – 17-32-129 (2024); See also Miles Jennings & David Kerr, The DUNA: An Oasis for Daos, a16zcrypto (Mar. 8, 2024), https://
a16zcrypto.com/posts/article/duna-for-daos (discussing Wyoming’s Decentralized Unincorporated Nonprofit Association legislation that recognizes DAOs as
legal entities and allowing blockchain networks to operate within the confines of existing law without compromising their decentralization).
90 The Digital Financial Assets Law was enacted as Division 1.25, §§ 3101–3907, of the Financial Code. See Digital Financial Assets, Cal. Department of
Financial Protection and Innovation, https://dfpi.ca.gov/regulated-industries/digital-financial-assets.
91 For example, the Ethereum ICO in 2014 offered newly minted ETH in exchange for bitcoin. See Ethereum and the ICO Boom, Gemini (Mar. 10, 2022),
https://www.gemini.com/cryptopedia/initial-coin-offering-explained-ethereum-ico.
92 Airdrops are a means for issuers of digital asset tokens to disseminate their tokens in exchange for no or nominal consideration. The issuer, usually in an
early stage of development, effectuates an airdrop by transferring its digital asset tokens to specific wallets. Issuers may use airdrops to increase visibility
and adoption of their digital assets and encourage engagement with their related network. See What is a crypto airdrop?, Coinbase, https://www.coinbase.
com/learn/crypto-basics/what-is-a-crypto-airdrop (last visited July 13, 2025).
93 “‘Forking’ … refers to the action of copying an existing application or set of code and modifying it to create an alternate version. At the blockchain
protocol level, a “fork” creates an alternative version of a blockchain.” A Blockchain Glossary for Beginners: Definitions of Crypto and Web3 Terminology,
Consensys, https://consensys.io/knowledge-base/a-blockchain-glossary-for-beginners#fork (last visited July 13, 2025).
94 15 U.S.C. § 77e.
95 7 U.S.C. § 1a(9).
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The Digital Asset Ecosystem • Market Activities
minor exceptions,96 the United States lacks a comprehensive regulatory framework for the issuance and
trading of non-security digital assets.97
Federal securities laws provide a comprehensive regulatory framework for raising capital in the public and
private securities markets in the United States. As noted, any offer or sale of a digital asset security must
either be registered pursuant to the Securities Act or rely on an exemption or safe harbor from registration.
Registration exemptions and safe harbors under the Securities Act include Regulation D, Regulation A,
Regulation S, and Regulation Crowdfunding, among others. Collectively, these exemptions provide a wide
range of capital-raising methods to issuers and provide existing frameworks for the SEC to draw upon as it
considers using its existing exemptive authorities for offerings of digital asset securities.
Several groups developed frameworks to structure private offerings of digital asset tokens. These frameworks
were generally structured as investment contracts with a digital asset “pre-sale” component. Examples of
such frameworks include the Simple Agreement for Future Tokens (SAFT), the Equity Plus Token Warrant, and
Convertible Notes with Token Purchase Options.98
As digital assets gained popularity, blockchain-based projects issued tokens to the public as a method to raise
capital, often through ICOs. While these issuances generally did not occur within the existing regulatory framework
of federal securities laws, they provided non-accredited investors with the ability to obtain tokens at issuance.
Airdrops are a means for issuers of digital asset tokens to disseminate their tokens in exchange for no
or nominal consideration. The issuer, usually in an early stage of development, effectuates an airdrop by
transferring its digital asset tokens to specific wallets. Issuers may use airdrops to increase visibility and
adoption of their digital assets and encourage engagement with their related network. Airdrops may also
occur when a blockchain forks, or changes the rules by which it operates.99 Developers involved in the forked
blockchain may offer an airdrop to incentivize activity on the new blockchain.
Trading
Trading is the most common activity in the digital asset ecosystem. Many traders engage in spot market trading,
as well as in derivative trading activities, such as in futures, perpetual contracts,100 and options. The number of
tokens traded on CEXs and DEXs vary, with many offering several hundred different token trading pairs. Most
exchanges allow traders to place a variety of orders, including market orders, limit orders, and stop orders.
96 For example, the purchase or sale of a digital asset “commodity” by a non-eligible contract participant that is offered on a leveraged, margined, or
financed basis may be subject to the CEA and CFTC regulations “as if” it is a futures transaction. See, e.g., 7 U.S.C. § 2(c)(2)(D); Retail Commodity
Transactions Involving Certain Digital Assets, 85 Fed. Reg. 37,734 (June 24, 2020).
97 As used in this report, “non-security digital asset” does not include payment stablecoins (which, under the Guiding and Establishing National Innovation
for U.S. Stablecoins Act (GENIUS), cannot be yield-bearing,
S. 1582, 119th Cong. (2025) § 4(a)(11) (enacted)). GENIUS defines a payment stablecoin as a digital asset (i) that is, or is designed to be, used as a means
of payment or settlement, (ii) the issuer of which (a) is obligated to convert, redeem, or repurchase for a fixed amount of monetary value, not including a
digital asset denominated in a fixed amount of monetary value, and (b) represents that such issuer will maintain, or create the reasonable expectation that
it will maintain, a stable value relative to the value of a fixed amount of monetary value, and (iii) is not a national currency, a deposit, or a security. S. 1582,
119th Cong. (2025) § 2(22) (enacted).
98 See Juan Batiz-Benet, Marco Santori, & Jesse Clayburgh, The SAFT Project: Toward a Compliant Token Sale Framework, Protocol Labs and Cooley
LLP (Oct. 2, 2017), https://saft-project.org/static/SAFT-Project-Whitepaper.pdf; Ryan Weeks, Why equity plus token warrants is the new go-to formula for
crypto VCs, The Block (Sept. 21, 2022), https://www.theblock.co/post/171609/why-equity-plus-token-warrants-is-the-new-go-to-formula-for-crypto-vcs; David
Concannon et al, Token Presale Agreements and the ConsenSys Automated Convertible Note, Latham & Watkins LLP (May 22, 2019), https://www.lw.com/
admin/upload/SiteAttachments/Token%20Presale%20Agreements.v2.pdf.
99 What Is a Hard Fork in Crypto?, Fidelity Viewpoints (Jan. 3, 2024), https://www.fidelity.com/learning-center/trading-investing/hard-fork.
100 Perpetual contracts, or “perps,” are derivatives that allow traders to take a leveraged position on a given digital asset. They do not expire, unlike traditional
futures. Parties periodically exchange a funding rate payment (similar to variation margin) based on how the price has changed relative to an index. See
What are Perpetual Futures?, Gemini (Feb. 26, 2025), https://www.gemini.com/cryptopedia/what-are-perpetual-futures; Building Perpetual Futures, Pyth,
https://www.pyth.network/usecases/perpetual-futures (last visited July 13, 2025).
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Custody and Wallets
Participants in the digital asset ecosystem either engage in self-custody, where they hold assets in their
own wallets, or through a digital asset custodian, often a bank or state-chartered trust. Self-custody is
often employed by retail traders and for relatively novel digital assets that may not be supported by existing
custodians.101 Currently, only one digital asset custodian holds a U.S. federal bank charter,102 though other
custodians hold various state charters and licenses. The most prominent regime is the NYDFS’s virtual
currency regime, under which many custodians are registered.103
Wallets are central to the concept of digital asset custody. Wallet providers develop software or hardware that
allows for the safekeeping of private keys that enable users to transact with their digital assets on blockchains.
These tools can be custodial or non-custodial,104 with the distinction typically depending on whether the wallet
provider can unilaterally move client assets. Non-custodial wallets can be open-source or closed-source (i.e.,
proprietary) code.
Firms and individuals face a trade-off in terms of security versus transaction efficiency in choosing whether to
custody in hot or cold wallets.105 Hot wallets are connected to the internet, and can trade more swiftly, but if the
private key is not secure, assets can be removed from hot wallets due to their connectivity. On the other end of
the spectrum are cold wallets, which are offline and sometimes integrated with hardware devices.
A user’s digital asset holdings are not stored in the wallet, but instead are recorded on the blockchain, which
can only be accessed using the user’s private key. This key provides proof of ownership of the asset and allows
the user to transact with associated networks or protocols. With either custodial or non-custodial wallets, if a
user’s private key is otherwise lost, forgotten, or destroyed, there is typically no way to recover access to the
user’s digital assets.
An additional security measure that wallet owners often use is either multi-signature or multi-party
computation.106 Both are premised on the same principle that controls are desirable when dealing with
wallets with a substantial amount of assets. While a multi-signature wallet requires a quorum of users to
approve a transaction using their private keys (e.g., two out of three users), multi-party computation splits,
or shards, a private key into multiple portions so that users can share information without directly revealing
their information to others. Both measures allow for greater control over asset transfers, facilitate recovery of
a wallet’s private key if it is lost, and offer greater protection against hackers or other malicious actors in the
digital asset space.
If the digital assets at issue are securities, an assortment of regulated intermediaries are responsible for
safeguarding investor assets. Customers who use broker-dealers registered with the SEC to custody their
securities (and related cash) benefit from the protections provided by the federal securities laws, including the
101 Individuals and firms also use software providers to facilitate self-custody. These providers allow for a level of controls prior to transactions and can
be customized for a firm’s needs (e.g., policy controls over what addresses a wallet can interact with or the number of signers who are needed prior to
executing a transaction). See generally Nathan McCauley & Diogo Mónica, Porto by Anchorage Digital: Your Wallet, Our Security, Anchorage Digital (Feb.
26, 2024), https://www.anchorage.com/insights/porto-by-anchorage-digital-your-wallet-our-security; Introducing Casa Business, Casa, https://blog.casa.io/
introducing-casa-business (last visited July 13, 2025).
102 Nathan McCauley & TuongVy Le, Don’t Sleep on the OCC: Reflections From Four Years of Being the Only Federally Regulated Crypto Company,
Anchorage Digital (Jan. 13, 2025), https://www.anchorage.com/insights/dont-sleep-on-the-occ-reflections-from-four-years-being-the-only-federally-regulated-
crypto-company (noting also that while the OCC granted two other provisional charters after Anchorage Digital received its charter in January 2021, both
provisional charters expired without receiving final approval from the OCC).
103 See N.Y. State Department of Financial Services, supra note 85.
104 Note that terms “self-custodial” and “unhosted” are sometimes used interchangeably with “non-custodial.”
105 Daniel Evans, Hot vs. cold vs. warm wallets: Which crypto wallet is right for me?, Fireblocks (Apr. 15, 2022), https://www.fireblocks.com/blog/hot-vs-warm-vs-
cold-which-crypto-wallet-is-right-for-me.
106 See What is MPC (Multi-Party Computation)?, Fireblocks, https://www.fireblocks.com/what-is-mpc; Sankrit K, MPC Wallets vs. Multi-Sig Wallets: A Deep
Dive, CoinGecko (Apr. 15, 2024), https://www.coingecko.com/learn/mpc-wallet-vs-multi-sig-wallets.
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customer protection rule107 and the Securities Investor Protection Act of 1970 (SIPA) if the asset is defined as
a “security” thereunder.108 Separately, pursuant to Advisers Act Rule 206(4)-2, registered investment advisers
who have custody of client funds or securities must comply with an enumerated set of requirements to
prevent loss, theft, misuse, or misappropriation of such client assets.109 If a digital asset transaction is subject
to the CFTC’s current regulatory framework as a futures contract, or option on a futures contract, regulated
intermediaries are responsible for safeguarding customer assets.110 Futures commission merchants and
introducing brokers obligated to register with the CFTC and broker-dealers and mutual funds obligated to
register with the SEC, are, generally speaking, “financial institutions” under the BSA and required to, among
other obligations, implement reasonably designed AML programs and report suspicious activity.111
Clearance and Settlement
In the digital asset ecosystem, transactions conducted onchain, or from one blockchain address to another,
are expected to resolve or settle simultaneously within the timeframe of transaction validation. Separately,
centralized platforms for digital assets may match buyers and sellers offchain and settle the transactions
through appropriate account transfers or entries within their internal platform systems. In this scenario, a
separate onchain transaction would be necessary for a participant to remove digital assets from the centralized
platform’s ecosystem.
If the digital assets are securities, the transactions may undergo a clearing process whereby obligations
between buyer and seller are netted and confirmed, traditionally through a clearing agency. Section 17A of the
Securities Exchange Act of 1934112 requires an entity to register with the SEC prior to performing the functions
of a “clearing agency,” subject to certain exemptions and exclusions. Two common functions of registered
clearing agencies are the functions of a central counterparty (CCP) or a central securities depository (CSD).113
In this regard, the SEC’s Crypto Task Force is focusing on helping the SEC draw clear regulatory lines, including
consideration of the issues surrounding the clearance and settlement of digital asset securities. While the
CFTC’s regulatory regime for listed derivatives also contains a centralized clearing requirement,114 this regime is
not applicable to spot or cash transactions in digital commodities.
Absent congressional action, non-security digital assets are not subject to a federal regulatory framework
surrounding the clearance and settlement of related transactions. Distributed ledger technology, however,
may be used in the clearance and settlement of digital assets and may not lend itself to traditional clearance
and settlement regulation, which is focused on centralized providers of clearance and settlement services.
Lending, Borrowing, and Collateral
Prime brokers operate in the digital asset space as a way for institutional traders, including digital asset
native funds, to obtain leverage. Currently, the prime brokerage space for digital assets in the United States is
nascent, potentially due to earlier regulatory regimes. Prime brokers offer financing, custody, and order routing
107 See 17 C.F.R. § 240.15c3-3 (2024).
108 See 15 U.S.C. § 78ccc et seq.
109 To date, given the lack of clear regulatory guidance surrounding digital assets, the appropriate safeguarding of digital asset securities through
intermediaries like broker-dealers has remained challenged.
110 See, e.g., Section 4d(2) of the CEA (7 U.S.C. § 6d(2)); 17 C.F.R. § 1.20 (2024).
111 See, e.g., 31 U.S.C. §§ 5312(a)(2)(G), (H); 31 C.F.R. §§ 1010.100(h), (x) (2024); 31 C.F.R. § 1023.210 (2024); 31 C.F.R. § 1026.210 (2024); see also Heath Tarbert,
Kenneth A. Blanco & Jay Clayton, Leaders of CFTC, FinCEN, and SEC Issue Joint Statement on Activities Involving Digital Assets (Oct. 11, 2019), https://
www.fincen.gov/sites/default/files/2019-10/CVC%20Joint%20Policy%20Statement_508%20FINAL_0.pdf.
112 15 U.S.C. § 78q-1.
113 See 17 C.F.R. § 240.17ad 22(a) (2024).
114 15 U.S.C. § 78mm.
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solutions across digital asset-linked derivatives and securities (e.g., futures and ETPs).115 In addition, borrowing
against one’s digital asset holdings, primarily bitcoin, has been popular among retail investors. DeFi also
provides opportunities to borrow against digital assets as collateral. While DeFi lending has focused on retail
investors, DeFi protocols have recently been established to allow institutional investors to borrow against their
digital assets.116
Trends in Crypto Lending117
Commercial Applications
The activities described above, notably trading, constitute the majority of financial market applications
involving digital assets. Nevertheless, a significant number of consumer applications have employed
blockchain technology to record ownership and allow users to engage in several different types of non-
financial activities.118 For example, tokens may provide a “utility,” such as the ability to access, transact, or
interact with goods and services within a particular blockchain network or application.119 Alternatively, they
may grant a holder rights to participate in a pre-defined activity, such as attending a concert or other event.
Other types of digital asset tokens may provide a holder with ownership of value derived offchain, distinct from
any value derived from the blockchain itself—such as art, collectibles, memberships, and other tangible and
intangible goods.
115 In CFTC-regulated markets, prime brokerage services are provided by FCMs, which must be registered with the CFTC in order to offer access to
derivatives on digital asset commodities to their customers. See National Futures Association, Futures Commission Merchant (FCM) Registration, https://
www.nfa.futures.org/registration-membership/who-has-to-register/fcm.html (last visited July 13, 2025).
116 See, e.g., The Elevator Pitch, Wildcat Protocol Documentation, https://docs.wildcat.finance/overview/introduction.
117 Zack Pokorny, The State of Crypto Leverage – Q1 2025, Galaxy (June 4, 2025), https://www.galaxy.com/insights/research/the-state-of-crypto-leverage-q1-2025.
118 See Blockchain Use Cases, Consensys, https://consensys.io/blockchain-use-cases (last visited July 13, 2025); The State of Crypto: The Future of Money Is
Here Report, Coinbase (Jun. 10, 2025), https://www.coinbase.com/blog/the-state-of-crypto-the-future-of-money-is-here.
119 Corey Barchat, What are utility tokens and how do they work?, Moonpay (Aug. 6, 2024), https://www.moonpay.com/learn/cryptocurrency/what-are-utility-tokens.
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The Digital Asset Ecosystem • Market Activities
Tokenization
Tokenization refers to the practice of using blockchain technology to record ownership of an asset.
These assets can take the form of traditional financial assets, such as money market fund shares or
bank deposits, or non-financial assets, such as trade receivables or interests in rare items such as art or
collectibles. Industry estimates suggest that over $600 billion in “real world assets” could be tokenized
by 2030.120
Market Size of Tokenized Real World Assets121
Similar to the benefits that arose from the electronification of financial markets decades ago, which
involved the dematerialization of securities, tokenization can enable new financial products by
dematerializing and mobilizing them through smart contracts and other blockchain-based technologies.122
Firms are increasingly tokenizing money market fund shares, fixed-income products, private fund
shares, and private credit.123 The CFTC has noted the potential for tokenization to improve the collateral
market with atomic settlement124 and ameliorate liquidity needs in bilateral and multilateral clearing.125
Several other benefits of tokenization include the programmability and peer-to-peer transferability
120 David Chan et al., Tokenized Funds: The Third Revolution in Asset Management Decoded, Boston Consulting Group, Aptos Ascend & Invesco (Oct. 2024),
https://web-assets.bcg.com/81/71/6ff0849641a58706581b5a77113f/tokenized-funds-the-third-revolution-in-asset-management-decoded.pdf.
121 Graphic provided by Plume. The chart starts at September 2021—the month the Ethereum community officially recognized the ERC3643 tokenization
protocol as an official standard for permissioned tokens. See ERC3643: An Official Standard for Permissioned Tokens, Tokeny (Sept. 23, 2021), https://
tokeny.com/erc3643-an-official-standard-for-permissioned-tokens.
122 See Is Tokenization Bringing Wall Street On-Chain?, 21shares (Feb. 11, 2025), https://www.21shares.com/en-us/research/newsletter-issue-260.
123 See e.g., Sandy Kaul, Tokenized Money Market Funds: The Bridge to a New Financial Infrastructure, Franklin Templeton (Jun. 9, 2025), https://www.
franklintempleton.co.uk/articles/2025/disruption/tokenized-money-market-funds-the-bridge-to-a-new-financial-infrastructure.
124 For a discussion of the benefits of atomic settlement in financial markets, see Michael Lee, Antoine Martin, & Benjamin Muller, What is Atomic Settlement,
Federal Reserve Bank of New York: Liberty Street Economics (Nov. 7, 2022), https://libertystreeteconomics.newyorkfed.org/2022/11/what-is-atomic-settlement.
125 Press Release, CFTC, CFTC’s Global Markets Advisory Committee Advances Recommendation on Tokenized Non-Cash Collateral (Nov. 21, 2024), https://
www.cftc.gov/PressRoom/PressReleases/9009-24.
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of assets, operational efficiencies (e.g., 24/7 trading and simplified recordkeeping), and increased
transparency relative to traditional financial markets.
Tokenization Process126
Currently, the tokenization landscape is comprised by firms operating tokenized platforms solely
through private, permissioned blockchains and those deploying permissioned systems on top of
public, permissionless blockchains.
The regulatory structure of tokenization is determined by what asset is tokenized, not the mere process
of tokenizing an asset.127 Where tokenized instruments have been regulated, they tend to be regulated
as securities, as much of the current volume in tokenization falls with underlying assets that are
securities (e.g., fixed income and private credit). Additional non-security uses of tokenization include
tokenized commodities (e.g., gold) and tokenized non-financial assets (e.g., commercial real estate and
rare items128).
126 Graphic prepared by Ondo Finance.
127 See Commissioner Hester M. Peirce, SEC, Enchanting, but Not Magical: A Statement on the Tokenization of Securities (July 9, 2025), https://www.sec.gov/
newsroom/speeches-statements/peirce-statement-tokenized-securities-070925 (“As powerful as blockchain technology is, it does not have magical abilities
to transform the nature of the underlying asset.”).
128 See, e.g., Jay Speakman & Paolo Besabella, Revolutionizing the Art World: An In-Depth Look at Art Tokenization, BeInCrypto (Dec. 31, 2022), https://
beincrypto.com/what-is-art-tokenization.
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The Digital Asset Ecosystem • Market Activities
Potential Risks to Consumers and Market Participants
Americans who choose to use digital assets for their financial services needs, such as to make payments,
trade, and invest, may benefit from lower costs, faster payments, and more seamless portability of services.
However, they also face risks similar to those arising from traditional financial products and services. The lack
of regulatory certainty has obscured these risks and made it more difficult to discern applicable regulatory
protections.
Custody Risks
Many individuals and institutions use intermediaries for buying, selling, trading, and storing digital assets.
These intermediaries offer products and services such as crypto ATMs, custody arrangements, trading
platforms, and ETFs. However, reliance on intermediaries can introduce risks related to bankruptcy, market
manipulation, conflicts of interest, data privacy, cybersecurity, theft, and fraud.
Non-custodial wallets—through which parties may exercise individual control over their digital assets—
eliminates intermediary risks and increases privacy. Non-custodial cold wallets are not connected to the
internet and therefore reduce cyberattack risks. However, non-custodial wallets require individuals to manage
their private keys. Loss or theft of a private key generally results in the loss of digital assets.
Fraud and Cybersecurity Risks
Similar to traditional markets, digital asset markets face risks from fraud, manipulation, and illicit conduct.
Weak controls by intermediaries can lead to unauthorized transfers and stolen credentials. Smart contracts
may also introduce certain risks due to potential coding errors, inadequate testing or auditing of code, or
security vulnerabilities that can be exploited, leading to unauthorized transfers or loss of funds.
Data Privacy Risks
In public blockchain networks, transaction and ownership information is often public or shared, potentially
revealing identities via metadata despite being pseudonymous. This is especially concerning for payments,
as transaction details can infer or reveal personal identifying information, like residence and demographics.
Using self-custody and privacy-enhancing technologies can reduce privacy risks. At times, however, users may
not be able to remain truly pseudonymous to all actors. For example, financial intermediaries are required by
law, including requirements under the BSA, to collect and maintain certain information about the identity of
transaction participants.
Operational Risks
Investors and consumers face operational risks from flawed processes, system failures, human errors,
governance lapses, data breaches, and other external disruptions. These can include information system
deficiencies, processing delays, system outages, and security threats. The manner in which blockchains
operate comes with challenges, including irreversible transactions and network interoperability issues. Smart
contracts, while efficient, may include coding errors and security flaws, leading to unauthorized transfers or
loss of funds. Resolving these issues is difficult due to transaction immutability and limited legal recourse.
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The Digital Asset Ecosystem • Market Activities
Cryptocurrency and the Technical Standards Landscape
The Role of Technical Standards and NIST
Technical standards are specifications for a product, process, or service designed to ensure quality
and interoperability across businesses and national boundaries. By giving every market participant the
same guidance, standards reduce barriers to trade, shorten time-to-market, and increase consumer
confidence through safety and reliability assurances.
Technical standards are issued by standards development organizations (SDOs), ranging from industry
groups to international nonprofits, and often feature multi-stakeholder processes. In the United States,
the National Institute for Standards and Technology (NIST)—within the Department of Commerce—
leads governmental efforts in standards development through two main pathways:
1. Pre-Standardization Research: NIST conducts research and publishes technical whitepapers,
guidelines, and frameworks that serve as a foundation for future standards, such as NIST’s widely
adopted Cybersecurity Framework 2.0. When developing these contributions, NIST uses an open
and transparent process that encourages participation from industry and academic networks.
2. Representing Industry and National Interests in SDOs: Industry has several avenues for
participating in international standard-setting processes, but those processes can be resource
intensive and prohibitively complex for smaller companies. NIST is an active participant in international
standard setting, providing impartial technical expertise and ensuring that all U.S. industry voices,
from the multinational corporation to the small entrepreneur, are reflected in final standards.
Through these pathways, NIST support the United States’ industry-led, market-driven, and voluntary
approach to international standards development. The standards NIST facilitates can substitute
for regulation, provide an ideal environment for innovation, and ensure that industry norms reflect
decentralized input.
Technical Standards and Digital Assets
The digital asset ecosystem should harness the power of standards to solve coordination problems
without government intervention. Technical standards are already relevant to the digital asset
ecosystem. Various international organizations—including the Institute of Electrical and Electronics
Engineers (IEEE), the International Organization for Standardization (ISO), the International
Electrotechnical Commission (IEC), the World Wide Web Consortium (W3C), the Internet Research
Task Force, and the Internet Engineering Task Force—have released or are developing technical
standards relevant to Distributed Ledger Technologies (DLTs). The ISO, IEEE and W3C in particular
have played important roles in standardizing smart contracts and addressing within DLT systems, such
as through ISO 23455:2019 or IEEE P3207.
Technical Standards and Post-Quantum Cryptography
The modern financial system is built on cryptography, and digital assets are no exception. As discussed in
Chapter I, Crypto 101, digital assets live at addresses on blockchains. Users control these addresses like
accounts and digitally sign transactions to prove authenticity when sending assets to another address.
Blockchains implement these digital signatures through public-key cryptography. In this set-up, a user
signs using a private key, which is kept hidden, but releases a public key, which lets other users verify
their signature as authentic. These public-private key pairs undergird the functionality of blockchains.
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The Digital Asset Ecosystem • Market Activities
If someone obtains a user’s private key, or otherwise derives it, the new holder of the private key can
fraudulently transfer and steal the user’s assets. The foundation for modern public-key implementations
is that it is computationally intractable for conventional computers to deduce a user’s private key from
the public key, keeping digital assets secure.
Quantum computing would jeopardize that security. Quantum computers exploit quantum-
mechanical phenomena to solve mathematical problems that are difficult or intractable for modern
computers. That includes the problem of deriving a private key from a public key. Such a development
would fundamentally threaten all encrypted financial transactions, from bank transfers to credit card
payments to blockchains.
For digital assets in particular, anyone with a quantum computer of sufficient strength could derive
any digital-asset holder’s private key from their public key and steal all of the user’s digital assets,
potentially leading to widespread digital asset theft.129 While current quantum computers are far from
powerful enough to break cryptographic keys, some experts estimate that cryptographically relevant
quantum computers could emerge in the next five to ten years.130
Cryptographers have not stood idly by in the face of this threat. To replace existing encryption
algorithms, they have searched for mathematical problems that even quantum computers cannot
solve efficiently. This has resulted in several post-quantum cryptographic algorithms.
In 2016, NIST launched the post-quantum cryptography (PQC) standardization project to solicit,
evaluate, and standardize one or more of these algorithms to replace current cryptographic standards.
The goal was to develop a standard cryptographic system secure against quantum that could
interoperate with existing communications protocols and networks.
In August 2024, NIST finalized its principal set of post-quantum encryption algorithms:
■ Federal Information Processing Standards (FIPS) 203: Module-Lattice-Based Key-Encapsulation
Mechanism Standard.
■ FIPS 204: Module-Lattice-Based Digital Signature Standard.
■ FIPS 205: Stateless Hash-Based Digital Signature Standard.
To defend against quantum threats, PQC will need to be adopted across the digital asset ecosystem before
a cryptographically relevant quantum computer is developed. Private actors should implement PQC where
practical, while working to identify and address cases where it will be more challenging to deploy.
The transition to post-quantum cryptography represents a particularly large and urgent shift in the
implementation and use of cryptography, requiring the adoption and deployment of new cryptographic
algorithms and technologies across our digital infrastructure at a scale and schedule never before
envisioned. This will require flexible and agile approaches for building, maintaining, and operating
systems that use cryptography.
129 The Bitcoin protocol encourages users to change their public keys regularly, mitigating this vulnerability, yet roughly 25-33% of Bitcoin is still in wallets
that have not changed their public keys at all. See Anthony Milton & Clara Shikhelman, What Happens to Bitcoin When Quantum Computers Arrive?,
Bitcoin Magazine (June 20, 2025), https://bitcoinmagazine.com/technical/what-happens-to-bitcoin-when-quantum-computers-arrive; Itan Barmes, Bram
Bosch & Olaf Haalstra, Quantum computers and the Bitcoin blockchain, Deloitte (Jan. 7, 2025), https://www.deloitte.com/nl/en/services/risk-advisory/
perspectives/quantum-computers-and-the-bitcoin-blockchain.html; Itan Barmes et al., Quantum risk to the Ethereum blockchain - a bump in the road or
a brick wall?, Deloitte (Feb. 2022), https://www.deloitte.com/nl/en/services/risk-advisory/perspectives/quantum-risk-to-the-ethereum-blockchain.html (The
Ethereum protocol assumes that users will reuse the same public key, making over 65% of all Ether currently vulnerable according to some estimates).
130 See Michele Mosca & Marco Piani, Quantum Threat Timeline Report 2024, Global Risk Institute (Dec. 2024), https://globalriskinstitute.org/publication/2024-
quantum-threat-timeline-report.
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The Digital Asset Ecosystem • Market Activities
Cryptographic agility (sometimes referred to as “crypto agility”) refers to a platform’s capacity to
seamlessly replace cryptographic algorithms without disrupting operations or compromising security.
Cryptographic agility helps organizations:
■ Integrate and deploy PQC algorithms alongside or in place of classical algorithms.
■ Manage long and complex migration periods while maintaining compatibility.
■ Swap out weak or deprecated algorithms quickly in response to new vulnerabilities.
■ Reduce the operational and technical cost of cryptographic transitions.
Distributed ledgers face unique challenges in becoming cryptographically agile. Permissionless
blockchains require consensus among thousands of nodes, with no central authority to coordinate
updates.131 Additionally, the immutable nature of blockchains means that all past transactions will have
to remain valid even after transitioning to a new cryptographic scheme, and preserving the integrity of
decades of past data requires complex mechanisms.132
Advancing American Leadership Through Technical Standards
The United States should lead the way in laying a foundation for further digital asset standards
through its pre-standardization research and industry representation. In the absence of U.S.
leadership in shaping and promoting widely adopted standards, the development of cryptocurrencies
and post-quantum upgrades may face both technical and strategic limitations.
The current technical standards underpinning the digital asset landscape are fragmented, and thus
inhibit the maturation and adoption of the broader crypto industry. Existing SDO standards can be
limited in scope, offering common definitions and frameworks but falling short of universally accepted
guidance that is necessary to establish interoperability within the crypto ecosystem. Many project
foundations have developed their own protocols for DLTs—advancing the technical frontier but leaving
unaddressed key technical questions that would enable interoperability, cybersecurity, privacy, and
stability for all. NIST can play an essential role in facilitating industry adoption of common practices to
address these challenges.
NIST has already begun taking initial steps to support the DLT ecosystem. It has published technical
reports providing fundamental overviews of relevant technologies, as well as more specific information
on cybersecurity considerations, such as NIST IR 8403, Blockchain for Access Control Systems. Further
technical guidelines, covering areas such as wallet security, cross-chain bridge protocols, and incident
response procedures, would promote wider adoption of cybersecurity and interoperability best
practices across the industry.
Strategically, U.S. leadership in technical standards is not just helpful for industry growth—it is vital
for advancing the national interest. If the United States does not lead in standard-setting practices for
the crypto industry, the development of this technology will proceed outside our borders. This could
result in standards that advantage foreign competitors over U.S. companies or conflict with American
values. Sustained U.S. leadership—grounded in NIST’s technical rigor and active engagement in global
standard-setting—can ensure that the next generation of digital-asset infrastructure both closes
today’s gaps and advances national interests.
131 Shin’ichiro Matsuo et al., Presentation at NIST Crypto Agility Workshop, Crypto-Agility for Blockchain Protocol: The Difference Compared to Existing
Crypto-Agility Concepts, Transition Mechanisms, and Issues Specific to Blockchain Protocols (Apr. 18, 2025), https://csrc.nist.gov/csrc/media/Events/2025/
crypto-agility-workshop/documents/presentations/s8-kigen-fukuda-presentation.pdf.
132 Id.
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 41 •
III. Digital Asset Market Structure
CHAPTER III
Digital Asset Market Structure
STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY
Digital Asset Market Structure •
Digital Asset Market Structure
When there’s enough scale, maybe there can be an exchange site that doesn’t do transfers,
just matches up buyers and sellers to exchange with each other directly . . . To make it safer,
the exchange site could act as an escrow for the bitcoin side of the payment. The seller puts
the bitcoin payment in escrow, and the buyer sends the conventional payment directly to the
seller. The exchange service doesn’t handle any real world money.
BitcoinTalk Forum Post re: “Money Transfer Regulations”
Satoshi Nakamoto, March 2010133
Bitcoins have no dividend or potential future dividend, therefore not like a stock. More like a
collectible or a commodity.
BitcoinTalk Forum Post re: “Bitcoins are most like shares of common stock”
Satoshi Nakamoto, August 2010134
Satoshi was prescient in his vision of an “exchange site.” Before centralized or decentralized exchanges came
into the fold, transactions between market participants were peer-to-peer in the purest form—trades arranged
on the BitcoinTalk forum or meetups organized on LocalBitcoins.com.135 Mt. Gox, originally a trading card
marketplace that emerged as the dominant centralized exchange for bitcoin by 2013,136 famously collapsed
in 2014 after a series of thefts resulting from inadequate cybersecurity and storage of its private keys.137
What many thought to be the end of bitcoin, and digital assets broadly, instead spurred the development of
hundreds of trading platforms and digital asset service providers over the next decade.
This rapid growth, in size and scope, was not powered solely by retail traders hoping for their next
“moonshot.”138 Capital across the globe flowed into the space because blockchain technologies could
fundamentally transform financial systems, challenge traditional business models, redefine concepts of
governance and ownership, and much more. Many innovations, such as tokenization, can introduce efficiencies
into existing financial services like lending, trading, insurance, and capital formation. Fortunately, for the United
States and the world, many years of innovation lie ahead.
To ensure this innovation, financial and otherwise, takes place in the United States, American markets for
digital assets need to become the deepest and most liquid in the world. Just as the United States is the premier
destination for capital markets activity—due in part to the well-established regulatory framework for traditional
markets—it is imperative that the United States lead by establishing clear rules for digital asset markets.
133 satoshi, Comment to Re: Money Transfer Regulations, BitcoinTalk (Mar. 3, 2010 at 4:28 AM), https://bitcointalk.org/index.php?topic=69.msg614#msg614.
134 satoshi, Comment to Re: Bitcoins are most like shares of common stock, BitcoinTalk (Aug. 27, 2010 at 4:39 PM), https://bitcointalk.org/index.php?topic=845.
msg11403#msg11403.
135 See The Early Days of Crypto Exchanges, Gemini, https://www.gemini.com/cryptopedia/crypto-exchanges-early-mt-gox-hack (updated Feb. 26, 2025);
Jeff John Roberts, The LocalBitcoins Era of Crypto Is Over, but Its Spirit Lives On, Fortune: Crypto (Feb. 13, 2023 9:53 AM EST), https://fortune.com/
crypto/2023/02/13/the-localbitcoins-era-of-crypto-is-over-but-its-spirit-lives-on.
136 Takashi Mochizuki, Kathy Chu & Eleanor Warnock, Tracing a Bitcoin’s Exchange’s Fall From the Top to Shutdown, The Wall Street Journal (Apr. 20, 2014 at
7:10 PM ET), https://www.wsj.com/articles/SB10001424052702304311204579508300513992292.
137 See Jeremy Wagstaff, Mt. Gox Bitcoin Debacle: Huge Heist or Sloppy Glitch?, Reuters, https://www.reuters.com/article/technology/mt-gox-bitcoin-debacle-
huge-heist-or-sloppy-glitch-idUSL3N0LX2SP (updated Feb. 28, 2014).
138 The term “moonshot,” derived from the phrase “to the moon,” is used by cryptocurrency enthusiasts to express the expectation of a rapid increase in
value. See To the Moon Meaning, Ledger Academy: Crypto Glossary, https://www.ledger.com/academy/glossary/to-the-moon (updated Oct. 4, 2023).
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 43 •
Digital Asset Market Structure •
Much of this starts with the federal market regulators. Both the SEC and CFTC have taken strong initial steps
since President Trump’s inauguration to provide long-needed clarity to market participants.
SEC Actions CFTC Actions
■ Ended the Biden-era SEC’s enforcement- ■ Ended regulation-by-enforcement and
first approach that disproportionately refocused the Division of Enforcement on
targeted disfavored industries. fraud and helping victims.
■ Established a Crypto Task Force under ■ Hosted a first-ever Crypto CEO Forum of
Commissioner Peirce’s leadership, which industry-leading firms on digital asset
solicited broad public input, held over one market structure.
hundred meetings with market participants, ■ Acted on recommendations of CFTC’s
and conducted five public roundtables. Digital Asset Markets Subcommittee
■ Rescinded SAB No. 121 (a staff bulletin that (DAMS) of the Global Markets Advisory
created significant regulatory burdens for Committee (GMAC) on U.S. digital asset
companies that provide digital asset custody taxonomy and tokenized non-cash collateral.
services). ■ Committed to participate as an observer in
■ Provided staff-level clarity on the security industry tokenization initiatives.
status of memecoins, stablecoins, and ■ Launched two significant digital asset
mining and staking activities. market structure innovations that are
■ Issued staff-level clarity on disclosure currently active on CFTC DCMs, perpetual
requirements for crypto-related offerings derivatives and 24/7 trading hours, and
and registrations. requested public comment.
■ Withdrew, together with FINRA, the unduly ■ Issued staff-level clarity on cross-border
restrictive joint staff statement on broker- definitions for U.S. location and U.S. persons
dealer custody of digital asset securities. for both futures and swaps activity, including
■ Published staff-level FAQs providing clarity crypto exchanges, trading firms, and other
on broker-dealer financial responsibility and market participants.
transfer agent issues. ■ Withdrew two outdated staff-level
■ Abandoned the Biden-era SEC’s rule advisories relating to virtual currency
proposals related to crypto, including derivative product listings and clearing that
proposed rules to further define the were unduly restrictive given digital asset
statutory term “exchange” and proposed market growth and maturity.
safeguarding rules.
Despite the progress that both regulators have made, much work remains to be done. An express goal of the
Trump Administration is to reduce unnecessary regulations, avoid new burdensome regulations, and promote
U.S. leadership in the digital asset space. The Working Group supports regulatory efforts to facilitate trading
and custody of digital assets on venues regulated at the Federal level in short order. Toward that end, it is
necessary to understand the regulatory frameworks the SEC and CFTC apply to markets for digital assets and
align on an appropriate taxonomy.
STREN GTH EN I N G AMERI CAN LEADERS HIP IN DIGITAL FINANCIAL TECHNOLO GY • 44 •
Digital Asset Market Structure • Establishing a Taxonomy for Digital Assets
Establishing a Taxonomy for Digital Assets
U.S. regulatory agencies have attempted to classify digital assets under existing frameworks. For example,
the CFTC recognized that bitcoin and ether are commodities, while the SEC has treated other digital
assets as securities based on their structures, methods of distribution, and uses.139 Yet, without a clear and
comprehensive classification system, market participants have had to navigate a patchwork of interpretations
and guidance—a proverbial minefield for honest actors trying to lead the industry forward. A clearer, agreed-
upon taxonomy is essential to ensure both the healthy development of the digital asset ecosystem and
consumer and investor protection.140
As the economic functions of digital assets vary, the appropriate federal regulator for digital asset markets—
when there is one—should generally depend on such digital assets’ functions. Below we discuss segmenting
the asset class into three categories—security tokens, commodity tokens, and tokens for commercial and
consumer use.
Security Tokens
Certain digital assets may constitute securities (such as those that represent an interest in equities, bonds,
or security-based swaps, among other products) or be offered and sold as part of a type of security called an
“investment contract,” such that the transactions constitute securities subject to the federal securities laws.
Pursuant to Section 5 of the Securities Act of 1933 (Securities Act),141 any offer and sale (including any resale)
of a security involving a digital asset must be made by filing a registration statement under the Securities Act
with the SEC or be conducted pursuant to an available exemption from registration under the Securities Act.
The issuer of a security involving a digital asset may become subject to the periodic and current reporting
requirements of the Securities Exchange Act of 1934 (Exchange Act).142 As a result, issuers file certain reports
with the SEC, including annual, periodic, and current reports.
Pursuant to Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act, a security includes
a “stock,” “note,” “evidence of indebtedness,” and “an investment contract,” among other categories.143 In 1946,
the U.S. Supreme Court, in SEC v. W.J. Howey Co., defined an investment contract as an “investment of money
in a common enterprise with profits to come solely from the efforts of others.”144 This definition embodies a
“flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable
schemes devised by those who seek the use of the money of others on the promise of profits.”145 The SEC
continues to use the U.S. Supreme Court’s “Howey Test” to analyze whether a contract, transaction, or scheme
is an “investment contract.”146
139 While bitcoin and other virtual currencies are not explicitly defined as commodities under Section 1a(9) of the Commodity Exchange Act, the CFTC
acknowledged in a 2015 settlement order that the definition of a “commodity” is broad and encompasses Bitcoin and virtual currencies. See Commodity
Futures Trading Commission, Order: Coinflip, Inc., d/b/a Derivabit, et al. (Sept. 17, 2015). This position was upheld by a U.S. District Court decision in 2018.
CFTC v. McDonnell, 287 F. Supp. 3d 213, 217 (E.D.N.Y. 2018).
140 There is a similar need for clarity as to how digital assets are classified for Federal income tax purposes. Multiple provisions of the Internal Revenue Code
apply only to assets treated as securities for tax purposes, or only to assets treated as commodities for tax purposes, or apply differently to securities
and to commodities. Under current law, the tax classification of financial instruments as securities or commodities is not necessarily the same as the
regulatory classification, so that regulatory clarity will not necessarily bring comparable tax clarity. For further discussion of this issue, see Chapter VII.
141 15 U.S.C. § 77e.
142 15 U.S.C. § 78m and o.
143 See 15 U.S.C. §§ 77b-77c.
144 328 U.S. 293, 301 (1946); See SEC v. Edwards, 540 U.S. 389, 393 (2004); see also United Hous. Found., Inc. v. Forman, 421 U.S. 837, 852-53 (1975) (The
“touchstone” of an investment contract “is the presence of an investment in a common venture premised on a reasonable expectation of profits to be
derived from the entrepreneurial or managerial efforts of others.”).
145 W.J. Howey Co., 328 U.S. at 299.
146 See, e.g., SEC v. Barton, 135 F.4th 206, 215-217 (5th Cir. 2025).
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Digital Asset Market Structure • Establishing a Taxonomy for Digital Assets
A digital asset that is a note or debt instrument147 presumptively is a security.148 This presumption may be
rebutted through the “family resemblance test” by showing the note strongly resembles one of several types
of notes that is issued in connection with typical commercial transactions and, accordingly, is excepted from
the definition of security.149
Any platform that operates as an “exchange” as defined under Section 3(a)(1) of the Exchange Act150 and Rule
3b-16(a) thereunder for digital assets that are securities must register as a national securities exchange or
operate pursuant to an exemption in conjunction with the SEC’s relevant exemptive authority. An entity that
meets the definition of an “exchange” may rely on the exemption from registration for an alternative trading
system (ATS). An ATS is exempt under Exchange Act Rule 3a1-1(a)(2)151 from registration as a national securities
exchange pursuant to Sections 5 and 6 of the Exchange Act if the ATS complies with applicable conditions
in Regulation ATS.152 The conditions of Regulation ATS include, among other things, the ATS registering as a
broker-dealer and filing disclosures with the SEC.
Any intermediaries acting as a “broker”153 or “dealer”154 in digital assets that are securities in interstate
commerce are required to register with the SEC and are subject to SEC oversight.155 Traditionally, broker-
dealers maintain customer accounts and exercise certain levels of control over customer assets through
custodial arrangements. Absent an exemption,156 such intermediaries also are required to become members
of FINRA and are subject to FINRA oversight.157 As a self-regulatory organization, FINRA writes and enforces its
own rules for member firms subject to federal securities laws and is also subject to SEC oversight.158
Market participants who use broker-dealers registered with the SEC to custody their securities (and related cash)
benefit from the protections provided by the federal securities laws, including the customer protection rule159
and, in most cases, the Securities Investor Protection Act of 1970 (SIPA).160 Any SEC-regulated entities that are
defined as “financial institutions” are subject to requirements under the Bank Secrecy Act, including anti-money
laundering (AML) program requirements.161 As a result, broker-dealers and mutual funds, among other registered
entities, are required to implement reasonably-designed AML programs and report suspicious activity.
A host of additional activities within the lifecycle of a digital asset that is a security may invoke federal securities
laws. Pursuant to the Exchange Act162 any entities acting as a “transfer agent”163 with respect to certain
147 For more information on notes and debt instruments, see Debt Security, Westlaw Practical Law (2025).
148 Reves v. Ernst & Young, 494 U.S. 56, 64-66 (1990). Federal courts apply the Reves test to notes as well as to other instruments with debt characteristics.
See, e.g., In re Tucker Freight Lines, Inc., 789 F. Supp. 884, 885 (W.D. Mich. 1991).
149 See, e.g., SEC v. Thompson, 732 F3d 1151, 1169-1161 (10th Cir. 2013).
150 Section 3(a)(1) of the Exchange Act defines an “exchange” as “any organization, association, or group of persons, whether incorporated or unincorporated,
which constitutes, maintains, or provides a marketplace or facilities for bringing together purchasers and sellers of securities or for otherwise performing
with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place
and the market facilities maintained by such exchange.”
151 17 C.F.R. § 240.3a1-1(a)(2) (2024).
152 An ATS that fails to comply with the requirements of Regulation ATS would no longer qualify for the exemption provided under Exchange Act Rule 3a1-1(a)
(2), and thus, risks operating as an unregistered exchange in violation of Section 5 of the Exchange Act. 15 U.S.C. § 77e.
153 Section 3(a)(4) of the Exchange Act defines a “broker” as “any person engaged in the business of effecting transactions in securities for the account of others.”
154 Section 3(a)(5) of the Exchange Act defines a “dealer” as “any person engaged in the business of buying and selling securities … for such person’s own
account through a broker or otherwise.”
155 15 U.S.C. § 78o(a)(1).
156 See Exchange Act Rule 15b9-1 (exempting broker-dealers from securities association membership if they are a member of a national securities exchange,
carry no customer accounts, and effect transactions in securities that are solely offered through the national securities exchange to which it is a member).
157 15 U.S.C. § 78o(b)(8).
158 See, e.g., Crypto Assets: Overview, FINRA https://www.finra.org/rules-guidance/key-topics/crypto-assets (last visited July 13, 2025).
159 See Exchange Act Rule 15c3-3.
160 See 15 U.S.C. § 78ccc et seq.
161 31 U.S.C. § 5311 et seq.
162 15 U.S.C. § 78q-1.
163 As defined by Section 3(a)(25) of the Exchange Act.
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Digital Asset Market Structure • Establishing a Taxonomy for Digital Assets
securities that are digital assets are required to register with the SEC. Registered transfer agents maintain the
record of ownership of the issuer’s securities and provide certain shareholder services. Similarly, Section 17A of
the Exchange Act and Rule 17Ab2-1 thereunder, subject to certain exemptions and exclusions, require an entity
to register with the SEC prior to performing the functions of a “clearing agency,”164 which include serving as a
central counterparty (CCP) or a central securities depository (CSD).165
In addition, the SEC regulates or subjects to reporting obligations a variety of institutional investors. These
include registered investment companies and private funds (e.g., venture capital funds, hedge funds, and
private equity funds). The Investment Company Act of 1940 (Investment Company Act)166 requires pooled
investment vehicles primarily investing in securities that are not excepted or exempted to register with the
SEC. Investment companies publicly offer and sell their securities, may tokenize their own securities, and may
invest in digital assets that are securities as well as other types of digital assets.
The Investment Advisers Act of 1940 (Advisers Act)167 requires persons that manage the portfolios of
registered investment companies to register as an “investment adviser” with the SEC and, depending on
the amount of assets under management, requires other persons who engage in the business of advising
others as to the advisability of investing in, purchasing, or selling securities to register with the SEC, absent
an exemption. Pursuant to Advisers Act Rule 206(4)-2,168 registered investment advisers who have custody of
client funds or securities must comply with an enumerated set of requirements to prevent loss, theft, misuse,
or misappropriation of such client assets, including using a “qualified custodian” as defined under the rule.
Tokenized Securities
Companies are increasingly using blockchain technology or other distributed ledger technology to record the
ownership of securities that they issue by representing the securities as digital assets on a blockchain or other
DLT network (i.e., tokenized securities). Tokenization does not affect the substance of the securities issued,
nor does the use of a blockchain by an issuer or its agent give rise to a new or different type of asset.169 Thus,
tokenized securities fall squarely within the definition of “security” under the federal securities laws, and all
offers and sales of such assets are subject to registration, absent an exemption.170 Tokenization can enable
investors to engage with and use the securities in new or enhanced ways through peer-to-peer and other
blockchain-based transactions, including on or through DeFi protocols.171
The SEC has exemptive authority under existing federal securities laws that it can use to mitigate concerns
related to the issuance and trading of tokenized securities. Section 36 of the Exchange Act provides the SEC
with the authority to exempt any class of securities or transactions from requirements under the Exchange
Act “to the extent that such exemption is necessary or appropriate in the public interest and is consistent
with the protection of investors.”172 Section 28 of the Securities Act173 provides the SEC with the authority
to exempt any class of securities or transactions from requirements under the Securities Act “to the extent
that such exemption is necessary or appropriate in the public interest and is consistent with the protection
164 As defined by Section 3(a)(23) of the Exchange Act.
165 See Exchange Act Rule 17Ad-22(a).
166 15 U.S.C. § 80a-51.
167 15 U.S.C. § 80b-20.
168 17 C.F.R. § 275.206(4)-2 (2024).
169 See generally Division of Trading and Markets: Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technology,
Division of Trading and Markets of the SEC (May 15, 2025), https://www.sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/
frequently-asked-questions-relating-crypto-asset-activities-distributed-ledger-technology.
170 See Commissioner Peirce, supra note 127.
171 See Chapter II for a further discussion of Decentralized Finance protocols.
172 15 U.S.C. § 78mm.
173 15 U.S.C. § 77z-3.
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Digital Asset Market Structure • Establishing a Taxonomy for Digital Assets
of investors.”174 Using these authorities, the SEC, for example, could craft an exemptive framework to exempt
persons seeking to operate a platform offering tokenized securities from certain existing federal securities laws
and/or regulations. Such exemptive actions could be limited in time or scope.
Non-Security Digital Assets that are the Subject of an Investment Contract
Virtually any type of good, right, service, or interest can be represented as a digital asset on a blockchain or
similar distributed ledger technology network. Although many digital assets are not securities, persons may
distribute non-security digital assets as part of a contract, transaction, or scheme that satisfies each element
of the “investment contract” definition under SEC v. W.J. Howey Co., and thus, as part of a security.175 Digital
assets, such as network tokens that are offered or sold as the subject of an investment contract, may be
separable from the investment contract in some or all later transactions. Digital asset market participants,
including issuers, trading venues, and early-stage purchasers face the resulting challenge of determining when
a non-security digital asset subject to an investment contract separates from the investment contract.
As market participants attempt to deal with this issue with their own solutions, the SEC may consider using
its existing authority to further address it. The SEC could provide both a tailored registration regime for
certain digital asset securities and an appropriately conditioned “safe harbor” from securities registration for
transactions involving digital assets that are (or might be) subject to an investment contract. Such a safe harbor
would afford issuers time to progressively deliver functionality for a digital asset or decentralize a network
or application, while providing material information to investors about the digital asset, the issuer, and its
promised essential managerial efforts.
Digital Assets with the Intrinsic Characteristics of an Enumerated Type of Security Under the
Federal Securities Laws
Depending on their intrinsic characteristics, certain digital assets may independently satisfy the definition of a
“security” under the federal securities laws. For example, there may be certain hybrid or multi-use tokens with
functionality that also contains the features of common stock, debt, or a derivative of a security (e.g. a security-
based swap). In this regard, the SEC may consider an assortment of potential solutions, which might include
exemptive relief or other actions to address issues surrounding such hybrid or multi-use tokens.
Commodity Tokens
Many digital assets fall outside the definition of security and many of the laws that govern securities
transactions. This subsection provides an overview of the market structure for non-security digital assets and
the frameworks under which such assets could be regulated.
Certain digital assets may be commodities underlying a regulated derivatives transaction or may represent
a derivative themselves (such as certain event contracts). The CFTC regulates such digital asset derivatives,
subject to the Commodity Exchange Act (CEA). The CEA defines “commodity” broadly to include goods,
services, articles, rights, and interests that are or could be the subject of futures contracts.176 Bitcoin and ether,
among other digital assets, have been recognized by federal courts and the CFTC as commodities within
this definition.177 When a digital asset meets the definition of a commodity, derivatives listed on that asset—
including futures, options, and swaps—fall squarely within the CFTC’s jurisdiction.
174 15 U.S.C. § 77z-3.
175 See SEC v. Terraform Labs Pte. Ltd., 684 F. Supp. 3d 170, 194-201 (S.D.N.Y. 2023).
176 7 U.S.C. § 1a(9).
177 See CFTC v. McDonnell, 287 F. Supp. 3d 213, 228-29 (E.D.N.Y. 2018); CFTC v. My Big Coin Pay, Inc., 334 F. Supp. 3d 492, 496-97 (D. Mass 2018).
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Digital Asset Market Structure • Establishing a Taxonomy for Digital Assets
The CEA provides the CFTC with regulatory oversight of commodity derivatives and includes oversight for
retail commodity transactions and retail foreign exchange transactions that are leveraged, margined, or
financed. Currently, a listed derivative transaction requires the filing of a self-certification statement with
the CFTC under Commission Regulation 40.2 before it can be listed for trading and clearing. Alternatively,
CFTC registered exchanges can seek pre-approval of a new product under Regulation 40.3 prior to listing
it for trading and clearing. Bilateral derivatives are not exchange-traded products (ETPs) and are instead
governed by documents negotiated directly between the counterparties. Exchanges register with the CFTC
as designated contract markets (DCMs) for listed derivatives or swap execution facilities (SEFs) for certain
non-retail swap transactions. The CFTC maintains oversight over listed derivatives intermediaries, known as
futures commission merchants (FCMs) and introducing brokers (IBs). Separately, the CFTC also regulates
clearinghouses for listed derivatives (known as derivatives clearing organizations, or DCOs), swap dealers,
commodity pool operators, and commodity trading advisors, among other registrants.
Any derivative product that references a digital asset is listed for trading on a DCM or SEF and executed