II. The Digital Asset EcosystemII. The Digital Asset Ecosystem ............................................................................................................... ...................

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STRENGTHENING AMERICAN STRENGTHENING AMERICAN 
LEADERSHIP IN DIGITAL  LEADERSHIP IN DIGITAL  
FINANCIAL TECHNOLOGYFINANCIAL TECHNOLOGY

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY
ContentsContents
I.      Introduction I.      Introduction  ..................................................................................................................................... .....................................................................................................................................44
II.    The Digital Asset EcosystemII.    The Digital Asset Ecosystem ............................................................................................................... ...............................................................................................................1414
Market Size and Trends ................................................................................................................................................16
Market Participants ......................................................................................................................................................18
Key Regulators and Oversight .......................................................................................................................................29
Market Activities  ..........................................................................................................................................................31
III.   Digital Asset Market StructureIII.   Digital Asset Market Structure........................................................................................................................................................................................................................4242
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 AssetsIV.    Banking and Digital Assets..................................................................................................................................................................................................................................6262
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 PaymentsV.     Stablecoins and Payments ................................................................................................................. .................................................................................................................8787
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 FinanceVI.   Countering Illicit Finance .................................................................................................................. ..................................................................................................................9999
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.   TaxationVII.   Taxation ............................................................................................................................................ ............................................................................................................................................123123
Current Tax Guidance on Digital Assets  ........................................................................................................................125
Substantive Tax Issues ..................................................................................................................................................126
Taxpayer Reporting ......................................................................................................................................................134
Third-Party Information Reporting .............................................................................................................................137
Table of RecommendationsTable of Recommendations ...................................................................................................................... ......................................................................................................................141141

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY
Acronyms and AbbreviationsAcronyms and Abbreviations
ACH  Automated Clearing House
Advisers Act Investment Advisers Act of 1940 
AEC  Anonymity-Enhanced Cryptocurrency
AFSI  Adjusted Financial Statement Income
AICPA	 		American	Institute	of	Certified	Public	
Accountants
AML  Anti-Money Laundering
AML Act Anti-Money Laundering Act of 2020
API  Application Programming Interface
ASIC	  	Application-Specific	Integrated	Circuit
ATIF  Automated Threat Information Feed
ATS  Alternative Trading System
BCBS   Basel Committee on Banking 
Supervision
BHC  Bank Holding Company
BSA  Bank Secrecy Act
CAMT     Corporate Alternative Minimum Tax
CARF  Crypto-Asset Reporting Framework
CBDC      Central Bank Digital Currency
CCP  Central Counterparty
CCULR   Complex Credit Union Leverage Ratio
CEA  Commodity Exchange Act
CEX  Centralized Digital Asset Exchange
CFT   Countering the Financing of Terrorism
CFPB  Consumer Financial Protection Bureau
CFTC   Commodity Futures Trading 
Commission
CIP	   	Customer	Identification	Program
CLARITY Digital Asset Market Clarity Act of 2025
CSD  Central Securities Depository
CTA  Commodity Trading Advisor
CUSO      Credit Union Service Organization
CVC	  	Convertible	Virtual	Currency
DAMS      CFTC GMAC Digital Asset Markets 
Subcommittee
DAO                Decentralized  Autonomous  Organization
dApp  Decentralized Application
DCM  Designated Contract Markets
DCO  Derivatives Clearing Organization
DeFi  Decentralized Finance
DePIN     Decentralized Physical Infrastructure
DEX  Decentralized Exchange
DIF  Deposit Insurance Fund
DLT	   	Distributed	Ledger	Technology
DOJ  U. S. Department of Justice
DPRK	 	Democratic	People’s	Republic	of	Korea
ECB  European Central Bank
ECP	   	Eligible	Contract	Participant
ETF  Exchange-Traded Fund
ETN  Exchange-Traded Note
ETP  Exchange-Traded Product
EU  European Union
Exchange Act Securities Exchange Act of 1934 
FASB  Financial Accounting Standards Board
FATCA    Foreign Account Tax Compliance Act
FATF  Financial Action Task Force
FBAR   Report of Foreign Bank and Financial 
Accounts
FBI  Federal Bureau of Investigation
FBIIC   Financial and Banking Information 
Infrastructure Committee
FCM   Futures Commission Merchant
FCUA   Federal Credit Union Act
FDIC   Federal Deposit Insurance Corporation
FHFA  Federal Housing Finance Agency
FHC   Financial Holding Company
FinCEN   Financial Crimes Enforcement Network
FINRA      Financial Industry Regulatory Authority
FIPS   Federal Information Processing 
Standards
FMI   Financial Market Infrastructure
FRB   Board of Governors of the Federal 
Reserve System
FRS   Federal Reserve System
FSA   Federal Savings Association
FSB	   		Financial	Stability	Board
FSOC	 		Financial	Stability	Oversight	Council
FX   Foreign  Exchange
GAAP       Generally Accepted Accounting 
Principles
GENIUS				Guiding	and	Establishing	National	
Innovation	for	U.S.	Stablecoins	Act
GMAC	 		CFTC	Global	Markets	Advisory	
Committee
HQLA       High-Quality Liquid Assets
IB   Introducing  Broker
ICO   Initial Coin Offering
IEC                                 International  Electrotechnical  Commission

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY
IEEE   Institute of Electrical and Electronics 
Engineers
IEEPA       International Emergency Economic 
Powers Act
IIJA   Infrastructure	Investment	and	Jobs	Act
Investment 
Company Act Investment Company Act of 1940 
IRS  Internal Revenue Service
ISO   International Organization for 
Standardization
IVAN	  		Illicit	Virtual	Asset	Notification
JCT  Joint Committee on Taxation
LICU   Low-Income Credit Union
MEV	  		Maximum	Extractable	Value
MFA   Multifactor  Authentication
MiCA   Markets in Crypto-Assets
MSB   Money Services Business
NAIC   National Association of Insurance 
Commissioners
NBA   National Bank Act
NCUA       National Credit Union Administration
NFA   National Futures Association
NFT	   		Non-Fungible	Token
NIST   National Institute for Standards and 
Technology
NMS  National Market System
NSPA   National Stolen Property Act
NYDFS    New York State Department of  
Financial Services
OCC	  		Office	of	the	Comptroller	of	the	
Currency
OCCIP	 		Office	of	Cybersecurity	and	Critical	
Infrastructure Protection
OFAC	 		Office	of	Foreign	Assets	Control
OTC   Over-the-Counter
P2P   Peer-to-Peer 
PCAOB			Public	Company	Accounting	Oversight	
Board
PoS   Proof-of-Stake
PoW   Proof-of-Work
PQC   Post-Quantum  Cryptography
RBC   Risk Based Capital
RFI   Request for Information
RPC   Remote Procedure Call
SAB   SEC Staff Accounting Bulletin
SAFT   Simple Agreement for Future Tokens
SAR   Suspicious Activity Report
SDO   Standards Development Organization
SEC   Securities and Exchange Commission
Securities Act  Securities Act of 1933
SEF   Swap Execution Facility
SIPA   Securities Investor Protection Act of 1970
SMS   Short Message Service
SRO   Self-Regulatory  Organization
SWIFT	 		Society	for	Worldwide	Interbank	
Financial Telecommunication
TradFi   Traditional  Finance
Treasury U.S. Department of the Treasury
TVL   Total Value Locked
TWEA      Trading with the Enemy Act of 1917
UK   United  Kingdom
VASP   Virtual Asset Service Provider
W3C	  		World	Wide	Web	Consortium
Working Group        President’s Working Group on Digital 
Asset Markets 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 11    •		 
STRENGTHENING AMERICAN LEADERSHIP  STRENGTHENING AMERICAN LEADERSHIP  
IN DIGITAL FINANCIAL TECHNOLOGY IN DIGITAL FINANCIAL TECHNOLOGY 
11
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.
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;
(i v)  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 DONALD J. TRUMP 
PRESIDENT OF THE UNITED STATES

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •  22    •   
MEMBERS OF THE WORKING GROUPMEMBERS OF THE WORKING GROUP
22
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. 
Chair David SacksChair David Sacks, Special Advisor for AI and Crypto
Scott BessentScott Bessent, Secretary of the Treasury
Pam BondiPam Bondi, Attorney General
Howard LutnickHoward Lutnick, Secretary of Commerce
Kristi NoemKristi Noem, Secretary of Homeland Security
Russell VoughtRussell Vought, Director of the Office of Management and Budget
Marco RubioMarco Rubio, Acting Assistant to the President for National Security Affairs 
Robin ColwellRobin Colwell, Deputy Assistant to the President for National Economic Policy
Stephen MillerStephen Miller, Homeland Security Advisor
Paul AtkinsPaul Atkins, Chairman of the Securities and Exchange Commission
 Caroline Pham Caroline Pham, Acting Chairman of the Commodity Futures Trading Commission
Robert “Bo” HinesRobert “Bo” Hines, Executive Director of the Working Group

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •  33    •   
Staff AcknowledgmentsStaff 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. 

I.   Introduction I.   Introduction 
CHAPTER I
IntroductionIntroduction
STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 55    •		 
Introduction Introduction  •   
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. Crypto
3
	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 overreach
11
	that	countered	the	American	tradition	of	embracing	new	technologies.	Operation	Choke	
Point 2.0
12
	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	entrepreneurs
14
 
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.,	119
th
	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.”).	

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 66    •		 
Introduction 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).

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 77    •		 
Introduction 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.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 88    •		 
Introduction 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.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 99    •		 
Introduction Introduction  •   
Crypto 101Crypto 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 2010
16
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. 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 1010    •		 
Introduction 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.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 1111    •		 
Introduction Introduction  •   
Software Wallets vs. Hardware Wallets
22
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 token
23
 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).

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 1212    •		 
Introduction 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	(Tr a d F i) 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 Oracles
26
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 lists
27
	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). 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 1313    •		 
Introduction Introduction  •   
Phases of Cryptocurrency and Digital Asset Market Adoption
28
2008
-2010
2011
-2013
2014 
- 2016
2017
2018 
- 2019
2020 
- 2021
2022 
- 2023
2024
2025 & 
Beyond
The Great Bu ll RunCentral bank policies lead investors to Bitcoin. Public mining companies em er ge. 
DeFi 
ecosystem expands. Stablecoins  arrive. Alt L1s launch. N FTs  em e rg e.
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Bitcoin awareness r ea che s t he mainstream. R etail exchanges dom inat e.  ICOs grow and bring at tent ion to Ethereum. New networks launch. Security token hype drives many startups.
Infrast ru ctu reA new wa ve of entrepreneurs arrives to  fill  the infrastructure gaps the Big Bubble laid bare
. C ustody, 
trading, derivatives, lending, settlement, market making,  and data solutions developed.
FTX MeltdownCollapse of Terra L un a  a nd   FT X  create contag ion across the sector. Major lending firms go bankrupt. “Operation Choke Point 2.0”  hits industry. New nar rat ive s em er ge : DeSoc, Restaking, Data Availability, RW A.
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-c ha in   
activity.  Bitcoin L2s capture VC interest. Politicians embrace Bitcoin and crypto. Trump election starts c rypto re gulator y r enaissanc e.
Regul atory cl ari ty and frameworks drive further adoptionC ry pt o t re asur y  com pan iesMo re  IPOs  by   cr y pto   fi rm sTokenization expandsBlockchain scal abil it y im pr ov esSov er eign  ado pt io n,  competition increases
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Bear market & neg ative perceptions of bitcoin  lead to hype around “blockchain technology,” which banks  and corporations e xplore . Et her eum  launches.
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The early years. Bitcoin undergoes its first “bubble.” Euromaidan protestors fundraise with BTC.  First altcoins appear. Bitcoin miners add GPUs, then FPGAs, and the first ASICs in 2013. 
CypherpunksSatos hi releases the whitepaper, distributes first version of software, sends first  tra nsact ion to Hal Finney. Code originally on SourceForge, discussions happen on BitcoinTalk forum. 
28						  Graphic	prepared	by	Galaxy.	
Phases of Cryptocurrency and Digital Asset Market Adoption
28

II.   The Digital Asset EcosystemII.   The Digital Asset Ecosystem
CHAPTER II
The Digital Asset EcosystemThe Digital Asset Ecosystem
STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 1515    •		 
The Digital Asset Ecosystem The Digital Asset Ecosystem  •   
The Digital Asset EcosystemThe 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	2008
29
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.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 1616    •		 
The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Size and Trends
Market Size and TrendsMarket Size and Trends
Cryptocurrency Market Cap Throughout Time
33
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. 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 1717    •		 
The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Size and Trends
Cumulative Bitcoin Spot Exchange-Traded Fund (ETF) Balances
37
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).		

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 1818    •		 
The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Participants
Market ParticipantsMarket 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
ParticipantDescription
IssuersIndividuals	or	groups	that	create	and	distribute	digital	assets.	
Retail ParticipantsIndividuals participating in the digital asset ecosystem and a driving 
force	behind	the	market’s	growth.
Institutional InvestorsEntities	such	as	hedge	funds,	venture	capital	firms,	and	asset	
managers that invest in digital assets. 
Centralized Trading PlatformsCentralized 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 Protocols
41
 and  
Development Teams
Developers and protocols associated with the technologies that 
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 tokens
43
	for	decentralized	applications	to	traditional	financial	institutions	issuing	
tokenized
44
	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. 

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The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Participants
Recent Trends in Retail Interest in Crypto
46
Source:SensorTower, Crypto App Downloads, aggregated and analyzed by Payward, Inc (d/b/a Kraken).
Number of Downloads of US- Based Crypto Apps  
Jan. 2023                              Jul. 2023                               Jan. 2024                              Jul. 2024                              Jan. 2025
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 
offchain
48
	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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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).

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Total Value Locked in DeFi Protocols
55
$b
$20b
$40b
$60b
$80b
$100b
$120b
$140b
$160b
$180b
$200b
2019202020212022202320242025
Total Value Locked in DeFi
Total TVL
$130b
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). 

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Architecture of DeFiArchitecture of DeFi
Understanding the DeFi technology stack
58
 is integral to understanding the DeFi ecosystem.
DeFi Technology Stack
59
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.

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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	
token
60
—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 pools
61
 and automated market-making
62
 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. 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 2424    •		 
The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Participants
Example Liquidity Pool
63
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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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	token
68
 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, 
2 0 2 3),   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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Mining and StakingMining 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).

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 2727    •		 
The Digital Asset Ecosystem 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. 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 2828    •		 
The Digital Asset Ecosystem 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	
9 9.9 %.
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 TypeFunction 
OraclesProvide	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 ProvidersEnable	the	transfer	of	assets	or	data	between	two	or	more	blockchain	
networks,	allowing	for	interoperability	across	blockchain	ecosystems.
Node ProvidersProvide	access	to	blockchain	networks	for	users	and	developers	without	
requiring	them	to	operate	their	own	blockchain	infrastructure.	
Onchain Data ProvidersSupply	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 
Operators
Allow individuals to easily interact with decentralized applications and 
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). 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 2929    •		 
The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Key Regulators and Oversight
Key Regulators and OversightKey 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 secondary
78
 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, C F TC, 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.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 3030    •		 
The Digital Asset Ecosystem 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).	

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 3131    •		 
The Digital Asset Ecosystem 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 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).

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 3232    •		 
The Digital Asset Ecosystem 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 rule
107
	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 1934
112
 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 Lending
117
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. 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 3636    •		 
The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Activities 
TokenizationTokenization
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 Assets
121
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 settlement
124
	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 Process
126
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 items
128
).
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.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 3838    •		 
The Digital Asset Ecosystem 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.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 3939    •		 
The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Activities 
Cryptocurrency and the Technical Standards Landscape 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. 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 4040    •		 
The Digital Asset Ecosystem 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 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.

III.   Digital Asset Market StructureIII.   Digital Asset Market Structure
CHAPTER III
 Digital Asset Market Structure Digital Asset Market Structure
STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 4343    •		 
Digital Asset Market StructureDigital Asset Market Structure  •
Digital Asset Market StructureDigital 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 2010
133
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 2010
134
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). 

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Digital Asset Market StructureDigital 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 ActionsCFTC Actions
 ■Ended the Biden-era SEC’s enforcement-
first	approach	that	disproportionately	
targeted disfavored industries.
 ■Established	a	Crypto	Task	Force	under	
Commissioner Peirce’s leadership, which 
solicited	broad	public	input,	held	over	one	
hundred meetings with market participants, 
and	conducted	five	public	roundtables.
 ■Rescinded	SAB	No.	121	(a	staff	bulletin	that	
created	significant	regulatory	burdens	for	
companies that provide digital asset custody 
services).
 ■Provided staff-level clarity on the security 
status	of	memecoins,	stablecoins,	and	
mining and staking activities.
 ■Issued staff-level clarity on disclosure 
requirements for crypto-related offerings 
and registrations.
 ■Withdrew, together with FINRA, the unduly 
restrictive	joint	staff	statement	on	broker-
dealer custody of digital asset securities.
 ■Published	staff-level	FAQs	providing	clarity	
on	broker-dealer	financial	responsibility	and	
transfer agent issues.
 ■Abandoned	the	Biden-era	SEC’s	rule	
proposals related to crypto, including 
proposed	rules	to	further	define	the	
statutory term “exchange” and proposed 
safeguarding rules.
 ■Ended	regulation-by-enforcement	and	
refocused the Division of Enforcement on 
fraud and helping victims.
 ■Hosted	a	first-ever	Crypto	CEO	Forum of	
industry-leading	firms	on	digital	asset	
market	structure. 
 ■Acted on recommendations of CFTC’s 
Digital	Asset	Markets	Subcommittee	
(DAMS)	of	the	Global	Markets	Advisory	
Committee (GMAC) on U.S. digital asset 
taxonomy and tokenized non-cash collateral.
 ■Committed	to	participate	as	an	observer	in	
industry	tokenization	initiatives. 
 ■Launched	two	significant	digital	asset	
market structure innovations that are 
currently active on CFTC DCMs, perpetual 
derivatives	and	24/7	trading	hours,	and	
requested	public	comment.
 ■Issued	staff-level	clarity	on	cross-border	
definitions	for	U.S.	location	and	U.S.	persons	
for	both	futures	and	swaps	activity,	including	
crypto	exchanges,	trading	firms,	and	other	
market participants.
 ■Withdrew two outdated staff-level 
advisories relating	to	virtual	currency	
derivative product listings and clearing that 
were unduly restrictive given digital asset 
market growth and maturity.
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. 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 4545    •		 
Digital Asset Market Structure Digital Asset Market Structure  •  Establishing a Taxonomy for Digital Assets
Establishing a Taxonomy for Digital AssetsEstablishing 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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A	digital	asset	that	is	a	note	or	debt	instrument
147
 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	Act
150
 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	rule
159
 
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 Act
162
 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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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 Act
173
 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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of investors.”
1 74
 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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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 and 
cleared	in	accordance	with	the	CEA	or	entered	into	by	non-retail	market	participants	on	a	bilateral	basis.	DCMs	
and SEFs are required to comply with core principles under Sections 5 and 5h of the CEA,
178
 including CFTC 
rules related to market integrity, fair access, position limits, pre- and post-trade transparency, and system 
safeguards. 
Once	executed	on	a	DCM	or	(or	voluntarily	on	a	SEF),	digital	asset	derivatives	are	cleared	by	a	registered	
derivatives	clearing	organization	(DCO),	which	acts	a	central	counterparty	to	every	buyer	and	seller.	DCOs	
mitigate	counterparty	credit	risk	by	guaranteeing	the	performance	of	cleared	contracts	and	applying	risk	
management	standards	under	CEA	Section	5b.
179
 DCOs are required to collect initial and variation margin, 
maintain default funds, conduct stress testing, and ensure operational resilience.
180
 
FCMs, IBs, commodity trading advisors (CTAs), and swap dealers must register with the CFTC and comply with 
applicable	conduct,	financial,	and	recordkeeping	requirements	under	the	CEA	and	CFTC	rules.	FCMs	that	
handle customer funds for derivative contracts, including digital asset derivatives, must adhere to segregation 
and safeguarding requirements under Section 4d of the CEA
181
 and Parts 1, 22, and 30 of the CFTC’s 
regulations.	These	protections	are	designed	to	ensure	that	customer	property	is	not	misused	and	that	firms	
can	meet	their	obligations	during	periods	of	market	stress.	
IBs	and	CTAs	are	also	subject	to	registration	and	supervisory	requirements	under	Part	3	of	the	CFTC’s	
regulations.	Additionally,	all	registered	FCMs	and	IBs	must	implement	and	maintain	customer	identification	
programs (CIPs) under CFTC Regulation 42.2,
182
 which incorporates CIP requirements for FCMs and IBs under 
the	BSA.	CIPs	requirements	include	procedures	for	identity	verification,	record	retention,	and	screening	
against certain government watch lists for known or suspected terrorists.
183
 
To support regulatory oversight, CFTC registrants and certain market participants are required to report daily 
transaction and position data to the CFTC under Parts 16, 17, 18, 20, 43, and 45 of the CFTC’s regulations. These 
reporting	and	recordkeeping	requirements	enable	the	CFTC	to	monitor	for	systemic	risk,	large	trader	activity,	
and	market	abuse,	and	provide	the	data	infrastructure	for	effective	market	surveillance	and	enforcement.	
178						7	U.S.C.	§§	7	and	7b-3.
179      7 U.S.C. § 7a-1.
180    See 17 C.F.R. §§ 39.13, 39.11, and 39.18 (2024).
181      7 U.S.C. § 6d.
182      17 C.F.R. § 42.2 (2024).
183     31 C.F.R. § 1026.220 (2024).

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Even in the case where no derivatives are listed on a particular digital asset commodity, the CFTC maintains 
anti-fraud and anti-manipulation enforcement authority in the spot markets for such commodities under 
Section 6(c)(1) of the CEA
184
 and CFTC Regulation 180.1.
185
 This authority helps ensure that the CFTC can 
protect market integrity and customer interests in connection with a contract of sale of a commodity in 
interstate commerce. 
The	CFTC	oversees	derivatives	on	digital	asset	commodities,	primarily	bitcoin	and	ether,	on	DCMs.	For	example,	
the	Chicago	Mercantile	Exchange	lists	cash-settled	bitcoin	and	ether	futures	and	options.	These	derivative	
contracts are structured to comply with the CEA and CFTC regulations, focusing on transparency, market 
integrity,	and	contract	enforceability,	and	are	subject	to	surveillance,	reporting,	and	position	limit	rules	under	
Section 5 of the CEA.
186
Network Tokens
A network token, sometimes called a protocol token, refers to a token that is intrinsically connected to 
the functioning of a decentralized network or protocol. Importantly, to the extent that a token’s network 
is	sufficiently	decentralized,	its	continued	value	is	not	dependent	on	the	intervention	or	control	of	a	single	
person or group. Some network tokens are used to pay transaction fees (e.g., gas fees) or to stake to secure 
the network’s consensus. Others grant voting rights in a DeFi protocol.
187
 Examples of network tokens include 
bitcoin	and	ether,	each	of	which	derives	its	value	from	the	blockchain	network	on	which	it	operates.
Network tokens are issued to allow users to participate in an open decentralized network rather than to provide 
holders	of	the	token	future	profit	flows	from	the	efforts	of	a	managerial	entity.	Unlike	securities,	network	
tokens	do	not	typically	grant	equity,	debt,	or	profit-sharing	rights.	Their	value	is	not	derived	from	a	corporate	
issuer’s	revenue,	but	from	the	utility	within	the	network	(for	example,	demand	for	block	space	or	voting	power).	
When no single company controls the supply or demand of a token and the token is essential to the ongoing 
operation	of	the	blockchain	network,	it	begins	to	resemble	a	commodity	or	a	type	of	operational	utility	token.	
Efforts to regulate network tokens should focus on ensuring that tokens, even if initially issued as part of an 
investment	contract	in	a	securities	transaction,	are	not	classified	as	securities	once	the	network	becomes	
fully	functional	and	sufficiently	decentralized.	Criteria	for	determining	what	constitutes	“fully	functional”	and	
“sufficiently	decentralized”	should	be	clear	and	objective	to	ensure	fairness	and	provide	market	participants	
with certainty.
Tokens for Commercial and Consumer Use
A	commercial	or	consumer	use	token	provides	access	to	some	specific	good,	service,	or	privilege,	and	is	
subject	to	other	federal	and	state	laws	applicable	to	commercial	transactions.	These	tokens	are	usually	
non-fungible,	meaning	they	cannot	be	easily	interchanged	or	substituted	with	other	“like”	digital	assets.	A	
commercial use token is a digital representation of traditional commercial instruments, such as warehouse 
receipts,	documents	of	title,	bills	of	lading,	event	tickets,	memberships,	and	identity	credentials.	Unlike	network	
tokens,	these	assets	are	often	not	associated	with	a	decentralized	network	protocol	and	are	usually	issued	by	a	
centralized entity. Consumer use tokens also include arcade tokens and loyalty tokens that users can redeem 
for a consumptive purpose, usually within a closed system. Examples of these types of tokens include video 
game	rewards	or	tokenized	loyalty	points	issued	by	a	company.
184      7 U.S.C. § 9(1).
185      17 C.F.R. § 180.1 (2024).
186      7 U.S.C. § 7.
187      See	Vitalik	Buterin,	Ethereum:	A	Next-Generation	Smart	Contract	and	Decentralized	Application	Platform	(2014),	https://ethereum.org/content/whitepaper/
whitepaper-pdf/Ethereum_Whitepaper_-_Buterin_2014.pdf. 

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Other	variations	of	consumer	use	tokens	include	collectible	tokens,	such	as	tokenized	artwork,	trading	cards,	
and	other	tokenized	versions	of	traditional	collectible	items.	Often,	tokens	serve	as	a	record	of	ownership	or	
otherwise associate ownership rights with a digital identity.
The	value	of	redeemable	tokens	is	derived	from	the	use	they	provide	the	holder	when	redeemed	for	the	
relevant	good,	service,	or	privilege.	Other	commercial	use	tokens	may	have	no	intrinsic	marketable	value	
(for example, tokens recording identity credentials). Regulation should focus on consumer protections and 
ensuring that these types of tokens are marketed with appropriate disclosures while allowing companies to 
experiment	with	blockchain-based	systems.	To	provide	clarity	to	market	participants	and	ensure	innovative	
uses	of	blockchain	technology	for	consumer	use	can	continue	to	grow,	regulators	may	consider	some	type	of	
guidance,	safe	harbor	framework,	or	exemptive	relief	for	this	asset	class.	
Enabling the Trading of Digital Assets at the Federal LevelEnabling the Trading of Digital Assets at the Federal Level
To	ensure	that	American	businesses	can	compete	internationally,	the	SEC	and	the	CFTC	should	use	their	
existing	rulemaking	and	exemptive	authorities	to	enable	the	trading	of	digital	assets.
RecommendationsRecommendations
Immediate Actions
The SEC should consider using its rulemaking and exemptive authority under the Securities Act to 
advance the following initiatives:
• Establish	a	fit-for-purpose	exemption	from	registration	under	Section	5	of	the	Securities	Act	for	securities	
distributions	involving	digital	assets.	
• Establish	a	time-limited	safe	harbor	or	exemption	from	certain	securities	law	requirements	for	transactions	
involving	digital	assets	that	may	be	subject	to	an	investment	contract	because	they	are	not	yet	fully	
functional	or	associated	with	a	sufficiently	decentralized	network	to	allow	for	progressive	functionality	or	
decentralization. 
• Establish	a	safe	harbor	for	certain	airdrops	from	characterization	as	“sales”	under	Section	2(a)(3)	of	the	
Securities Act or an exemption from the corresponding registration requirements under Section 5 of the 
Securities	Act.	Consider	also	an	exemption	for	distributions	of	digital	assets	by	decentralized	physical	
infrastructure (DePIN) providers in securities transactions for purposes of rewarding participation in DePIN 
networks,	as	well	as	distributions	of	certain	NFT	offerings.
The SEC should consider using its rulemaking and exemptive authority under the Exchange Act to 
advance the following initiatives:
• Enable	non-security	digital	assets
188
	that	are	tied	to	an	investment	contract	to	be	traded	on	non-SEC	
registered	trading	platforms	immediately	following	the	primary	distribution	of	the	digital	asset.
• Provide	relief	for	certain	DeFi	service	providers	from	the	broker-dealer	(Section	15),	exchange	(Sections	5	
and 6), and clearing agency (Section 17A) registration provisions of the Exchange Act.
• Amend	Regulation	ATS	to	(or	create	a	framework	similar	to	Regulation	ATS	that	would)	better	
accommodate trading of non-security digital assets alongside securities under a regulatory framework that 
is	fit-for-purpose	for	digital	asset	trading.	
• Create a conditional “innovation exemption” under the Exchange Act to allow SEC registrants to engage in 
innovative	new	business	models.
188						As	used	in	this	report,	“non-security	digital	asset”	does	not	include	payment	stablecoins.	See supra note 97	(defining	“payment	stablecoin”).

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• Address	the	definition	of	“facility”	under	Section	3(a)(2)	of	the	Exchange	Act	to	consider	business	models	
used in digital asset trading.
• Consider	amendments	to	Regulation	NMS	(or	to	applicable	national	market	system	plans)	to	better	
accommodate tokenization of national market system (NMS) securities, or trading of non-security 
digital	assets	alongside	NMS	securities,	including	requirements	applicable	to	transaction	reporting	and	
mechanisms	for	collecting	bids,	offers,	quotation	sizes,	and	other	national	market	system	information.	This	
may include consideration of how amendments could facilitate the use of oracles, aggregators, and other 
DeFi	constructs	in	the	trading	of	NMS	securities	and/or	non-security	digital	assets.
• Modernize	transfer	agent	rules	to	clearly	permit	the	use	of	blockchain	technology	by	transfer	agents.	
• Provide	clarity	regarding	whether	and	when	self-hosted	wallet	providers	would	be	acting	as	broker-dealers	
subject	to	SEC	registration.
The SEC should consider using its rulemaking and exemptive authority under the Investment Advisers 
Act, the Investment Company Act, and other applicable laws to advance the following initiatives:
• Provide clarity on the custody of digital assets that are securities for Registered Investment Companies and 
Registered	Investment	Advisers	by	updating	the	rules	under	Section	17(f)	of	the	Investment	Company	Act	
and Rule 206(4)-2 of the Investment Advisers Act.
• Evaluate	whether	certain	state-chartered	trusts	should	be	deemed	“qualified	custodians,”	as	defined	within	
Advisers	Act	Rule	206(4)-2(a)(6)	or	a	“bank”	under	the	Investment	Company	Act.
The CFTC should consider using its rulemaking, interpretative, and exemptive authority under the 
Commodity Exchange Act (CEA) to advance the following initiatives:
• Provide guidance to designated contract markets (DCMs) regarding the listing of leveraged, margined, or 
financed	spot	retail	commodity	transactions	on	digital	assets	pursuant	to	CEA	section	2(c)(2)(D).
• Provide	guidance	as	to	how	digital	assets	may	be	considered	commodities	under	Section	1a(9)	of	the	CEA.	For	
example, the agency can consider expanding upon prior guidance on “actual delivery” of virtual assets.
189
 
• To	the	extent	that	digital	asset	investment	vehicles	or	their	managers	may	be	considered	“Commodity	
Pools” or prompt registration of “Commodity Pool Operators,” the CFTC will consider updating rules and 
guidance as appropriate.
• Collaborate	with	FinCEN	to	provide	guidance	regarding	customer	identification	programs	(CIPs)	utilizing	
new	technologies	for	eligible	intermediaries	and	other	market	participants	who	carry	customer	accounts	
holding	digital	assets	on	behalf	of	customers.
190
	This	collaboration	can	explore	intermediaries’	and	other	
market	participants’	reliance	on	other	financial	institutions’	identification	and	verification	functions.
• Enable	firms	to	provide	bundled	trading	and	custody	services.
• Provide	clarity	on	the	applicability	of	various	CFTC	registration	requirements	to	DeFi	activities,	smart	contract	
protocols, or decentralized autonomous organizations (DAOs) consistent with technology-neutral principles.
• Provide	guidance	to	FCMs	in	calculating	and	administering	segregation	obligations	when	digital	assets	are	
held	on	behalf	of	customers,	including	separate	account	treatment	under	Regulation	1.44.
• Provide	clarity	on	haircuts	on	digital	assets	held	by	registered	intermediaries	(including	FCMs,	swap	
dealers,	and	DCOs)	for	purposes	of	calculating	and	reporting	margin,	financial	resources/capital,	
189      See 85 Fed. Reg. 37734, supra note 96.	Furthermore,	the	CFTC’s	Global	Markets	Advisory	Committee	considered	a	variety	of	digital	assets	issues,	
including proposing a taxonomy for digital assets. See CFTC	Global	Markets	Advisory	Committee	Digital	Asset	Markets	Subcommittee,	Digital	Assets	
Classification	Approach	and	Taxonomy	(Mar.	6,	2024),	https://www.cftc.gov/media/10321/CFTC_GMAC_DAM_Classification_Approach_and_Taxonomy_for_Digital_
Assets_030624/download.
190      See 31 C.F.R. § 1026.220(a)(6) (2024); Anti-Money Laundering: Customer Identification Programs, CFTC, https://www.cftc.gov/IndustryOversight/
AntiMoneyLaundering/dsio_aml_cia.html (last visited July 13, 2025).

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segregation,	and	settlement	obligations,	including	working	with	the	SEC	around	the	non-marketable	
securities	haircut	framework	and	its	applicability	to	non-security	digital	assets.
• Review	the	application	of	eligible	depository	rules	to	accounts	holding	digital	assets	as	collateral	under	
CFTC Regulation 1.49.
• Provide	guidance	for	  DCO	acceptance	of	  digital	asset	collateral	(including	payment	stablecoins)
191
 including 
DCO	financial	resource	requirements,	valuation	of	assets	and	haircuts	for	margin	purposes,	settlement	
finality,	treatment	of	digital	asset	custodians	and	self-custody,	systems	safeguards	requirements,	end-of-
day	reporting	for	assets	that	trade	24/7,	and	legal	risk	considerations	in	such	areas	as	netting	and	interests	
in collateral under CFTC Regulations 39.11, 39.13, 39.14, 39.15, 39.18, 39.19, and 39.27.
• Provide guidance on the adoption of tokenized non-cash collateral as regulatory margin to implement the 
CFTC’s GMAC DAMS recommendation.
• Provide	guidance	on	the	classification	of	swaps	on	digital	assets	to	address	application	of	margin,	reporting,	
and other requirements under CFTC Regulations 1.3, 23.154, 43.2, and 45.1.
• Consider	allowing	the	use	of	blockchain	technology	to	satisfy	recordkeeping	obligations	under	CFTC	
Regulation 1.31.
The SEC and the CFTC should coordinate to ensure efficient rulemaking processes. The SEC and CFTC 
should coordinate on seeking comments from the public on suggestions for rulemaking.
If the SEC and CFTC establish a regulatory sandbox or safe harbor, it should have clear criteria to 
determine which types of digital assets and market participants are eligible for the sandbox or safe harbor. 
Moreover, there should be a clear pathway for entities to graduate from the sandbox or safe harbor.
In coordination with the SEC, the CFTC should consider using its authority within CEA section 1a(18) 
to establish a category of eligible contract participants (ECPs) with the ability to engage in certain 
types of derivatives, including perpetual contracts, through additional regulated intermediaries (e.g., 
persons that are counterparties to a specified transaction conducted on or pursuant to the rules of an 
alternative trading system).
Longer-Term Considerations
The SEC and CFTC should explore offering flexibility to allow registrants to offer multiple services 
within a single user interface.
• The	Working	Group	encourages	regulatory	exploration	of	more	vertically	integrated	business	models	in	the	
digital	asset	space.	These	business	models	should	include	appropriate	structural	safeguards,	governance	
mechanisms,	and	disclosures	to	mitigate	conflicts	of	interest.
• While	addressing	conflicts	and	ensuring	existing	registrants	are	not	disadvantaged,	regulators	may	
consider	adopting	regulatory	regimes	that	allow	registrants	to	integrate	multiple	financial	services	in	one	
business	model,	which	could	further	reduce	frictions	and	enhance	user	experience.	
 ◆Combining	exchange	services	with	custody	of	trading	assets	allows	for	real-time	settlement.	The	
custodian	holds	the	assets,	and	the	exchange	matches	orders	to	buy	and	sell	those	assets.	Additionally,	
the	digital	assets	custodied	by	an	exchange	should	be	cryptographically	verifiable. 
 ◆Combining	exchange	and	broker	services	allows	for	economies	of	scale	and	reduces	operational	
complexity	by	permitting	straight-through	processing	of	customer	orders	with	the	same	technology	stack.	
 ◆Exchanges	and	intermediaries	must	segregate	customer	property	away	from	proprietary	funds,	subject	
to	reasonable	exceptions.
191      See supra note 97	(defining	“payment	stablecoin”).

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The CFTC should consider how existing rules could be amended to enable the use of blockchain-based 
derivatives.
• Such	considerations	should	include	evaluating	the	benefits	of	blockchain-based	derivative	transactions	or	
systems with respect to the regulatory requirements of central clearing, and frameworks around reporting 
obligations,	margin	levels,	and	contract	listings	in	a	non-intermediated	environment.
Absent congressional action, the SEC and CFTC should use their existing authorities to provide 
fulsome regulatory clarity that best keeps blockchain-based innovation within the United States. 
• As	discussed	below,	the	Working	Group	strongly	recommends	that	Congress	expeditiously	advance	
market structure legislation to the President’s desk. 
• However,	as	market	structure	deliberations	continue	in	Congress,	the	Working	Group	similarly	recognizes	
that the market regulators can work to provide appropriate accommodation for digital asset trading and 
innovation	in	their	rules	to	ensure	responsible	innovation	occurs	in	the	United	States.
Creating a Lasting Framework for Digital Asset Market StructureCreating a Lasting Framework for Digital Asset Market Structure
Due	to	the	underlying	distributed	ledger	technology,	digital	asset	markets	function	differently	from	markets	
for	stocks,	bonds,	commodities,	and	derivatives.	Traditional	financial	markets	require	a	series	of	third-
party	intermediaries	between	a	buyer	and	a	seller	to	execute	and	settle	a	trade.	In	digital	asset	markets,	
programmable	smart	contracts	allow	buyers	and	sellers	of	certain	digital	assets	on	decentralized	exchanges	to	
be	matched	and	ownership	to	change	hands	without	a	custodial	third-party.	Other	platforms	offering	trading	
of	digital	assets	are	structured	in	a	more	centralized	way,	but	differences	remain	that	need	to	be	addressed	in	
crafting a market structure framework. 
The House of Representatives’ Digital Asset Market Clarity Act of 2025 (CLARITY)
192
 proposes a division of 
digital	asset	market	jurisdiction	between	the	SEC	and	CFTC.	It	protects	the	right	of	Americans	to	self-custody	
their digital assets. By requiring the SEC and CFTC to jointly promulgate rules for portfolio margining, it 
facilitates	a	system	where	investors,	both	retail	and	institutional,	can	efficiently	trade	digital	assets	without	
artificial	costs	imposed	by	regulatory	barriers.	
CLARITY also importantly recognizes decentralized governance systems, which are an innovation in how 
individuals	collectively	reach	agreement	on	development	and	administration	of	blockchain	systems.	Much	as	
joint stock corporations provided an avenue for shareholders to engage in common undertakings, decentralized 
governance systems are a further evolution in decision-making. CLARITY recognizes the promise of 
decentralized	finance	and	the	ability	of	software	to	allow	individuals	to	freely	transact	with	one	another.
Lastly,	CLARITY	provides	legal	certainty	in	highlighting	the	treatment	of	digital	assets	on	banking	institutions’	
balance	sheets,	providing	federal	pre-emption	for	jurisdiction	over	digital	asset	intermediaries,	and	explaining	
the	criteria	by	which	institutions	can	be	considered	Qualified	Custodians	of	digital	assets.	
Altogether, CLARITY represents an excellent foundation for digital asset market structure in the United States. 
However,	the	Working	Group	encourages	Congress	to	consider	a	handful	of	additional	factors	when	finalizing	
this legislation to ensure American markets for digital assets help enshrine the United States as the crypto 
capital of the world. 
192						H.R.	3633,	119th	Cong. (2025).

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RecommendationsRecommendations
Congress	should	consider	the	following	when	finalizing	provisions	of	market	structure	legislation	to	ensure	
the	most	cost-efficient	and	pro-innovation	regulatory	structure	for	digital	assets.
Jurisdiction of Market Regulators
The CFTC should have clear authority to regulate spot markets in non-security digital assets. SEC 
and CFTC registrants should be permitted to engage in multiple business lines under the most 
efficient licensing structure possible, ensuring a clear and simple regulatory framework for digital 
asset market activities.
• Regulation	should	be	crafted	to	avoid	regulatory	arbitrage	between	the	SEC	and	CFTC	digital	asset	
regulatory regimes, understanding that the regulation of digital asset securities is necessarily different than 
that applied to non-security digital assets. Interagency coordination could guide these efforts.
• Registrant	platforms	should	have	the	flexibility	to	offer	a	broad	range	of	digital	asset	and	other	regulated	
products	within	a	single	user	interface,	subject	to	clearly	defined	regulatory	oversight	of	the	registrant.
• SEC	registrants	should	be	able	to	offer	the	trading	of	digital	asset	securities	and	be	able	to	engage	in	non-
security	digital	asset	transactions	pursuant	to	the	licensing	structure	defined	by	Congress.	
• CFTC	registrants	should	be	able	to	offer	the	trading	of	digital	commodity	derivatives,	retail	digital	
commodity transactions, and other CFTC-jurisdictional products alongside non-security digital assets, as 
specified	by	Congress.
• To the extent Congress permits activity in non-security digital assets outside CFTC registrants, Congress 
should direct the market regulator leading the rulemaking process to set rules for market conduct and 
activities for non-security digital assets in consultation with the SEC or CFTC, as appropriate. 
• Rules	for	digital	assets	should	include	portfolio	margining	standards,	as	suggested	by	CLARITY.
193
 
• The SEC and CFTC should adopt rules ensuring customer asset segregation for digital assets.
194
• Trading	venues	for	  non-security	digital	assets	should	be	  required	to	  report	market	data,	subject	to	  reporting	
obligations	established	by	the	CFTC.	If	a	trading	venue	is	engaged	solely	in	the	provisioning	of	non-security	
digital	assets,	there	should	only	be	reporting	obligations	to	the	CFTC.
 ◆Prior	to	the	enactment	of	any	reporting	obligations,	the	CFTC	should	consult	with	the	SEC	on	the	data	
to	be	reported	and	the	format	in	which	it	is	reported	to	minimize	industry	burden.	
Congress should provide that federal law preempts state law with respect to securities and 
commodities laws applicable to SEC- and CFTC-registered intermediaries, including in the areas of 
state virtual currency business, “blue sky,” and commodity broker laws.
193      See H.R. 3633, 119th Cong. § 105(e) (2025).
194						Note	that	the	CFTC-registered	futures	commission	merchants	(FCMs)	already	have	segregation	obligations	under	current	law.	See CFTC, Futures 
Commissions Merchants (FCMs): Segregation of Customer Funds, https://www.cftc.gov/IndustryOversight/Intermediaries/FCMs/fcmsegregationfunds 
(last visited July 13, 2025). In 2020, the Division of Swap Dealer and Intermediary Oversight of the CFTC issued a staff letter advisory as to how FCM 
segregation	obligations	apply	to	virtual	currency.	CFTC	Letter	No.	20-34,	Accepting	Virtual	Currencies	from	Customers	into	Segregation (Oct. 21, 2020), 
https://www.cftc.gov/csl/20-34/download. 

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Guidelines for Market Intermediaries
Digital asset trading platforms, brokers, dealers, custodians and other registrants should be subject to 
a tailored registration regime that is fit-for-purpose under the SEC or CFTC, as appropriate and based 
upon the intermediary’s activities.
• Consistent	with	the	existing	financial	markets	regulatory	framework,	the	regime	should	include	principles-
based	requirements	that	are	no	more	onerous	than	those	safeguards	applied	to	existing	registrants.	
Intermediaries should be allowed to lend against, net, and hedge securities against non-securities, as 
risk characteristics permit.
• Coordinated regulatory treatment can ensure appropriate market oversight, while recognizing economic 
equivalence across different asset types. 
• The	SEC	and	CFTC	should	have	appropriate	flexibility	in	setting	applicable	rules	for	their	registrants.
Issuers of digital asset securities, and of securities involving digital assets, should be subject to 
disclosure requirements that are appropriately tailored to address the novel characteristics of digital 
assets and blockchain technology. Digital asset trading platforms, brokers, dealers, and other CFTC-
registered intermediaries that make available non-security digital assets should be required to disclose 
any such information that the CFTC determines to be appropriate for non-security digital assets.
• Further,	these	parties	should	not	be	subject	to	ongoing	disclosure	requirements	other	than	those	required	
by	Congress	in	future	legislation	or	by	the	relevant	market	regulator.	Furthermore,	any	such	ongoing	
disclosures	should	be	fit-for-purpose	and	guided	by	publicly	available	information,	such	as	open-source	
code,	whenever	possible.
• Digital	asset	trading	platforms,	and	other	intermediaries	as	appropriate,	should	publish	the	criteria	that	
govern the listing of digital assets that are traded.
 ◆In addition, digital asset trading platforms, and other intermediaries as appropriate, should consider 
prominently	disclosing	features	that	may	be	unique	to	digital	assets,	such	as	token	economics	(i.e., 
allocation	percentages	and	rationales)	and	source	code,	if	applicable.	
For institutional over-the-counter block trades of digital assets that occur offchain through regulated 
intermediaries, there should be similar reporting and disclosure requirements to those that apply to 
similar activities in traditional markets.
• These	reporting	and	disclosure	requirements	need	not	be	instantaneous,	but	it	is	critical	to	ensure	there	are	
not	loopholes	or	“blind	spots”	associated	with	digital	asset	trading	activity	that	occurs	offchain.
Digital asset trading platforms, brokers, dealers, and other SEC and CFTC registrants should disclose 
the capacity in which they are acting on behalf of the customer, client, or counterparty (i.e., dealer, 
broker, counterparty, routing to an order book, etc.).
• Digital	asset	firms	may	serve	in	a	variety	of	capacities	when	offering	digital	asset	trading.	Congress	should	
consider	disclosure	requirements	or	standards	depending	on	the	nature	of	the	relationship	between	the	
firm	and	the	market	participant	(e.g.,	retail,	institutional,	customer,	client,	counterparty,	etc.).
Trading platforms should be permitted to custody customer digital assets with appropriate controls. 
• Safeguards	may	include	requirements	for	asset	segregation,	disclosures,	principles-based	cybersecurity	
standards,	bankruptcy	remoteness,	separation	of	legal	entities,	separation	from	margin	and	rehypothecation	
entity, capital requirements, liquidity and redemption requirements, and regulatory supervision.

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• Trading	platforms	should	also	enable	users	engaging	in	self-custody	to	transact,	and	should	be	prohibited	
from discriminating against third-party custodians who offer products that compete with those provided 
by	the	trading	platform	or	an	affiliate.
Market intermediaries should be subject to principles-based rules regarding the margin and leverage 
they can extend to retail participants, based on the functions of margin and leverage in their respective 
activities. Congress should clearly define the rules and responsibilities between the SEC and CFTC 
regarding margin and leverage, but allow the regulators appropriate flexibility in setting such rules.
• Financing	rates	offered	to	retail	customers	should	be	publicly	disclosed	by	the	party	offering	leverage.
Congress should consider extending Exchange Act Section 31 fee structures to all SEC-registered 
products offered on SEC-regulated platforms. 
• Intermediaries	offering	digital	asset	services	should	pay	fees	equivalent	to	those	that	traditional	finance	
intermediaries pay in the equity markets. 
SEC and CFTC registrants should be required to adopt best practices for cybersecurity standards.
• These	standards	may	be	adopted	as	part	of	a	principles-based	regulatory	framework	or	proposed	as	
industry	best	practices.	
Regulatory Treatment of DeFi
By	embracing	and	supporting	the	option	of	DeFi	for	investors,	policymakers	can	help	position	the	United	
States	as	a	leader	in	the	global	crypto	economy.	Encouraging	the	development	of	regulatory	frameworks	
that	balance	innovation	with	security	will	pave	the	way	for	a	robust	financial	future.	The	integration	of	DeFi	
into	mainstream	finance	has	the	potential	to	unlock	new	economic	opportunities	and	drive	significant	
advancements across various industries and sectors. 
There	are	ongoing	discussions	regarding	whether	non-controlling	blockchain	developers,	DeFi	service	
providers,	and	DeFi	apps	or	front	ends	can	or	should	be	required	to	comply	with	institutional	obligations	
under	the	Bank	Secrecy	Act	(BSA),	either	as	money	services	businesses	(MSBs),	broker-dealers,	FCMs,	or	
some	other	category	of	“financial	institution”	under	the	BSA.
195
 Such considerations are discussed further 
in the Further Improvements to the AML/CFT Regime section of Chapter VI, covering topics related to 
countering	illicit	finance.
As contemplated in provisions of CLARITY,
196
 Congress should consider the following factors when 
determining the regulatory treatment of DeFi: 
• The extent to which a given software application exercises “control” over user assets.
 ◆Without	the	ability	to	exercise	control	over	user	assets	or	funds,	a	software	application	may	not	transmit	
money	or	exchange	currency,	and	therefore	might	not	be	subject	to	the	BSA	as	an	MSB.	Importantly,	
without	control,	software	applications	generally	lack	the	ability	to	misappropriate	user	assets.
• The	extent	to	which	a	given	software	application,	once	built	or	deployed,	is	technologically	capable	of	being	
modified.
195      See 31 U.S.C. § 5312(a)(2) and 5312(c).
196      See Press Release, Representative Tom Emmer, Emmer’s Securities Clarity Act and Blockchain Regulatory Certainty Act Pass House Financial Services 
Committee Markup (June 11, 2025), https://emmer.house.gov/media-center/press-releases/emmer-s-securities-clarity-act-and-blockchain-regulatory-certainty-
act-pass-house-financial-services-committee-markup (noting that the ”elements of the Blockchain Regulatory Certainty Act that are include in the 
CLARITY Act codify that digital asset developers and service providers that do not custody consumer funds are not money transmitters.”). 

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 ◆Software	applications	in	DeFi	use	smart	contracts.	In	many	cases,	smart	contracts	cannot	be	modified	
or withdrawn once deployed. Implementing changes in those cases requires the creation of entirely new 
smart contracts. 
 ◆The operations of a software application, including the smart contracts or the economics of the service 
more	broadly,	may	be	administered	by	a	single	actor	or	a	group	of	actors	working	together.	
 ◆As such, Congress should consider the degree to which a single actor, or group of actors working 
together,	has	the	unilateral	ability	to	upgrade	a	software	application’s	smart	contracts	or	change	its	
economics in a manner not previously disclosed in the software or protocol rules. 
• The	extent	to	which	a	software	application	is	controlled	by,	or	operates	with,	a	centralized	structure	or	
management. 
 ◆If	a	product	or	service	is	operated,	managed,	or	otherwise	controlled	by	a	business	and	facilitates	
access	to	a	DeFi	system	engaged	in	otherwise	regulated	activity,	that	product	or	service	should	be	
subject	to	regulation	accounting	for	underlying	regulated	activity	and	pursuant	to	the	principles	of	fair	
competition,	customer	protection,	conflicts	of	interest,	integrity	of	code,	cybersecurity	standards,	and	
other principles as appropriate. 
• The	extent	to	which	a	given	software	application	is	technologically	or	logistically	capable	of	complying	with	
current	regulatory	obligations.
 ◆Many	DeFi	protocols	and	non-controlling	blockchains	do	not	have	the	functional	ability	to	register	as	
MSBs	or	otherwise	comply	with	MSB	obligations	under	the	BSA,	while	businesses	(as	described	above)	
could	register.	Nevertheless,	Congress	could	consider	how	obligations	can	be	fit-for-purpose	to	the	
technology	and	embrace	the	unique	characteristics	of	DeFi,	rather	than	placing	the	current	financial	
regulatory regime on top of DeFi services.
 ◆Care	should	be	taken	to	ensure	that	actors	are	not	permitted	to	structure	products	to	subvert	legal	
responsibilities.
Accounting Recommendations
Financial Accounting Standards Board (FASB)
197
	processes	include	outreach	to	a	broad	set	of	stakeholders	
including	investors,	preparers,	accounting	firms,	academics,	and	regulators.
198
 The FASB issued accounting 
guidance	in	December	2023	addressing	the	subsequent	measurement	of	certain	digital	asset	holdings	
at fair value.
199
	It	has	also	specifically	requested	stakeholder	input	on	any	additional	accounting	guidance	
needed to address digital asset matters under U.S. Generally Accepted Accounting Principles (GAAP).
200
 
The	   Working	Group	observed	that	   many	questions	on	  the	   accounting	for	  digital	asset	transactions	relate	to	
the	following	key	concepts	that	FASB	should	consider	for	further	consultation	through	public	engagement:	
• Recognition and derecognition: Whether an entity should recognize or derecognize digital asset tokens 
when entering into certain transactions. For example, should a lender of digital assets derecognize such 
assets,	and	should	there	be	symmetry	in	accounting	between	a	lender	and	borrower?	Similar	questions	
may arise related to wrapping tokens or transacting with decentralized lending or exchange protocols.
197      The SEC has recognized the FASB’s accounting standards as authoritative since 1973. See	SEC,	Policy	Statement:	Reaffirming	the	Status	of	the	FASB	as	a	
Designated Private-Sector Standard Setter (Apr. 25, 2003) https://www.sec.gov/rules-regulations/policy-statements/33-8221. 
198      See Financial	Accounting	Standards	Board	(FASB),	Rules	of	Procedure:	Amended	and	Restated	Through	February	12,	2025	(2025), https://www.fasb.org/
page/ShowPdf?path=Rules%20of%20Procedure-Feb%202025.pdf&title=Rules%20of%20Procedure-February%202025.
199      FASB, Accounting Standards Update No. 2023-08, Accounting for and Disclosure of Crypto Assets (Dec. 2023), https://www.fasb.org/page/
PageContent?pageId=/projects/recentlycompleted/accounting-for-and-disclosure-of-crypto-assets.html.
200					FASB,	Invitation	to	Comment:	Agenda	Consultation	(Jan.	3,	2025),	https://fasb.org/page/ShowPdf?path=ITC%E2%80%94Agenda%20Consultation.
pdf&title=Invitation%20to%20Comment%E2%80%94Agenda%20Consultation.

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• Issuer accounting. How an entity should account for digital asset tokens it creates and issues. The 
accounting	by	the	token	issuer	will	depend	on	the	issuer’s	facts	and	circumstances,	and	the	enforceable	
rights	and	obligations	of	the	parties	involved.	To	the	extent	a	token	conveys	rights	or	obligations	that	
align	with	traditional	assets	or	instruments	(e.g.,	ownership	of	tangible	commodities,	debt,	or	equity),	
then	established	accounting	guidance	already	exists.	Additionally,	FASB	should	consider	whether	to	treat	
payment	stablecoins	as	cash	equivalents	under	GAAP.	Further	clarification	is	required	in	cases	where	
tokens	provide	utility	or	access	without	clearly	enforceable	rights	–	particularly	when	tied	to	the	future	
development of a platform. There is no explicit guidance to address the accounting for those types of token 
issuances. 
Additionally,	the	principles-based	nature	of	the	Public	Company	Accounting	Oversight	Board’s	(PCAOB’s)	
audit	standards	and	guidance	published	by	the	PCAOB,	as	well	as	non-authoritative	guidance	from	the	
American	Institute	of	Certified	Public	Accountants	(AICPA),	have	allowed	auditors	of	public	companies	and	
broker	dealers	to	adapt	traditional	procedures	to	address	digital	asset	tokens.	As	the	technology	and	its	use	
continues	to	develop,	there	may	be	value	in	additional	or	new	standards	to	promote	consistency	in	application	
and execution and help align regulatory and stakeholder expectations (avoiding expectation gaps).
International Regulatory Standards and LandscapeInternational Regulatory Standards and Landscape
The	Working	Group	advises	the	United	States	to	reassert	global	leadership	on	digital	assets.	Reassertion	
of	such	leadership	depends	on	establishing	a	clear	and	robust	policy	framework	for	digital	asset	activity.	
Large	financial	centers	like	the	European	Union	(EU),	Japan,	Singapore,	and	the	United	Kingdom	(UK)	are	
finalizing	and	implementing	their	own	digital	asset	frameworks,	offering	a	foundation	upon	which	they	
seek	to	attract	firms	and	grow	their	markets.	The	United	States	has	a	window	of	opportunity	to	shape	the	
way	these	frameworks	intersect	and	interact,	fostering	a	level	playing-field	on	which	American	firms	and	
markets can compete with the rest of the world. As such, the Working Group advises the United States to 
engage	and	lead	internationally	to	achieve	these	objectives.
In	parallel,	some	digital	asset	firms	have	chosen	to	operate	globally	out	of	smaller	jurisdictions,	some	
of	which	have	become	significant	centers	for	digital	asset	activity,	but	which	may	lack	adequate	
regulation, effective supervision, or enforcement capacity to oversee that activity, including illicit 
finance	controls	(see	Chapter VI),	which	discusses	the	regulatory	framework	around	illicit	finance	as	
pertains	to	digital	assets).	A	clear	and	robust	U.S.	framework	will	serve	as	a	standard	and	indicator	of	
credibility	for	firms	that	onshore	their	activities	in	the	United	States.	Paired	with	active	U.S.	leadership	in	
international	engagement,	an	American	regulatory	framework	will	also	serve	to	discourage	firms	from	
operating in jurisdictions that compete with inadequate regulation, supervision, and enforcement. 
International Standards
U.S.	regulators,	including	the	Department	of	Treasury	and	its	Office	of	International	Financial	Markets,	
have	been	active	in	international	discussions	to	shape	emerging	regulatory	standards	for	digital	assets,	
recognizing	emerging	best	practices	as	authorities	develop	their	respective	domestic	regulatory	
frameworks.	In	July	2023,	the	Financial	Stability	Board	(FSB)	published	its	global	regulatory	framework	
for digital asset activities. The framework includes high-level recommendations for the regulation, 
supervision,	and	oversight	of	digital	asset	activities	and	markets	and	of	widely	used	stablecoins.	These	
recommendations	promote	the	creation	of	risk-based	regulatory	regimes,	in	which	digital	asset	issuers	
and	service	providers	have	adequate	governance,	risk	management,	and	disclosure	obligations,	

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including	for	potential	conflicts	of	interest.
201
 The Working Group suggests that the United States 
advance policies at the FSB aligned with recommendations for digital asset regulatory frameworks 
outlined in this report. 
In	addition,	the	Financial	Action	Task	Force	(FATF),	the	international	standard	setting	body	for	AML/
countering	the	financing	of	terrorism	(CFT),	clarified	under	the	2018	U.S.	presidency	that	its	standards	
apply to virtual assets and virtual asset service providers (VASPs).
202
 The FATF recommended that 
jurisdictions must assess risk associated with virtual assets and require that VASPs in their jurisdiction 
are	regulated	and	supervised	for	implementation	of	AML/CFT	obligations.	The	Working	Group	would	
be	supportive	of	adopting	several	FATF	standards	for	virtual	assets,	consistent	with	recommendations	
in this report, and advises the United States to remain a leader on FATF efforts on this topic.
Other	financial	sector	standard-setting	bodies	have	also	addressed	market	conduct	and	capital	
standards	for	digital	assets	activity	in	financial	markets	and	banking.	The	International	Organization	of	
Securities	Commissions	in	2023	published	high-level	guidance	for,	among	other	policies,	addressing	
market	abuse,	digital	asset	custody	arrangements,	and	trading	disclosures.
203
 In 2022, the Basel 
Committee	on	Banking	Supervision	(BCBS)	published	capital	standards	for	banks’	exposure	to	
cryptoassets	and	stablecoins.
204
 This framework, which was later amended in 2024
205
 and is discussed 
in	further	detail	later	in	this	report,	assigns	risk	weights	reflecting	the	BCBS’s	assessment	of	different	
types of cryptoassets and the ledgers on which they trade; it assigns the highest risk weight to 
cryptoassets traded on permissionless ledgers. Where standards are misaligned, the Working Group 
advises	that	the	United	States	assert	leadership	and	advocate	that	relevant	bodies	develop	guidance	
in	line	with	the	goals	of	the	Working	Group	to	establish	the	United	States	as	a	global	leader	on	digital	
assets regulation.
Evolving Regulatory Landscape 
Large	financial-center	jurisdictions	have	developed	their	own	separate	regimes	for	the	regulation	of	
digital assets, with some common features.
206
	Common	elements	of	current	and	proposed	stablecoin	
regimes	in	the	EU,	Hong	Kong,	Singapore,	Japan,	and	the	UK	include:	a	licensing	regime;	reserve	
and other prudential requirements; requirements to segregate customer assets from those of the 
digital asset service provider itself; provisions for client redemption rights; mandatory disclosures and 
periodic	audits;	varying	prohibitions	on	algorithmic	stablecoins;	and	AML/CFT	obligations.	Similarly,	
emerging digital asset market structure regimes around the world restrict advertising for consumer 
protection	and	prevent	market	abuse,	broadly	equivalent	to	traditional	financial	market	rules,	although	
the details of these restrictions vary. 
However, many regulatory regimes are not comprehensive and may require expansion or updating. The 
EU’s	Markets	in	Crypto-Assets	(MiCA)	Regulation	exemplifies	a	comprehensive	global	digital	assets	
201      See Financial	Stability	Board,	High-Level	Recommendations	for	the	Regulation,	Supervision	and	Oversight	of	Crypto-Asset	Activities	and	Markets:	Final	
report (July 17, 2023), https://www.fsb.org/2023/07/high-level-recommendations-for-the-regulation-supervision-and-oversight-of-crypto-asset-activities-and-
markets-final-report.
202      See generally	Financial	Action	Task	Force,	Updated	Guidance	for	a	Risk-Based	Approach:	Virtual	Assets	and	Virtual	Asset	Service	Providers (Oct. 2021), 
https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/Updated-Guidance-VA-VASP.pdf.coredownload.inline.pdf.
203      See generally	International	Organization	of	Securities	Commission,	Policy	Recommendations	for	Crypto	and	Digital	Asset	Markets:	Final	Report (Nov. 16, 
2 0 2 3),   https://www.iosco.org/library/pubdocs/pdf/IOSCOPD747.pdf.
204      Basel Committee on Bank Supervision (BCBS), Prudential Treatment of Cryptoasset Exposures (Dec. 2022), https://www.bis.org/bcbs/publ/d545.pdf.
205      BCBS, Cryptoasset Standard Amendments (July 2024), https://www.bis.org/bcbs/publ/d579.pdf. 
206						For	an	overview	of	global	approaches	to	digital	assets	policy,	see Cryptocurrency Regulation Tracker, The Atlantic Council, https://www.atlanticcouncil.org/
programs/geoeconomics-center/cryptoregulationtracker (last visited July 13, 2025).

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regime currently in force.
207
	European	authorities	adopted	MiCA	in	late	2024,	but	some	European	policy	
makers have already called for a “MiCA 2” to address gaps in the new rules. These gaps include, at least, 
limited jurisdiction over digital asset service providers operating from outside Europe and omission of 
DeFi, NFTs, and digital asset lending.
Similarly, Japan was an early leader in the regulation of digital asset activities and was, in 2014, among 
the	first	countries	to	legally	define	and	classify	digital	assets.	However,	Japan	has	subsequently	
amended	its	framework	to	accommodate	the	maturing	global	digital	asset	market.	In	April	2025,	
Japan’s Financial Services Agency announced a new approach to digital assets, including reclassifying 
these	assets	as	financial	products	and	has	signaled	its	intention	to	recalibrate	its	stablecoin	reserve	
requirements	to	retain	global	competitiveness.	
The	evolution	of	digital	asset	frameworks	in	other	large	financial	centers	across	the	globe	creates	an	
opportunity	for	the	United	States	to	shape	global	regulatory	standards	and	norms	in	ways	that	align	
with U.S. interests. It also creates an opportunity for the United States to support a less fragmented 
digital	asset	ecosystem,	with	fewer	unwarranted	regulatory	frictions,	which	can	better	support	the	
allocation	of	capital	to	its	most	efficient	use.
Regulatory Fragmentation 
Regulatory	fragmentation	among	jurisdictions	with	different—or	even	conflicting—regimes	could	
impact	market	flows	of	digital	assets.	For	stablecoins,	a	lack	of	broad,	coherent,	and	robust	oversight	can	
undermine	stablecoins’	reliability	as	a	payment	instrument,	limiting	their	circulation,	their	stability,	or	their	
ability	to	circulate	without	discount.	Regulatory	fragmentation	can	also	lead	to	market	fragmentation,	
and	to	reduced	or	trapped	liquidity	within	specific	stablecoin	arrangements;	this,	in	turn,	can	limit	
market	depth	in	ways	that	can	affect	the	broader	health	of	digital	asset	markets.	More	fundamentally,	
fragmentation	may	impose	inefficient	compliance	and	operational	costs	on	U.S.	stablecoin	issuers	and	
other registrants operating internationally, making them less competitive and the international playing 
field	less	even.	This	is	true	also	for	digital	asset	markets,	in	which	existing	frameworks	diverge	with	
respect	to	legal	classifications,	taxation,	margin	trading,	staking,	and	other	areas.	
A	robust	U.S.	policy	framework	for	digital	assets	can	help	minimize	these	risks	and	promote	the	growth	
of	the	digital	asset	industry	globally.	U.S.	engagement	on	these	issues	must	prioritize	U.S.	interests—
including	an	innovative,	fair,	open,	and	efficient	digital	asset	ecosystem.
207      See Financial	Stability	Board,	FSB Notes Significant Progress in Monitoring, Regulating and Supervising Crypto-Asset Activities in France (Dec. 11, 2024), 
https://www.fsb.org/2024/12/fsb-notes-significant-progress-in-monitoring-regulating-and-supervising-crypto-asset-activities-in-france.

IV.   Banking and Digital AssetsIV.   Banking and Digital Assets
CHAPTER IV
 Banking and Digital Assets Banking and Digital Assets
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Banking and Digital AssetsBanking and Digital Assets
Commerce	on	the	Internet	has	come	to	rely	almost	exclusively	on	financial	institutions	serving	
as trusted third parties to process electronic payments. While the system works well enough 
for	most	transactions,	it	still	suffers	from	the	inherent	weaknesses	of	the	trust	based	model.	
Introduction from Bitcoin: A Peer-to-Peer Electronic Cash System 
Satoshi	Nakamoto,	October	2008
208
The	genesis	block	of	Bitcoin,	the	first	block	ever	mined,	famously	contains	a	headline	from	the	day	it	was	
created:	“The	Times	03/Jan/2009	Chancellor	on	brink	of	second	bailout	for	banks.”
209
 Though Satoshi was 
cautious	of	banks,	the	technology	and	industry	that	evolved	from	his	work	would	come	to	interact	with	the	
banking	system	in	unexpected	ways.	Some	banks,	recognizing	the	promise	of	the	space,	began	providing	
core	banking	services	to	growing	crypto	enterprises.	Others,	building	on	their	banking-as-a-service	offerings	
to	fintech	companies,	supported	new	clients	engaged	in	digital	assets.	Additionally,	some	“crypto	banks”
210
—
chartered	financial	institutions	offering	the	ability	to	buy,	sell,	and	custody	digital	assets	alongside	traditional	
banking	services,	such	as	access	to	traditional	fiat	payment	rails—emerged	and	blurred	the	line	between	the	
TradFi and crypto-native worlds.
211
	Outside	the	traditional	banking	sector,	the	growth	in	retail	access	to	digital	
assets	has	created	opportunities	for	unbanked	Americans	to	access	the	financial	system.	A	survey	from	
May	2025	indicated	that	10%	of	cryptocurrency	owners	stated	they	owned	cryptocurrency	before	opening	a	
checking account, savings account, or an account with certain common payments apps.
212
 
Although	many	in	the	banking	industry	supported	the	growth	and	development	of	the	crypto	ecosystem,	
regulatory	leadership	set	up	roadblocks.	The	Biden	Administration’s	Operation	Choke	Point	2.0	resulted	in	the	
widescale	debanking	of	digital	asset	firms	and	their	founders.	As	Acting	Federal	Deposit	Insurance	Corporation	
(FDIC)	Chairman	Travis	Hill	noted	in	February	2025	when	publishing	internal	documents	related	to	the	FDIC’s	
supervision	of	banks	that	engaged	in,	or	sought	to	engage	in,	crypto-related	activities:	
[T]he	FDIC’s	approach	“has	contributed	to	a	general	perception	that	the	agency	was	closed	
for	business	if	institutions	are	interested	in	anything	related	to	blockchain	or	distributed	
ledger technology.” . . . The documents that we are releasing today show that requests from 
these	banks	were	almost	universally	met	with	resistance,	ranging	from	repeated	requests	
for further information . . . to directives from supervisors to pause, suspend, or refrain from 
expanding	all	crypto-	or	blockchain-related	activity.	Both	individually	and	collectively,	these	
and	other	actions	sent	the	message	to	banks	that	it	would	be	extraordinarily	difficult—if	not	
impossible—to	move	forward.	As	a	result,	the	vast	majority	of	banks	simply	stopped	trying.
213
 
208      Nakamoto, supra note 18.
209      See mempool.space (Jan. 3, 2009), https://mempool.space/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f. See also Jon 
Southurst, Bitcoin Genesis Block Constructed 11 Years Ago Today, CoinGeek (Jan. 3, 2020), https://coingeek.com/bitcoin-genesis-block-constructed-11-
years-ago-today.
210							Note	that	such	“crypto	banks,”	which	either	hold	state	charters	or	an	OCC	national	trust	bank	charter,	do	not	necessarily	offer	the	full	range	of	traditional	
banking	services,	absent	additional	approvals.
211        Coin World, Crypto Firms Expand into Traditional Finance, Blurring Lines with New Offerings, AInvest	(Apr.	25,	2025,	2:07	PM	ET),	https://www.ainvest.com/
news/crypto-firms-expand-traditional-finance-blurring-lines-offerings-2504.
212        Justin Slaughter & Dominique Little, Paradigm Policy Market Mapping Exercise Spring 2025, Paradigm (July 1, 2025), https://www.paradigm.xyz/2025/07/
paradigm-policy-market-mapping-exercise-spring-2025. 
213        See FDIC, FDIC Releases Documents Related to Supervision of Crypto-Related Activities, (Feb.	5,	2025),	https://www.fdic.gov/news/press-releases/2025/
fdic-releases-documents-related-supervision-crypto-related-activities; see also Hist. Assocs. Inc. v. FDIC,	No.	1:24-cv-1857-ACR	(D.D.C.).

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Under	the	Trump	Administration,	Operation	Choke	Point	2.0	is	dead—not	just	in	spirit,	but	in	substance.	
The Securities and Exchange Commission (SEC) staff rescinded Staff Accounting Bulletin (SAB) No. 121, an 
accounting	guidance	that	effectively	prohibited	publicly	traded	banks	from	offering	custody	services	for	digital	
assets.
214
	The	FDIC	rescinded	a	prior-notification	requirement	for	supervised	institutions	in	March	2025,	and	
affirmed	that	banks	under	their	purview	“may	engage	in	permissible	activities,	including	activities	involving	
new and emerging technologies such as crypto-assets and digital-assets, provided that they adequately 
manage the associated risks.”
215
	That	month,	the	Office	of	the	Comptroller	of	the	Currency	(OCC)	published	
Interpretive	Letter	No.	1183,	confirming	that	national	banks	and	federal	savings	associations	may	engage	in	
digital	asset	custody,	stablecoin-related	activities,	and	use	blockchains	to	facilitate	payments	without	seeking	
prior approval.
216
	The	OCC	also	announced	that	it	would	no	longer	examine	banks	for	“reputation	risk,”	and	the	
Board of Governors of the Federal Reserve System (FRB) announced the same in June.
217
 Then, in April, the FRB 
rescinded	two	supervisory	letters	related	to	banks’	“crypto-asset	and	dollar	token	activities,”	with	the	express	
purpose of ensuring the FRB’s “expectations remain aligned with evolving risks and further support innovation 
in	the	banking	system.”
218
By	April	2025,	the	OCC,	FDIC,	and	FRB	had	all	withdrawn	from	joint	statements	issued	in	January	and	February	
2023	cautioning	banking	organizations	against	engaging	in	digital	asset	activity.
219
 And in July 2025, the OCC, 
FDIC,	and	FRB	issued	a	new	joint	statement	reaffirming	the	legal	permissibility	for	banks	to	custody	digital	
assets.
220
 In contrast to the Trump Administration’s leadership, the Biden Administration endorsed that now-
214						SAB	No.	121	mandated	that	certain	entities	safeguarding	digital	assets	record	both	a	liability	and	a	corresponding	asset	on	their	balance	sheets	at	the	fair	
value	of	the	assets	held,	even	if	such	assets	were	never	lent	by	the	entities. Staff	Accounting	Bulletin	No.	121,	87	Fed.	Reg.	21015	(Apr.	11,	2022)	(formerly	
codified	at	17	C.F.R.	pt.	211	(2024)).	SAB	No.	121	was	rescinded	by	a	new	staff	accounting	bulletin,	SAB	No.	122.	Staff	Accounting	Bulletin	No.	122,	90	Fed.	
Reg.	8492	(Jan.	30,	2025)	(codified	at	17	C.F.R.	pt.	211	(2024)).	SEC	Staff	Accounting	Bulletins	are	not	rules	or	interpretations	of	the	SEC,	nor	are	they	
published	as	bearing	the	SEC’s	official	approval.	They	represent	interpretations	and	practices	followed	by	the	SEC	Division	of	Corporation	Finance	and	
the	SEC	Office	of	the	Chief	Accountant	in	administering	the	disclosure	requirements	of	federal	securities	laws.	Note	that	the	Guiding	and	Establishing	
National	Innovation	for	U.S.	Stablecoins	Act	(GENIUS),	which	was	signed	into	law	by	President	Trump	on	July	18,	2025	prohibits	the	SEC,	FDIC,	OCC,	FRB,	
and	NCUA	from	adopting	rules	for	public	and	private	depository	institutions	similar	to	SAB	No.	121.	S.	1582,	119th	Cong.	(2025)	§	16(c)	(enacted).
215						Press	Release,	FDIC,	FDIC	Clarifies	Process	for	Banks	to	Engage	in	Crypto-Related	Activities	(Mar.	28,	2025),	https://www.fdic.gov/news/financial-institution-
letters/2025/fdic-clarifies-process-banks-engage-crypto-related. 
216      OCC, Interpretive Letter No. 1183, OCC Letter Addressing Certain Crypto-Asset Activities (Mar. 7, 2025), https://www.occ.gov/topics/charters-and-licensing/
interpretations-and-actions/2025/int1183.pdf.	The	OCC	subsequently	issued	Interpretive	Letter	No.	1184,	which	provided	further	clarity	on	permissible	
custody activities. See	OCC,	Interpretive	Letter	No.	1184,	Clarification	of	Bank	Authority	Regarding	Crypto-Asset	Custody	Services	(May	7,	2025), https://
www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1184.pdf. 
217      OCC Ceases Examinations for Reputation Risk, OCC (Mar. 20, 2025), https://www.occ.gov/news-issuances/news-releases/2025/nr-occ-2025-21.html; Federal 
Reserve Board Announces That Reputational Risk Will No Longer Be a Component of Examination Programs in Its Supervision of Banks, FRB (June 23, 
2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250623a.htm. The FDIC is also “working on a rulemaking related to reputation risk 
that	would	prohibit	FDIC	supervisors	from	(1)	criticizing	or	taking	adverse	action	against	institutions	on	the	basis	of	reputational	risk	and	(2)	requiring,	
instructing,	or	encouraging	institutions	to	close,	modify,	or	refrain	from	offering	accounts	on	the	basis	of	political,	social,	cultural,	or	religious	views.”	
Acting	Chairman	Travis	Hill,	FDIC,	Speech	at	American	Bankers	Association	Washington	Summit:	View	from	the	FDIC:	Update	on	Key	Policy	Issues	(Apr.	
8, 2025), https://www.fdic.gov/news/speeches/2025/view-fdic-update-key-policy-issues. 
218      Press Release, FRB, Federal Reserve Board Announces the Withdrawal of Guidance for Banks Related to Their Crypto-Asset and Dollar Token Activities 
and Related Changes to Its Expectations for These Activities (Apr. 24, 2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250424a.htm. 
219      See id.; see also FRB, FDIC & OCC, Joint Statement on Crypto-Asset Risks to Banking Organizations (Jan. 3, 2023), https://www.federalreserve.gov/
newsevents/pressreleases/files/bcreg20250424a1.pdf; FRB, FDIC & OCC, Joint Statement on Liquidity Risks to Banking Organizations Resulting from 
Crypto-Asset	Market	Vulnerabilities	(Feb.	23,	2023),	https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a2.pdf. Silvergate 
Capital	Corporation,	the	parent	company	of	one	of	the	banks	that	failed	in	March	2023,	disclosed	risk	in	a	public	filing	on	March	1,	less	than	two	
weeks	before	it	announced	plans	to	wind	down	and	self-liquidate,	that	“the	safety	and	soundness	concerns	expressed	by	the	federal	banking	
agencies	regarding	banking	institutions	with	business	models	that	are	concentrated	in	digital	asset	related	activities”	could	cause	its	financial	
performance	to	differ	materially	from	its	projections.	Silvergate	Capital	Corporation,	Form	12b-25	(Mar.	1,	2023),	https://www.sec.gov/Archives/edgar/
data/1312109/000110465923027353/tm238251d1_nt10k.htm.	Similarly,	former	Congressman	Barney	Frank,	one	of	the	Board	members	of	Signature	Bank,	
which	was	forcibly	closed	by	the	New	York	State	Department	of	Financial	Services	(NYDFS)	in	March	2023,	speculated	that	NYDFS	was	“using	us	as	a	
poster child to say ‘stay away from crypto.’” Jen Wieczner, Barney Frank Talks More About the Surprise Shuttering of Signature Bank, N.Y. Magazine (Mar. 
15, 2023), https://nymag.com/intelligencer/2023/03/barney-frank-says-more-shuttering-signature-bank.html.
220  					 FRB,	FDIC	&	OCC,	Crypto-Asset	Safekeeping	by	Banking	Organizations	(July	14,	2025),	https://www.occ.gov/news-issuances/news-releases/2025/nr-ia-2025-68a.pdf.

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rescinded	January	2023	guidance	and	encouraged	regulators	to	continue	efforts	designed	to	“limit	financial	
institutions’ exposure to the risks of digital assets.”
221
Regulatory	efforts	to	deny	banking	services	to	the	digital	asset	industry	have	ceased	under	the	Trump	
Administration.	With	growth	now	in	focus,	the	Working	Group	supports	banks’	participation	in	digital	asset-
related	activities	and	the	ability	for	banks	to	use	blockchain	technologies	to	improve	their	services.	
This	section	details	how	banks
222
 and credit unions (collectively, “depository institutions”) are engaging 
with	digital	assets	and	outlines	the	prudential	regulatory	framework	applicable	to:	(i)	depository	institutions	
engaging	in	digital	asset	activities	or	offering	banking	services	to	digital	asset	firms;	and	(ii)	digital	asset	firms	
interested	in	offering	bank-like	services.	It	then	makes	recommendations	that	would	help	ensure	depository	
institutions can continue to innovate to meet customer demand for engagement in digital asset markets and 
use DLT throughout this new opportunity for growth.
Bank Engagement with Digital AssetsBank Engagement with Digital Assets
Banks	have	primarily	engaged	with	the	digital	asset	industry	through:	(i)	providing	core	banking	products	and	
services to digital asset market participants; and (ii) facilitating customer access to digital asset markets through 
services	such	as	custody,	trade	execution,	and	settlement.	Due	to	general	skepticism	or	concerns	about	risk,	
banks	were	initially	slow	to	engage	with	digital	assets.	However,	interest	in	digital	asset-related	product	lines	
accelerated	in	2020	and	2021	as	the	broader	digital	asset	market	experienced	a	period	of	substantial	price	gains	
and	opportunities	to	leverage	DLT	became	more	apparent.	This	was	accompanied	by	the	OCC’s	issuance	of	a	
series	of	interpretive	letters	toward	the	end	of	President	Trump’s	first	administration	related	to	the	permissibility	
of certain digital asset activities, which added some regulatory certainty.
223
 However, in 2022, a series of 
market	events,	including	a	substantial	decrease	in	the	value	of	digital	assets,
 224
 and the onset of the Biden 
Administration’s	Operation	Choke	Point	2.0	impacted	many	banks’	interest	in	pursuing	or	increasing	engagement	
with	digital	assets.	Though	banking	agencies	have	steadily	removed	many	of	the	previous	regulatory	
impediments,	certain	areas	of	regulatory	uncertainty	remain	and	need	to	be	addressed.
225
 
221						Brian	Deese,	Arati	Prabhakar,	Cecilia	Rouse	&	Jake	Sullivan,	The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks, The White House (Jan. 27, 
2 0 2 3),   https://bidenwhitehouse.archives.gov/nec/briefing-room/2023/01/27/the-administrations-roadmap-to-mitigate-cryptocurrencies-risks. 
222						As	used	in	this	chapter	of	the	report,	“banks”	broadly	refers	to	and	includes	insured	depository	institutions	and	OCC-chartered	trust	banks.
223      OCC, Interpretive Letter No. 1170, Authority of a National Bank to Provide Cryptocurrency Custody Services for Customers (July 22, 2020), https://occ.gov/
topics/charters-and-licensing/interpretations-and-actions/2020/int1170.pdf; OCC, Interpretive Letter No. 1172, OCC Chief Counsel’s Interpretation on National 
Bank	and	Federal	Savings	Association	Authority	to	Hold	Stablecoin	Reserves	(Sept.	21,	2020),	https://occ.gov/topics/charters-and-licensing/interpretations-
and-actions/2020/int1172.pdf; OCC, Interpretive Letter No. 1174, OCC Chief Counsel’s Interpretation on National Bank and Federal Savings Association 
Authority	to	Use	Independent	Node	Verification	Networks	and	Stablecoins	for	Payment	Activities (Jan. 4, 2021), https://occ.gov/topics/charters-and-
licensing/interpretations-and-actions/2021/int1174.pdf.
224      See Financial	Stability	Oversight	Council	(FSOC),	Report	on	Digital	Asset	Financial	Stability	Risks	and	Regulation	27	(2022), https://home.treasury.gov/
system/files/261/FSOC-Digital-Assets-Report-2022.pdf	(noting	that	“...	the	substantial	decline	in	crypto-asset	prices	during	late	2021	and	early	2022	
reportedly coincided with some key market developments” and throughout the report referring to the failure of the hedge fund Three Arrows Capital, 
the	collapse	of	the	TerraUSD	stablecoin	and	associated	liquidation	of	the	Luna	Foundation	Guard’s	bitcoin	holdings,	and	the	bankruptcies	of	Celsius	and	
Voyager	Digital).	Additionally,	the	cryptocurrency	exchange	FTX	filed	for	bankruptcy	in	November	2022.	FTX	Trading	Ltd.,	Form	201,	No.	22-11068-JTD	
(D. Del. Nov. 11, 2022).
225      See FSOC, supra note 224, at 18 (noting	that	“some	banks	have	indicated	publicly	that	they	have	interest	in	offering	crypto-asset	products	and	services	
but	are	waiting	on	regulatory	clarity	before	doing	so.”).

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Current Products and Services
Banks	provide	a	variety	of	traditional	banking	products	and	services	to	digital	asset	firms	such	as	commercial	
deposit	accounts,	loans,	and	capital	markets	advisory	services.	Some	banks	also	offer	other	services,	directly	
or indirectly, related to the trading, settlement, and custody of native digital assets, though uptake is currently 
limited.	The	use	of	third	parties	commonly	serves	as	a	vehicle	for	banks	to	leverage	new	technologies,	access	
greater	expertise	for	a	particular	activity,	or	enter	new	marketplaces.	Community	banks	in	particular	often	
find	that	they	can	harness	the	resources	of	third	parties	to	leverage	emerging	technologies	and	create	new	
opportunities	for	the	bank	and	its	customers.	In	recent	years,	banks	have	explored	a	range	of	business	lines	
through external relationships, including custody services, facilitating customer purchases and sales of digital 
assets,	loans	involving	digital	assets,	and	DLT	payments	networks.	Additionally,	some	banks	and	digital	asset	
market	participants	partner	to	offer	hybrid	traditional	banking	and	digital	asset	products,	such	as	debit	or	
credit cards that provide digital asset rewards. 
Adopting	new	technologies	or	offering	new	products	or	services	are	business	decisions.	Regulatory	guidance	
from	the	OCC,	FDIC,	and	FRB	(collectively,	the	“Banking	Agencies”)	would	be	helpful	for	banks	to	evaluate	
digital	asset	activities.	In	any	event,	it	is	imperative	that	any	banking	regulatory	framework	not	reflect	a	
regulatory	preference	for	a	particular	technology	or	sector	so	that	banks	may	determine	the	mix	of	products	
and	services	to	offer	based	on	their	business	strategies	and	risk	management	capabilities	and	consistent	with	
applicable	law.	
Traditional (Core) Banking Services
Depository	institutions	play	a	valuable	role	in	providing	traditional	banking	services	to	digital	asset	market	
participants.	Access	to	traditional	banking	services	(e.g.,	deposit	accounts,	payments,	lending)	is	essential	for	
any	company	or	individual.	It	enables	them	to	manage	cash	flows,	pay	employees	and	vendors,	and	conduct	
their	operations	efficiently.	For	digital	asset	firms,	maintaining	a	reliable	banking	relationship	provides	them	
with	the	critical	infrastructure	to	interact	with	the	broader	economy.	Those	core	banking	services	are	provided	
to	digital	asset	firms	by	depository	institutions	in	accordance	with	their	individual	risk	appetites	and	business	
decisions, while operating within a regulated framework. 
In	the	past,	regulatory	uncertainty	contributed	to	reduced	availability	or	stability	of	banking	relationships	
for	firms	and	individuals	operating	in	digital	asset	markets.	However,	regulators	have	recently	reiterated	that	
banks	are	neither	prohibited	nor	discouraged	from	providing	banking	services	to	customers	of	any	specific	
class	or	type,	as	permitted	by	law	or	regulation.	Therefore,	banks	themselves	should	make	risk-based	business	
decisions	regarding	each	potential	customer	relationship	based	on	the	banks’	specific	risk	management	
capabilities	and	tolerances.	
Payments 
Some	banks	are	seeking	to	harness	DLT	to	facilitate	faster	payments.	For	example,	some	banks	have	formed	
consortia	to	establish	new	networks	leveraging	DLT	for	low-cost,	real-time	payment	capabilities	available	
24/7/365.
226
	Such	DLT-based	solutions,	sometimes	relying	on	third-party	providers,	may	also	have	the	
capability	to	facilitate	smart	contracts	that	can	extend	functionality.	Other	banks	are	utilizing	DLT	to	facilitate	
payments	within	a	banking	organization.	Some	are	exploring	leveraging	public	blockchains.
226      See, e.g., Regulated Settlement Network Proof-of-Concept, Securities Industry and Financial Markets Association, https://www.sifma.org/resources/
general/regulated-settlement-network-proof-of-concept (last visited July 13, 2025); Big Banks Explore Interoperable Stablecoin, PYMNTS.com (May 23, 
2025), https://www.pymnts.com/cryptocurrency/2025/big-banks-eye-consortium-backed-stablecoin-to-counter-fintech-threat; How It Works, Fnality, https://
fnality.com/how-it-works (last visited July 13, 2025).

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Tokenization
Tokenization	entails	bringing	traditional	products	and	services	onchain	using	DLT.	This	enables	both	the	
bank	and	its	clients	to	benefit	from	capabilities	that	are	commonly	implemented	on	distributed	ledgers,	
such	as	the	potential	to	encode	rules	or	conditions	into	the	tokenized	assets	and	liabilities	themselves	(i.e.,	
programmability).	Tokenization	has	the	potential	to	transform	execution,	settlement,	and	other	banking	
activities	that	could	benefit	from	these	efficiencies.
227
	Clarity	within	the	regulatory	perimeter	may	contribute	to	
dislocation	of	legacy	system	intermediaries	and	traditional	financial	market	infrastructures	(FMIs).	
When	deciding	which	traditional	products	to	tokenize,	banks	and	their	clients	generally	appear	to	be	focusing	
on	the	financial	activities	they	view	as	most	reliant	on	inefficient	market	structures	and	on	products	that	align	
with	their	core	competencies.	Although	tokenization	is	occurring	across	all	financial	services,	bank	tokenization	
projects	garnering	the	most	public	attention	are	tokenized	deposits,	digital	foreign	exchange	(FX),	custody	
of tokenized securities, tokenized repurchase agreements, and tokenized private funds.
228
 Tokenization also 
presents	an	opportunity	for	banks	to	bring	loans	onchain,	potentially	improving	operational	efficiency	and	access	
to capital,
229
	especially	for	lending	to	small	and	medium-sized	enterprises	(including	by	community	banks).
Tokenized Deposits
Tokens	may	represent	a	range	of	different	kinds	of	assets	and	liabilities,	including	commercial	bank	deposits.	
Banks	are	generally	permitted	to	tokenize	deposits	in	the	U.S.,	as	tokenization	can	be	viewed	as	a	form	of	
technology	to	record	bank	deposits;
230
 nonetheless, further clarity on this point from the Banking Agencies 
would	be	helpful.
231
A	tokenized	deposit	may	offer	the	familiarity	and	safety	of	a	bank	deposit,	with	the	added	functionality	of	
instantaneous settlement of DLT. Depository institutions are actively exploring and deploying use cases; some 
banks	have	used	tokenization	and	tokenized	deposits	to	facilitate	24/7,	real-time,	intra-bank	transfers	or	have	
expressed interest in pursuing the tokenization of deposits. These improvements to internal systems may 
enable	more	efficient	transfers	of	funds,	as	well	as	new	types	of	financial	products.	Others	are	seeking	to	use	
tokenized deposits to facilitate transfers among trusted participants in a network. For example, as discussed 
below,	some	are	pursuing	tokenized	deposits	to	facilitate	wholesale,	cross-border	payments.	
Tokenization of deposits, like any novel technology, may raise certain questions regarding practical 
implementation	and	broader	impact	on	the	banking	system.	For	example,	banks	should	establish	certainty	for	
227						Many	of	the	product	designs	under	development	have	the	potential	to	integrate	features	from	different	sources.	For	example,	a	bank-owned	distributed	
ledger	platform	could	leverage	components	and	solutions	developed	in	house	or	by	third-party	providers.	Likewise,	a	bank	may	decide	to	tokenize	its	
products	through	white-label	offerings	on	third-party	platforms.	Finally,	a	bank	could	choose	to	provide	services	to	clients	through	connectivity	to	a	DeFi	
FMI	platform	using	dApps.	A	quality	known	as	“composability,”	similar	to	but	more	expansive	than	mere	interoperability,	enables	clients	or	customers	to	
design	new	or	unique	financial	products	using	off	the	shelf	templates	and	tools,	presenting	both	opportunities	and	risks	for	firms.
228      See Oliver	Wyman	&	J.P.	Morgan	Chase	&	Co.,	Deposit	Tokens:	A	Foundation	for	Stable	Digital	Money	(2022), https://www.jpmorgan.com/kinexys/
documents/deposit-tokens.pdf;	Citigroup,	Bringing	Traditional	Assets	to	Digital	Networks:	Exploring	the	Tokenization	of	Private	Markets	(2024),	https://
www.citigroup.com/rcs/citigpa/storage/public/Fund-Tokenization-Summary-Report.pdf; Citi and Fidelity International Demonstrate Tokenized Money Market 
Fund and Digital Foreign Exchange Swap Solution, Citigroup (Nov. 4, 2024), https://www.citigroup.com/global/news/press-release/2024/citi-and-fidelity-
international-demonstrate-tokenized-money-market-fund-and-digital-foreign-exchange-swap-solution; Reinventing Asset Servicing with Distributed Ledger 
Technology, HSBC (May 20, 2024), https://www.gbm.hsbc.com/en-gb/insights/market-and-regulatory-insights/reinventing-asset-servicing-with-distributed-
ledger-technology; BNP Paribas Trades Intraday Repo on J.P. Morgan’s Onyx Digital Assets Platform,	BNP	Paribas	(May	16,	2022),	https://globalmarkets.cib.
bnpparibas/bnp-paribas-trades-intraday-repo-on-j-p-morgans-onyx-digital-assets-platform-2.
229      See Tokenization in Financial Services: Delivering Value and Transformation, PwC (Mar. 11, 2024), https://www.pwc.com/us/en/tech-effect/emerging-tech/
tokenization-in-financial-services.html	(“Historically	illiquid	assets,	such	as	private	credit	and	private	equity,	can	also	be	viable	tokenization	candidates.	In	
the	roughly	$1.5	trillion	private	credit	market,	for	example,	it	can	take	a	tremendous	amount	of	time	and	effort	to	match	buyers	and	sellers.	When	private	
credit	starts	utilizing	tokenization,	lenders	can	“fractionalize”	loans,	making	them	into	a	variety	of	sizes,	increasing	the	pool	of	potential	borrowers.”).
230      See Acting Chairman Hill, supra note 217 (“From the FDIC’s perspective, we should provide certainty that ‘deposits are deposits, regardless of the 
technology	or	recordkeeping	deployed.’”)	(quoting	Vice	Chairman	Travis	Hill,	FDIC,	Speech	at	Mercatus	Center,	Banking’s	Next	Chapter?	Remarks	on	
Tokenization and Other Issues (Mar. 11, 2024), https://www.fdic.gov/news/speeches/2024/spmar1124.html).
231						Whether	any	particular	tokenized	deposit	product	meets	the	statutory	or	regulatory	definitions	of	“deposit”	for	purposes	under	12	U.S.C.	§	1813(l)	or	12	
C.F.R.	pt.	204	(2025)	(commonly	referred	to	as	Regulation	D)	depends	on	a	fact-specific	analysis	of	the	product.

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Banking and Digital Assets Banking and Digital Assets  •  Bank Engagement with Digital Assets
their	customers	regarding	the	ability	to	transfer	tokenized	deposits.	Additionally,	banks	and	their	customers	
must	have	confidence	in	the	reliability	and	security	of	the	underlying	technology,	and	in	the	privacy	of	any	
confidential	information	shared	when	making	a	payment.	Further,	if	there	are	many	different	ledgers,	banks	
must	consider	how	these	ledgers	interact	or	interoperate	so	that	customers	are	able	to	transfer	value	freely.
232
 
Finally,	programmability	associated	with	tokenized	deposits	may	increase	the	speed	and	automation	of	
transactions,	which	may	have	an	ancillary	effect	of	increasing	the	speed	of,	and	herding	behavior	leading	
to,	bank	runs.	Conversely,	programmability	could	also	be	used	to	introduce	frictions	into	the	transaction	or	
settlement	processes	to	reduce	the	speed	of	bank	runs	or	otherwise	provide	incentives	to	mitigate	the	risk	of	
herding	behavior.
233
Payments	showcase	how	stablecoins
234
	and	tokenized	bank	deposits	can	be	used	for	the	same	general	purpose	
but	differ	significantly	in	implementation	and	legal	treatment.	Both	stablecoins	and	tokenized	deposits	could	
be	used	as	means	of	payment	and	operate	on	the	same	underlying	technology.	However,	tokenized	deposits	
are	intended	to	evidence	a	bank’s	deposit	liability	and	a	holder’s	deposit	claim	against	a	regulated	bank	as	
recorded	on	a	digital	ledger.	Bank	deposits	(including	tokenized	deposits)	are	supported	by	the	bank’s	balance	
sheet	and	therefore	can	be	subject	to	federal	deposit	insurance.	Additionally,	in	the	event	of	insolvency,	
the	disposition	of	bank	deposits	would	be	addressed	through	receivership,	which	features	special	rules	for	
deposit	claims,	rather	than	through	bankruptcy	proceedings.	Stablecoins,	on	the	other	hand,	may	represent	
a	liability	of	a	bank	subsidiary	or	nonbank	counterparty	or	a	claim	on	reserve	assets.	Certain	customers	and	
counterparties may value the added security of tokenized deposits, while others may value the full reserve-
based	nature	of	certain	stablecoins	and	their	currently	wider	interoperability	and	acceptance	within	the	digital	
asset ecosystem.
Digital Asset Custody 
As	the	digital	asset	market	has	grown,	there	has	been	an	increasing	demand	for	trusted	institutions	to	provide	
custody services for digital assets, including safekeeping (e.g., controlling the cryptographic keys of customers’ 
digital assets, transaction processing, and settlement).
235
 Depository institutions have long provided custody 
services for a wide variety of physical and electronic assets, including assets that are unique and hard to 
value.	As	digital	assets	generally	consist	of	entries	on	distributed	ledgers,	providing	custody	typically	entails	
maintaining control of cryptographic keys (and potentially other sensitive information) used to transfer the 
assets on these ledgers. As in traditional custody services, customers may seek to engage the custodian to 
undertake ancillary services. In the digital asset context, ancillary services that customers may seek from 
a custodian include staking, facilitating digital asset lending, and DLT governance services. Depository 
institutions	may	provide	custody	services	themselves	or	through	sub-custodians	to	hold	cryptographic	keys	or	
white-labeling	digital	asset	custody	platforms.	
Currently,	only	a	small	number	of	banks	offer	digital	asset	custody,	with	a	focus	primarily	on	institutional	
customers.	Several	factors	likely	contributed	to	the	relatively	small	number	of	banks	that	have	decided	to	
engage	in	this	activity—most	notably,	the	now-rescinded	SEC	SAB	No.	121	to	the	extent	such	banks	were	(or	
were	subsidiaries	of)	companies	required	to	file	certain	periodic	reports	under	applicable	securities	laws.	The	
Biden	Administration’s	Operation	Choke	Point	2.0	further	contributed	by	creating	additional	procedural	steps	
and	costs	to	engage	in	digital	asset	activities	alongside	statements	from	federal	banking	regulators	and	the	
232						The	potential	availability	of	multiple	distributed	ledgers	or	blockchains	has	some	potential	benefits,	including	offering	redundancies	in	systems	that	
improve system-wide resilience.
233         See Vice Chairman Hill, Banking’s Next Chapter? Remarks on Tokenization and Other Issues, supra note 230 (discussing the potential for tokenization to 
exacerbate	and	mitigate	risks	of	speed	and	intensity	of	bank	runs).
234      See Chapter V. 
235      See OCC, Interpretive Letter No. 1170, supra note 223, at 7, 8 (noting that providing custody services for digital assets falls within longstanding authorities 
to	engage	in	safekeeping	and	custody	activities,	and	that	providing	such	services	is	permissible	in	both	non-fiduciary	and	fiduciary	capacities).	

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White House discouraging such engagement.
236
 Digital asset companies interested in providing custody 
services	as	banks	also	faced	strong	difficulty	in	receiving	bank	charters	from	the	OCC.
237
 The need for custody 
expertise,	competence	with	digital	assets,	and	cybersecurity	implications	may	also	have	reduced	engagement	
by	banks	in	such	activities.	Interest	may	also	have	been	chilled	by	long-term	volatility	within	the	digital	asset	
market	and	specific	market	events	in	2022.
238
	Finally,	other	factors	that	may	have	impacted	a	bank’s	decision	
to	offer	digital	asset	custody	include	competition	(especially	given	that	established	digital	asset	companies	
frequently	provide	custody	solutions—sometimes	for	little	or	no	cost—and	have	substantial	market	share),	
significant	capital	requirements,	the	availability	of	self-custody	options,	the	nascent	nature	of	the	technology	
in	banking,	and	perceived	risk	implications.	In	July	2025,	however,	the	Banking	Agencies	jointly	reaffirmed	the	
legal	permissibility	for	banks	to	custody	digital	assets	under	existing	laws,	regulations,	and	risk-management	
principles without creating any new supervisory expectations.
239
Facilitating Digital Asset Trading
Banks	offer	customers	digital	asset	trading	in	varying	forms.	Some	banks	provide	trade	execution	geared	
towards institutional and high net worth customers interested in gaining exposure to certain digital assets, 
supplementing custody services offered. Banks interested in offering retail customers exposure to digital asset 
markets may seek to provide these services through a third party. This simplest form of this arrangement 
enables	bank	customers	to	access	the	third	party’s	digital	asset	trading	service	through	the	bank’s	website	or	
app.	In	some	cases,	this	falls	within	a	banking	organization’s	finder	authority,	which	generally	encompasses	a	
bank	bringing	together	parties	to	a	transaction	that	the	parties	themselves	negotiate	and	execute.
240
 Other 
types of arrangements related to digital asset trading may not fall within such authority,
241
	but	may,	depending	
on the facts of the arrangement, fall under other authorities or require additional regulatory approvals. 
A	bank’s	role	in	such	an	arrangement	depends	on	the	relationship.	In	certain	cases,	it	may	include	providing	a	
variety of the third party’s disclosures and statements to customers, providing customer service and complaint 
resolution, and performing requisite transaction compliance functions for the third party. Banks may receive 
a	portion	of	the	transaction	fees	paid	by	their	customers	and	pay	fees	to	the	third	party.	Several	banks	have	
expressed	an	interest	in	expanding	trade	facilitation	services.	However,	very	few	banks	are	currently	using	their	
finder	authorities	to	provide	digital	asset	trading	to	their	customers.	
Digital Asset-Related Lending
Some	banks	have	entered	into	business	arrangements	to	extend	credit	in	transactions	that	involve	digital	
assets.	Examples	include	loans	secured	by	digital	assets	or	digital	asset	mining	equipment,	or	loans	used	to	
fund	the	borrower’s	digital	asset-related	operations.	While	loan	structures	vary,	such	lending	generally	has	
unique credit administration considerations compared to traditional lending, including perfecting a security 
interest	in	digital	asset	collateral	or	providing	for	self-execution	of	loan	terms.	As	such,	banks	looking	to	offer	
this	line	of	business	often	engage	a	third	party	to	custody	collateral,	provide	valuations,	manage	margin	calls,	
develop smart contracts, or provide other services as appropriate. 
Digital	asset-related	lending	activities	by	banks	has	so	far	been	limited.	Several	factors	likely	contributed	to	
this low interest, including the Biden Administration’s Operation Choke Point 2.0, regulatory uncertainty, and 
236     See supra note 221; infra notes 266-270. 
237     See supra note 102.
238    See supra note 224.
239					Crypto-Asset	Safekeeping	by	Banking	Organizations,	supra note 220.
240    See, e.g.,	12	C.F.R.	§	7.1002	(2025)	(national	bank	and	federal	savings	association	acting	as	finder);	12	C.F.R.	§	225.86(d)(1)	(2025)	(financial	holding	
company	acting	as	finder).
241						For	example,	an	arrangement	under	which	a	bank	purchased	digital	assets	as	agent	or	principal	or	negotiated	a	purchase	or	sale	may	be	inconsistent	with	
a	bank’s	finder	authority.	Finders	bring	together	interested	parties	for	a	transaction	that	the	parties	themselves	negotiate	and	execute.

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Banking and Digital Assets Banking and Digital Assets  •  Current Regulatory Framework
difficulties	managing	volatility	of	valuations	(both	for	digital	assets	and	mining	equipment).	However,	as	digital	
asset	markets	continue	to	mature	and	bank	customers	increasingly	hold	digital	assets,	interest	in	using	those	
assets as collateral is likely to increase.
Current Regulatory FrameworkCurrent Regulatory Framework
Federal	law	provides	the	Banking	Agencies	with	authorities	related	to:	(i)	the	supervision	and	regulation	of	
banks,	including	the	activities	they	can	engage	in	and	applicable	requirements;	(ii)	the	examination	of	banks	to	
ensure	compliance	with	applicable	laws	and	regulations;	and	(iii)	the	imposition	of	corrective	actions	for	unsafe	
or unsound practices or violations of law or regulation. In implementing federal law, the Banking Agencies may 
adopt	rules	and	regulations	to	achieve	the	law’s	objectives	and	have	also	issued	guidance,	policy	statements,	
and	other	supervisory	directives	to	provide	further	direction	to	banks	and	to	provide	transparency	and	
direction	on	how	activities	will	be	supervised.	
In	adapting	the	current	banking	regulatory	framework	to	incorporate	digital	assets,	it	is	imperative	that	the	
Banking Agencies employ a technology-neutral approach. Technological transformation does not necessarily 
alter	the	risk	profile	of	an	activity,	and	the	same	business	presenting	the	same	risk	should	be	governed	by	the	
same	rules.	Banks	should	be	able	to	engage	in	permissible	digital	asset	activities	in	a	safe	and	sound	manner	
without	prior	regulatory	approval	or	notice.	Further,	the	Banking	Agencies	should	monitor	banks’	digital	asset	
activities through an appropriate supervisory process.
Legal Permissibility
Banks	and	their	holding	companies	are	subject	to	limitations	on	what	types	of	activities	they	may	conduct.	The	
National	Bank	Act	(NBA)	generally	defines	the	permissible	activities	for	national	banks	and	is	administered	by	
the	OCC.	The	OCC’s	determination	of	whether	a	new	activity	is	permissible	for	a	national	bank	often	involves	
consideration	of	whether	that	activity	is	part	of,	or	incidental	to,	the	“business	of	banking”	under	12	U.S.C.	§	24.
242
 
One	of	the	clearest	benefits	of	the	U.S.	dual	banking	system,	in	which	banks	can	be	chartered	at	either	the	state	
or	federal	level,	is	the	ability	for	states	to	“serve	as	laboratories	for	innovation,”
243
 which has resulted in state 
banks	“[taking]	the	lead	in	safe	and	sound	product	innovations,	including	variable-rate	mortgages	and	home	
equity loans.”
244
	The	OCC	itself	has	stated	that	“[s]tate	banking	does	not	deliver	the	benefits	of	having	separate	
state	systems	serve	as	‘laboratories’	if	state	bank	powers	simply	copycat	national	bank	powers.”
245
 Nonetheless, 
since	2023,	the	permissible	activities	engaged	in	as	principal	by	state	non-member	banks
246
	and	state	member	
banks
247
	are	generally	limited	to	those	permitted	under	the	NBA	as	interpreted	by	the	OCC.
242						For	federal	savings	associations,	the	permissibility	of	an	activity	typically	depends	on	the	Home	Owners’	Loan	Act,	12	U.S.C.	§	1461	et	seq.
243      OCC, National Banks and the Dual Banking System 8, 9 (Sept. 2003), https://www.occ.gov/publications-and-resources/publications/banker-education/files/
pub-national-banks-and-the-dual-banking-system.pdf. 
244      Julie L. Stackhouse, Why America’s Dual Banking System Matters, Federal Reserve Bank of St. Louis (Sept. 18, 2017), https://www.stlouisfed.org/on-the-
economy/2017/september/americas-dual-banking-system-matters.
245      OCC, supra note 243, at 11.
246						Section	24	of	the	Federal	Deposit	Insurance	Act	generally	prohibits	all	insured	state	banks	(member	and	non-member)	and	their	subsidiaries	from	
engaging	as	principal	in	activities	that	are	not	permissible	for	national	banks	and	their	subsidiaries,	unless	(i)	the	FDIC	has	determined	that	the	activity	
would	pose	no	significant	risk	to	the	Deposit	Insurance	Fund;	and	(ii)	the	state	bank	is,	and	continues	to	be,	in	compliance	with	applicable	capital	
standards. 12 U.S.C. § 1831a. See also 12 U.S.C. § 1831e with respect to activities of state savings associations. Additionally, under certain circumstances, the 
FDIC	may	approve	additional	activities	for	insured	state-chartered	banks.	See 12 C.F.R. § 362 (2025).
247						Under	Section	9(13)	of	the	Federal	Reserve	Act,	a	state	member	bank	retains	its	full	charter	and	statutory	rights	as	a	state	bank	and	may	continue	to	
exercise	all	corporate	powers	granted	it	by	the	state	in	which	it	was	created.	However,	the	Board	may	limit	the	activities	of	state	member	banks	and	their	
subsidiaries	in	a	manner	consistent	with	Section	24	of	the	Federal	Deposit	Insurance	Act.	See supra note 246. The Board issued a policy statement, which 
it	ultimately	codified	in	Regulation	H,	interpreting	Section	9(13)	of	the	Federal	Reserve	Act	to	create	a	rebuttable	presumption	against	permissibility	of	
“novel and unprecedented” activities, including crypto-asset-related activities. Policy Statement on Section 9(13) of the Federal Reserve Act, 88 Fed. 
Reg.	7848	(Feb.	7,	2023)	(codified	at	12	C.F.R.	pt.	208	(2025)).

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In	February	2023,	as	a	continuation	of	the	Biden	Administration’s	Operation	Choke	Point	2.0	efforts	to	shut	
down	interest	from	state	member	banks	in	engaging	in	digital	asset-related	activities	and	other	“novel	and	
unprecedented” activities, the FRB issued a policy statement interpreting Section 9(13) of the Federal Reserve 
Act	to	“set	out	a	rebuttable	presumption	that	it	will	exercise	its	discretion	under	that	provision	to	limit	state	
member	banks	to	engaging	as	principal	in	only	those	activities	that	are	permissible	for	national	banks—in	each	
case,	subject	to	the	terms,	conditions,	and	limitations	placed	on	national	banks	with	respect	to	the	activity—
unless	those	activities	are	permissible	for	state	banks	by	federal	statute	or	under	part	362	of	the	Federal	Deposit	
Insurance Corporation’s regulations.”
248
	State	member	banks	interested	in	engaging	in	such	activities	are	now	
required to demonstrate to the FRB a “clear and compelling rationale” for permitting the activities and that the 
bank	has	“robust	plans	for	managing	the	risks”	of	such	activities	in	accordance	with	principles	of	safe	and	sound	
banking.	The	FRB	then	revised	Regulation	H,	which	defines	the	membership	requirements	for	state-chartered	
banks,	to	incorporate	the	2023	policy	statement,	effectively	codifying	the	rebuttable	presumption	into	law.
249
As	a	consequence,	the	activities	that	the	OCC	has	authorized	for	national	banks,	if	permitted	under	state	
law,	generally	represent	the	full	breadth	of	activities	in	which	a	state	member	bank	may	engage	as	principal	
without	limitation	under	Section	9(13),	contrary	to	the	longstanding	tenet	that	the	dual	banking	system	should	
promote	innovation	in	new	banking	products	on	the	state	level.	The	FRB’s	utilization	of	Section	9(13)	and	its	
discretionary	powers	under	§	208.3(d)(2)	of	Regulation	H	has	resulted	in	a	de	facto	prohibition	by	state	member	
banks	from	engaging	in	most	digital	asset	related	activities.
At	the	organizational	level,	the	Bank	Holding	Company	Act,	which	is	administered	by	the	FRB,	generally	
governs	the	permissibility	of	the	activities	of	bank	holding	companies	(BHCs)	and	financial	holding	companies	
(FHCs).
250
	The	BHC	Act	primarily	restricts	the	activities	of	BHCs	and	their	subsidiaries	to	activities	that	are	
closely	related	to	banking.
251
	In	addition,	BHCs	that	elect	to	be	treated	as	FHCs	(per	the	Gramm-Leach-Bliley	
Act)	can	engage	in	a	broader	range	of	nonbanking	activities	that	are	“financial	in	nature,”	“incidental	to	a	
financial	activity,”	or	“complementary	to	a	financial	activity.”
252
	Any	significant	acquisitions	or	expansions	into	
new	activities	by	BHCs	and	FHCs	generally	require	FRB	approval.	
In	July	2020,	the	OCC	issued	Interpretive	Letter	No.	1170	that	concluded	that	national	banks	and	federal	
savings associations (FSAs) may provide digital asset custody services, including the safekeeping of 
cryptographic keys for customers.
253
	In	September	2020,	the	OCC	issued	Interpretive	Letter	No.	1172	that	
concluded	that	national	banks	and	FSAs	may	hold	deposits	that	serve	as	reserves	backing	stablecoins.
254
 Then, 
in	January	2021,	the	OCC	issued	Interpretive	Letter	No.	1174	that	concluded	that	national	banks	and	FSAs	may	
use	DLT	and	related	stablecoins	to	conduct	bank-permissible	payment	activities.
255
 Later, the OCC issued 
Interpretive	Letter	No.	1179,	which	set	forth	a	supervisory	non-objection	process	for	engaging	in	the	activities	
described	in	Interpretive	Letters	Nos.	1170,	1172,	and	1174.
256
 In March 2025, the OCC issued Interpretive Letter 
No.	1183,	which	rescinded	Interpretive	Letter	No.	1179	thereby	eliminating	the	supervisory	non-objection	
248     88 Fed. Reg. 7848, supra note 246.
249      12 C.F.R. § 208.112 (2025).
250     The Home Owners’ Loan Act governs the activities of savings and loan holding companies. 12 U.S.C. § 1467a(c).
251						This	includes	extending	credit	and	related	activities,	leasing	personal	or	real	property,	trust	company	functions,	financial	and	investment	advisory	
activities,	agency	transactional	services	for	customer	investments	(e.g.,	securities	brokerage),	management	consulting,	certain	insurance	activities,	and	
data processing.
252  						 12	U.S.C.	§	1843(k)(1).	For	example,	FHCs	may,	among	other	things,	act	as	finder	in	bringing	together	one	or	more	buyers	and	sellers	of	a	product	or	service;	
engage	in	merchant	banking	and	certain	insurance	underwriting	activities;	and	engage	in	underwriting,	dealing	in,	or	making	a	market	in	securities.
253     OCC, Interpretive Letter No. 1170, supra note 223.
254     OCC, Interpretive Letter No. 1172, supra note 223.
255     OCC, Interpretive Letter No. 1174, supra note 223.
256					OCC,	Interpretive	Letter	No.	1179,	Chief	Counsel’s	Interpretation	Clarifying:	(1)	Authority	of	a	Bank	to	Engage	in	Certain	Cryptocurrency	Activities;	
and (2) Authority of the OCC to Charter a National Trust Bank (Nov. 18, 2021), https://www.occ.treas.gov/topics/charters-and-licensing/interpretations-and-
actions/2021/int1179.pdf.

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process	described	in	that	letter.	Interpretive	Letter	No.	1183	also	reaffirmed	that	the	activities	addressed	in	
Interpretive	Letters	Nos.	1170,	1172,	and	1174	are	permissible.
257
 In May 2025, the OCC issued Interpretive Letter 
No.	1184,	which	confirmed	that	national	banks	and	FSAs	could	buy	and	sell	digital	assets	held	in	custody	at	the	
customer’s	direction	and	outsource	bank-permissible	digital	asset	activities	to	a	third	party.
258
 Finally, in July 
2025,	the	Banking	Agencies	issued	a	joint	statement	reaffirming	the	legal	permissibility	for	banks	to	custody	
digital assets under the existing regulatory framework without creating any new supervisory expectations.
259
In	November	2021,	the	Banking	Agencies	issued	a	joint	statement	outlining	plans	to	provide	greater	clarity	
on	whether	certain	activities	related	to	digital	assets	conducted	by	banks	are	legally	permissible	and	to	
describe	expectations	for	safety	and	soundness,	consumer	protection,	and	compliance	with	existing	laws	and	
regulations	related	to	a	number	of	digital	asset	related	activities,	specifically	highlighting	custody,	facilitation	
of	customer	purchases	and	sales,	digital	asset	collateralized	lending,	stablecoin	activities,	and	holding	digital	
assets	on	balance	sheet.	However,	under	the	Biden	Administration,	the	Banking	Agencies	did	not	carry	out	
those	plans	to	provide	guidance	specific	to	those	digital	asset	activities,	and	as	mentioned	above,	the	Federal	
Reserve’s policy statement on Section 9(13) and corresponding revisions to Regulation H further complicated 
the	degree	to	which	state	member	banks	could	engage	in	digital	asset-related	activities.	
Therefore,	there	remains	significant	outstanding	uncertainty	regarding	the	permissibility	of	digital	asset-related	
activities	at	the	bank	level,	especially	beyond	those	addressed	in	OCC	Interpretive	Letters	Nos.	1170,	1172,	1174,	
1183,	and	1184,	and	outside	the	bank	chain	within	a	BHC/FHC	structure.	For	example,	banks	are	interested	in	
acquiring	and	using	digital	assets	to	pay	transaction	fees	(e.g.,	gas	fees)	to	conduct	bank-permissible	activities	
on	public	blockchains.	Likewise,	banks	are	seeking	clarity	on	whether	and	how	they	may	purchase	and	sell	digital	
assets	as	riskless	principals	for	customers	and	whether	banks	may	make	markets	in	digital	assets.	Similarly,	banks	
are	seeking	clarity	regarding	their	authority	to	act	as	finders	and	lenders	in	the	context	of	digital	asset-related	
activities,	and	whether	some	activities	are	permissible	only	at	the	BHC/FHC	level.
Depository Institution and Market Participant Concerns
A clear regulatory framework is required to ensure that depository institutions can continue to innovate 
responsibly	to	facilitate	customer	engagement	with	digital	assets	and	to	use	digital	asset	technology	in	
a	safe	and	sound	manner	that	complies	with	applicable	laws	and	regulations.	Any	regulatory	framework	
should	be	derived	from	a	clear	statutory	basis	and	be	efficient	and	fair.	Therefore,	it	is	essential	that	
the	Banking	Agencies	ensure	that	they	employ	a	technology-neutral	approach	to	bank	regulation	and	
supervision	when	incorporating	digital	assets	into	the	current	banking	regulatory	framework.	As	a	policy	
matter,	and	from	the	perspectives	of	efficiency	and	competition,	it	could	be	detrimental	to	innovation	in	
the	financial	system	for	the	Banking	Agencies	to	treat	decentralization	and	permissionless	infrastructure	as	
categorically	negative	given	the	potential	benefits	of	this	technology.	While	the	regulators	have	retracted	
much	of	the	Biden	Administration’s	approach	to	digital	asset	supervision	that	may	have	hampered	banks’	
ability	to	engage	with	digital	assets,	additional	work	is	needed	to	address	many	of	the	remaining	concerns	
expressed	by	depository	institutions.	
Depository institutions have expressed many concerns regarding the current regulatory framework, most 
notably:
 ■A	lack	of	legal	clarity	on	whether	banks	can	offer	certain	digital	asset-related	products	and	services	and	
use	DLT	technology	in	certain	areas.	Specifically,	banks	have	asked	for	further	clarity	as	to	whether	they	
may	use	public,	permissionless	blockchains	now	that	the	effective	prohibition	of	such	use	under	the	Biden	
257      OCC, Interpretive Letter No. 1183, supra note 216.
258      OCC, Interpretive Letter No. 1184, supra note 216.
259						Crypto-Asset	Safekeeping	by	Banking	Organizations,	supra note 2 2 0.

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Administration has been lifted.
260
 Additionally, banks have asked for guidance on how they can safely and 
soundly engage in such activities. 
 ■A lack of clear standards on safe and sound engagement with digital assets; the Banking Agencies have not 
ensured supervisory consistency and expertise in bank digital asset engagement.
 ■A lack of clear capital standards on balance sheet treatment for many digital assets and concern that the 
BCBS standards may not accurately reflect current risks.
 ■Difficulties reported by some digital asset market participants in either finding or maintaining banking 
services. 
 ■A lack of clarity for eligible firms on the expectations and process for obtaining a bank charter or a Reserve 
Bank master account.
Recommendations Recommendations 
Relaunch agency crypto innovation efforts—as appropriate—to address outstanding bank activities.
• These efforts should prioritize providing clarity on the activities that banks are most interested in 
conducting with a clear process for considering other or new activities. The objectives would be to:
 ◆Clarify or expand the recognized, permissible digital asset activities in which banks may engage, 
consistent with applicable law;
 ◆To the extent possible, and consistent with applicable law, ensure parity in permissibility between bank 
charter types; and 
 ◆Clarify supervisory expectations on safe and sound conduct that protects consumers and is compliant 
with applicable laws and regulations in bank engagement with digital assets, private and permissionless 
blockchains, tokenized deposits, and where to conduct principal bank activities (e.g., in the insured 
depository institution or the holding company). 
• The initial activities and topics to consider include: 
 ◆Custody of Digital Assets. While the Banking Agencies have clarified permissibility and certain risk 
management considerations,
261
 it could be beneficial to provide additional guidance on technical best 
practices.
 ◆Third Parties. While the Banking Agencies have clarified the permissibility of using third parties as 
sub-custodians,
262
 it may be beneficial to ensure any additional guidance on permissibility or risk 
management for other digital asset activities reiterates the ability to use third parties as infrastructure 
providers or for other digital asset services.
 ◆Holding Stablecoin Reserves as Deposits. While the OCC has clarified permissibility,
263
 it could be 
beneficial to offer additional guidance now that GENIUS has been enacted.
 ◆Principal Activities. Provide clarity on the permissibility for depository institutions to hold digital assets 
on their balance sheet and any associated safety and soundness concerns.
264
 
260      See Acting Chairman Hill, supra note 217 (“One specific area that merits attention is the use of public, permissionless blockchains by banks. Other 
jurisdictions have allowed banks to interact with public chains for many years, but the U.S. banking agencies have effectively prohibited it . . . . The 
banking agencies will need to formally revisit the January 2023 and February 2023 interagency guidance and develop durable standards for the 
responsible use of public chains, as well as other activities implicated by the guidance.”)
261      Crypto-Asset Safekeeping by Banking Organizations, supra note 220; OCC, Interpretive Letter No. 1170, supra note 223; OCC, Interpretive Letter No. 1183, 
supra note 216; OCC, Interpretive Letter No. 1184, supra note 216.
262      Crypto-Asset Safekeeping by Banking Organizations, supra note 220; OCC, Interpretive Letter No. 1170, supra note 223; OCC, Interpretive Letter No. 1184, 
supra note 216.
263      OCC, Interpretive Letter No. 1172, supra note 223; OCC, Interpretive Letter No. 1174, supra note 223; OCC, Interpretive Letter No. 1183, supra note 216.
264      Banks have also expressed interest in holding and using small amounts of cryptocurrency to pay transaction or gas fees for customers and in conducting 
riskless principal cryptocurrency transactions.

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 ◆Pilots. Clarity	is	needed	on	the	ability	for	depository	institutions	to	participate	in	pilots	and	experiments	
related to digital assets.
 ◆Tokenization.	Provide	clear	risk-based	guidelines	that	consider	underlying	risk	and	asset	features	to	
determine	the	permissibility	of	bank	tokenization	activities,	including	tokenization	of	deposits.
 ◆Permissionless Blockchains.	Provide	clarity	regarding	the	use	of	permissionless	blockchains	that	
ensures a technology-neutral approach focusing on underlying risks of the activity or technology versus 
using technology alone as a proxy for risk.
Encourage innovation in banking technologies and products by state-chartered banks. 
• The FRB should rescind the 2023 Section 9(13) Policy Guidance and 12 C.F.R. § 208.112 (which effectively 
codifies	the	Policy	Guidance	into	Regulation	H),	to	ensure	that	state	member	banks	are	permitted	to	
explore	innovative	banking	technologies	and	products.
Develop guidance and best practices to support banks and supervisors that is technically sound and 
principles-based. 
• Risk	management	principles	and	best	practices	described	in	existing	agency	issuances	generally	
provide	flexible	guidance	for	banking	organizations’	considerations	that	can	apply	to	the	safe	and	sound	
implementation of innovative technologies and products, including those related to digital assets and 
D LT.
265
	Nonetheless,	it	is	important	that	agency	examination	teams	and	banks	are	properly	equipped	to	
adopt current risk management principles to digital asset technologies.
• This	could	involve	engagement	with	NIST	and	others	to	identify	applicable	standards	or	best	practices	that	
could	be	used	in	guidance	for	some	digital	asset	activities	such	as	providing	digital	asset	custody	services,	
ensuring	compliance	with	applicable	AML/CFT	obligations	(see	Chapter VI, which discusses the AML-
specific	regulatory	duties	for	digital	assets	for	more	details),	or	managing	cyber	risks	particular	to	digital	
assets.
• This	could	also	include	best	practices	or	standards	applicable	to	banks’	use	of	third	parties	in	the	provision	
of digital asset services.
• Finally, the Banking Agencies and state regulators should ensure that their examination teams are 
adequately	educated	on	issues	related	to	digital	assets	and	the	consistent	application	of	best	practices	and	
standards across institutions.
Supervision
Bank	supervisors	should	expect	bank	risk	management	processes	to	be	applied	based	on	risk,	with	the	
intensity and rigor of risk management corresponding to, among other things, the complexity, criticality, and 
magnitude of the technological change or new activity. Banks considering the adoption of new technologies 
should	consider	their	overarching	business	strategy,	policy	objectives,	and	existing	risk	management	
and	compliance	frameworks	when	identifying	whether	and	how	existing	controls	may	be	adapted	and	
supplemented.	Similarly,	the	Banking	Agencies	should	examine	banks’	activities	from	a	technology-neutral	
approach,	focusing	on	such	activities’	material	risks	and	the	banks’	abilities	to	manage	such	risks.	
While	certain	digital	asset	activities	were	legally	permissible	in	the	past,	many	banks	were	deterred	in	part	to	
the Biden Administration’s supervisory framework governing such activities. Following the issuance of the 
OCC’s	interpretive	letters	in	2020	and	2021	clarifying	the	permissibility	of	certain	digital	asset	activities	at	
the	end	of	President	Trump’s	first	administration,	the	Banking	Agencies	subsequently	effected	notification	
265      See, e.g., OCC, Bulletin 2017-43, New,	Modified,	or	Expanded	Bank	Products	and	Services:	Risk	Management	Principles	(Oct.	20,	2017),	https://www.occ.
treas.gov/news-issuances/bulletins/2017/bulletin-2017-43.html.

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and	non-objection	processes	for	banks	seeking	to	engage	in	digital	asset	activities	and	issued	statements	
highlighting heightened risks associated with certain digital asset activities.
As	noted	above,	in	November	2021,	the	OCC	issued	Interpretive	Letter	No.	1179	which	set	forth	a	supervisory	
non-objection	process	for	engaging	in	certain	crypto-related	activities;
266
 in April 2022, the FDIC issued 
Financial Institution Letter 16-2022 requesting that supervised institutions notify the FDIC prior to engaging 
in crypto-related activity;
267
 and in August 2022, the FRB issued SR Letter 22-6 requesting that supervised 
institutions notify Federal Reserve supervisors prior to engaging in crypto-related activity.
268
 In January 2023, 
the	Banking	Agencies	jointly	issued	a	statement	on	digital	asset	risks	to	banking,	asserting	that	business	
models	that	are	concentrated	in	digital	assets	raise	significant	safety	and	soundness	concerns	and	that	
issuing	or	holding	as	principal	digital	assets	that	are	issued,	stored,	or	transferred	on	an	open,	public,	and/or	
decentralized	network	is	highly	likely	to	be	inconsistent	with	safe	and	sound	banking	practices.
269
	In	February	
2023,	the	Banking	Agencies	jointly	issued	a	statement	on	the	liquidity	risks	to	banks	presented	by	certain	
sources of funding from digital asset related entities.
270
The	Biden	Administration’s	approach	severely	curtailed	bank	engagement	in	digital	assets.	However,	as	
previously	mentioned,	the	Banking	Agencies	rescinded	their	notification	and	non-objection	processes	in	early	
2025	to	clarify	that	banks	may	engage	in	permissible	digital	asset	related	activities	without	receiving	prior	
regulatory approval.
271
	The	Banking	Agencies	also	withdrew	the	January	2023	and	February	2023	joint	statements	
to	provide	further	clarity	that	banks	may	engage	in	permissible	digital	asset	activities	and	provide	products	and	
services	to	persons	and	firms	engaged	in	digital	asset-related	activities,	consistent	with	safety	and	soundness	
and	applicable	laws	and	regulations.
272
	Those	series	of	actions	have	moved	the	supervision	of	bank	digital	assets	
activities	back	to	the	regular	supervisory	process.	Nonetheless,	some	banks	have	indicated	that	additional	
guidance,	such	as	on	best	practices,	could	provide	additional	clarity	on	supervisory	expectations	for	risk	
management	related	to	specific	aspects	of	digital	asset	activities	(e.g.,	custody,	BSA/AML,	and	cyber	security).
273
 
Recommendations Recommendations 
Clarify the role of supervisors and banks in offering banking services to potential customers.
• The	Banking	Agencies	should	ensure	that	existing	and	new	best	practices	or	guidance	on	risk	management	
and	bank	engagement	are	technology-neutral	and	that	expectations	regarding	offering	banking	services	
do	not	discriminate	against	lawful	businesses	solely	due	to	their	industry.	For	example,	OCC	Bulletin	2014-
58:	Banking	Money	Services	Businesses:	Statement	on	Risk	Management,	which	makes	clear	that	the	OCC	
expects	OCC-regulated	banks	to	assess	the	risks	posed	by	an	MSB	customer	on	a	case-by-case	basis	
rather	than	to	consider	all	MSBs	high	risk,	could	be	extended,	and	the	FRB	and	FDIC	could	issue	similar	
guidance.
2 74
266     OCC, Interpretive Letter No. 1179, supra note 256.
267					FDIC,	FIL	16-22,	Notification	of	Engaging	in	Crypto-Related	Activities	(Apr.	7,	2022),	https://www.fdic.gov/news/inactive-financial-institution-letters/2022/
fil22016.html. 
268					FRB,	SR	22-6,	Engagement	in	Crypto-Asset-Related	Activity	by	Federal	Reserve-Supervised	Banking	Organizations	(Aug.	16,	2022),	https://www.
federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a3.pdf. 
269      Joint Statement on Crypto-Asset Risks to Banking Organizations, supra note 219.
270						Joint	Statement	on	Liquidity	Risks	to	Banking	Organizations	Resulting	from	Crypto-Asset	Market	Vulnerabilities,	supra note 2 1 9.
271      See FDIC Press Release, supra note 215; FRB Press Release, supra note 218;	Press	Release,	OCC,	OCC	Clarifies	Bank	Authority	to	Engage	in	Certain	
Cryptocurrency Activities (Mar. 7, 2025), https://www.occ.treas.gov/news-issuances/news-releases/2025/nr-occ-2025-16.html. 
272      See Press Release, FDIC, Agencies Withdraw Joint Statements on Crypto-Assets (Apr. 24, 2025), https://www.fdic.gov/news/press-releases/2025/agencies-
withdraw-joint-statements-crypto-assets. 
273      See Chapter VI.
2 74             See OCC,	Bulletin	2014-58,	Banking	Money	Services	Businesses:	Statement	on	Risk	Management	(Nov.	19,	2014),	https://www.occ.gov/news-issuances/
bulletins/2014/bulletin-2014-58.html.

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 ◆Notably,	much	work	has	already	been	done	in	in	this	area	as	the	Banking	Agencies	withdrew	previous	
guidance	on	bank	engagement	with	digital	assets	that	did	not	fully	adhere	to	that	principle.
275
 ◆Additionally,	the	removal	of	reputation	risk	as	a	basis	for	supervisory	criticism	by	the	Banking	Agencies	
is	also	underway	and	should	be	finalized	as	soon	as	possible.
276
 
Access to Providing Banking Services Access to Providing Banking Services 
Some	digital	asset	firms	that	provide	payments,	lending,	or	custody	services	may	consider	obtaining	a	bank	
charter to provide additional services in a prudentially regulated environment and to reduce reliance on third-
party	banks.	Digital	asset	firms	may	consider	a	bank	charter	(including	certain	uninsured	state	or	national	
charters)	to	gain	strategic	autonomy	and	cost	efficiencies,	allow	better	integration	with	the	mainstream	
financial	system,	and	gain	regulatory	credibility	which	could	increase	trust	from	both	retail	and	institutional	
clients.	Additionally,	some	firms	may	seek	bank	charters	to	obtain	Federal	Reserve	Bank	(Reserve	Bank)	master	
accounts and payment service access, which could reduce costs, delays, and counterparty risks in processing 
payments.	These	benefits	could	offer	those	digital	asset	firms	a	competitive	advantage	over	other	digital	asset	
firms	and	fintech	companies,	and	a	level	playing	field	with	traditional	financial	institutions.
Charters
A	bank	charter	is	a	legal	authorization	that	allows	a	legal	entity	to	operate	as	a	bank.	Banks	generally	accept	
deposits,	make	loans,	and	provide	other	financial	services	such	as	payments,	wealth	management,	custody,	
and	currency	exchange.	While	some	charters	(and	relevant	federal	and	state	laws)	permit	banks	to	engage	
in	all	of	these	activities,	some	may	be	limited	to	a	subset	of	commercial	bank	services.	A	bank	also	generally	
meets the legal threshold for a Reserve Bank master account and payment services access,
277
	and	applicable	
laws	may	make	an	institution	eligible	to	apply	for	FDIC	insurance	(but	do	not	necessarily	require	it	for	some	
novel	charters)	and	provide	eligibility	for	other	U.S.	banking	infrastructure.	States	may	charter	general-purpose	
commercial	banks	that	must	be	federally	insured	before	commencing	operations;	these	state-chartered	banks	
are	regulated	by	both	the	state	chartering	authority	and	a	federal	regulator.	The	FRB	is	the	primary	federal	
regulator	for	state-chartered	banks	that	are	members	of	the	Federal	Reserve	System	(FRS),	and	the	FDIC	is	
the	primary	federal	regulator	for	federally-insured	state-charted	institutions	that	are	not	members	of	the	FRS.	
The	OCC	charters	national	banks	and	federal	savings	associations	and	is	their	primary	federal	regulator.	The	
FDIC	also	has	back	up	examination	authority	over	insured	banks	for	which	either	the	OCC	or	FRB	is	the	primary	
federal regulator.
Chartered	banks	are	subject	to,	among	other	things,	prudential	regulation,	capital	and	liquidity	requirements,	
consumer protection laws, and regulatory supervision and enforcement. Chartering authorities may charter 
institutions	that	do	not	provide	the	full	range	of	commercial	bank	services	or	that	are	not	required	to	obtain	
deposit	insurance.	For	example,	certain	banks	engage	in	a	more	limited	business	model,	such	as	special-
purpose	credit-card	banks	or	banks	with	activities	limited	to	those	of	a	trust	company	and	activities	related	
thereto.	States	may	also	charter	depository	institutions	that	have	the	authority	to	take	deposits	but	are	
not	required	to	obtain	federal	deposit	insurance.	Different	resolution	frameworks	would	apply	as	well.	The	
activities	undertaken	by	the	institution	determine	the	necessary	type	of	charter,	regulatory	framework,	and	
275      See OCC,	Bulletin	2025-2,	Bank	Activities:	OCC	Issuances	Addressing	Certain	Crypto-Asset	Activities	(Mar.	7,	2025),	https://occ.gov/news-issuances/
bulletins/2025/bulletin-2025-2.html; FDIC Press Release, supra note 272.
276						The	OCC	and	the	Board	have	announced	that	they	will	no	longer	examine	banks	for	reputation	risk.	Supra note 217. The FDIC is also “working on a 
rulemaking	related	to	reputation	risk	that	would	prohibit	FDIC	supervisors	from	(1)	criticizing	or	taking	adverse	action	against	institutions	on	the	basis	
of	reputational	risk	and	(2)	requiring,	instructing,	or	encouraging	institutions	to	close,	modify,	or	refrain	from	offering	accounts	on	the	basis	of	political,	
social, cultural, or religious views.” Acting Chairman Hill, supra note 2 1 7.
277						As	explained	in	further	detail	below,	the	FRB	has	established	guidelines	for	the	Reserve	Banks	to	use	when	evaluating	whether	to	exercise	their	discretion	
to grant access to master accounts or payments services.

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federal	safety	nets	under	which	a	bank	is	supervised.	A	bank	charter	is	essential	for	firms	looking	to	provide	
a	full	suite	of	banking	products	and	services	as	it	grants	certain	needed	legal	authorities	while	often	allowing	
the	opportunity	to	apply	for	FDIC	deposit	insurance	(or	requiring	the	application)	and	obtain	Reserve	Bank	
payment services.
Obtaining	a	bank	charter	and	FDIC	insurance	is	a	detailed,	rigorous	process	designed	to	ensure	that	the	
financial	institution	applying	will	be	financially	sound,	well-capitalized	and	well-managed,	and	capable	of	
operating	safely	and	in	compliance	with	applicable	banking	rules	and	regulations.
278
 Federal and state agencies 
generally use the Interagency Charter and Federal Deposit Insurance Application to collect information for 
and	evaluate	a	de	novo	charter	(a	charter	for	a	newly	formed	bank)	and	deposit	insurance	application,	where	
applicable.	While	there	are	some	differences	in	what	is	required	and	evaluated	across	different	bank	charter	
types,	the	interagency	application	gives	a	general	overview	of	what	banks	are	required	to	consider.
279
 Some 
firms	considering	a	bank	charter	have	expressed	frustration	with	a	lack	of	clarity	on	timing	for	completing	the	
process and transparency on the application process.
280
Master Accounts
A	Reserve	Bank	master	account	is	a	deposit	account	maintained	by	a	bank	or	other	type	of	depository	
institution	at	a	regional	Reserve	Bank	and	provides	a	gateway	to	the	Federal	Reserve’s	balance	sheet,	which	is	
used	to	promote	financial	stability	and	conduct	monetary	policy.	A	master	account	“is	both	a	record	of	financial	
transactions	that	reflects	the	financial	rights	and	obligations	of	an	account	holder	and	of	the	Reserve	Bank	
with	respect	to	each	other,	and	the	place	where	opening	and	closing	balances	are	determined.”
281
 The Federal 
Reserve	Act	authorizes	the	FRS	to	hold	deposits—which,	as	noted,	are	held	in	master	accounts—for	depository	
institutions,	FRS	member	banks,	and	certain	U.S.	branches	and	U.S.	agencies	of	foreign	banks.
282
 Depository 
institutions	and	other	eligible	entities	use	deposits	held	in	a	master	account	at	the	Federal	Reserve	for	the	
settlement	of	interbank	payments.
Institutions seeking a master account must request access from their regional Reserve Bank. The Reserve 
Banks	utilize	guidelines	approved	by	the	FRB	in	2022	when	evaluating	requests	for	a	master	account.
283
 Some 
firms	that	may	be	eligible	for	a	master	account	have	expressed	frustration	with	a	lack	of	clarity	on	timing	for	
completing the process though the FRB is providing transparency on process outcomes. 
278      See 12	C.F.R.	§	5.20	(2025);	OCC,	Comptroller’s	Licensing	Manual:	Charters	(Dec.	2021),	https://www.occ.treas.gov/publications-and-resources/publications/
comptrollers-licensing-manual/files/charters.pdf;	12	C.F.R.	pt.	303	(2025);	FDIC,	Applying	for	Deposit	Insurance:	A	Handbook	for	Organizers	of	De	Novo	
Institutions (Dec. 2019), https://www.fdic.gov/regulations/applications/depositinsurance/handbook.pdf;	FDIC,	Deposit	Insurance	Applications:	Procedures	
Manual Supplement - Applications from Non-Bank and Non-Community Bank Applicants (Dec. 2019), https://www.fdic.gov/regulations/applications/
depositinsurance/procmanual-supplement.pdf. 
279      See Andrew	P.	Scott,	An	Analysis	of	Bank	Charters	and	Selected	Policy	Issues,	CRS	R47014	(2022)	(“The	application’s	basic	structure	covers	the	following	
areas:	overview	of	institution’s	business	model,	activities,	public	and	private	offerings,	and	the	articles	of	association	or	incorporation	and	bylaws;	description	
of	the	management,	including	directors,	executives,	officers,	board	members,	conflicts	of	interest,	and	stock	benefit	plans;	details	of	the	institution’s	capital	
plans,	including	capital	to	be	raised,	class	and	amount	of	stock	to	be	issued,	capital	adequacy	projections,	and	corporate	tax	status;	description	of	how	
the	institution	meets	the	needs	of	the	community,	consistent	with	its	business	plan,	and	a	separate	plan	to	meet	obligations	pursuant	to	the	[Community	
Reinvestment	Act];	description	of	the	premises	and	fixed	assets,	security	plans	to	protect	property,	plans	to	establish	branches,	and	identification	of	
the	main	office;	records	of	the	information	systems	used,	including	a	description	of	the	physical	and	logical	components	of	security	systems	used;	other	
information,	such	as	functions	to	be	outsourced,	fidelity	coverage,	a	plan	to	comply	with	the	Bank	Secrecy	Act,	and	the	organization’s	planned	expenses.”).
280     The OCC’s Licensing Manual states that the OCC seeks to make a decision within 120 days after receipt of a complete application via a standard 
submission.	OCC,	supra note 278, at 36.
281       FRB, Reserve Maintenance Manual 5 (Nov. 2019), https://www.federalreserve.gov/monetarypolicy/files/reserve-maintenance-manual.pdf. 
282						12	U.S.C.	§§	342,	347d.	Section	19(b)(1)(A)	of	the	Federal	Reserve	Act	defines	depository	institution	for	purposes	of	the	Federal	Reserve	Banks’	authority	to	
maintain	deposits.	12	U.S.C.	§	461(b)(1)(A).	The	Reserve	Banks	are	also	permitted	to	maintain	accounts	for	other	entities,	including	foreign	banks,	foreign	
states	or	as	fiscal	agent	of	the	United	States.	12	U.S.C.	§§	358	and	391.
283      Guidelines for Evaluating Account and Services Requests, 87 Fed. Reg. 51099 (Aug. 19, 2022).

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Recommendations Recommendations 
• Provide clarity and transparency regarding the process for eligible institutions to obtain a bank charter 
or a Reserve Bank master account.
 ◆The	relevant	Banking	Agencies	should	clarify	and	define	in	regulation	the	expected	timelines	for	
decision-making on completed applications for charter licensing (including federal deposit insurance 
where	applicable)	and	requesting	a	Reserve	Bank	master	account.
 
 ◆If	regulatory	timelines	are	not	met	for	a	given	application,	the	application	should	be	deemed	approved	
absent	extraordinary	circumstances.
 ◆The	Banking	Agencies	should	also	confirm	that	otherwise	eligible	entities	are	not	prohibited	from	
obtaining	bank	charters,	obtaining	federal	deposit	insurance,	or	receiving	Reserve	Bank	master	
accounts	or	services	solely	because	they	engage	in	digital	asset-related	activities.
 ◆Finally,	the	Banking	Agencies	should	provide	additional	transparency,	as	appropriate,	on	the	number	of,	
and average time to review, complete applications, including new charter applications, federal deposit 
insurance	applications,	and	Reserve	Bank	master	account	applications,	on	both	an	aggregated	and	
annual	basis.
Federal Credit UnionsFederal Credit Unions
Some credit unions have engaged in the digital asset ecosystem primarily as service providers to digital 
asset	market	participants	or	as	intermediaries	facilitating	member	access	to	these	markets.	
 ■Traditional (Core) Financial Services: Similar	to	banks,	some	credit	unions	offer	core	financial	
services	to	digital	asset-related	businesses,	including	deposit	accounts,	payment	services,	
and	settlement	capabilities.	NCUA	share	insurance	only	covers	member	shares	(akin	to	bank	
deposits)	at	most	credit	unions.	As	a	result,	digital	asset	firms	frequently	partner	with	credit	unions	
designated	as	low-income	(LICUs),	as	share	insurance	covers	both	member	and	non-member	
shares at these institutions.
 ■Custody and Member Access Services: A	small	but	growing	number	of	credit	unions	have	explored	
partnerships to facilitate digital asset custody. Several credit unions facilitate digital asset exchange 
services	(buy,	sell,	and	hold	cryptocurrency	assets)	through	third-party	platforms,	with	information	
relating	to	digital	asset	holdings	integrated	into	the	credit	union’s	digital	banking	experience.
 ■Tokenization and DLT Use: Select credit unions and Credit Union Service Organizations (CUSOs) 
are exploring the use of DLT to improve internal operations, streamline settlement, and participate 
in	stablecoin	operations	(issuing	payment	stablecoins	through	a	CUSO	and	serving	as	a	depository	
institution	for	fiat	currency	reserves).	A	small	number	of	credit	unions	are	exploring	but	have	not	
yet	implemented	tokenization	of	financial	assets	or	member	shares.
 ■Digital Asset Lending: A	limited	number	of	credit	unions	have	expressed	interest	in	originating	
loans	secured	by	certain	digital	assets.
Current Regulatory Framework
 ■Legal Permissibility: The	NCUA	has	issued	guidance	that	affirms	that	credit	unions	are	not	
prohibited	from	using	DLT	if	they	comply	with	applicable	laws	and	regulations.
284
284						NCUA,	22-CU-07,	Federally	Insured	Credit	Union	Use	of	Distributed	Ledger	Technologies	(May	2022),	https://ncua.gov/regulation-supervision/letters-credit-
unions-other-guidance/federally-insured-credit-union-use-distributed-ledger-technologies. 

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 ◆Federally	chartered	and	insured	credit	unions	are	subject	to	field-of-membership	requirements	
and	statutory	limits	on	permissible	activities,	raising	unique	questions	related	to	share	
insurance coverage. In 2024, the NCUA updated the Share Insurance FAQs to clarify that share 
insurance does not cover digital assets or cryptocurrencies.
285
 ◆The Federal Credit Union Act (FCUA) only provides limited authority for federal credit unions to 
provide custody services. The FCUA does not provide explicit authority for federal credit unions 
to provide custody or safekeeping services, and these custody services are provided through 
third	parties.	Additionally,	state-chartered	and	privately	insured	credit	unions	may	be	permitted	
to	provide	custody	services	if	permitted	by	state	law.
 ■Supervision: Credit unions would like additional clarity on risk-management and compliance 
expectations.
 ■Capital and Other Applicable Regulatory Treatment: The NCUA Final Rules on Risk Based Capital 
(RBC)	and	Complex	Credit	Union	Leverage	Ratio	(CCULR)	do	not	specifically	address	risk	weights	
for digital assets. Therefore, if credit unions hold these assets, they would fall into the catch-all 
category, which is 100%.
 ◆Only	complex	credit	unions	with	total	assets	of	$500	million	or	more	are	subject	to	risk-based	
capital requirements under NCUA’s RBC and CCULR frameworks.
Access to Providing Banking Services
CUSOs play a key role in expanding access to digital asset services for credit unions and their 
members.	These	entities	have	piloted	offerings	in	custody,	payments,	and	tokenization.	However,	many	
CUSOs	seek	clarity	around	what	services	they	can	provide	on	behalf	of	credit	unions	and	what	level	of	
NCUA oversight or registration is required for such activities.
Capital and Other Applicable Regulatory TreatmentCapital and Other Applicable Regulatory Treatment
The	U.S.	risk-based	capital	framework	does	not	contain	any	provisions	specific	to	cryptoasset
286
 exposures. 
Under the current U.S. capital framework, the risk weight assigned to a novel exposure, such as an exposure to 
a cryptoasset depends on several factors, including whether the asset is a security or a commodity. The U.S. 
Banking Agencies and Treasury should advocate for modernization of the international Basel Committee on 
Banking Supervision (BCBS) standards to incorporate new data on digital asset market performance and risk 
and recent DLT technological innovations. 
BCBS Cryptoasset Exposures Capital and Liquidity Standards
In	December	2022,	the	BCBS	published	its	standard	on	the	prudential	treatment	of	cryptoasset	exposures.
287
 
The standard was later amended in July 2024.
288
 The BCBS framework divides cryptoassets into two groups. 
Group	1	assets,	which	are	cryptoassets	that	reference	or	are	otherwise	backed	by	other	traditional	assets	or	
exposures	and	meet	several	specified	conditions,	are	subject	to	capital	requirements	based	on	the	risk	weights	
285      Frequently Asked Questions About Share Insurance: Digital Assets and Cryptocurrencies, NCUA, https://ncua.gov/consumers/share-insurance-coverage/
frequently-asked-questions-about-share-insurance	(last	modified	May	28,	2024).	
286      This section (Capital and Other Applicable Regulatory Treatment)	uses	the	term	“cryptoasset”	instead	of	“digital	asset”	to	match	the	term	used	by	BCBS.	
However,	the	terms	are	intended	by	this	report	to	be	interchangeable.	Note,	however,	that	BCBS	understands	the	terms	to	differ	slightly	in	meaning.	BCBS,	
supra note 204,	at	5	(“Cryptoassets	are	defined	as	private	digital	assets	that	depend	on	cryptography	and	distributed	ledger	technologies	(DLT)	or	similar	
technologies.	Digital	assets	are	a	digital	representation	of	value,	which	can	be	used	for	payment	or	investment	purposes	or	to	access	a	good	or	service.”).	
287      BCBS, supra note	204.
288      BCBS, supra note	205. 

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of the underlying exposures.
289
	Group	1	assets	are	further	divided	into	Groups	1a	and	1b.
290
 Group 1a includes 
tokenized	traditional	assets,	and	Group	1b	includes	stablecoins	that	meet	certain	classification	conditions.
291
 
Group	2	comprises	cryptoassets	that	fail	to	meet	at	least	one	Group	1	classification	condition.
292
 Within Group 
2, cryptoassets that meet hedge recognition criteria would fall under Group 2a, and those that do not would fall 
under	Group	2b.
293
Generally,	cryptoassets	that	are	grouped	into	Group	1a	are	subject	to	the	existing	capital	rules	for	traditional	
assets.
294
	For	Group	1b	assets,	banks	must	analyze	all	the	risks	that	could	cause	a	loss	(e.g.,	credit	risk	from	
reference assets, risk of default of the redeemer, etc.) and capitalize for those risks individually using the credit 
risk standards. In addition to the capital requirement, there is a potential add-on for infrastructure risk for 
Group 1 assets.
295
	The	standard	sets	the	initial	add-on	at	0,	but	national	authorities	can	initiate	or	increase	the	
add-on	based	on	observed	weakness	in	the	infrastructure	of	specific	cryptoassets.
296
 
Capital treatment for Group 2a involves adapted market risk rules and a 100% capital charge on the exposure’s 
net position.
297
	Group	2b	cryptoassets	are	those	that	do	not	meet	hedging	criteria	and	thus	are	not	permitted	
to	recognize	hedging	and	are	subject	to	a	1250%	risk	weight.
298
 Examples of Group 2 cryptoassets include 
bitcoin	and	ether,
299
 which together comprise over 70% of the total value of the digital asset market.
300
289      BCBS, supra note	204, at 1.
290						At	a	high	level,	in	order	to	be	classified	as	Groups	1a	or	Group	1b,	a	cryptoasset	must	meet	the	following	classification	conditions:	(i)	the	cryptoasset	
must	either	be	a	tokenized	traditional	asset	or	have	a	stabilization	mechanism	that	is	considered	effective	at	all	times	in	linking	its	value	to	a	traditional	
asset	or	a	pool	of	traditional	reference	assets;	(ii)	all	rights,	obligations	and	interests	arising	from	the	cryptoasset	arrangement	are	clearly	defined	and	
legally	enforceable	in	all	the	jurisdictions	where	the	asset	is	issued	and	redeemed,	and	the	applicable	legal	framework	ensures	settlement	finality;	
(iii)	the	functions	of	the	cryptoasset	and	the	network	on	which	it	operates,	including	the	distributed	ledger	or	similar	technology	on	which	it	is	based,	
are	designed	and	operated	to	sufficiently	mitigate	and	manage	any	material	risks;	and	(iv)	entities	that	execute	redemptions,	transfers,	storage,	or	
settlement	finality	of	the	cryptoasset,	or	manage	or	invest	reserve	assets,	must	be	regulated	and	supervised,	or	subject	to	appropriate	risk	management	
standards, and have in place and disclose a comprehensive governance framework. Id. at 1.
291      Id. at 6, 9-10. 
292      Id. at 1.
293						There	are	three	hedge	recognition	criteria	for	Group	2a	cryptoassets.	First,	the	exposure	needs	to	be	either	(i)	a	direct	holding	of	a	spot	Group	2	
cryptoasset	where	there	is	a	derivative	or	ETF	that	is	traded	on	a	regulated	exchange	and	solely	references	the	cryptoasset;	(ii)	a	derivative	or	ETF/
exchange-traded	note	(ETN)	that	references	a	Group	2	asset,	and	that	derivative	has	been	explicitly	approved	by	market	regulators	or	a	qualifying	
central counterparty; (iii) a derivative, ETF, or ETN that references a derivative meeting the previous requirement; or (iv) a derivative, ETF, or ETN, that 
references	a	 related	reference	rate	   that	   is	 published	by	  a	 regulated	exchange.	Second,	the	   exposure	or	  reference	exposure	must	have	    at	 least	    a	 $10	   billion	
average	market	cap	over	the	previous	year	and	the	10%	trimmed	mean	of	daily	trading	volume	with	major	fiat	currencies	must	be	at	least	$50	million	
over	the	prior	year.	Third,	sufficient	data	availability	is	required.	Specifically,	there	need	to	at	least	100	“real”	price	observations	over	the	previous	year	and	
there	must	be	sufficient	data	on	trading	volumes	and	market	capitalization.	Id. at 1, 17-18.
294      Id. at 12.
295      Id. at 13.
296      Id. a t   1 7.
297      Id. a t   1 7-1 9.
298      Id. at 17, 21.
299						Global	Financial	Markets	Association,	et	al.,	Re:	Comments	in	Response	to	the	Second	Consultation	on	the	Prudential	Treatment	of	Cryptoasset	
Exposures (Sept. 23, 2022), https://www.icmagroup.org/assets/Joint-TA-response-to-BCBS-2nd-consultation-crypto-assets-30092022.pdf. 
300      See CoinMarketCap.com, https://coinmarketcap.com/ (last visited July 13, 2025).

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Categorizing Cryptoassets into Basel Group 1 or Group 2
301
The	BCBS	framework	also	includes	a	limit	for	a	bank’s	Group	2	exposures.
302
 Both direct (cash and derivatives) 
and	indirect	holdings	(e.g.,	those	via	investment	funds,	exchange-traded	funds	(ETFs)/exchange-traded	
notes (ETNs), or any legal arrangements designed to provide exposure to cryptoassets) should not amount 
to more than 1% of Tier 1 capital and functionally cannot exceed 2%.
303
	Any	breach	that	does	occur	must	be	
communicated	to	the	supervisor,	and	until	compliance	with	the	1%	limit	is	restored,	a	bank’s	exposures	that	
exceed	the	threshold	are	subject	to	the	capital	requirements	that	apply	to	Group	2b	cryptoasset	exposures.
304
 
If the threshold of 2% is actually exceeded, all Group 2 cryptoasset exposures (not just those in excess of 1%) 
will	be	subject	to	the	capital	requirements	that	apply	to	Group	2b	cryptoasset	exposures.
305
Cryptoassets	are	included	in	the	BCBS	leverage	ratio	exposure	measure	according	to	their	value	for	financial	
reporting	purposes,	based	on	applicable	accounting	treatment	for	exposures	that	have	similar	characteristics.	
For	the	cases	where	the	cryptoasset	exposure	is	an	off-balance	sheet	item,	the	relevant	credit	conversion	
factor set out in the leverage ratio framework will apply in calculating the exposure measure.
306
Under the BCBS liquidity standards,
307
	Group	1a	cryptoasset	and	crypto-liability	exposures	are	generally	
treated	consistent	with	exposures	involving	their	equivalent	non-tokenized	traditional	assets	and	liabilities,	
301      BCBS, supra note	204, at 6.
302      Id. at 28.
303      Id.
304						To	reduce	cliff	effects,	which	can	create	a	significant	increase	in	regulatory	capital	required	once	a	bank	crosses	a	given	threshold,	if	a	bank	breaches	the	
1%	limit,	the	Group	2b	1250%	risk	weight	would	apply	to	only	the	amount	which	exceeds	the	limit	and	not	to	all	Group	2	exposures,	but	if	the	2%	limit	is	
breached	the	whole	of	Group	2	exposures	would	be	subject	to	the	1250%	risk	weight.	Id. at 32.
305      Id. at 28.
306      Id. a t   2 7.
307						Such	standards	are	the	liquidity	coverage	ratio	and	net	stable	funding	ratio.

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Banking and Digital Assets Banking and Digital Assets  •  Capital and Other Applicable Regulatory Treatment
including	qualification	as	high-quality	liquid	assets	(HQLA).
308
	Group	1b	and	Group	2	cryptoassets	do	not	
qualify as HQLA,
309
	and	corresponding	asset	and	liability	exposures	are	treated	with	inflow	and	outflow	rates	
and	required	stable	funding	and	available	stable	funding	factors	tied	to	the	maturity	of	the	coin	(i.e.,	30	days,	6	
months, 1 year) and the underlying collateral (HQLA vs non-HQLA).
310
 
The	second	consultation	on	the	BCBS	standard	(published	before	the	standards	were	finalized	in	December	
2022)	states	that	“as	currently	specified,	it	is	highly	unlikely	that	any	cryptoassets	based	on	permissionless	
blockchains	will	be	able	to	meet	the	classification	conditions	to	be	included	in	Group	1.”
311
 However, in the 
final	standard,	the	Committee	notes	that	the	BCBS	will	continue	to	reflect	on	whether	the	risks	posed	by	
cryptoassets	that	use	permissionless	blockchains	can	be	sufficiently	mitigated	to	allow	for	their	inclusion	in	
Group	1	and,	if	so,	what	adjustments	to	the	classification	conditions	would	be	needed.
312
 
The BCBS does not possess any formal supranational authority, and its decisions do not have legal force. In 
principle,	the	“standards”	set	by	the	BCBS	are	determined	by	consensus	of	BCBS	members.
313
 It is important for the 
United States to lead in such international forums to ensure transparency of any such consensus decision making.
Recommendations Recommendations 
• The Banking Agencies should clarify the circumstances, using risk-based guidelines, under which 
tokenized assets and tokenized asset collateral would be subject to the same capital and liquidity 
treatment as the underlying asset or collateral.
• The United States should adopt capital requirements for bank digital asset activities that accurately 
reflect the risk of the asset or activity. Additionally, the United States should advocate that the BCBS 
revisit the cryptoasset standards to ensure similar treatment to U.S. capital requirements.
In	adopting	capital	requirements	for	bank	digital	asset	activities,	the	following	actions	should	be	taken	to	
evaluate	and	improve	the	BCBS	cryptoasset	standards:
• Simplification of the cryptoasset grouping.
 ◆BCBS’s	four	groups	of	cryptoassets	should	be	simplified.	Applying	a	separate	classification	to	traditional	
assets	due	to	the	use	a	specific	technology	does	not	adhere	to	the	principle	of	technology-neutrality.	
Furthermore, the treatment of tokenized traditional assets as cryptoassets is misleading and may 
create unintended negative consequences.
314
	Additionally,	the	BCBS	distinction	between	Group	2a	and	
Group	2b	cryptoassets	does	not	create	a	clear	enough	distinction	between	cryptoassets	widely	used	for	
payment and investment purposes and other cryptoassets, such as memecoins.
 ◆The	U.S.	prudential	cryptoasset	framework	should:	(i)	clarify	when	tokenized	traditional	assets	are	
equivalent	to	traditional	assets	and	are	subject	to	the	same	capital	and	liquidity	requirements	as	
traditional	assets;	(ii)	work	to	align	the	BCBS	definition	of	stablecoins	eligible	for	Group	1b	treatment	
with	requirements	set	forth	in	GENIUS;	and	(iii)	simplify	the	classification	of	Group	2	cryptoassets	and	
address the treatment of cryptoassets outside of Group 2.
308						 Group	1a	tokenized	claims	of	a	bank	not	secured	by	an	underlying	pool	of	assets	would	be	treated	under	BCBS	liquidity	standards	as	unsecured	funding,	
with	the	outflow	rates	and	ASF	factors	linked	to	the	type	of	customer	(retail,	wholesale,	financial)	and	the	term	(30	days,	6	months,	1	year),	and	cannot	be	
treated	with	as	stable	retail	deposit	or	certain	preferential	operational	deposits.	Id. at 24.
309    Id.
310      Id. a t   2 6 -2 7.
311       BCBS, Second Consultation on the Prudential Treatment of Cryptoasset Exposures 4 (June 2022), https://www.bis.org/bcbs/publ/d533.pdf.
312      BCBS, supra note	204, at 4.
313      BCBS, Basel Committee Charter § 8.4 (updated June 5, 2018), https://www.bis.org/bcbs/charter.htm.
314						For	example,	treating	tokenized	traditional	assets	differently	from	traditional	assets	may	hinder	their	eligible	collateral	status.	

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Banking and Digital Assets Banking and Digital Assets  •  Capital and Other Applicable Regulatory Treatment
• Use of permissionless blockchain for all groups of cryptoassets.
 ◆Under	the	BCBS	standards,	cryptoassets	relying	on	permissionless	blockchains	pose	risks	that	
may	prevent	them	from	being	included	in	Group	1.	However,	experimentation	and	testing	with	
permissionless	blockchains	by	regulated	financial	institutions	suggests	that	technical	solutions	to	
mitigate	the	risks	identified	by	the	BCBS	are	being	actively	developed	and	implemented.
315
 The BCBS 
also	raises	concerns	with	the	probabilistic	settlement	of	permissionless	blockchains.
316
 However, over 
the	last	several	years,	market	participants	have	been	developing	industry	standards	for	determining	
when	a	settlement	has	completed	on	probabilistic	blockchains.
 ◆The United States should consider incorporating those standards to inform the prudential treatment of 
those	characteristics	of	distributed	ledger	technology.
• Review the calibration of capital requirements for credit risk, market risk, operational risk, and liquidity 
risk to incorporate empirical evidence of recent changes in cryptoasset performance and risk.
 ◆Changes in the grouping of cryptoassets may not fully modernize the BCBS cryptoasset prudential 
standards.	The	United	States	should	also	revisit	the	calibration	of	the	prudential	standards	to	consider	
incorporating recent innovations and changes in the cryptoasset market since the BCBS standards 
were	first	published	in	2022.
 ◆The Banking Agencies should undertake a comprehensive data analysis on the performance and risk of 
cryptoassets	informed	by	issuing	a	request	for	information	from	the	public,	inclusive	of	representatives	
from	cryptoasset	data	vendors,	distributed	ledger	infrastructure	providers,	banking	organizations	of	
all sizes, and industry associations. The analysis would assist the Banking Agencies in determining the 
appropriate	calibration	for	cryptoasset	capital	and	liquidity	standards.
Insurance and Digital AssetsInsurance and Digital Assets
Insurance	is	important	for	U.S.	consumers,	the	economy,	and	the	financial	system.	
Digital	assets	can	be	a	significant	part	of	the	net	worth	of	an	individual	or	business.	The	cost	and	
availability	of	adequate	digital	asset	insurance	affects	the	growth	and	stability	of	the	digital	asset	market.	
Insurability
Insurable	events	have	four	characteristics	that	are	relevant	to	the	analysis	of	the	insurability	of	digital	
assets.	First,	insurable	events	must	be	“pure	risks,”	meaning	they	cannot	result	in	gain,	only	loss.	Thus,	
events	like	a	decline	in	a	business’s	revenues	or	the	market	value	of	an	asset	are	generally	not	insurable.	
Second,	they	must	be	defined,	reasonably	uncorrelated,	measurable,	and	limited.	An	insurer	must	
be	able	to	measure	a	loss	objectively	and	limit	that	loss	contractually.	Third,	insurable	events	must	be	
unpredictable	individually,	but	predictable	in	the	aggregate.	Finally,	insurable	events	must	be	random	
and unintentional from the standpoint of an insured.
317
 These principles inform what events can and 
cannot	be	covered,	as	discussed	further	below.
315						For	example,	depending	on	the	programmability	of	the	cryptoasset,	the	cryptoasset	can	be	permissioned	by	smart	contracts	(e.g.,	an	ERC1400	token	
on	Ethereum).	Such	standards	allow	the	role	of	a	“controller”	(i.e.,	an	actor	that	can	control	access,	freeze,	reverse,	or	destroy	cryptoassets	or	block	
transactions),	enabling	compliance	with	know-your-customer,	anti-money	laundering,	and	countering	the	financing	of	terrorism	checks.
316						Specifically,	it	noted	that	in	many	permissionless	distributed	ledger	technologies,	settlement	remains	probabilistic,	meaning	the	probability	that	
a	transaction	could	be	revoked	converges	to,	but	never	reaches,	zero	with	the	passage	of	time.	This	could	create	settlement	risk	in	permissionless	
blockchains.	
317      See	Judy	Feldman	Anderson	&	Robert	L.	Brown,	Risk	and	Insurance,	Education	and	Examination	Committee	of	the	Society	of	Actuaries	5-6	(2005),	
https://www.soa.org/globalassets/assets/files/edu/P-21-05.pdf.

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Coverages
There	are	broadly	two	types	of	insurance	relevant	to	the	digital	asset	market.	The	first	is	insurance	
provided for individuals, or “personal lines.”
318
	The	second	is	insurance	provided	for	businesses	and	
organizations, or “commercial lines.”
319
 The personal lines market for digital assets is currently limited. 
The	lack	of	a	robust	personal	lines	market	for	digital	assets	may	be	caused	by	various	factors,	including	
regulatory	uncertainty	both	domestically	and	globally,	the	lack	of	historical	underwriting	experience,	
potential volatility in certain types of digital assets, uncertainty regarding how courts will interpret 
insurance	policy	language,	and	questions	regarding	whether	digital	assets	would	be	classified	as	
currencies or personal property.
320
	However,	there	is	a	small	but	growing	commercial	lines	market.	
Treasury’s	Federal	Insurance	Office	estimates	that	twenty	insurers	provide	various	types	of	commercial	
insurance	for	digital	assets	with	limits	up	to	$1	billion.	Gross	revenue	has	been	estimated	to	be	between	
$1.94	billion	and	$3.11	billion.
321
	Large	commercial	insurance	brokerages	and	both	new	and	established	
insurance companies all participate in the digital asset insurance market.
The following types of insurance coverage for commercial entities, such as digital asset exchanges, 
custodians,	asset	managers,	commercial	mining	operations,	etc.	are	generally	available,	with	generally	
broader	coverage	terms	and	limits	for	cold	storage	versus	hot	storage:
 ■Various	forms	of	theft,	such	as	embezzlement,	fraud,	malicious	destruction	of	digital	assets,	
kidnap, ransom, or extortion, etc. This type of coverage would indemnify, for example, a digital 
asset custodian if an employee destroyed a cold wallet. 
 ■Damages	incurred	because	of	professional	errors	(referred	to	as	errors	and	omissions	coverage)	or	
errors	in	software	(known	as	cyber	or	tech	errors	and	omissions	coverage).	For	example,	this	type	
of coverage could indemnify a software company whose code inadvertently allowed for a malicious 
outside actor to steal digital assets from a hot wallet. 
 ■Accidental loss or destruction of digital assets or keys. This insurance coverage would, for example, 
indemnify a digital asset manager for the loss of a cold storage wallet. 
 ■Other	standard	coverages	for	any	commercial	entity,	such	as	property,	directors	and	officers,	
general	liability,	etc.	Directors	and	officers	insurance	indemnifies	the	board	of	directors	and	
senior	officers	of	a	company	for	certain	damages	awarded	in	the	event	of	shareholder	litigation.	
Property insurance would cover a warehouse and air conditioning system for a digital asset mining 
operation.	General	liability	would	indemnify	a	mining	operation	for	damages	accidentally	sustained	
by	a	third	party	due	to	the	negligence	of	the	mining	operation.	
318      Facts + Statistics: Commercial Lines, Insurance Information Institute, https://www.iii.org/fact-statistic/facts-statistics-commercial-lines (last visited July 13, 2025). 
319      Id.
320				Chantal	M.	Roberts,	Crypto Is a Popular Cybercrime Target, but Insurance Options Remain Limited, Bankrate (May 5, 2025), https://www.bankrate.com/
insurance/cryptocurrency-insurance-options-remain-limited/. 
321      Joe Toppe, How Insurance Plays a Role in Cryptocurrency Risks,	PropertyCasualty360	(Mar.	25,	2025	at	11:15	AM),	https://www.propertycasualty360.
com/2025/03/25/how-insurance-plays-a-role-in-cryptocurrency-risks. 

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Banking and Digital Assets Banking and Digital Assets  •  Capital and Other Applicable Regulatory Treatment
Examples of Estimated Digital Asset Insurance Capacity and Relative Cost
322
Kidnap and Ransom
Specie
Deposit/Credit
Property for Miners
Crime
Staking
Directors & Officers
Cyber/Tech Errors & 
Omissions
Errors & Omissions
$0
$200
$400
$600
$800
$1,000
$1,200
Estimated Capacity (USD Millions)
Relative Insurance Cost per Unit of Exposure
State Regulation of Insurance
The	business	of	insurance	in	the	United	States	is	primarily	regulated	at	the	state	level.
323
 Insurance 
laws	are	enacted	by	state	legislators	and	governors	and	are	implemented	and	enforced	by	state	
regulators. Broadly speaking, state regulation is divided into prudential regulation (frequently referred 
to as “solvency” regulation) and marketplace regulation. Prudential regulation consists of oversight 
of	an	insurer’s	financial	condition	and	its	ability	to	satisfy	policyholder	claims.	Marketplace	regulation	
governs	an	insurer’s	business	conduct,	such	as	the	pricing	of	premiums,	advertising,	minimum	
standards	governing	the	terms	of	insurance	policies,	and	licensing	of	insurance	agents	and	brokers	
(producers), together with general issues of consumer protection and access to insurance. 
Regulatory and Market Issues or Challenges
Some	regulatory	and	market	issues	or	challenges	for	digital	asset	insurance	are:
 ■Existing	federal	regulations	such	as	the	CFTC’s	definition	of	a	“swap”	require	that	insurance	
products	have	a	beneficiary	with	an	insurable	interest	in	the	insured	asset,	limit	payout	to	the	
insurable	interest,	and	have	the	same	beneficiary	with	an	insurable	interest	throughout	the	
duration	of	the	insurance	product.	This	definition	is	relevant	because	an	insurance	product	cannot	
cover	the	loss	of	market	value	of	a	digital	asset,	such	as	a	stablecoin.	Any	“insurance”	policy	
marketed as covering a loss in market value of a digital asset would fall out of the insurance safe 
harbor	of	federal	regulations.
324
 
 ■As	noted	above,	homeowners	insurance	policies	generally	do	not	cover,	or	highly	restrict,	digital	
assets.
322						Graphic	based	on	information	provided	by	Aon	plc.
323  						 U.S.	Department	of	the	Treasury	Federal	Insurance	Office,	How	to	Modernize	and	Improve	the	System	of	Insurance	Regulation	in	the	United	States	1	(2013).	
324						Further	Definition	of	“Swap,”	“Security-Based	Swap,”	and	“Security-Based	Swap	Agreement”;	Mixed	Swaps;	Security-Based	Swap	Agreement	
Recordkeeping, 77 Fed. Reg. 48208 (Aug. 13, 2012). 

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Banking and Digital Assets Banking and Digital Assets  •  Capital and Other Applicable Regulatory Treatment
 ■Insurers	must	match	their	forecasted	liabilities	to	their	assets.	State	prudential	regulations	require	
insurance	companies	to	invest	the	vast	majority	of	their	assets	in	stable	forms	so	that	insurers	can	
eventually	pay	claims.	Insurers	that	take	payment	in	digital	assets	but	pay	claims	in	fiat	currency,	or	
vice versa, take on volatility risk that may undermine their regulatory compliance. 
Potential Policy Actions
There are various steps Treasury and state regulators could take to help improve regulatory certainty 
and	develop	a	more	robust	market	for	digital	asset	insurance:
 ■Engage	with	the	appropriate	regulatory	agencies	to	establish	or	amend	legal	definitions	of	
securities, property, or currency so that insurance policies explicitly cover digital assets.
 ◆Treasury could also work with the insurance sector to create standardized terms, conditions, 
and policy language for digital assets.
 ■Engage with the National Association of Insurance Commissioners (NAIC) and state insurance 
regulators on potential revisions to state regulations relating to digital assets, including allowing 
insurers to invest in digital assets, as appropriate.
 ■Prioritize	engagement	between	the	public	and	private	sector	to	help	develop	a	robust	insurance	
market for digital assets.

V.   Stablecoins and PaymentsV.   Stablecoins and Payments
CHAPTER V
 Stablecoins and Payments Stablecoins and Payments
STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 8888    •		 
Stablecoins and PaymentsStablecoins and Payments  •
Stablecoins and PaymentsStablecoins and Payments
With	e-currency	based	on	cryptographic	proof,	without	the	need	to	trust	a	third	party	
middleman,	money	can	be	secure	and	transactions	effortless.
P2P Foundation Forum Post re: “Bitcoin open source implementation of P2P currency” 
Satoshi	Nakamoto,	February	2009
325
Stablecoins	are	natively	digital	assets	that	seek	to	maintain	a	stable	value	relative	to	a	reference	asset,	most	
often	a	fiat	currency.	Dollar-denominated	stablecoins	seek	to	combine	the	accessibility	and	frictionless	use	
of	digital	assets	with	the	stability	and	benefits	of	a	dollar-based	payment	system.	For	many	years,	stablecoins	
operated	in	a	legal	gray	area.	But	the	Guiding	and	Establishing	National	Innovation	for	U.S.	Stablecoins	Act	
(GENIUS)
326
 , which President Trump signed into law on July 18, 2025, provides regulatory clarity for this 
growing	market,	as	well	as	incentives	to	bring	stablecoin	innovation	onshore.	
In	the	midst	of	debugging	version	0.1.0,	Satoshi	sent	the	first	test	transaction	of	10	bitcoin	to	Hal	Finney,	a	
renowned	cypherpunk	and	early	collaborator	in	building	out	the	network.	With	the	United	States’	long	history	
of	innovating	in	the	payments	space,	it	is	rather	fitting	that	the	first	peer-to-peer	transaction	employing	a	
distributed	ledger	went	to	an	American	(and	possibly	from	one,	as	well).	With	Bitcoin,	Satoshi	pioneered	peer-
to-peer	transactions	using	digital	currency.	Stablecoins	leverage	the	same	technological	concept	to	facilitate	
instantaneous	transactions	using	digital	dollars.	GENIUS	brings	this	groundbreaking	payment	technology	into	
the	financial	mainstream.	
U.S.	consumers	and	businesses	benefit	from	reliable	processing	of	trillions	of	dollars	of	payments	daily.	But	as	
Satoshi	highlighted,	there	are	inefficiencies	in	the	legacy	systems	that	support	most	of	this	volume.	Payments,	
particularly retail payments, may take several days to process and ultimately settle. This lag increases the risk 
that	one	party	to	the	transaction	fails	to	perform	(i.e.,	a	“settlement	failure”)	and	increases	costs	for	businesses	
and	consumers.	These	inefficiencies	are	even	more	pronounced	for	cross-border	payments,	where	costs	are	
significantly	higher	(e.g.,	6.4%	for	a	small	remittance	payment	in	2024)	and	delays	significantly	longer	(e.g.,	only	
33.5% of retail payments settled within one hour).
327
	Technology	has	enabled	commerce	and	communication	
to	be	delivered	24/7/365	globally,	and	Americans	are	increasingly	looking	for	payments	that	match	this	ease	of	
use	and	access.	Distributed	ledger	technology	(DLT)	offers	potential	avenues	to	reduce	these	costs	and	delays.	
Stablecoins	are	one	of	the	most	promising	DLT	solutions.	
GENIUS	marks	a	watershed	moment	for	stablecoins	and	digital	payments.	Befitting	its	name,	GENIUS	lays	the	
regulatory	groundwork	for	new	financial	rails	that	could	significantly	increase	the	scope	and	influence	of	the	
U.S.	dollar	system.	Under	President	Trump’s	leadership,	GENIUS	was	passed	with	strong	bipartisan	support	by	
Congress and signed into law on July 18, 2025. The Working Group supports GENIUS and applauds Congress 
and	President	Trump	for	delivering	this	critical	legislation,	which	will	bolster	the	U.S.	economy	and	cement	
global	dollar	dominance.	
GENIUS	establishes	a	clear	licensing	regime	to	ensure	oversight	and	compliance	with	anti-money	laundering	
laws	and	regulations.	It	promotes	stability	and	transparency	by	requiring	stablecoin	issuers	to	maintain	full	
reserves	backed	by	high	quality	liquid	assets,	such	as	U.S.	Treasuries,	and	to	publish	monthly	reports	of	the	
composition	of	their	reserves.	And	it	protects	consumers	by,	among	other	things,	prioritizing	stablecoin	
325      satoshi, Comment to Bitcoin open source implementation of P2P currency,	P2P	Foundation	(Feb.	11,	2009	at	10:27	PM),	https://web.archive.org/
web/20110415095236/https://p2pfoundation.ning.com/forum/topics/bitcoin-open-source. 
326      S. 1582, 119th Cong. (2025) (enacted).
327						Financial	Stability	Board	(FSB),	G20	Roadmap	for	Enhancing	Cross-Border	Payments:	Consolidated	Progress	Report	for	2024	23	(Oct.	21,	2024),	 
fsb.org/uploads/P211024-1.pdf.

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Stablecoins and PaymentsStablecoins and Payments  •
holders’	claims	in	insolvency,	prohibiting	issuers	from	rehypothecating	reserves	for	speculative	purposes,	and	
requiring	custodians	of	stablecoin	reserves	to	segregate	their	own	funds	from	the	reserves.
GENIUS	also	clarifies	that	stablecoins	are	neither	a	security	nor	a	commodity,	opening	the	door	to	stablecoins	
being	used	for	consumer	payments	in	the	United	States	and	across	the	world.	It	encourages	continued	
stablecoin	adoption,	which	will	reinforce	the	strength	of	the	global	dollar	system	over	the	coming	decade.	
GENIUS	aligns	with	the	principles	of	this	report	and	is	a	critical	first	step	in	establishing	a	comprehensive	
framework for the digital asset industry.
Payment Systems Payment Systems 
Generally	speaking,	a	payment	system	connects	a	broad	range	of	financial	institutions	and	customers,	facilitates	
the movement of funds from one account to another, and includes rules and processes for transferring funds. 
As	a	simplified	explanation,	to	make	a	payment,	a	sender	must	first	provide	instructions	to	a	financial	institution.	
After	the	instructions	are	received,	the	transaction	must	be	“cleared”	by	a	financial	institution,	such	as	bank	
or	clearing	house,	which	then	facilitates	the	transfer	of	funds	by	performing	functions	such	as	reconciling	
and	confirming	payment	details,	ensuring	the	availability	of	funds,	and	complying	with	applicable	regulatory	
requirements. Payment is then “settled” when funds are actually transferred from the sender to the recipient.
Payment	systems	can	be	either	retail	or	wholesale.	Retail	payment	systems	are	designed	to	process	high	volumes	
of smaller value transactions, and typically settle some hours or days after clearing. Wholesale payment systems 
are designed for high-value transactions and typically settle more quickly than retail payments.
Innovation	in	payments	seeks	to	address	inefficiencies	in	existing	systems	and	provide	products	and	services	
that	improve	customer	experience.	Some	innovators	are	building	solutions	on	top	of	legacy	payment	systems,	
often	accessed	through	mobile	apps.	These	products	can	offer	an	enhanced	customer	experience	but,	
because	they	typically	rely	on	legacy	payment	systems,	may	not	enhance	the	efficiency	of	the	underlying	
systems	and,	in	some	cases,	may	increase	the	number	of	intermediaries	required	to	process	a	payment.
 
Both	public	sector	and	private	sector	actors	are	seeking	to	build	new	payment	systems.	For	example,	in	2017,	
The	Clearing	House,	a	consortium	of	large	banks,	launched	an	instant	(real-time)	payment	system	called	
R T P.
328
	Since	its	launch,	RTP	has	expanded	to	nearly	900	participating	banks	and	conducts	approximately	100	
million	transactions	per	quarter	for	over	$160	billion.
329
 In 2023, the Federal Reserve System (FRS) launched 
its own instant (real-time) payment system called FedNow, which, as of July 2025, has over 1,400 participating 
banks.
330
	As	was	the	case	with	the	establishment	of	other	new	payment	systems,	such	as	Automated	Clearing	
House (ACH) payments in the 1970s and 1980s,
331
	initial	adoption	of	instant	payment	systems	has	been	modest	
due	to	the	resources	banks	need	to	deploy	to	fully	integrate	them.	Instant	payment	systems	currently	also	
have	relatively	high	per	transaction	costs	relative	to	ACH	and	other	systems.	Internationally,	there	is	significant	
interest	and	experimentation	across	jurisdictions	in	building	new	or	improving	existing	financial	market	
infrastructures	(FMIs)	for	cross-border	payments	or	financial	transactions	utilizing	new	technologies.
Finally,	institutions	are	also	pursuing	innovation	in	money-like	payments	products.	Some	banks	are	interested	
in	offering	a	tokenized	form	of	deposit	that	could	be	used	as	a	settlement	asset	on	existing	or	future	payment	
systems.	Stablecoins,	likewise,	are	used	to	pay	for	other	digital	assets	on	trading	platforms	and	may	be	
used	more	widely	in	payments	in	the	future.	Blockchain	or	DLT-based	assets	present	material	opportunities	
328      RTP: Frequently Asked Questions, The Clearing House, https://www.theclearinghouse.org/payment-systems/rtp/institution (last visited July 13, 2025).
329      RTP: Real Time Payments for All Financial Institutions, The Clearing House, https://www.theclearinghouse.org/payment-systems/rtp (last visited July 13, 2025).
330     See FedNow Service Participants and Service Providers: Participating Financial Institutions (XLSX), FRBservices.org, https://www.frbservices.org/binaries/
content/assets/crsocms/financial-services/fednow/fednow-live-participants.xlsx (updated July 7, 2025). 
331       See Automated Clearing House Payments, Federal Reserve History (Sept. 28, 2023), https://www.federalreservehistory.org/essays/automated-clearing-house 
(“Despite high initial hopes for ACH payments, checks remained enduringly popular and ACH transaction volume remained limited for many years.”).

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 9090    •		 
Stablecoins and Payments Stablecoins and Payments  •  Innovation in Payments 
to	improve	functionality	in	payments.	Through	smart	contracts,	payments	utilizing	DLT	can	be	executed	
automatically	when	certain	conditions	are	met.	Some	foreign	central	banks	are	also	issuing	or	in	the	process	
of	developing	Central	Bank	Digital	Currencies	(CBDCs),	with	objectives	varying	from	increasing	efficiency	of	
clearing	and	settlement	across	financial	institutions	to	surveilling	the	financial	activities	of	private	citizens.
Innovations	in	payments	have	the	potential	to	strengthen	America’s	leadership,	reduce	costs	for	businesses	
and	consumers,	and	bring	the	benefits	of	technological	advancements	to	payments.	Both	domestically	
and internationally, the United States has the opportunity to shape the development of new payment 
arrangements	and,	through	this	effort,	reinforce	U.S.	global	financial	leadership.	If	U.S.	leadership	is	absent,	new	
types	of	alternative	payment	arrangements	could	be	developed	that	may	not	share	U.S.	interests	and	values	
and could pose risks to U.S. economic and national security.
Innovation in Payments Innovation in Payments 
Stablecoins
Many	stablecoins	derive	their	value	from	a	pool	of	liquid,	high-quality	reserve	assets,	but	some	different	forms	
of	stablecoins	are	backed	by	other	types	of	assets	(e.g.,	digital	assets,	precious	metals,	corporate	bonds	with	
lower	credit	ratings),	and	others	attempt	to	maintain	a	stable	value	through	pre-programmed	responses	to	
market	actions	rather	than	maintaining	a	pool	of	reserve	assets	(called	“algorithmic	stablecoins,”	which	are	
typically endogenously collateralized).
332
	In	practice,	stablecoins	“pegged”	to	the	U.S.	dollar	dominate	the	
market,	accounting	for	more	than	99%	of	the	more	than	$258B	stablecoins	outstanding	by	value	as	of	July	
2025,	with	the	vast	majority	of	issued	stablecoins	backed	by	a	pool	of	reserve	assets.
333
Process of Minting Stablecoins
334
Payment 
setup
1. Customer links their bank 
account with the Stablecoin 
Issuer 
2. The Issuer does the necessary checks and, on successful 
linking, provides instructions to initiate payment
CustomerIssuer
Payment
3. Customer sends USD to Issuer’s bank 
account using the instructions
Note: Funds are sent/pulled via supported payment 
rails such as wires
CustomerIssuer
Stablecoin 
settlement
8. Issuer settles stablecoin to customer’s 
account
7. Triggers Issuer process to mint 
stablecoin on chain
Customer
4. Issuer receives USD at 
its settlement/
reserve bank
6. Issuer does preliminary 
checks to ensure customer is 
in good standing. If checks 
fail, then payment is 
manually reviewed and may 
get returned
Note: This process assumes customer has gone through a stablecoin issuer’s KYC process and met the onboarding requirements.
Issuer’s settlement/reserve account
5. Issuer gets notified of 
the settlement
332						There	are	a	variety	of	different	stablecoin	products.	As	discussed,	the	primary	form	of	stablecoin	is	a	“fiat-backed”	stablecoin	product	that	seeks	to	track	
to	the	U.S.	dollar	(e.g.,	USDT,	USDC,	BUSD,	TUSD,	USDP).	There	are	also	asset-collateralized	stablecoins	(e.g.,	PAXG,	GLC,	XAUT),	crypto-collateralized/
over-collateralized	stablecoins	(e.g.,	DAI,	MIM),	and	algorithmic	stablecoins	(e.g.,	FEI,	Frax,	USDN,	USDD,	USN)	that	are	linked	to	or	are	redeemable	for	
other cryptocurrencies.
333      See Stablecoins (Filtered by Pegged USD), DefiLlama, https://defillama.com/stablecoins?pegtype=PEGGEDUSD (last visited July 13, 2025); Stablecoins, 
DefiLlama, https://defillama.com/stablecoins (last visited July 13, 2025). 
334						Graphic	prepared	by	Circle.

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Growth in Market Capitalization of Dollar-Backed Stablecoins
335
$b
$50b
$100b
$150b
$200b
$250b
20182019202020212022202320242025
Historical Stablecoin Market Cap
Total
Mkt Cap
$238b
Today,	stablecoins	are	used	primarily	to	facilitate	trading	in	other	digital	assets	or	to	interact	with	smart	
contracts,	but	they	could	be	more	widely	adopted	as	a	form	of	payment	in	the	future.	Some	stablecoin	issuers	
have partnered with existing payment services. These partnerships seek to offer customers an alternative 
payment	mechanism	that	can	be	used	with	a	range	of	merchants	and	potentially	offer	novel	features,	such	
as	programmable	payments.	Additionally,	stablecoins	could	facilitate	real-time	peer-to-peer	cross-border	
payments,	potentially	improving	the	current	system	for	retail	cross-border	payments.	Stablecoins	also	
facilitate	access	to	U.S.	dollar	denominated	assets,	including	in	areas	where	that	access	may	be	limited	today.	
Stablecoin	reserve	assets	often	include	U.S.	Treasuries	and	deposits	in	commercial	banks,	which	creates	a	
connection	between	the	traditional	financial	system	and	the	digital	asset	ecosystem.	Although	stablecoins	
have	been	used	in	illicit	finance,	traditional	means	of	money	laundering	and	terrorist	financing	remain	more	
prevalent.
336
	A	unique	feature	of	stablecoins	is	that	stablecoin	issuers	can	coordinate	with	law	enforcement	to	
freeze and seize assets to counter illicit use.
335						Graphic	prepared	by	DefiLlama.	Data	cover	fiat-backed	stablecoins	(as	opposed	to	crypto-backed	or	algorithmic	stablecoins)	that	are	pegged	to	the	U.S.	
dollar as of July 14, 2025.
336						See	U.S.	Department	of	the	Treasury	(Treasury),	2024	National	Terrorist	Financing	Risk	Assessment	(Feb.	2024),	https://home.treasury.gov/system/
files/136/2024-National-Terrorist-Financing-Risk-Assessment.pdf;	U.S.	Department	of	the	Treasury,	2024	National	Money	Laundering	Risk	Assessment	(Feb.	
2 0 24),   https://home.treasury.gov/system/files/136/2024-National-Money-Laundering-Risk-Assessment.pdf.

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Stablecoin Freeze and Seize Process
337
Stablecoin	issuers	operating	in	the	United	States	are	generally	subject	to	certain	federal	requirements,	such	
as those stipulated under the Bank Secrecy Act (BSA).
338
 Many states have also developed money transmitter 
frameworks	under	which	nonbank	stablecoin	issuers	must	acquire	a	license.	The	District	of	Columbia,
339
 Puerto 
Rico,
340
	and	all	states	but	Montana
341
 have money transmitter licensing frameworks, though various states 
exempt	stablecoin	issuers	(or	persons	otherwise	engaged	exclusively	in	digital	asset	activities)	from	their	
licensing requirements.
342
	Accordingly,	a	nonbank	stablecoin	issuer	generally	must	obtain	numerous	licenses	
to operate nationwide. While states have made efforts to coordinate exams and harmonize some standards, 
there	are	significant	differences	in	these	frameworks	and	often	overlapping	supervision.	Further,	the	lack	of	
clarity	regarding	the	SEC’s	jurisdiction	over	stablecoins	has	also	limited	development,	including	with	respect	to	
the	payment	of	interest	and	ancillary	services	like	staking.	However,	recent	statements	by	SEC	staff	regarding	
stablecoins	have	begun	to	provide	regulatory	clarity	on	which	types	of	stablecoins	may	fall	under	the	agency’s	
jurisdiction.
343
	As	a	result,	some	U.S.-based	issuers	have	sought	licenses	in	other	jurisdictions	with	more	
developed and, in some cases more stringent, regulatory frameworks.
344
337						Graphic	prepared	by	Paxos.
338  						 GENIUS	explicitly	subjects	permitted	payment	stablecoin	issuers	to	the	BSA.	S.	1582,	119th	Cong.	(2025)	§	4(a)(5)(A)	(enacted).	More	generally,	domestic	
and	foreign	stablecoin	issuers	offering	services	wholly	or	in	substantial	part	in	the	United	States	are	treated	as	banks	or	MSBs	under	the	BSA	and	its	
implementing regulations. See 31 C.F.R. § 1010.00(ff) (2024); Financial Crimes Enforcement Network (FinCEN), FIN-203-G001, Application of FinCEN’s 
Regulations to Persons Administering, Exchanging, or Using Virtual Currencies 1 (Mar. 18, 2013), https://www.fincen.gov/sites/default/files/shared/FIN-
2013-G001.pdf	(stating	that	any	person	“creating,	obtaining,	distributing,	exchanging,	accepting,	or	transmitting	virtual	currencies	.	.	.	.	is	an	MSB	under	
FinCEN’s	regulations,	specifically,	a	money	transmitter,	unless	a	limitation	to	or	exemption	from	the	definition	applies	to	the	person.”)	(emphasis	omitted).	
Stablecoin	issuers	that	are	U.S.	persons	must	also	comply	with	OFAC	restrictions.	Finally,	note	that,	on	January	10,	2025,	during	the	last	days	of	the	Biden	
Administration, the Consumer Financial Protection Bureau (CFPB) proposed a rule that would have interpreted the Electronic Fund Transfer Act and its 
implementing	regulation,	Regulation	E,	to	apply	to	stablecoins.	Electronic	Fund	Transfers	Through	Accounts	Established	Primarily	for	Personal,	Family,	or	
Household Purposes Using Emerging Payment Mechanisms, 90 Fed. Reg. 3723 (Jan. 15, 2025). In May 2025, the Trump Administration’s CFPB withdrew the 
proposed rule. Protecting Americans From Harmful Data Broker Practices (Regulation V); Withdrawal of Proposed Rule, 90 Fed. Reg. 20568 (May 15, 2025).
339      D.C. Code § 26–1001 et seq.
340      10 L.P.R.A. § 2601 et seq.
341      The Challenge of Being the Only State Not Regulating Money Transmitters, Mont. Division of Banking & Financial Institutions (Apr. 12, 2023), https://
banking.mt.gov/News/The-Challenge-of-Being-the-Only-State-Not-Regulating-Money-Transmitters.
342      See, e.g., Wyo. Stat. Ann. § 40-22-104(a)(vi).
343						SEC	Division	of	Corporate	Finance,	Statement	on	Stablecoins	(Apr.	4,	2025),	https://www.sec.gov/newsroom/speeches-statements/statement-
stablecoins-040425.	Note	that	GENIUS	also	prohibits	the	payment	of	interest	or	yield	solely	in	connection	with	the	holding,	use,	or	retention	of	a	payment	
stablecoin	issued	by	a	U.S.-licensed	or	foreign	payment	stablecoin	issuer.	S.	1582,	119th	Cong.	(2025)	§	4(a)(11)	(enacted).
344						For	a	comparison	of	stablecoin	licensing	frameworks	in	different	countries,	see PwC,	PwC	Global	Crypto	Regulation	Report	2025	4	(Apr.	3,	2025),	https://
legal.pwc.de/content/services/global-crypto-regulation-report/pwc-global-crypto-regulation-report-2025.pdf. 

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Internationally	active	stablecoin	issuers	also	face	a	fragmented	regulatory	landscape.	Large	financial	centers	
are	developing	and	implementing	stablecoin	frameworks.	Some	stablecoin	firms	have	chosen	to	operate	
globally	out	of	smaller	jurisdictions	that	lack	a	comprehensive	regulatory	framework	or	the	ability	to	implement	
one.	The	lack	of	a	coherent	and	unified	framework	for	stablecoins	can	undermine	their	reliability	as	money	
instruments,	limiting	their	utility,	stability,	or	ability	to	circulate	without	trading	at	a	discount.	It	could	also	
lead	to	technical	challenges,	as	issuers	attempt	to	meet	differing	standards	on	issues	such	as	interoperability,	
privacy, and governance. Regulatory fragmentation can also lead to market fragmentation and to reduced or 
trapped	liquidity	within	specific	stablecoin	arrangements;	this	can	limit	market	depth	in	ways	that	affect	the	
broader	health	of	digital	asset	markets.	More	immediately,	fragmentation	may	impose	inefficient	compliance	
and	operational	costs	on	U.S.	stablecoin	issuers	operating	internationally,	damaging	their	competitiveness.
Stablecoins	may	be	used	in	a	range	of	applications,	including	retail	and	institutional	payments	and	to	facilitate	
trading in other digital assets. These use cases implicate other regulatory frameworks, including market 
structure,
345
 which is discussed in detail in Chapter III. Customers also may rely on third-party custodians or 
other	intermediaries	to	hold	their	stablecoins.	
Recommendation Recommendation 
Faithfully and Expeditiously Implement GENIUS 
Executive Order No. 14178 outlines the policy of the Trump Administration to promote and protect the 
sovereignty of the U.S. dollar, including through actions to promote the development and growth of lawful and 
legitimate	dollar-backed	stablecoins	worldwide.
346
 Additionally, Congress and President Trump have worked 
together	to	enact	GENIUS,	which	enshrines	a	pro-innovation	framework	for	stablecoins	in	Federal	law.
The	Working	Group	especially	applauds	the	following	aspects	of	GENIUS,	which	are	essential	to	enabling	
growth	and	stability	in	the	digital	asset	market.
• Integrity of Payment Stablecoins. The composition of reserve assets is essential to promote trust in and 
use	of	dollar-backed	stablecoins.	Payment	stablecoins
347
	are	required	to	be	backed	by	high-quality	and	liquid	
assets	so	that	a	claim	on	a	stablecoin	issuer	representing	$1	is	worth	$1	when	redeemed.	High	quality	and	liquid	
reserve	assets	reduce	the	potential	for	losses	to	holders	of	stablecoins	and	the	risk	of	a	run	on	the	stablecoin.	
• Onshore Innovation.	In	order	to	offer	or	sell	payment	stablecoins	to	a	person	in	the	United	States,	issuers	
are	required	to	retain	a	U.S.	license	–	which	would	entitle	them	to	modest,	additional	benefits	–	or	meet	
comparable	regulatory	standards	under	a	foreign	licensing	regime.	Such	regulation	mitigates	risks	to	
U.S.	financial	stability,	promotes	U.S.	national	security	interests,	and	ensures	that	U.S.-licensed	issuers	are	
competitive	globally.	
• Facilitate Cross-Border Flows.	Internationally	active	stablecoin	issuers	may	face	unwarranted	
impediments	to	operating	across	multiple	jurisdictions.	GENIUS	encourages	cross-border	flows	by	allowing	
U.S.	authorities	to	evaluate	foreign	frameworks	and	grant	reciprocity	to	jurisdictions	with	comparable	or	
equivalent regimes. Evaluation considerations include reserve requirements, prudential standards, and 
supervisory and enforcement capacity.
345						Once	a	federal	regulatory	framework	for	stablecoins	is	in	place,	policymakers	also	should	consider	addressing	the	Federal	income	tax	treatment	of	
stablecoins.	The	tax	rules	applicable	to	any	asset	depend	on	how	that	asset	is	classified,	(e.g.,	as	currency,	property,	securities	or	commodities)	and	how	
returns	on	the	assets	are	treated	for	tax	purposes.	The	tax	characterization	of	stablecoins	is	currently	uncertain,	which	means	that	it	is	not	certain	which	
set of tax rules apply to them. For further discussion of this issue, see Chapter VII.
346      Exec. Order No. 14178, supra note 1, at § 1(a)(ii).
347						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).

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• Mitigate Risks to Financial System. Risks	that	might	undermine	confidence	in	payment	stablecoins	
are	addressed	to	promote	use	of	dollar-backed	stablecoins.	Specifically,	the	GENIUS	licensing	structure	
mitigates risks of runs (and secondary runs on underlying assets), risks of operational failure, and risks to 
financial	stability.	
• Promote Competition.	Payment	stablecoins	compete	with	each	other	and	with	the	services	of	other	
payments providers. GENIUS promotes competition and choice for consumers while recognizing 
differences	in	business	models.	Fostering	a	competitive	financial	ecosystem	while	also	supporting	bank	
(including	community	bank)	digitalization	ensures	the	continued	relevance	of	both	traditional	financial	
institutions	and	of	business	models	relying	on	new	technologies.
• Protect Consumers. U.S.-licensed	stablecoin	issuers	are	required	to	address	risks	to	consumers.	They	must	
provide	adequate,	monthly	disclosures	of	reserve	assets	and	ensure	that	payment	stablecoin	owners	can	
redeem	their	stablecoins	for	cash	1:1	on	demand.	Issuers	are	not	permitted	to	misrepresent	that	payment	
stablecoins	are	backed	by	the	full	faith	and	credit	of	the	United	States,	guaranteed	by	the	United	States	
Government,	or	subject	to	federal	deposit	insurance	or	federal	share	insurance.	Moreover,	stablecoin	
holders’	claims	in	insolvency	are	prioritized,	and	third	parties	providing	custodial	services	for	stablecoin	
issuers	must	segregate	stablecoin	reserves	from	their	own	assets.
• Clarify Regulatory Status of Stablecoins. Payment	stablecoins	issued	by	U.S.-licensed	issuers	(which,	
under	GENIUS,	cannot	be	yield-bearing)	are	treated	as	neither	securities	nor	commodities	under	relevant	
securities	and	commodities	laws	and	regulations.	Additionally,	U.S.-licensed	stablecoin	issuers	are	not	
treated as investment companies under relevant securities laws.
• National Security. Illicit	actors,	including	sanctions	evaders,	can	use	stablecoins	as	a	relatively	safe	and	
stable	way	to	hold	illicit	proceeds	before	exchanging	into	fiat	currency	and	to	access	U.S.	dollar	liquidity.	
In	response	to	specific	requests	from	U.S.	and	foreign	law	enforcement,	some	stablecoin	issuers	have,	in	
some	cases,	taken	steps	to	freeze	assets.	To	promote	integrity	in	stablecoins,	protect	U.S.	national	security	
interests,	and	build	upon	existing	AML/CFT	and	sanctions	requirements	for	stablecoin	issuers,	GENIUS	
explicitly	treats	U.S.-licensed	stablecoin	issuers	as	“financial	institutions”	under	the	BSA	and	therefore	
subject	to	applicable	AML/CFT	obligations.
348
	Foreign	payment	stablecoin	issuers	are	also	required	to	
comply with lawful U.S. orders to freeze and seize assets to counter illicit use.
349
The	Working	Group	believes	that	GENIUS	will	create	a	thriving	and	durable	stablecoin	ecosystem	in	the	
United States.
To enable this ecosystem to realize its full potential under GENIUS, the Working Group urges all 
relevant federal agencies, including Treasury, the OCC, the FDIC, the FRB, the NCUA, the SEC, and the 
CFTC, to faithfully and expeditiously implement GENIUS, as required by law.
Central Bank Digital CurrenciesCentral Bank Digital Currencies
A	Central	Bank	Digital	Currency	is	a	digital	form	of	fiat	money	and	direct	liability	of	the	central	bank.	CBDC	
projects	around	the	world	may	be	targeted	at	retail	payments	or	wholesale	payments.	In	retail	usage,	the	CBDC	
targets	individuals	by	making	them	holders	of	a	liability	of	the	central	bank	used	for	low-value	transactions,	
including payments. In wholesale usage, the CBDC targets institutions with a function much like a tokenized 
central	bank	reserve,	representing	an	obligation	of	the	central	bank	to	the	token	holder.	
348  						 Note	that	domestic	and	foreign	stablecoin	issuers	offering	services	wholly	or	in	substantial	part	in	the	United	States	are	already	subject	to	the	BSA.	
Supra note 338.
349      See Chapter V,	“Stablecoin	Freeze	and	Seize	Process.”

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The	Executive	Order	prohibits	the	promotion	of	CBDCs	both	domestically	and	abroad.
350
 CBDCs are provided 
by	a	central	bank	government	authority,	and	the	retail	use	of	CBDCs	introduces	the	greatest	risks	to	the	private	
sector	and	private	citizens.	CBDCs	consolidate	government	control	of	personal	financial	information,	severely	
compromising	individual	economic	and	privacy	rights.	Combined	with	the	potential	incorporation	of	smart	
contracts,	retail	CBDCs	could	effectively	turn	fiscal	policy	over	to	unelected	monetary	authorities	and	could	
be	used	to	channel	resources	away	from	certain	activities	and	toward	others	at	the	whims	of	those	authorities.	
According to one estimate, at least 90 countries are actively considering or experimenting with CBDCs.
351
 
China’s	CBDC,	the	e-CNY,	has	an	expansive	pilot	project	that	involves	60	banks	and	payment	service	providers.	
In 2021, the European Central Bank (ECB) launched a two-year investigation phase for the issuance of a CBDC, 
the	digital	euro,	and	has	been	in	the	preparation	phase	for	the	digital	euro’s	issuance	since	November	2023.
352
 
The	ECB	is	targeting	October	2025	for	a	Governing	Council	decision	regarding	the	potential	launch	of	the	next	
phase in the digital euro’s development.
353
 
Retail	CBDC	efforts,	both	domestically	and	abroad,	pose	severe	risks	to	individual	rights,	financial	systems,	and	
the	sovereignty	of	the	United	States.	In	contrast,	private	sector	technological	innovations	like	stablecoins	and	
other	forms	of	tokenized	assets	preserve	economic	liberty.	
RecommendationsRecommendations
• Discourage,	oppose,	and	prohibit	the	ability	of	any	agency	from	undertaking	any	action	to	establish,	issue,	
or	promote	any	CBDCs	in	the	United	States	or	abroad.
• Support	legislation	prohibiting	the	adoption	of	any	CBDCs	in	the	United	States,	including,	for	example,	the	
Anti-CBDC	Surveillance	State	Act,	which	was	passed	by	the	House	of	Representatives	on	July	17,	2025.
354
• Support U.S. technological leadership and competitiveness in capital markets and work to upgrade 
domestic	payment	systems,	FMIs,	and	cross-border	payments;	urge	other	countries	to	adopt	policies	that	
promote the role of the private sector within a technology-neutral regulatory regime.
• Examine the extent to which U.S. federal agencies (including the Banking Agencies) and relevant international 
financial	institutions	have	engaged	in	CBDC	research	or	pilot	programs	contrary	to	the	policies	set	forth	in	
Executive Order No. 14178.
355
 
Promoting the Competitiveness of the U.S. Dollar Through Digital Asset Payments  Promoting the Competitiveness of the U.S. Dollar Through Digital Asset Payments  
and Capital Marketsand Capital Markets
A	promising	use	case	for	stablecoins	and	other	new	forms	of	money	is	cross-border	payments	and	financial	
transactions. A wide range of jurisdictions, private sector groups, and international organizations are engaged 
in	initiatives	to	improve	cross-border	payments.
356
	Some	aim	to	improve	the	current	regime	for	cross-border	
payments,	to	which	the	U.S.	dollar	and	U.S.	financial	institutions	are	central,	while	other	projects	may	aim	to	
transform	global	payments	to	the	detriment	of	the	United	States.	
The	dollar	is	the	leading	currency	in	the	international	monetary	system	within	which	cross-border	payments	
and	financial	markets	have	matured.	The	dollar’s	share	of	global	trade	(54%)	and	financial	activities	(59%	of	
350      Exec. Order No. 14178, supra note 1,	at	§	5(a)	(“Except	to	the	extent	required	by	law,	agencies	are	hereby	prohibited	from	undertaking	any	action	to	
establish,	issue,	or	promote	CBDCs	within	the	jurisdiction	of	the	United	States	or	abroad.”).	The	Executive	Order	defines	“Central	Bank	Digital	Currency”	
as	“a	form	of	digital	money	or	monetary	value,	denominated	in	the	national	unit	of	account,	that	is	a	direct	liability	of	the	central	bank.”	Id. at § 2(c).
351       See Today’s Central Bank Digital Currencies Status, CBDC Tracker, https://cbdctracker.org (updated May 2025). 
352      Timeline and Progress on a Digital Euro, European Central Bank, https://www.ecb.europa.eu/euro/digital_euro/progress/html/index.en.html (last visited July 13, 2025). 
353						Staying	Ahead	of	the	Curve:	Towards	Further	Testing	and	Development,	European	Central	Bank,	https://www.ecb.europa.eu/euro/digital_euro/progress/
shared/pdf/241202-timeline-digital-euro-project.en.pdf (last visited July 13, 2025). 
354      H.R. 1919, 119th Cong. (2025). 
355      See Exec. Order No. 14178, supra note 1.
356      See FSB, supra note 3 2 7.

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foreign currency reserves)
357
	has	been	much	larger	than	the	United	States’	share	of	global	Gross	Domestic	
Product (now around 26%).
358
 For example, 88% of all FX transactions use the U.S. dollar in one leg of the 
transaction.
359
	More	than	80%	of	the	global	trade	finance	market	is	denominated	in	dollars.
360
 Around 60% 
of	global	banking	sector	liabilities	and	claims	are	denominated	in	dollars.
361
 This affords the United States 
broad	commercial	and	security	advantages,	such	as	reduced	currency	risk	for	U.S.	businesses	doing	business	
globally.	The	U.S.	dollar	also	delivers	significant	benefits	to	foreign	investors,	markets,	and	economies	in	the	
form	of	a	stable	store	of	value,	a	widely	accepted	retail	instrument,	and	a	highly	liquid	global	currency,	reducing	
transaction	costs	for	people	and	businesses	around	the	world.	
Stablecoin Adoption: Converging with Existing Frameworks
Stablecoins: simplifying global banking - streamlined 
framework, process and approach.
Stablecoins enable effortless, borderless transactions by unifying traditional and digital financial 
systems. Their adoption reduces complexity, enhances transparency, and makes global finance 
more accessible and efficient for individuals and businesses alike.
Traditional
Framework 
(SWIFT Network)
Stablecoin
“Sandwich”
(Bridge Part ners)
Stablecoin
Adoption
(Direct P2P)
Sen ding
P ar t y
Originating
Bank
Corresp ondent
(S ender) Bank
SWI FT
Network
Corresp ondent
(Receiver) Bank
Beneficiary
Bank
Receiving
P ar t y
Sen ding
P ar t y
On-R a mp
P ar t n e r
B l o c k ch ai n
Network
Off-R a mp
P ar t n e r
Receiving
P ar t y
Sen ding
P ar t y
B l o c k ch ai n
Network
Receiving
P ar t y
Current Banking Networks
Stablecoin  Acces s Partners
Di rect Transactions
Exchange Fiat to StablecoinExchange Stablecoin to Fiat
Providers that enable users to access 
stablecoins and  the blockchain.  Moving 
b al an ces  fr om  ex is ti ng  fi na nc ia l  system s.
Providers that enable users to access 
stablecoins and  the blockchain.  Moving 
b al an ces  to  ex is ti ng  fi na nc ia l  system s.
Sender’s WalletRecipient’s Wallet
User s t ha t  ho ld  st ab lec oi n  ba la nc es 
(reserves)  that provide immediate 
accessibility and transferability.
User s t ha t  ho ld  st ab lec oi n  ba la nc es 
(reserves)  that provide immediate 
accessibility and transferability.
Stablecoin Adoption : Converging with Existing Frameworks
2 to 5+ busi ness days
30 mi nutes  or less
Seconds  or less
Comprehe nsive Solutions from the Lea ding Global Crypto Adv isor
The traditional banking system experiences  significant inefficiencies 
i n c r oss-b or der  p aym ent s s tem mi ng  fr o m t he  ex ten si ve  
intermediation inherent  in the  correspondent  banking network.
Bridge to Adoption Built by “On-Ramp” & “Off-Ramp” Providers:
01
Seamless Conversion 
between Fiat & Stablecoin
On-ramp and off-ramp provid ers make it ea sy to 
conver t fiat currencies into stab lecoins and vice 
versa. This creates a smooth bridg e between 
trad ition al financial systems and the crypto 
ecosystem, r edu cin g b arriers for users and 
businesses (i.e., a stablecoin “customer ser vice”).
These inter mediary pro viders offer direct access to  
stablecoins  and  services  witho ut r equ ir in g external 
integrations. This facilitate smooth ado ption but 
simplifying processes, enhan cin g key areas of 
secu rity, and reducing operational complexity for 
businesses  and  users alike.
With built-in AML and KYC proto cols, on-ramp and 
off-ramp provid ers en sur e transactions are secure, 
tran spa ren t, an d meet  regulatory stand ards. This 
fosters  trust a mong  users, suppo rts  bro ader 
ado ption of stablecoins, and  ensures compliance 
with  glob al financial  regulations.
02
No Th ird-Part y 
Integration Required
03
Integrate d Regulatory 
Co mpl iance  Pr ocess
357      Sam Boocker & David Wessel, The changing role of the US dollar, Brookings (Aug. 23, 2024), https://www.brookings.edu/articles/the-changing-role-of-
the-us-dollar.
358     GDP (current US$) – United States, World, World Bank Group, https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2024&locations=US-
1W&start=1960&view=chart (last visited July 13, 2025). 
359					U.S.	Department	of	the	Treasury	Under	Secretary	for	International	Affairs	Jay	Shambaugh,	Remarks	at	the	Third	Conference	on	the	International	Roles	
of	the	U.S.	Dollar	Hosted	by	the	Federal	Reserve	Board	and	the	Federal	Reserve	Bank	of	New	York	(May	20,	2024),	https://home.treasury.gov/news/press-
releases/jy2352.
360     First Deputy Managing Director Gita Gopinath, International Monetary Fund, Geopolitics and its Impact on Global Trade and the Dollar, International 
Monetary Fund (May 7, 2024), https://www.imf.org/en/News/Articles/2024/05/07/sp-geopolitics-impact-global-trade-and-dollar-gita-gopinath.
361      Carol Bertaut, Bastian von Beschwitz & Stephanie Curcuro, “The International Role of the U.S. Dollar” Post-COVID Edition, Board of Governors of the 
Federal	Reserve	System:	FEDS	Notes	(June	23,	2023),	https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-us-dollar-post-
covid-edition-20230623.html.
Graphic prepared by Alvarez & Marsal

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International	payments	are	mainly	conducted	via	the	correspondent	banking	system,	in	which	the	primary	
participants	are	large	banks	and	financial	intermediaries	with	access	to	U.S.	dollar	clearing	services	and	
liquidity.	Smaller	institutions	typically	access	this	system	through	accounts	at	larger	banks.	Participants	
send	payment	instructions	and	confirmations	through	specialized	messaging	systems,	like	that	operated	by	
the	Society	for	Worldwide	Interbank	Financial	Telecommunication	(SWIFT).	Payments	ultimately	settle	on	
commercial	and	central	bank	balance	sheets,	often	on	a	net	basis	at	predetermined	times	of	day	for	reasons	
of	operational	and	liquidity	efficiency.	A	single	payment	may	travel	across	several	bank	balance	sheets	and	
require reconciliation all along the chain in a complex system that has evolved over decades. In many FX 
transactions	between	two	non-U.S.	currencies,	the	original	currency	is	converted	first	to	U.S.	dollars	and	then	
to	the	final	currency,	because	it	is	often	cheaper	than	a	direct	conversion	or	because	there	is	higher	liquidity	
for conversion to or from the U.S. dollar. This explains the U.S. dollar’s dominant role in FX transactions, and 
why	U.S.	institutions	and	U.S.	dollar	accounts	are	central	to	cross-border	payments.	This	centrality	incentivizes	
foreign	financial	institutions	to	implement	U.S.	sanctions	and	maintain	robust	AML/CFT	controls,	both	of	which	
are key U.S. economic and national security tools. 
For individuals sending remittances, especially to countries with poorer connectivity to the correspondent 
banking	system,	payments	may	be	slower,	more	expensive,	and	more	opaque.	According	to	2024	World	Bank	
data,	the	global	average	cost	of	remitting	$200	was	6.4%,	with	high	variation	across	regions	and	only	77%	of	
remittances	were	available	within	one	day.
362
 Such direct and indirect costs impede economic development, 
creating	a	demand	for	alternatives	that	may	be	filled	by	U.S.	adversaries.	Additionally,	as	capital	markets	
accelerate, slower payment infrastructure could increase the risk of failed transactions and may increase 
costs	for	securities	firms	active	across	global	markets.	Despite	next	day	(T+1)	settlement	for	most	securities	
transactions	in	the	United	States,	FX	transactions	still	settle	in	two	days	(T+2),	requiring	banks	to	hold	capital	
against FX transactions to insure against settlement failure. Additionally, large sections of the system may have 
dependencies	on	unreliable	core	infrastructures,	introducing	concentration	and	operational	risks.	For	example,	
in	late	February	2025,	a	“hardware	defect”	in	Europe’s	Target	2	legacy	payment	system	caused	a	seven-hour	
outage, delaying trillions of euros worth of payments.
363
 Finally, foreign jurisdictions, seeking to evade U.S. 
sanctions, may seek to create alternatives that avoid U.S. jurisdiction. 
Digital	asset	proponents	are	applying	the	full	suite	of	new	money-like	products	to	cross-border	retail	
payments.	Digital	assets	and	stablecoins	already	flow	across	borders,	although	the	evidence	indicates	that,	
except	for	in	select	countries,	these	flows	predominantly	finance	activity	within	the	global	digital	asset	
ecosystem.
364
 
Large-value	wholesale	cross-border	payments	can	also	benefit	from	the	advantages	of	digital	assets	and	DLT.	
While some of this work advances piecemeal upgrades or technical improvements to existing systems, there is 
significant	interest	in	designing	new	multilateral	FMIs	or	common	platforms	for	cross-border	payments.	In	its	
most	ambitious	form,	a	new	FMI	would	accommodate	varied	types	of	tokenized	assets	traded	across	borders.	
Development of new FMIs remains conceptual for now, and further exploration is ongoing to determine the 
technical,	operational,	and	economic	viability.	The	ability	to	instantaneously	transfer	deposits	globally,	or	to	
program	payments	with	specific	conditions,	has	the	potential	to	significantly	enhance	client	firms’	treasury	
operations	and	cash	management.	Atomic	settlement	of	wholesale	FX	payments	could	also	help	significantly	
reduce	settlement	risk.	Private	sector	financial	institutions,	including	U.S.	firms,	both	individually	and	in	
consortia, are driving some of these projects. 
362      FSB, supra note 327, at 33.
363      Tom Simms, Francesco Canepa & John O’Donnell, ECB’s multi-trillion payments breakdown sends shudders through Europe,	(Feb.	28,	2025),	https://www.
reuters.com/markets/europe/deutsche-boerses-clearstream-deals-with-residual-impact-ecb-outage-2025-02-28. 
364      Raphael Auer et al., DeFiying gravity? An empirical analysis of cross-border Bitcoin, Ether and stablecoin flows, BIS Working Paper No. 1265 (May 2025), 
https://www.bis.org/publ/work1265.pdf. 

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Stablecoins and Payments Stablecoins and Payments  •  Promoting the Competitiveness of the U.S. Dollar Through Digital Asset Payments and Capital Markets
Without strong U.S. leadership, the development of alternative payment arrangements may weaken the role 
of	U.S.	financial	institutions,	the	dollar,	and	the	effectiveness	of	U.S.	national	security	tools.	While	many	private	
sector	projects	are	being	led	by	or	involve	U.S.	financial	institutions,	many	have	based	their	innovation	outside	
the	United	States	to	take	advantage	of	more	favorable	regulatory	environments	for	deploying	digital	assets	and	
tokenization.	This	reduces	the	United	States’	ability	to	establish,	influence,	and	benefit	from	new	standards	and	
best	practices	for	innovative	cross-border	FMIs.	Additionally,	adversarial	nations	have	been	active	in	efforts	to	
establish	new	cross-border	payment	arrangements	with	the	explicit	goal	of	reducing	reliance	on	U.S.	dollar-based	
infrastructures.	The	negative	effects	of	these	efforts	could	build	as	more	arrangements	are	created	from	which	
the	U.S.	dollar	and	the	United	States	are	absent.	Advances	in	international	projects	to	develop	FMIs	using	novel	
payment	technology	may	define	new	de	facto	standards.	If	the	United	States	does	not	lead,	these	standards	may	
be	of	poor	quality,	conflict	with	U.S.	values	or	national	security	priorities,	or	intentionally	erode	U.S.	interests.	
The United States must seize the opportunity to exert leadership over the emergence and evolution of new 
financial	market	technologies	and	champion	the	U.S.	private	sector	to	lead	these	innovations.	U.S.	participation	in	
the	development	of	alternative	payment	arrangements—either	directly	or	indirectly	through	the	oversight	of	U.S.	
private	sector	initiatives—will	help	preserve	the	dollar’s	role	and	increase	the	ability	of	the	United	States	to	preserve	
or	improve	the	efficacy	of	its	national	security	tools.	For	example,	a	U.S.	regime	for	well-regulated	stablecoins	that	
can	flow	across	borders	via	reciprocity	arrangements,	as	is	envisioned	by	GENIUS,	can	support	the	emergence	of	a	
new	U.S.-based	system	for	real-time	cross-border	dollar	payments.	By	virtue	of	the	dollar’s	availability,	other	U.S.-led	
arrangements	that	may	rely	on	innovations	such	as	tokenization	would	be	relatively	more	attractive	than	competing	
non-dollar	models.	The	involvement	of	U.S.	financial	institutions	would	also	reinforce	U.S.	AML/CFT	and	sanctions	
frameworks,	incentivize	foreign	financial	institutions	to	maintain	strong	AML/CFT	programs,	and	incentivize	non-
U.S.	persons	to	abide	by	U.S.	sanctions	if	they	seek	to	access	to	the	U.S.	financial	system.	
RecommendationsRecommendations
• Relevant	U.S.	agencies,	including	Treasury,	should	promote	U.S.	private	sector	leadership	in	the	responsible	
development	of	innovative	cross-border	payments	and	financial	markets	technologies.	Toward	this	end,	
Treasury	should	consider	using	its	convening	authority	to	encourage	and	provide	clarity	to	U.S.	financial	
institutions in leading these efforts. 
• Treasury	and	other	relevant	agencies	should	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.	Standards,	including	international	standards,	should	be	calibrated	to	accurately	reflect	
the risk of innovative digital products and services.
• Domestically	and	internationally,	U.S.	authorities	should	encourage	payment	solutions	that:	(i)	protect	
the	two-tier	banking	system	and	promote	the	private	sector’s	role	in	financial	intermediation,	payments,	
and	capital	formation;	(ii)	preserve	individual	rights	and	limit	government	control	of	personal	financial	
information;	and	(iii)	incorporate	robust	and	effective	AML/CFT	and	sanctions	controls.	
• Treasury, in coordination with other relevant agencies, should engage with international counterparts and 
institutions	by	leading	initiatives	to	upgrade	domestic	payment	systems,	FMIs,	and	cross-border	payment	
systems,	to	help	protect	the	primacy	of	the	dollar-based	international	monetary	system.

VI   Countering Illicit FinanceVI   Countering Illicit Finance
CHAPTER VI
 Countering Illicit Finance Countering Illicit Finance
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Countering Illicit FinanceCountering Illicit Finance
“The	developers	expect	that	this	will	result	in	a	stable-with-respect-to-energy	currency	outside	
the	reach	of	any	government.”	–	I	am	definitely	not	making	an	[s i c]   such taunt or assertion.
 BitcoinTalk Forum Post Re: “Slashdot Submission for 1.0” 
Satoshi Nakamoto, July 2010
365
Digital	assets,	like	traditional	assets,	are	subject	to	abuse	by	bad	actors—terrorists,	drug	traffickers,	state-
sponsored	hackers,	human	traffickers,	fraudsters,	sanctions	evaders,	and	others.	But	unlike	traditional	assets,	the	
technology	underlying	digital	assets	enables	ways	to	mitigate	the	risk	of	illicit	transactions.
366
	The	U.S.	financial	
system’s	strength,	size,	and	reliability	make	it	a	notable	target,	and	misuse	by	these	actors	affects	matters	
of national security. To unleash the full potential of digital assets in the United States, preserve the rights of 
innovators	to	build	technologies	that	advance	individual	privacy	and	liberty,	and	stop	financial	crime	that	targets	
Americans,	the	Working	Group	encourages	the	adoption	of	certain	measures	to	deter	and	combat	illicit	finance.	
These	measures,	tools,	and	authorities	must	be	properly	scoped	to	encourage	innovation,	respect	the	liberties	
and	privacy	of	lawful	digital	asset	users,	and	protect	the	financial	system	from	abuse.	Treasury’s	policy,	
enforcement, intelligence, and regulatory tools under the Bank Secrecy Act (BSA)
367
 and sanctions authorities 
are	critical	to	protecting	the	U.S.	financial	system.	Effective	and	clear	regulation	coupled	with	law	enforcement	
actions	against	malicious	actors	can	build	confidence	among	U.S.	users	and	firms	seeking	to	grow	domestically.	
Transparency	regarding	developers’	obligations	under	the	law	will	encourage	the	onshoring	of	blockchain	
development and support the efforts of American innovators to lead the digital assets industry forward.
The	Financial	Crimes	Enforcement	Network	(FinCEN),	a	Treasury	bureau	tasked	with	safeguarding	the	
financial	system	from	illicit	activity,	has	shown	leadership	on	this	front.	As	part	of	an	ongoing	effort	to	establish	
clarity	for	  the	   digital	asset	industry	and	   the	   Trump	Administration’s	broader	efforts	to	  ensure	regulations	are	  fit-
for-purpose, FinCEN is withdrawing two notices of proposed rulemaking related to digital assets, including one 
rulemaking colloquially referred to as the “unhosted wallet rule”
368
 and a second that proposed amendments to 
the travel and recordkeeping rules.
369
The U.S. Department of Justice (DOJ) has also committed to ending the Biden Administration’s strategy of 
regulation	by	prosecution	in	the	digital	assets	space.
370
 The DOJ will no longer pursue litigation or enforcement 
actions that have the effect of superimposing regulatory frameworks on digital assets.
371
 This decision stems 
from	the	fact	that	financial	regulators	(including	the	SEC,	and	the	CFTC)	have	regulatory	subject	matter	
expertise	and	are	better	suited	for	such	regulatory	activities.
372
 Going forward, the DOJ’s investigations and 
prosecutions involving digital assets shall focus on prosecuting individuals who victimize digital asset investors or 
365       satoshi, supra note 16.
366      Supra note 349
367							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). 
368      See Requirements	for	Certain	Transactions	Involving	Convertible	Virtual	Currency	or	Digital	Assets, 85 Fed. Reg. 83840 (Dec. 23, 2020).
369      See Threshold for the Requirement To Collect, Retain, and Transmit Information on Funds Transfers and Transmittals of Funds That Begin or End Outside 
the	United	States,	and	Clarification	of	the	Requirement	To	Collect,	Retain,	and	Transmit	Information	on	Transactions	Involving	Convertible	Virtual	
Currencies and Digital Assets With Legal Tender Status, 85 Fed. Reg. 68005 (Oct. 27, 2020).
370							U.S.	   Department	of	  Justice	(DOJ),	Memorandum	from	the	   Deputy	Attorney	General:	Ending	Regulation	by	  Prosecution	1	 (Apr.	7,	 2025),	https://www.justice.
gov/dag/media/1395781/dl?inline. 
371        Id.
372       Id. at 1, 3.

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use digital assets in furtherance of criminal offenses.
373
	The	DOJ	has	also	disbanded	its	National	Cryptocurrency	
Enforcement Team and refocused its Market Integrity and Major Frauds Unit on other priorities.
3 74
The	Working	Group	applauds	these	actions	and	encourages	all	relevant	agencies	to	follow	the	examples	set	by	
FinCEN	and	the	DOJ	in	evaluating	and	better	tailoring	regulation	and	enforcement.
Illicit Finance RisksIllicit Finance Risks
U.S. digital asset participants use digital assets for a variety of legitimate purposes, including investments, 
remittances, and payment for goods and services. However, like any medium of exchange, digital assets may 
be	used	by	illicit	actors	to	facilitate	and	profit	from	crime.	The	ability	to	transfer	assets	quickly	across	borders	
and perceptions of anonymity, which appeal to many digital asset users, also make digital assets attractive to 
illicit actors. 
Despite	increasing	over	the	last	decade,	the	prevalence	of	money	laundering	and	terrorist	financing	via	
digital	assets	remains	well	below	that	of	the	same	activities	utilizing	fiat	currency,	bank	and	traditional	money	
services fund transfers, and other methods that do not involve digital assets.
375
 The Federal government’s 
approach	to	addressing	illicit	finance	in	the	digital	asset	ecosystem	is	informed	by	an	understanding	of	how	
threat actors misuse digital assets and the features of the underlying technology. Moreover, certain industry 
estimates indicate that the vast majority of digital asset activity is legitimate, with a relatively small amount 
of	illicit	activity.	For	example,	two	blockchain	analytics	companies	assessed	that	between	0.61%	and	0.86%	of	
all	onchain	digital	asset	volumes	in	2023	were	illicit,	accounting	for	between	$46.1	billion	and	$58.7	billion.	As	
indicated	below,	these	companies	have	also	conducted	assessments	for	2024	but	anticipate	adjustments	to	
illicit	volume	over	time	with	delayed	reporting,	further	analysis,	and	improved	attribution	techniques	to	identify	
illicit activity.
376
	These	assessments	help	provide	a	baseline	for	illicit	activity	in	the	digital	asset	ecosystem	given	
certain	limitations	with	using	blockchain	information	for	ecosystem-wide	trends.
377
 
373      Id. at 1.
3 74             Id. at 4.
375      See Treasury, 2024 National Terrorist Financing Risk Assessment, supra note 336; Treasury, 2024 National Money Laundering Risk Assessment, supra note 336.
376						Chainalysis,	The	2025	Crypto	Crime	Report	5	(Feb.	2025),	https://www.chainalysis.com/wp-content/uploads/2025/03/the-2025-crypto-crime-report-
release.pdf;	TRM	Labs,	2025	Crypto	Crime	Report	4	(2025),	https://cdn.prod.website-files.com/6082dc5b670562507b3587b4/6823baf9045160ea474b3f7a_
TRM_2025%20Crypto%20Crime%20Report.pdf.
377						The	limitations	include	the	adjustments	described	above,	variations	in	how	analytic	companies	attribute	illicit	activity	to	wallets,	differences	in	the	
networks	and	assets	included	in	the	assessment,	and	the	fact	that	assessments	only	include	transactions	involving	wallet	addresses	that	have	been	
identified	as	illicit.	Attribution	for	these	purposes	can	be	particularly	challenging	for	transactions	involving	proceeds	of	crimes	initially	conducted	in	fiat	
currency	and	subsequently	converted	into	digital	assets.

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Share of Digital Asset Transaction Volume Associated with Illicit Activity, 2021-2024
378
Notably,	in	addition	to	volume	of	illicit	activity,	the	harmful	impact	of	illicit	conduct	must	also	be	considered	
in	assessing	illicit	finance	risks	in	the	digital	asset	ecosystem.	For	example,	while	the	Democratic	People’s	
Republic	of	Korea’s	(DPRK)	revenue	generation	through	digital	assets	is	a	small	amount	compared	to	the	
market capitalization of digital assets, DPRK is reliant on digital assets to fund the regime’s weapons of mass 
destruction	and	ballistic	missiles	program.
379
DPRK	and	ransomware	cybercriminals	have	generated	significant	revenue	in	digital	assets	through	theft	and	
extortion	payments	for	several	years.	In	February	2025,	DPRK	cybercriminals	stole	digital	assets	valued	at	$1.5	
billion	from	a	digital	asset	service	provider,	the	largest	theft	in	digital	asset	history.
380
 In 2024, reported losses 
from	digital	assets	fraud	exceeded	$9	billion,	a	66%	increase	from	2023,	according	to	complaints	received	
by	the	Federal	Bureau	of	Investigation’s	(FBI’s)	Internet	Crime	Complaint	Center.
381
 Losses to digital asset 
investment	schemes	accounted	for	nearly	$6	billion	of	this	total	amount.
382
 
Illicit	actors	can	exploit	several	vulnerabilities	in	the	digital	asset	ecosystem,	including	jurisdictional	arbitrage,	
digital	asset	service	providers	that	fail	to	comply	with	applicable	AML/CFT	and	sanctions	obligations,	and	
anonymity-enhancing	technologies.	Often,	illicit	   actors	use	   foreign	digital	asset	service	providers	with	   weak	AML/
CFT	and	sanctions	requirements	to	launder	illicit	proceeds.	Some	of	these	service	providers	tout	their	weak	AML/
CFT	and	sanctions	controls	to	attract	customers.	The	lack	of	standardization	across	AML/CFT	frameworks	across	
jurisdictions	allows	some	digital	asset	service	providers	to	operate	in	countries	with	deficient	or	non-existent	
AML/CFT	requirements.	A	Financial	Action	Task	Force	(FATF)	survey	identified	that	as	of	mid-2025,	nearly	30	
countries	had	not	determined	their	approach	to	digital	asset	service	providers	for	AML/CFT,	and	many	countries	
378      Chainalysis, supra note 376;	TRM	Labs,	supra note 376.
379      See Office	of	the	Director	of	National	Intelligence,	Annual	Threat	Assessment	of	the	U.S.	Intelligence	Community	(Mar.	2025),	https://www.dni.gov/files/
ODNI/documents/assessments/ATA-2025-Unclassified-Report.pdf. 
380						Federal	Bureau	of	Investigation	(FBI),	I-022625-PSA,	North	Korea	Responsible	for	$1.5	Billion	ByBit	Hack	(Feb.	26,	2025),	https://www.ic3.gov/psa/2025/
psa250226. 
381      FBI, Federal Bureau of Investigation Internet Crime Report 2024 35 (2024), https://www.ic3.gov/AnnualReport/Reports/2024_IC3Report.pdf. 
382      Id. at 3 6.

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with	AML/CFT	frameworks	for	digital	asset	service	providers	have	not	yet	operationalized	them.
383
 These 
international gaps may allow non-compliant digital asset service providers outside the United States to solicit U.S. 
customers	away	from	more	compliant	U.S.-based	digital	asset	service	providers.
Even	in	the	United	States,	where	digital	asset	service	providers	are	subject	to	AML/CFT	and	sanctions	
obligations,	some	digital	asset	service	providers	fail	to	comply	with	applicable	obligations.	Such	compliance	
failures	can	result	in	an	uneven	playing	field,	placing	firms	that	faithfully	discharge	their	responsibilities	to	help	
safeguard	the	U.S.	financial	system	at	a	competitive	disadvantage.
Illicit	actors	use	certain	tools	and	methods—such	as	mixers,	anonymity-enhanced	cryptocurrencies	(AECs),	
and	chain-hopping—to	obfuscate	transactional	information	that	may	be	otherwise	viewable	on	public	
blockchains.
384
 These tools and methods can hinder law enforcement investigations, including tracing criminal 
proceeds for seizure and forfeiture, which can allow victim compensation. While these methods and tools may 
also	be	used	for	legitimate	digital	assets	activities,	including	by	users	who	want	increased	privacy	for	digital	
asset transactions (see Chapter VI, Advancing Privacy through Digital Identity and Related Tools), they can 
heighten	illicit	finance	risks	if	they	do	not	simultaneously	allow	for	or	promote	risk	mitigation	measures.
Illicit actors may also use DeFi services, along with self-custody, to facilitate peer-to-peer transactions in the 
laundering process. While there are licit reasons to self-custody digital assets (see Chapter II), illicit actors can 
use the pseudonymity of self-custody and peer-to-peer payments to conceal or to quickly move proceeds.
Improving the AML/CFT and Sanctions FrameworksImproving the AML/CFT and Sanctions Frameworks
The	U.S.	AML/CFT	and	sanctions	frameworks	are	designed	to	protect	the	integrity	of	the	U.S.	financial	
system	on	which	U.S.	persons	and	the	global	economy	rely	for	trade,	investments,	remittances,	and	everyday	
transactions.	The	BSA,	administered	by	FinCEN,	places	obligations	on	financial	institutions	to	monitor,	report,	
and	take	steps	to	mitigate	money	laundering,	the	financing	of	terrorism,	and	other	illicit	finance	activity.	These	
requirements	both	mitigate	the	risk	of	illicit	actors	accessing	the	financial	system	and	provide	actionable	
information for law enforcement and national security agencies to identify and disrupt criminal activity. U.S. 
economic	and	trade	sanctions,	administered	by	Treasury’s	Office	of	Foreign	Assets	Control	(OFAC),	prohibit	
certain	adversaries	from	accessing	the	U.S.	financial	system	and	deter	or	disrupt	behavior	that	undermines	U.S.	
national security or foreign policy through the imposition of material costs. 
To	implement	the	Trump	Administration’s	policy	of	encouraging	innovation	and	responsible	use	of	digital	
assets,	the	United	States	must	protect	the	digital	asset	ecosystem	and	its	users	by	mitigating	and	combatting	
the	risks	posed	by	illicit	use.	Meeting	this	objective	requires	AML/CFT	and	sanctions	regimes	that	impose	clear	
obligations,	tailored	to	the	risk	and	structure	of	the	industry.	In	the	view	of	the	Working	Group,	this	moment	
serves	as	a	valuable	opportunity	to	comprehensively	review	the	AML/CFT	regime	to	ensure	it	protects	the	
financial	system	from	abuse	without	impeding	on	the	rights	of	law-abiding	Americans.	Such	regulatory	
frameworks	should	respect	the	lawful	use	of	digital	assets	by	individuals	and	digital	asset	firms	in	the	United	
States	and	acknowledge	Americans’	privacy	rights.	Updates	to	the	AML/CFT	and	sanctions	regimes	to	better	
account for digital asset actors will create a more transparent, resilient, and safe digital asset sector and give 
the	United	States	a	comparative	advantage	globally.	
383      Financial Action Task Force, Targeted Update on Implementation of the FATF Standards for Virtual Assets and Virtual Asset Service Providers 11 (Jun. 
2025), https://www.fatf-gafi.org/content/dam/fatf-gafi/recommendations/2025-Targeted-Upate-VA-VASPs.pdf.coredownload.pdf. 
384						“Chain-hopping”	refers	to	the	practice	of	converting	one	digital	asset	into	a	different	digital	asset	at	least	once	before	moving	the	funds	to	another	
service or platform.

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Prescribing BSA Obligations
BSA Background
The	BSA	authorizes	the	Secretary	of	the	Treasury	to	impose	various	obligations	on	financial	institutions	
to	detect	and	combat	money	laundering,	the	financing	of	terrorism	and	other	illicit	finance	activity,	and	to	
otherwise safeguard the national security of the United States. 
Among	other	things,	the	BSA	and	its	implementing	regulations	require	financial	institutions	to	establish	written	
programs	to	combat	money	laundering	and	the	financing	of	terrorism	and	to	keep	records
385
	and	file	reports	
that “are highly useful in . . . criminal, tax, or regulatory investigations, risk assessments, or proceedings” or 
“intelligence or counterintelligence activities, including analysis, to protect against terrorism.”
386
 The Secretary 
of	the	Treasury	may	also	“establish	appropriate	frameworks	for	information	sharing	among	financial	institutions	
and	service	providers,	their	regulatory	authorities,	associations	of	financial	institutions,	the	Treasury,	and	law	
enforcement	authorities	to	identify,	stop,	and	apprehend	money	launderers	and	those	who	finance	terrorists.”
387
 
In 2021, Congress enacted the Anti-Money Laundering Act of 2020 (AML Act) as a part of the William M. 
(Mac)	Thornberry	National	Defense	Authorization	Act	for	Fiscal	Year	2021.
388
	A	key	objective	of	the	AML	Act	
was	to	strengthen	and	modernize	the	AML/CFT	regulatory	framework.	The	AML	Act	also	amended	the	BSA	
to	further	solidify	the	inclusion	of	digital	assets	into	the	U.S.	AML/CFT	framework,	expanding	key	definitions	to	
account	for	“value	that	substitutes	for	currency.”
389
 The Secretary of the Treasury has delegated the authority 
to implement, administer, and enforce the BSA and its implementing regulations to the Director of the FinCEN.
An	entity	generally	has	BSA	obligations	if	it	qualifies	as	a	“financial	institution”	under	the	BSA,	which	is	based	
on	the	entity’s	activities,	regardless	of	whether	the	activity	is	in	fiat,	digital	assets,	or	both.	Participants	in	the	
digital	asset	ecosystem	may	meet	the	definition	of	one	or	more	financial	institution	types	under	the	BSA	(e.g.,	
MSBs,	insured	banks,	trust	    companies,	futures	commissions	merchants,	broker-dealers),	but	   are	  predominantly	
treated as MSBs.
390
 Key components of regulations implementing the BSA pre-date the creation of digital 
assets,	smart	contracts,	and	other	industry	innovations.	Accordingly,	the	current	U.S.	AML/CFT	framework	
does not clearly account for all aspects of the digital asset ecosystem. 
Statutory Changes for Digital Asset Financial Institutions
The	U.S.	AML/CFT	framework	should	consider	how	obligations	can	be	better	tailored	and	clarified	for	digital	
asset	actors.	To	achieve	this,	the	Working	Group	recommends	that	Congress—as	it	considers	germane	
legislation—consider	providing	statutory	changes	to	the	BSA	that	define	with	greater	certainty	the	actors	in	the	
385      See 31	U.S.C.	§	5318(h).	The	program	rules	are	located	at	31	C.F.R.	§§	1020.210	(banks),	1021.210	(casinos	and	card	clubs),	1022.210	(money	services	
businesses),	1023.210	(brokers	or	dealers	in	securities,	or	broker-dealers),	1024.210	(mutual	funds),	1025.210	(insurance	companies),	1026.210	(futures	
commission	merchants	and	introducing	brokers	in	commodities),	1027.210	(dealers	in	precious	metals,	precious	stones,	or	jewels),	1028.210	(operators	of	
credit	card	systems),	1029.210	(loan	or	finance	companies),	and	1030.210	(housing	government	sponsored	enterprises)	(2024).	Additionally,	under	Title	12	of	
the	U.S.	Code,	the	federal	banking	agencies	and	the	NCUA	maintain	regulations	requiring	insured	depository	institutions	and	credit	unions	to	“establish	and	
maintain	procedures	reasonably	designed	to	assure	and	monitor”	their	compliance	with	the	requirements	of	the	BSA.	See, e.g., 12 U.S.C. §§ 1818(s), 1786(q); 
see also	12	C.F.R.	§§ 208.63(b),	211.5(m),	211.24(j)	(FRB);	12	C.F.R.	§	326.8(b)	(FDIC);	12	C.F.R.	§	748.2	(NCUA);	12	C.F.R.	§	21.21(c)	(OCC)	(2025).
386      31 U.S.C. §§ 5311(1), 5318(g) (2024). 
387      31 U.S.C. §§ 5311(5) (2024); see also 31 U.S.C. § 310(d) (2024).
388						Pub.	L.	No.	Law	116-283	(2021).	The	AML	Act	was	enacted	as	Division	F,	§§	6001-6511,	of	the	Pub.	L.	No.	116-283	(2021).
389      See	AML	Act	§	6102(d).	Note	that	regulatory	definitions	pre-dating	the	AML	Act	recognized	that	BSA	obligations	could	apply	to	activity	involving	“value	
that	substitutes	for	currency.”	See Financial	Crimes	Enforcement	Network;	Amendments	to	the	Bank	Secrecy	Act	Regulations-Definitions	and	Other	
Regulations	Relating	to	Money	Services	Businesses,	74	Fed.	Reg.	22129,	22137	(May	12,	2009)	(discussing	current	definition	of	“money	transmitter”	and	
proposed	inclusion	of	“value	that	substitutes	for	currency,”	among	other	changes”);	Bank	Secrecy	Act	Regulations	–	Definitions	and	Other	Regulations	
Relating	to	Money	Services	Businesses,	76	Fed.	Reg.	43585	(July	21,	2011)	(adopting	definition);	FinCEN,	FIN-2019-G001,	Application	of	FinCEN’s	
Regulations	to	Certain	Business	Models	Involving	Convertible	Virtual	Currencies	4	(May	9,	2019),	https://www.fincen.gov/sites/default/files/2019-05/
FinCEN%20Guidance%20CVC%20FINAL%20508.pdf; FinCEN, FIN-2013-G001, supra note 338, at 3. 
390      See, e.g., 31	C.F.R.	§§	1010.100(h)	(defining	broker	or	dealer	in	securities),	1010.100(bb)	(defining	introducing	broker-commodities),	1010.100(ff)	(defining	
money	services	business)	(2024); Tarbert,	Blanco	&	Clayton,	supra note 111.

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digital	asset	ecosystem	that	are	subject	to	BSA	obligations.	Such	legislation	could	consider	creating	a	bespoke	
digital	asset-specific	financial	institution	types	or	sub-types,	which	could	enable	Treasury	to	more	carefully	
tailor	AML/CFT	obligations	to	different	participants	in	the	digital	asset	industry,	such	as	exchanges,	stablecoin	
issuers,	and	firms	engaged	in	digital	commodity	transactions.	
While	stablecoin	issuers	typically	transact	with	institutional	rather	than	retail	customers,	illicit	actors	may	use	
stablecoins	to	generate	and	launder	their	proceeds	of	crime.	As	a	good	practice,	some	issuers	have	capabilities	
to	mitigate	risks	related	to	secondary	market	transactions	in	the	stablecoin	that	they	issue.	This	can	include	
the	ability	to	freeze	funds	or	block	transactions	involving	their	stablecoin.	Many	issuers	also	use	blockchain	
analytics	to	identify	risks	in	the	stablecoin	ecosystem	and	can	use	that	information	to	freeze	tokens	when	
warranted.	Additionally,	Treasury	should	work	to	develop	tailored	AML/CFT	obligations	for	payment	stablecoin	
issuers,	including	ensuring	that	U.S.	law	enforcement	receives	highly	useful	reports	involving	stablecoins.	
Treasury	should	also	explore	how	stablecoin	issuers’	risk-based	AML	programs	should	address	higher-risk	
activities	in	the	secondary	stablecoin	ecosystem	without	placing	undue	burden	on	the	issuer,	as	well	as	
program	requirements	relating	to	freezing	and	seizing	stablecoins.	Chapter V discusses additional information 
on	stablecoins	and	related	regulatory	recommendations	that	are	relevant	for	understanding	the	operational	
context	in	which	stablecoins	are	used.	
Further, as discussed in Chapter III, certainty regarding the regulatory market structure for digital assets is critical 
to market growth. As Congress considers updating federal agencies’ authorities related to digital assets, it should 
ensure	that	necessary	changes	are	also	codified	in	the	BSA	such	that	digital	asset	firms	supervised	by	the	CFTC	
and	SEC,	including	any	newly	created	types	of	financial	institutions,	are	subject	to	BSA	obligations	as	appropriate.	
BSA Obligations and Considerations for DeFi
FinCEN has taken steps to promote certainty and foster innovation in the digital markets. Guidance from 
FinCEN	has	been	useful	in	assisting	industry	with	understanding	obligations	as	money	transmitters.	In	2013,	
FinCEN issued guidance, which explained how FinCEN characterized certain activities involving digital assets 
under the BSA and implementing regulations.
391
	The	guidance	clarified	that	an	administrator	or	exchanger	that	
“(1)	accepts	and	transmits	a	virtual	currency	or	(2)	buys	or	sells	convertible	virtual	currency	for	any	reason”	is	a	
money transmitter
392
	under	FinCEN	regulations	and,	therefore,	subject	to	the	regulations	of	a	money	services	
business	(MSB)	under	the	BSA.
393
	The	2013	guidance	also	stated	that	a	user	who	“obtains	virtual	currency	and	
uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations.”
394
 
In	2019,	FinCEN	issued	additional	guidance	on	the	application	of	regulations	on	certain	business	models	
involving	convertible	virtual	currencies	(CVCs).
395
 The guidance highlighted key facts and circumstances 
FinCEN	used	to	set	forth	how	various	models	could	be	treated	under	the	BSA.	For	example,	the	guidance	
further	clarified	how	FinCEN	regulations	may	apply	to	peer-to-peer	activity,	explaining	that	“Peer-to-Peer	
(P2P)	exchangers	are	(typically)	natural	persons	engaged	in	the	business	of	buying	and	selling	CVCs,”	and	
391      FinCEN, FIN-2013-G001, supra note 338.
392      Id.	at	3.	FinCEN’s	regulations	define	“money	transmitter”	as	a	person	that	provides	money	transmission	services,	or	any	other	person	engaged	in	the	
transfer of funds. 31 C.F.R. § 1010.100(ff)(5)(i)(A) (2024). The term “money transmission services” means “the acceptance of currency, funds, or other 
value	that	substitutes	for	currency	from	one	person	and	the	transmission	of	currency,	funds,	or	other	value	that	substitutes	for	currency	to	another	
location	or	person	by	any	means.”	Id.
393      FinCEN, FIN-2013-G001, supra note 338,	at	3.	The	guidance	also	defines	“virtual	currency”	as	“a	medium	of	exchange	that	operates	like	a	currency	
in	some	environments,	but	does	not	have	all	the	attributes	of	real	currency”	and	notes	that	“virtual	currency	does	not	have	legal	tender	status	in	any	
jurisdiction.” Id. at	1.	The	guidance	defines	convertible	virtual	currency	(CVC)	as	“a	type	of	virtual	currency	[that]	either	has	an	equivalent	value	in	real	
currency,	or	acts	as	a	substitute	for	real	currency.”	Id.	Later	guidance	from	FinCEN	refers	to	“digital	asset,”	“cryptocurrency,”	and	“cryptoasset”	as	labels	
applied to particular types of CVCs. See FinCEN, FIN-2019-G001, supra note 389, at 7.
394      FinCEN, FIN-2013-G001, supra note 338, at 2. 
395      FinCEN, FIN-2019-G001, supra note 38 9.

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that a “natural person operating as a P2P exchanger that engages in money transmission services involving 
real currency or CVCs must comply with BSA regulations as a money transmitter acting as a principal.”
396
 In 
contrast,	“a	natural	person	engaging	in	such	activity	on	an	infrequent	basis	and	not	for	profit	or	gain	would	be	
exempt from the scope of money transmission.”
397
 
FinCEN’s 2019 guidance also provided insight on how an entity’s control over access to value could impact 
whether	an	entity	is	an	MSB.	The	guidance	set	forth	four	criteria	to	be	considered	an	intermediary	under	the	
BSA, including “whether the person acting as intermediary has total independent control over the value.”
398
 
Hosted	wallet	providers	are	generally	subject	to	BSA	requirements	since	they	control	the	user’s	value.
399
 In 
contrast, in unhosted, single-signature wallets, the owner has “total independent control over the value,” and, 
according to the guidance, a natural person who engages in peer-to-peer transactions for their own purposes 
is not a money transmitter.
400
Finally, the guidance suggests that determining whether certain participants in the DeFi ecosystem provide 
money	transmission	services	depends	on	the	facts	and	circumstances	of	the	model,	which	would	presumably	also	
include a consideration of whether the service exerts “total independent control.”
401
 FinCEN further stated in an 
administrative	ruling	that	“production	and	distribution	of	software,	in	and	of	itself,	does	not	constitute	acceptance	
and transmission of value, even if the purpose of the software is to facilitate the sale of virtual currency.”
402
While	this	guidance	is	instructive,	the	current	U.S.	AML/CFT	regime	does	not	sufficiently	consider	truly	
decentralized	protocols,	where	the	governance/decision-making	is	distributed	across	communities	of	users,	and	
the	protocols	may	be	immutable	or	otherwise	technologically	incapable	of	collecting	customer	information	or	
reporting suspicious activities. The uniqueness of the DeFi ecosystem has propelled a protracted conversation 
in	policy	circles	across	the	globe	regarding	the	appropriateness	and	logistics	of	requiring	decentralized	
protocols	and	other	participants	in	the	DeFi	ecosystem	to	adhere	to	same	AML/CFT	obligations	as	centralized	
intermediaries,	whether	unique	obligations	tailored	to	the	technology	should	be	developed,	and	how	to	
effectively	mitigate	illicit	finance	risks	in	the	DeFi	ecosystem,	among	other	core	considerations.
This	challenge	calls	for	creative	solutions	to	enable	clarity	for	those	engaged	with	the	technology.	
Decentralized	protocols	generally	have	no	administrator,	retain	no	control	over	any	funds	or	digital	assets	being	
transacted,	are	unable	to	collect	customer	information,	and	cannot	file	Suspicious	Activity	Reports	(SARs).	
Moreover,	decentralized	protocols	are	unable	to	complete	simple	MSB	registration	functions,	like	completing	
the	registration	process	with	FinCEN—Form	107—that	necessitates	importing	identity	validating	information	
(i.e.,	SSN/EIN,	phone	numbers,	physical	address,	etc.),	or	conducting	entity-level	MSB	anti-money	laundering	
obligations,	such	as	adopting	a	written	anti-money	laundering	program.
403
To	provide	clarity	to	industry	and	allow	tailored	solutions	to	mitigate	illicit	finance	risks,	Congress	should	
consider	a	principled	approach	to	defining	various	actors	in	the	DeFi	ecosystem	as	discussed	in	Chapter III. 
Congress	could	provide	a	clear	definition	of	what	constitutes	“true”	decentralized	protocols	and	clarify,	or	
provide	direction	to	the	appropriate	regulator	to	clarify,	how	obligations	apply	to	entities	that	utilize	smart	
contracts	or	have	some	characteristics	of	DeFi	but	do	not	meet	all	elements	of	a	decentralized	protocol.	As	
part of this effort, Congress should consider codifying language expressing which portions, if any, of the DeFi 
396    Id. at 14, 15.
397      Id. at 15 (emphasis omitted).
398    Id.
399    See id. at 15-16.
400   See id. 
401      See id. at 14, 15, 18.
402     FinCEN, FIN-2014-R002, Application of FinCEN’s Regulations to Virtual Currency Software Development and Certain Investment Activity (Jan. 30, 2014), 
https://www.fincen.gov/sites/default/files/administrative_ruling/FIN-2014-R002.pdf. 
403    31 C.F.R. § 1022.210 (2024).

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ecosystem	should	have	AML/CFT	obligations	and	the	kinds	of	obligations	actors	should	have	by	constructing	
the	parameters	of	an	AML/CFT	framework	appropriate	to	the	class	of	activity.	
Depending	on	the	definition,	this	could	include	services	that	custody	assets	or	have	centralized	governance,	
including	through	instances	in	which	governance	tokens	are	held	by	one	or	a	small	group	of	persons	that	can	
effectively assert control. In considering statutory changes, Congress should recognize the good practices that 
some	participants	in	the	DeFi	ecosystem	are	implementing	and	focus	on	which	entities	are	best	positioned	to	
mitigate	illicit	finance	risk.	Parts	of	the	ecosystem,	such	as	certain	application	layer	participants,	relayers,	and	
remote procedure call (RPC) nodes, are currently implementing risk mitigation measures, including risk-rating 
wallets	and	rejecting	transactions	above	a	certain	risk	score.	Subject	to	Congress’s	direction,	Treasury	could	apply	
specified	obligations	to	actors	in	the	DeFi	ecosystem	based	on	the	role	that	they	play	and	the	attendant	risks.	
Further Improvements to the AML/CFT Regime
In	October	2023,	FinCEN	issued	a	notice	of	proposed	rulemaking	that	proposed	requiring	financial	institutions	
and	financial	agencies	to	implement	certain	recordkeeping	and	reporting	requirements	relating	to	transactions	
involving	convertible	virtual	currency	(CVC)	mixing.
404
 FinCEN received over 2,200 comments in response 
to	the	proposal.	Concerns	remain	about	how	illicit	actors,	such	as	DPRK	and	ransomware	actors,	continue	to	
use	mixers	to	obfuscate	and	launder	funds.	Nevertheless,	lawful	users	of	digital	assets	may	leverage	mixers	
to	enable	financial	privacy	when	transacting	through	public	blockchains.	To	maintain	the	balance	of	those	
critical	objectives,	Treasury	should	consider	the	need	to	mitigate	illicit	finance	risks,	protect	privacy,	and	reduce	
burden	to	the	financial	sector	to	evaluate	appropriate	next	steps.
The	United	States	has	observed	digital	asset	service	providers	and	other	actors	attempting	to	avoid	BSA	
obligations	by	domiciling	in	jurisdictions	with	weaker	or	non-existent	regulatory	frameworks	or	enforcement	
capacity,	while	still	providing	services	that	reach	U.S.	customers	and	even	substantially	impacting	the	U.S.	
digital	asset	ecosystem.	This	places	U.S.-based	industry	actors	at	a	disadvantage.	
RecommendationsRecommendations
• Treasury	should	faithfully	and	expeditiously	implement	the	Guiding	and	Establishing	National	Innovation	
for	U.S.	Stablecoins	Act	(GENIUS),	which,	among	other	things,	requires	Treasury	to	adopt	rules	to	treat	
permitted	payment	stablecoin	issuers	as	financial	institutions	under	the	BSA	and	to	seek	public	comment	
and conduct research to identify innovative or novel methods, techniques, or strategies that regulated 
financial	institutions	use	to	detect	illicit	activity	involving	digital	assets.
405
• Digital	asset	market	structure	legislation	should	consider	creating	digital	asset	specific	financial	institution	
types	or	sub-types	within	the	BSA.	Now	that	GENIUS	has	been	enacted	into	law,	and	pending	additional	
market	structure	legislation	being	considered	by	Congress,	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.
• Legislation	should	consider	specifying	actors	within	the	decentralized	finance	ecosystem	that	should	have	
AML/CFT	obligations,	taking	into	consideration	those	actors’	roles	in	the	ecosystem	and	attendant	risks.
• Treasury should consider next steps regarding its proposed rulemaking concerning CVC mixing.
404      See	Proposal	of	Special	Measure	Regarding	Convertible	Virtual	Currency	Mixing,	as	a	Class	of	Transactions	of	Primary	Money	Laundering	Concern,	88	
Fed. Reg. 72701 (Oct. 23, 2023).
405      S. 1582, 119th Cong. (2025) §§ 9(a)-(c) (enacted).

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• 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.
• Congress should evaluate the self-custody language that is included in CLARITY
406
 and codify the following 
principles	through	legislation	that	reinforce	the	importance	of	self-custody:
407
 ◆Principle 1:	The	importance	of	U.S.	individuals	maintaining	the	capability	to	lawfully	hold,	or	custody,	
their	own	digital	assets	without	a	financial	intermediary.
 ◆Principle 2:	The	importance	of	enabling	U.S.	individuals	to	engage	in	lawful,	direct	digital	asset	transfers	
that	do	not	involve	a	financial	intermediary	with	another	individual	that	lawfully	self-custodies	digital	
assets. 
• Congress	should	codify	principles	regarding	how	control	over	an	asset	impacts	BSA	obligations,	particularly	
for money transmitters, through legislation such as the Blockchain Regulatory Certainty Act,
408
 which has 
been	incorporated	into	CLARITY.	
 ◆Specifically,	such	legislation	could	codify	that	a	software	provider	that	does	not	maintain	total	
independent control over value is not engaged in money transmission for purposes of the BSA.
409
Enhancing Effective Supervision
As	the	United	States	further	develops	a	regulatory	framework	for	digital	assets	and	the	number	of	supervised	
financial	institutions	in	the	digital	asset	ecosystem	increases,	it	will	be	critical	for	relevant	regulatory	
supervisors	to	enhance	capabilities	and	expertise	to	supervise	digital	asset	firms,	as	well	as	traditional	financial	
institutions engaged with digital asset or digital asset actors. 
Banks,	credit	unions,	and	other	financial	institutions	interested	in	providing	services	to	the	digital	asset	
industry	or	digital	asset	services	to	their	customers	may	have	questions	about	BSA	obligations	as	they	extend	
new services or develop new relationships.
410
 Accordingly, supervisors administering and examining for BSA 
obligations	should	consider	where	additional	guidance	would	enhance	institutions’	abilities	to	interact	with	
digital assets and digital asset actors. 
At	present,	experience	with	and	resources	devoted	to	supervision	of	digital	assets	firms	varies	across	
supervisory agencies. Ensuring effective and more consistent supervision and examination of digital asset 
service	providers	for	AML/CFT	requirements	may	require:	(i)	training;	(ii)	evaluating	examination	cycles	and	
priorities	based	on	risk;	(iii)	increasing	the	number	of	supervisors	focusing	on	digital	asset	firms;	and	(iv)	
updating examination manuals to cover digital assets. Moreover, communication and information sharing on 
risks,	best	practices,	and	challenges	across	supervisors	could	support	more	effective	supervision.	Emphasis	
on	effective,	risk-based	supervision	should	be	central	to	these	efforts,	in	contrast	to	a	technical,	one-size-fits	
all	approach	that	does	not	make	distinctions	in	risk	profiles	across	supervised	financial	institutions.	Effective	
supervision	can	reduce	burdens	for	both	supervisors	and	for	financial	institutions	under	their	jurisdiction,	
allowing each to allocate resources in a manner consistent with risk. Moreover, this approach avoids placing 
unwarranted	burden	on	lower-risk	sectors,	entities,	and	activities.	Such	efforts	also	present	an	opportunity	to	
allow	for	more	risk-based	and	effective	supervision	of	financial	institutions,	including	digital	assets	firms,	in	line	
with	broader	efforts	to	strengthen	the	U.S.	AML/CFT	framework.	
406      H.R. 3633, 119th Cong. (2025)
407  						 Protecting	these	capabilities	should	not	inhibit	the	ability	or	authority	to	carry	out	enforcement	actions	or	special	measures	authorized	under	applicable	law.	
408      H.R. 3533, 119th Cong. (2025); see Emmer’s Securities Clarity Act and Blockchain Regulatory Certainty Act, supra note 196.
409      See FinCEN, FIN-2019-G001, supra note 389, at 15, 18.
410      See Chapter IV.

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Recommendations Recommendations 
• 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. 
• Supervisors should evaluate whether additional compliance tools, training, and internal resources are 
needed	to	ensure	examiners	can	effectively	and	efficiently	evaluate	institutions’	digital	asset-related	
policies, procedures, and programs.
Adapting BSA Reporting to Better Account for Digital Assets
A critical component of the BSA regime is the mandatory reporting intended to provide highly useful 
information for criminal, tax,
411
 and regulatory investigations, risk assessments, or proceedings, as well 
as intelligence or counterintelligence activities to protect against terrorism.
412
	These	reports	enable	law	
enforcement	and	national	security	agencies	to	identify	criminal	activity,	find	otherwise	opaque	connections	
between	related	criminal	actors,	and	locate	assets	derived	from	criminal	activity	that	can	be	seized	and,	at	
times, returned to crime victims. While these reports are useful to law enforcement and national security 
agencies,	creating	and	filing	these	reports	imposes	a	burden	on	filers.	As	reporting	obligations	are	considered,	
the	burdens	and	benefits	of	reporting,	as	well	as	privacy	concerns,	must	be	carefully	weighed.
Suspicious Activity Reports
Under	the	BSA	and	its	implementing	regulations,	covered	financial	institutions	are	obligated	to	file	Suspicious	
Activity Reports (SARs) when the institution knows, suspects, or has reason to suspect that a transaction 
conducted	or	attempted	by,	at,	or	through	the	financial	institution	(i) involves	funds	derived	from	illegal	
activity or is intended or conducted to disguise funds derived from illegal activity; (ii) is designed to evade any 
requirement	of	FinCEN’s	regulations	or	any	other	regulation	promulgated	under	the	BSA;	(iii)	lacks	a	business	
or apparent lawful purpose, or is not the sort in which the particular customer would normally engage and 
the	financial	institution	knows	of	no	reasonable	explanation	for	the	transaction;	or,	for	some	institutions,	(iv)	
involves	the	use	of	a	financial	institution	to	facilitate	criminal	activity.
413
Certain	financial	institutions,	including	digital	asset	service	providers,	have	expressed	that	the	SAR	reporting	
regime	could	be	more	effective,	both	at	providing	key	intelligence	for	law	enforcement	and	national	security	
agencies	and	ensuring	financial	institutions	are	directing	their	resources	towards	generating	the	most	
significant	and	impactful	SARs.
As part of its efforts to implement the AML Act, Treasury is in the process of comprehensively reviewing its 
SAR	regulations,	guidance,	and	the	SAR	form	itself,	to	maximize	the	value	and	efficiency	of	the	reporting,	while	
protecting	individual	privacy.	As	part	of	this	process,	Treasury	should	consider	how	best	to	update	the	form	to	
facilitate	inclusion	of	digital	asset-specific	information,	which	could	increase	the	utility	of	these	reports	to	law	
enforcement conducting digital assets-related investigations. Treasury should also consider how to streamline 
reporting	for	less	complex	reports	and—as	part	of	this	review—consider	how	to	enhance	financial	institutions’	
use	of	technology,	including	artificial	intelligence	and	machine	learning.
411      In addition to BSA reporting, the IRS uses reporting provided for Federal tax purposes to prevent tax evasion. For further discussion of current and 
proposed tax reporting regimes, see Chapter VII.
412     31 U.S.C. § 5311.
413    See 31 U.S.C. § 5218(g); see also 31 C.F.R. §§ 1020.320, 1021.320, 1022.320, 1023.320, 1024.320, 1025.320, 1026.320, 1029.320, 1030.320 (2024).

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RecommendationRecommendation
• Treasury should continue to evaluate modernizing Suspicious Activity Report (SAR) reporting, including the 
SAR form itself, to ensure it captures highly useful information. 
Other BSA Forms
In	addition	to	reporting	by	financial	institutions,	the	BSA	and	its	implementing	regulations	require	other	entities	
to	file	certain	reports	that	provide	highly	useful	information.	For	example,	the	BSA	directs	Treasury	to	require	
citizens	of	  the	   United	States,	among	others,	to	  “keep	records	and	   file	  reports”	when	they	   maintain	a	 relationship	
“with	a	foreign	financial	agency.”	Pursuant	to	this	direction,	Treasury	requires	each	U.S.	person	having	a	financial	
interest	in,	or	signature	or	other	authority	over,	a	bank,	securities,	or	other	financial	account	in	a	foreign	country	
to	file	a	Report	of	Foreign	Bank	and	Financial	Accounts	(FBAR).
414
 Although the FBAR does not currently require 
reporting	related	to	digital	assets,	reporting	required	by	FBAR	regulations	in	some	circumstances	overlaps	
with	reporting	required	by	the	Foreign	Account	Tax	Compliance	Act.	Chapter VII contains more discussion and 
recommendations related to this reporting. 
Additionally, the BSA, the Internal Revenue Code, and their respective implementing regulations require 
any	person	engaged	in	a	trade	or	business	who,	in	the	course	of	such	trade	or	business,	receives	more	than	
$10,000	in	coins	or	currency	in	one	transaction	or	two	or	more	related	transactions	to	file	a	Form	8300	with	
FinCEN or the IRS.
415
 In 2021, Congress amended the Internal Revenue Code to incorporate digital assets into 
the Form 8300;
416
	however,	digital	asset	transactions	are	not	yet	required	to	be	reported	as	implementing	
regulations	have	not	yet	been	made.
417
 Chapter VII discusses how any IRS regulations implementing these rules 
would account for stakeholder concerns.
Although Congress amended the Internal Revenue Code, it did not amend the corresponding authority in 
the	BSA.	Once	digital	asset	transactions	are	required	to	be	reported	on	Form	8300,	this	discrepancy	may	
create	substantial	industry	confusion	as	trades	and	businesses	may	be	required	to	follow	one	procedure	if	a	
reportable	transaction	involves	digital	assets	and	another	if	the	reported	transaction	involves	fiat	currency.	
RecommendationRecommendation
• Congress	should,	through	appropriate	legislation,	ensure	that	the	information	required	by	statute	to	be	reported	
to	FinCEN	for	BSA	purposes	under	31	U.S.C.	§	5331	conforms	with	the	information	required	to	be	reported	by	
statute to the IRS for federal income tax purposes under 26 U.S.C. § 6050I, as was the case prior to 2021.
Improving Sanctions Compliance Regarding Digital Assets
OFAC sanctions regulations apply to all U.S. persons, including digital asset exchanges, technology companies, 
software	developers,	or	other	digital	asset	industry	participants,	that	are	subject	to	U.S.	jurisdiction.
418
 
414      31 C.F.R. § 1010.350 (2024).
415						31	U.S.C.	§	5331;	26	U.S.C.	§	6050I;	31	C.F.R.	§	1010.330(a)(1)(ii)	(2024).	The	$10,000	threshold	for	reporting	transactions	was	established	in	1984	(IRS)	and	
2001	(FinCEN)	and	has	never	been	adjusted	for	inflation.
416						Note	that	the	constitutionality	of	this	amendment	is	currently	being	litigated.	See Carman v. Yellen, No.	5:22-cv-00149	(E.D.	Ky.).
417      Internal Revenue Service, IR-2024-12, Treasury and IRS Announce That Businesses Do Not Have to Report Certain Transactions Involving Digital Assets 
Until Regulations Are Issued (Jan. 16, 2024), https://www.irs.gov/newsroom/treasury-and-irs-announce-that-businesses-do-not-have-to-report-certain-
transactions-involving-digital-assets-until-regulations-are-issued. 
418						The	key	terms	of	each	sanctions	program	are	defined	in	the	implementing	regulations	or	Executive	Orders,	as	appropriate.	The	term	“U.S.	persons”	is	
defined	in	many	implementing	regulations	to	include	“any	United	States	citizen,	permanent	resident	alien,	entity	organized	under	the	laws	of	the	United	
States	or	any	jurisdiction	within	the	United	States	(including	foreign	branches),	or	any	person	in	the	United	States.”	Additionally,	non-U.S.	persons	are	
also	subject	to	certain	OFAC	prohibitions.	For	example,	non-U.S.	persons	are	prohibited	from	causing	or	conspiring	to	cause	U.S.	persons	to	wittingly	or	
unwittingly violate U.S. sanctions, as well as engaging in conduct that evades U.S. sanctions.

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Although	OFAC	may	impose	civil	penalties	for	sanctions	violations	based	on	strict	liability,
419
 OFAC’s sanctions 
compliance	program	expectations	for	digital	assets	industry	participants	are	risk-based,	not	rigid	or	
prescriptive.
420
	Additionally,	to	promote	clarity,	innovation,	and	compliance	with	sanctions	obligations,	Treasury	
prioritizes	engagement	with	the	digital	asset	industry	to	educate	participants	on	sanctions	obligations,	
including through informal engagements and discussions as well as formal outreach at industry-focused 
conferences.	OFAC	uses	these	engagements	to	share	existing	industry	guidance	and	public	resources,	such	
as	OFAC’s	Compliance	Hotline,	which	industry	participants	and	the	broader	public	can	use	to	contact	OFAC	
for guidance around sanctions regulations. These resources are key to ensuring that industry participants, 
including	companies	developing	new	offerings	that	may	not	understand	how	sanctions	obligations	apply,	have	
access to OFAC guidance which they can rely on as they innovate in the digital assets sector.
Still,	some	digital	asset	firms	have	expressed	a	desire	for	additional	resources	explaining	sanctions	obligations	
related	to	various	business	models.	Given	that	sanctions	obligations	apply	to	all	U.S.	persons	and	not	just	financial	
institutions	or	businesses,	this	is	particularly	relevant	for	developers	who	are	creating	software	in	the	DeFi	
space.	Developers	and	technologists	should	have	clear	resources	available	to	them	so	that	they	understand	
how	sanctions	obligations	apply.	Based	on	feedback	from	the	private	sector,	OFAC	could	consider	publication	of	
additional	resources	to	further	promote	digital	asset	industry	compliance	with	sanctions	obligations.	
Recommendations Recommendations 
• Treasury should issue a Request for Information (RFI) to directly solicit sanctions compliance information, 
input, and recommendations from industry participants to understand ongoing developments and 
innovations and gaps in existing OFAC guidance as well as to identify opportunities for enhanced private 
sector	collaboration.
• Treasury should consider revising and updating OFAC’s existing Sanctions Compliance Guidance for the 
Virtual Currency Industry	brochure,	which	highlights	existing	compliance	tools	such	as	traditional	sanctions	
screening	and	blockchain	analytics	to	help	improve	sanctions	compliance	by	all	industry	participants,	in	
accordance with insight gleaned from the RFI process.
Advancing Privacy Through Digital Identity and Related ToolsAdvancing Privacy Through Digital Identity and Related Tools
The	public	nature	of	many	blockchains	provides	insight	into	financial	activities	in	digital	assets,	which	
can	be	used	to	support	AML/CFT	and	sanctions	compliance.	While	public	blockchains	provide	
certain transparency, some digital asset users may want to preserve their privacy when conducting 
transactions.	The	   Working	Group	supports	civil	   liberties	protections	surrounding	privacy	and	   the	   ability	
of	individuals	to	privately	transact	on	public	blockchains.	Enabling	privacy	is	also	critical	to	enabling	
the	increased	use	of	digital	assets	for	payments	as	individuals	may	not	want	to	publicly	disclose	every	
purchase	of	goods	or	services	or	allow	salary	payments	or	other	private	transactions	to	be	tracked.	
At	the	same	time,	regulated	intermediaries	need	to	be	able	to	identify	customers,	report	suspicious	
activities,	and	freeze	or	block	certain	transactions	in	line	with	their	BSA	and	sanctions	obligations.	
Several entities in the digital asset industry are developing tools designed to support various elements 
419						Note	that	OFAC	takes	a	number	of	factors	into	consideration	when	determining	whether	to	assess	a	civil	monetary	penalty,	and,	if	so,	what	penalty	would	
be	appropriate	(e.g.,	willfulness,	reckless,	and	knowledge	of	the	conduct	at	issue,	as	set	forth	in	OFAC’s	Economic	Sanctions	Enforcement	Guidelines,	
31 C.F.R.	pt. 501,	Appendix A	(2024)).
420					OFAC	has	issued	guidance	specific	to	the	digital	asset	to	promote	understanding	of,	and	compliance	with,	sanctions	requirements	and	due	diligence	
best	practices.	See generally OFAC, Sanctions Compliance Guidance for the Virtual Currency Industry (Oct. 2021), https://ofac.treasury.gov/media/913571/
download?inline. 

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of	AML/CFT	and	sanctions	compliance	while	maximizing	user	privacy.	For	example,	digital	identity		
technologies,	identity	proofing	solutions,	and	other	credentialing	approaches	can	support	regulated	
digital asset intermediaries in verifying identities of customers while preserving user privacy. Digital 
asset intermediaries could also use these tools as a safeguard against malicious actors attempting to 
gain	unauthorized	access	to	user	accounts.	While	the	applicability	of	these	tools	varies	by	operational	
models, governance, trustworthiness, and convenience, they offer a potential pathway to support 
intermediaries’ risk mitigation in the digital asset ecosystem.
Some	private	sector	digital	identity	tools	combine	online	and	offline	components.	For	example,	some	
digital	credentials	are	issued	based	on	physical	attributes,	such	as	requiring	a	credential	recipient	to	
appear	in	person	or	requiring	physical	documents	for	verification	prior	to	issuance	of	a	credential.	
Additionally,	some	tools	may	use	unique	capabilities	within	the	digital	asset	space,	with	some	tools	
tokenizing credentials and others tying the credential to a digital asset wallet address and preventing 
transfers	to	other	addresses.	These	tools	could	potentially	be	used	by	regulated	digital	asset	
intermediaries	to	support	onboarding	or	by	a	DeFi	services’	smart	contracts	to	automatically	check	
for	a	credential	before	executing	a	user’s	transaction.	These	tools	could	also	potentially	incorporate	
a	user’s	transaction	history	on	the	public	blockchain	into	their	identity	profile,	providing	additional	
information	to	digital	asset	intermediaries	and	other	counterparties	on	a	user’s	behavior	and	exposure	
to	illicit	finance	risks.
To maximize privacy, some tools use Zero Knowledge Proofs,
421
	which	can	enable	users	to	confirm	that	
their	identity	has	been	verified	or	subject	to	screening	by	a	third	party	without	revealing	underlying	
personal information. Depending on the design of the tool, access to underlying personal information 
could	be	allowed	at	the	user’s	request	or	with	their	permission.	Additionally,	some	technologies	allow	
selective	disclosure	of	attributes,	in	which	a	user	can	decide	which	personal	information	to	share	
with	the	recipient.	These	technologies	can	potentially	support	a	path	to	enabling	greater	privacy	
preservation	in	customer	identification	models.	
Further evolution of these tools, however, may require additional exploration on how private sector 
tools	can	adequately	verify	customers	and	protect	their	data.	Regulatory	bodies	should	provide	
additional	clarity	to	financial	institutions	on	how	these	tools	can	be	used	to	identify	and	verify	
customers	and	to	comply	with	other	AML/CFT	and	sanctions	obligations.	
Moreover,	digital	identity	solutions	offer	innovative	capabilities	to	protect	sensitive	information	
and	to	reduce	compliance	burdens	associated	with	verifying	identifies.	For	example,	the	ability	to	
pass	a	credential	with	only	the	necessary	identifying	information	for	a	particular	task	both	ensures	
that	information	is	not	unnecessarily	exposed	should	an	institution’s	systems	be	compromised	and	
streamlines	the	verification	process.	As	these	solutions	continue	to	mature,	regulators	should	consider	
how	to	encourage	the	use	of	privacy-preserving	technologies	and	ensure	financial	institutions	can	take	
advantage	of	their	benefits,	including	by,	where	appropriate	and	consistent	with	risk,	being	able	to	rely	
on	another	financial	institution’s	performance	of	customer	identification.	
421						A	“zero-knowledge	proof”	is	a	“cryptographic	scheme	where	a	prover	is	able	to	convince	a	verifier	that	a	statement	is	true,	without	providing	any	more	
information	than	that	single	bit	(that	is,	that	the	statement	is	true	rather	than	false).”	Glossary: Zero-Knowledge Proof, National Institute of Standards and 
Technology, https://csrc.nist.gov/glossary/term/zero_knowledge_proof (last visited July 13, 2025).

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RecommendationsRecommendations
 ■Treasury should consider coordinating with the National Institute of Standards and Technology 
(NIST),	and	other	federal	agency	partners	as	appropriate,	to:
 ◆Identify	emerging	approaches	to	implement	customer	identification	in	digital	asset	scenarios,	
including	possible	applications	of	the	Fourth	Revision	of	the	NIST	Digital	Identity	Guidelines	(SP	
800-63-4) to these scenarios. 
 ◆Evaluate	lessons	learned	in	the	project	“Accelerate	Adoption	of	Digital	Identities	on	Mobile	
Devices”	being	executed	in	the	National	Cybersecurity	Center	of	Excellence	for	applicability	to	
customer	identification	programs	in	digital	asset	scenarios.	
 ◆Evaluate the digital asset ecosystem, including existing identity credentialing tools and 
technical	aspects	of	digital	asset	services,	to	determine	potential	approaches	for	defining,	
mandating,	and	enforcing	customer	identification	programs	and	evaluate	the	potential	efficacy	
of such schemes in detecting, deterring, and investigating fraudulent transactions. 
 ■As	is	required	by	GENIUS,	Treasury	should	issue	an	RFI	to	gather	information	on	innovative	tools	to	
detect	illicit	activity,	including	with	respect	to	digital	identity	verification.
422
 
 ■Utilizing the information gathered from such RFI, additional research, and industry engagement, 
Treasury should, in consultation with the federal functional regulators,
423
 consider issuing guidance 
to	financial	institutions	on	how	they	can	utilize	digital	identity	solutions	within	their	existing	
customer	identification	programs.
424
	Treasury	should	ensure	that	future	guidance	balances	secure	
identity	verifications	with	protection	of	personally	identifiable	information.
Equipping Digital Asset Actors to Mitigate RiskEquipping Digital Asset Actors to Mitigate Risk
Protecting	the	digital	asset	ecosystem	from	misuse	requires	strong	partnership	between	the	public	and	private	
sectors.	The	government	relies	on	financial	institutions	to	comply	with	AML/CFT	and	sanctions	obligations	
designed	to	identify,	report,	and	mitigate	illicit	finance	risks.	As	such,	it	is	critical	that	the	private	sector	is	
equipped	with	the	appropriate	authorities	and	a	strong	understanding	of	risk	to	combat	misuse.	
Enabling Private Sector Investigations 
Some	characteristics	of	digital	assets,	including	the	ability	to	rapidly	transfer	digital	assets	across	borders,	can	
present challenges in identifying and disrupting illicit activity involving these assets. Moreover, digital asset 
transfers	are	typically	irreversible,	further	reducing	the	likelihood	that	funds,	even	if	quickly	reported,	can	be	
recovered.	To	mitigate	this	risk,	some	digital	asset	institutions,	including	exchanges	and	stablecoin	issuers,	
may in some circumstances wish to temporarily hold assets when they identify suspected illicit activity. During 
the time those assets are held, institutions can investigate and determine whether, for example, the asset 
is	stolen	or	linked	to	fraud	or	other	criminal	activity.	Enabling	institutions	to	identify	and	temporarily	hold	
property	involved	in	suspected	illegal	activity	will	equip	these	institutions	with	ability	to	control	risk	and	protect	
digital asset users. 
At	times,	however,	institutions	may	feel	constrained	in	their	ability	to	temporarily	hold	assets	to	investigate	
suspected	illegal	activity.	In	other	contexts,	some	states	have	enacted	digital	asset	specific-“hold	laws”	that	
422      S. 1582, 119th Cong. (2025) § 9(a) (enacted).
423      “Federal functional regulators” means the SEC, CFTC, FDIC, OCC, FRB, and NCUA. 31 U.S.C. § 5318.
424      See S. 1582, 119th Cong. (2025) § 9(d) (enacted).

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offer	safe	harbors	to	institutions	that	temporarily	hold	property	involved	in	suspected	illegal	activity	during	the	
pendency of a short duration investigation.
425
	The	ability	to	temporary	hold	property	as	authorized	by	such	laws	
enable	institutions	to,	for	example,	contact	a	user	to	ascertain	whether	they	are	a	scam	victim	or	whether	an	
asset	has	been	stolen.	
RecommendationRecommendation
• Congress	should	consider	enacting	a	digital	asset-specific	“hold	law”	that	offers	a	safe	harbor	to	institutions	
that temporarily and voluntarily hold property involved in suspected illegal activity during a short duration 
investigation. Such a law should consider transparency when an asset is frozen and consumer protection 
measures. 
Increasing Public-Private Cooperation
Public-private	partnerships	play	a	critical	role	in	sharing	trend	and	operational	information	to	support	actions	
to deter and disrupt illicit activity. For example, the private sector has insight into emerging risks, challenges 
in	complying	with	AML/CFT	and	sanctions	obligations,	and	innovative	measures	to	mitigate	these	risks.	The	
Working Group supports efforts across the Federal government to solicit private sector input when evaluating 
potential policy directions or developing guidance and regulations.
Treasury,	to	highlight	one	example	of	these	efforts,	held	private	sector	roundtables	in	May	2025	to	discuss	
DeFi,	stablecoins,	and	cybersecurity.	During	the	roundtables,	more	than	thirty	industry	participants	shared	
good	practices,	challenges,	and	recommendations	for	how	the	Federal	government	can	promote	responsible	
innovation	in	the	digital	asset	ecosystem.	Building	on	the	May	roundtables,	in	July	2025	FinCEN	held	a	FinCEN	
Exchange
426
	to	convene	traditional	financial	institutions,	digital	asset	service	providers,	compliance	tool	
providers,	industry	associations,	and	law	enforcement	to	discuss	responsible	innovation,	industry	challenges,	
new	compliance	tools,	compliance	best	practices,	and	fraud	and	scam	typologies.	Treasury	will	continue	
engaging	with	the	private	sector	through	similar	forums	and	bilateral	meetings	to	both	share	information	
and	to	learn	from	industry	about	developments	in	the	digital	asset	ecosystem.	This	can	include	further	
engagements	to	discuss	innovative	compliance	tools	and	good	practices	employed	by	DeFi	participants,	such	
as	application	layer	participants	(front	ends),	relayers,	and	RPC	nodes,	to	mitigate	illicit	finance	risks.	Moreover,	
the	Federal	government	shares	trends	on	illicit	finance	risks	in	digital	assets	through	products	like	FinCEN	
alerts	or	advisories,	FBI’s	Public	Service	Announcements,	and	public-private	partnership	efforts,	including	
FinCEN Exchange as well as direct engagement.
The	Federal	government	also	enables	sharing	actionable	information,	including	through	FinCEN’s	314(a)	and	
314(b)
427
	programs	and	the	Illicit	Virtual	Asset	Notification	(IVAN)	public-private	partnership.	Through	the	
314(a)	program,	law	enforcement	authorities	can	submit	identifiers	to	financial	institutions	about	individuals,	
entities,	and	organizations	engaged	in	or	reasonably	suspected,	based	on	credible	evidence,	of	engaging	
in	terrorist	acts	or	money	laundering	activities.	Upon	receiving	the	identifier,	a	financial	institution	confirms	
whether it has additional information on the entity.
428
	The	complementary	314(b)	program	provides	financial	
institutions	with	the	ability	to	share	information	with	one	another,	under	a	safe	harbor	that	offers	protections	
425      See generally American	Bankers	Association	Foundation,	State	“Hold”	Laws	and	Elder	Financial	Exploitation	Prevention:	A	Survey	Report	(2025),	https://
www.aba.com/-/media/documents/reference-and-guides/2025-sbfs-elder-law-survey-report.pdf?rev=a5327479843f4d4c9b1366c7ef43ddfa.
426						FinCEN	Exchange	is	a	voluntary	public-private	information	sharing	partnership	among	FinCEN,	law	enforcement	agencies,	national	security	agencies,	
financial	institutions,	and	other	private	sector	entities	to	enhance	coordination,	communication,	and	feedback	in	the	fight	against	financial	crimes.	
Launched	in	2017,	FinCEN	Exchange	was	designed	to	enable	financial	institutions	to	better	identify	and	report	information	on	the	highest	priority	illicit	
finance	risks	to	the	U.S.	financial	system	and	national	security.	Congress	statutorily	established	FinCEN	Exchange	through	Section	6103	of	the	Anti-
Money	Laundering	Act	of	2020,	codified	at	31	U.S.C.	§	310(d).	
427      References to “314” are derived from the programs’ statutory authority, Section 314 of the USA PATRIOT Act. Regulations implementing Section 314 are 
codified	at	31	C.F.R.	§	1010.520	(implementing	Section	314(a))	and	§ 1010.540	(implementing	Section	314(b))	(2024).	
428      See 31	C.F.R.	§	1010.520(b)	(2024).

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from	liability,	in	order	to	better	identify	and	report	activities	that	may	involve	money	laundering	or	terrorist	
activities.
429
	IVAN	is	a	public-private	partnership	platform	through	which	partners	can	share	information	
associated	with	the	utilization	of	digital	assets	in	support	of	illicit	activity,	along	with	identification	and	
mitigation	of	said	threats.	IVAN	enables	participants	to	root	out	nefarious	actors	hoping	to	hide	behind	virtual	
assets	and	the	underlying	blockchain	technology.	
Given	the	characteristics	of	digital	assets	noted	above,	it	is	critical	that	the	public	and	private	sectors	can	
quickly	share	information	about	illicit	finance	risks.	The	Working	Group	supports	this	information	sharing—
provided	it	is	used	for	the	purpose	prescribed	in	the	law	to	target	illicit	finance	and	terrorist	activity—to	more	
effectively	target	bad	actors	operating	in	the	digital	asset	ecosystem.	It	is	imperative	that	this	information	
sharing	not	be	used	to	infringe	on	the	civil	liberties	of	law-abiding	citizens	and	such	digital	assets	users.	Wide	
and	meaningful	participation	in	IVAN	and	the	314(a)	and	314(b)	programs	could	increase	both	the	amount	of	
information	shared	as	well	as	the	firms	that	are	able	to	act	upon	the	information,	potentially	making	the	digital	
asset ecosystem safer and protecting U.S. users. 
RecommendationsRecommendations
• Treasury should undertake efforts to encourage greater information sharing, including through FinCEN’s 
314(a)	and	314(b)	programs.	Such	efforts	should	include	encouraging	domestic	and	cross-border	
information	sharing,	greater	participation	in	sharing	programs	by	digital	asset	financial	institutions	and	
improved	information	sharing	between	digital	asset	and	traditional	financial	institutions.	
• Public	and	private	sector	participation	in	real-time	information	sharing	through	IVAN	should	be	encouraged	
to	the	extent	consistent	with	legal	obligations.	
Disrupting and Mitigating Systemic Illicit Finance RisksDisrupting and Mitigating Systemic Illicit Finance Risks
The Federal government takes a whole of government approach to disrupting and exposing illicit activity in 
the	digital	asset	ecosystem.	This	approach	and	use	of	authorities	prevents	bad	actors	from	using	digital	assets	
to	facilitate	money	laundering	and	illicit	activity,	deprives	bad	actors	of	their	proceeds,	and,	when	possible,	
compensates victims. These efforts make the digital asset ecosystem safer for U.S. digital asset users and 
service providers while also promoting U.S. national security. 
The Federal government uses OFAC sanctions and FinCEN authorities to counter foreign actors, like DPRK 
or	ransomware	cybercriminals,	and	their	facilitators,	including	foreign	digital	asset	service	providers	that	
enable	illicit	activity	and	are	not	subject	to	the	clear	requirements	under	OFAC	and	FinCEN	regulations	in	the	
United States. Additionally, when necessary, the Federal government uses civil enforcement actions to impose 
consequences	on	firms	operating	without	taking	appropriate	steps	to	mitigate	illicit	finance	risks	in	violation	
of	applicable	laws	and	regulations.	Both	FinCEN	and	OFAC	have	taken	several	civil	enforcement	actions	for	
violations	of	their	applicable	laws	and	regulations	that	have	exposed	illicit	actors,	addressed	the	abuse	of	digital	
assets,	and	driven	compliance	with	regulatory	obligations.
Law enforcement also plays a critical role in this effort through seizures, takedowns, and criminal prosecution 
to	support	these	objectives.	In	particular,	law	enforcement	seizure	and	forfeiture	capabilities	are	critical	to	
support	the	compensation	of	victims	for	losses	in	digital	assets	and	for	losses	converted	by	criminals	into	
digital assets. 
However,	as	described	below,	there	are	some	limitations	on	how	the	Federal	government	can	effectively	use	
these	tools	to	support	these	objectives.	For	example,	Treasury’s	authorities	are	not	always	clearly	applicable	
429      See 31	C.F.R.	§	1010.540(b)	(2024);	see also	FinCEN,	Section	314(b)	Fact	Sheet	(Dec.	2020),	https://www.fincen.gov/sites/default/files/shared/314bfactsheet.pdf. 

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in	the	digital	asset	space,	and	law	enforcement’s	authorities	should	be	updated	to	better	address	abuse	in	the	
digital	assets	ecosystem	and	better	compensate	victims.	
Applying Treasury Authorities to Digital Asset Ecosystem
As	noted	above,	FinCEN	and	OFAC	use	authorities	to	disrupt	and	expose	foreign	illicit	activity	in	the	digital	
asset	ecosystem,	focusing	on	key	means	used	by	malicious	actors	to	profit	from	their	crimes.	However,	some	
existing	tools	and	authorities	are	not	always	applicable	to	or	as	effective	in	the	digital	asset	ecosystem.	As	
explained	below,	certain	FinCEN	authorities	restrict	or	prohibit	U.S.	financial	institutions	from	establishing	
or	maintaining	correspondent	or	payable-through	accounts	for	foreign	financial	institutions	facilitating	illicit	
financial	activity,	but	those	authorities	are	less	impactful	when	digital	asset	exchanges	are	not	reliant	on	
correspondent relationships.
Tailoring Section 311 Authorities for Digital Assets
Section 311 of the USA PATRIOT Act authorizes the Secretary of the Treasury to identify a foreign jurisdiction, 
foreign	financial	institution,	class	of	transactions,	or	type	of	account	as	being	a	“primary	money	laundering	
concern,”	and	to	require	domestic	financial	institutions	and	domestic	financial	agencies	to	take	one	or	more	
of	five	“special	measures.”
430
	The	five	special	measures	are	prophylactic	safeguards	that	defend	the	U.S.	
financial	system	from	money	laundering	and	terrorist	financing.	The	Secretary	of	the	Treasury	has	delegated	
authority	to	administer	the	BSA,	including	but	not	limited	to	Section	311,	to	the	Director	of	FinCEN.
431
 FinCEN 
may	therefore	impose	one	or	more	of	these	special	measures	to	protect	the	U.S.	financial	system	from	these	
threats. Special measures one through four impose additional recordkeeping, information collection, and 
reporting	requirements	on	covered	U.S.	financial	institutions.
432
	The	fifth	special	measure	allows	FinCEN	
to	prohibit,	or	impose	conditions	on,	the	opening	or	maintaining	in	the	United	States	of	correspondent	or	
payable-through	account	for	or	on	behalf	of	the	identified	primary	money	laundering	concern.
433
 These special 
measures under Section 311 frequently require notice and comment rulemaking.
434
FinCEN	has	encountered	limitations	when	applying	its	Section	311	authority	to	digital	assets.	Specifically,	the	
fifth	special	measure	is	limited	to	correspondent	or	payable-through	accounts,	which	do	not	translate	to	the	
digital asset industry.
Congress has given FinCEN newer authorities, similar to Section 311, in Section 2313a of the Fentanyl 
Sanctions Act
435
	and	Section	9714	of	the	Combating	Russian	Money	Laundering	Act
436
 to address primary 
money	laundering	concerns	in	connection	to	illicit	opioid	trafficking	and	Russian	illicit	finance,	respectively.	
The	new	authorities	are	limited	to	specific	areas	of	money	laundering	concern	but	allow	FinCEN	to	prohibit,	
or	impose	conditions	upon,	certain	transmittals	of	funds,	as	defined	by	the	Secretary	of	the	Treasury,	by	any	
domestic	financial	institution	or	domestic	financial	agency.	By	using	“certain	transmittals	of	funds”	instead	of	
“correspondent	or	payable-through	accounts,”	the	new	authorities	can	be	applied	to	both	traditional	finance	
and digital assets. 
430					Section	311	of	the	Uniting	and	Strengthening	America	by	Providing	Appropriate	Tools	Required	to	Intercept	and	Obstruct	Terrorism	(USA	PATRIOT)	Act	
of	2001	(codified	at	31	U.S.C.	§	5318A).
431        U.S. Department of the Treasury, Treasury Order 180-01 (Jan. 14, 2020), https://home.treasury.gov/about/general-information/orders-and-directives/treasury-
order-180-01. 
432      See	31	U.S.C.	§	5318A	(b)(1)	-	(b)(4).
433						31	U.S.C.	§	5318A(b)(5).
434      31 U.S.C. § 5318A(a)(3).
435      See 21 U.S.C. § 2313a. 
436						Section	9714	(as	amended)	can	be	found	in	a	note	to	31	U.S.C.	§	5318A.

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RecommendationRecommendation
• Congress	should,	consistent	with	how	it	has	approached	Fentanyl	and	Russian	illicit	finance,	add	a	
sixth	special	measure	to	Section	311	authorizing	FinCEN	to	prohibit,	or	impose	conditions	upon,	certain	
“transmittals	of	funds”	that	are	not	tied	to	a	correspondent	banking	relationship.	This	would	enable	
Treasury to target foreign digital asset exchanges or digital asset transactions involving criminal or state 
actors—without	regard	to	the	nature	of	their	illicit	activity.
Leveraging OFAC Authorities to Disrupt Malicious Foreign Digital Asset Actors 
OFAC continues to use its sanctions authorities to target the illicit use of digital assets, especially instances in 
which digital assets are used in conjunction with (i) crimes targeting Americans, (ii) laundering proceeds of 
illicit drug and narcotics sales, and (iii) terrorist organizations or the Iranian regime. Since January 2025, OFAC 
has	added	dozens	of	digital	asset	wallet	addresses	and	other	identifiers	to	the	sanctions	list	across	multiple	
sanctions programs in support of U.S. national security priorities to constrain foreign criminal and state actor 
abilities	to	generate	and	move	illicit	funds.	OFAC	is	also	exploring	how	calibrated	uses	of	its	authorities	could	
strengthen	its	  ability	to	  force	foreign	digital	asset	firms	and	   users	to	  choose	between	accessing	the	   U.S.	   market,	
or	providing	financial	support	to	sanctioned	drug	traffickers,	weapons	proliferators,	and	terrorist	financiers.	
RecommendationRecommendation
• Treasury	should	continue	to	use	OFAC’s	sanctions	authorities,	which	range	from	applying	full	blocking	
sanctions	to	more	calibrated	restrictions,	to	target	malicious	actors	seeking	to	harm	Americans	and	to	limit	
the access of foreign digital asset actors engaged in illicit activity to U.S. markets, in support of the Trump 
Administration’s priorities. 
Tailoring Law Enforcement Capabilities and Authorities 
Criminal	actors	who	victimize	Americans	and	exploit	the	legitimate	financial	sector	harm	the	U.S.	economy	
and	interfere	with	the	responsible	use	and	growth	of	digital	assets.	Holding	these	criminal	actors	accountable	
supports	the	Trump	Administration’s	policies,	including	by	targeting	the	financial	networks	that	enable	
transnational	criminal	organizations	to	profit,	protecting	victims,	and	promoting	U.S.	leadership	in	digital	
assets. Enhancing the authorities of the DOJ and U.S. federal law enforcement agencies will strengthen the 
United	States’	ability	to	achieve	these	goals.	
Improving Crime Victim Compensation Regulations 
The	Asset	Forfeiture	Program	is	essential	to	the	fight	against	transnational	criminal	organizations,	including	
cartels,	that	perpetuate	violence,	drug	trafficking,	human	trafficking,	and	drive	the	opioid	crisis.	Prosecutors	
have	used	asset	forfeiture	robustly	to	recover	digital	assets	involved	in	fraud	or	theft,	sometimes	involving	
assets	worth	significant	amounts.	The	asset	forfeiture	statutes,	in	addition	to	providing	powerful	tools	to	deny	
criminals the proceeds of crime and disrupt criminal organizations, provide discretion to use forfeited assets 
to compensate victims. Accordingly, the DOJ uses its authorities to provide discretionary victim compensation 
through	the	Department’s	Asset	Forfeiture	Program,	but	the	regulations	governing	the	remission	and	
mitigation	of	forfeitures	have	not	been	amended	since	2012.	Since	that	time,	the	Asset	Forfeiture	Program	
has	grown	significantly,	and	forfeiture	has	also	become	an	essential	tool	to	fight	fraud	and	other	financial	
crime, including digital asset-related thefts and scams. As a result, certain aspects of the remission regulation 
need revision to enhance victims’ recoveries. Current regulations governing the use of forfeited funds to 
compensate	victims,	28	C.F.R.	Part	9,	can	be	updated	to	increase	compensation	and	simplify	procedures	
for	victims	of	crime,	including	digital	asset-related	fraud	and	theft,	and	to	increase	government	efficiency.	

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Revisions	to	these	regulations	would	allow	greater	victim	compensation,	more	like	that	available	through	
criminal restitution, and simplify procedures for compensating victims and returning property to innocent 
owners. 
Enhancing Criminal Laws to Protect Investigations and Penalize Bad Actors Targeting Digital Assets
Protecting the digital asset ecosystem requires that prosecutors have the necessary authorities to counter 
bad	actors	who	seek	to	exploit	it.	Statutes	authorizing	criminal	charges	and	sentencing	guidelines	could	be	
amended	to	ensure	that	bad	actors	who	misuse	digital	assets	or	victimize	digital	asset	owners	or	investors	are	
appropriately	charged	and	sufficiently	penalized,	and	to	ensure	that	prosecutors	can	appropriately	recover	
those assets. 
Address Gaps in Criminalizing False Statements to Financial Institutions
Transnational	criminal	organizations,	cartels,	terrorists,	and	other	criminals	need	access	to	the	U.S.	financial	
system to move the money and digital assets that fuel their crimes. These criminals often make fraudulent or 
false	statements	to	financial	institutions	to	obtain	or	maintain	access	to	financial	accounts	and	services	so	they	
can quickly move their ill-gotten gains. Existing law criminalizes certain fraud and false statements made to 
some	kinds	of	financial	institutions,	as	defined	in	Title 18	of	the	U.S.	Code.
437
	But	because	the	law	criminalizes	
only certain false statements to certain	financial	institutions,	gaps	exist—and	criminal	actors	are	actively	
exploiting	them.	First,	the	definition	of	“financial	institution”	in	Title 18	of	the	U.S.	Code	is	narrower	than	the	
definition	in	Title 31	of	the	U.S.	Code,	and	thus	omits	virtual	asset	service	providers.
438
 In addition, the law does 
not	apply	to	all	false	statements	in	connection	with	opening	and	maintaining	access	to	services	from	financial	
institutions.	Addressing	these	gaps	would	enable	prosecution	of	more	of	the	criminal	misuse	of	digital	assets	
by	(i)	making	clear	that	lying	to	financial	institutions	to	open	or	maintain	accounts,	including	accounts	used	to	
launder	digital	assets	and	convert	them	into	fiat	currency,	is	a	crime;	and	(ii)	protecting	all	financial	institutions,	
including those offering digital asset services, that are the target of criminal schemes. 
Facilitate Criminal Investigations and Prosecutions for Digital Asset Theft
As	digital	assets	continue	to	become	more	commonly	held	and	stolen	forms	of	property,	it	is	important	to	use	
all	appropriate	charges	to	prosecute	those	who	steal	and	transfer	illicitly	obtained	digital	assets.	The	National	
Stolen Property Act (NSPA) has served as an effective tool to prosecute those involved in the theft and 
subsequent	interstate	movement	or	transfer	of	traditional	forms	of	property,	including	money	and	securities.	
But the statute does not explicitly include digital assets. Clarifying that digital assets are covered property for 
purposes of the NSPA would allow law enforcement to use this provision in appropriate criminal investigations 
and prosecutions.
Protecting Investigations and Enhancing Civil Remedies
Protect Investigations through Anti-Tip-Off Amendments 
Tracing	illicit	proceeds	through	financial	institutions	is	a	complex	and	sensitive	operation,	made	even	more	
complicated when proceeds are converted to digital assets and moved across the ecosystem. If suspects are 
tipped	off	during	the	process,	they	can	quickly	move	their	assets	and	flee	the	United	States.	The	anti-tip-off	
statute,	18 U.S.C.	§ 1510,	prevents	employees	of	financial	institutions	from	tipping	off	their	customers	to	
ongoing	investigations	of	certain	violations.	Without	these	protections,	financial	institutions	may	be	subject	to	
contractual	or	other	requirements	that	could	result	in	notification	of	sensitive	ongoing	investigations,	impeding	
law	enforcement.	Some	virtual	asset	service	providers	have	argued	that	they	are	not	financial	institutions	for	
437						18 U.S.C.	§ 1014.
438      Compare	18 U.S.C.	§ 20	with	31 U.S.C.	§§	5312(a)(2)	and	(c).

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the purpose of this statute. This can result in investigators limiting their efforts to pursue and recover illicit 
financial	schemes	involving	digital	assets	or	risk	exposure	of	the	investigation.	To	close	this	gap,	the	anti-tip	off	
statute	can	be	amended	to	cover	all	Title	31-defined	financial	institutions	along	with	the	current,	more	limited	
Title	18-defined	financial	institutions.	Additionally,	expanding	the	statute’s	list	of	covered	offenses	would	close	
another	gap	in	the	law.	Specifically,	including	serious	underlying	offenses,	such	as	drug	and	human	trafficking	
offenses,	as	covered	offenses	would	prohibit	agents	of	financial	institutions	from	tipping	off	suspects	about	
investigations	targeting	that	conduct	alongside	other	prohibited	offenses.
Extending the Modified Tracing Requirement for Civil Forfeiture to Digital Assets
18 U.S.C. § 984 allows the Federal government to initiate civil forfeiture proceedings against certain property, 
including	funds	deposited	in	an	account	in	a	financial	institution	and	cash	“found	in	the	same	place	or	account”	in	
the	same	amount	that	the	government	can	trace	to	the	illegal	activity	during	the	year	before	filing	a	civil	complaint.	
This	means	that	the	government	is	not	required	to	trace	particular	dollars	by	unique	serial	numbers	to	the	illegal	
activity. This provision is particularly useful in cases where criminal proceeds are commingled with other funds. For 
example,	if	the	government	demonstrates	that	$50,000	in	cash	drug	proceeds	was	deposited	into	an	account	that	
also	contains	other	deposited	funds,	the	statute	authorizes	the	government	to	forfeit	$50,000	from	the	account	
without	showing	that	the	forfeited	funds	are	the	exact	same	$50,000	in	drug	proceeds.	The	statute	does	not,	
however,	apply	to	digital	assets.	Therefore,	in	a	drug	case	in	which	a	bad	actor	accepts	payment	in	bitcoin	and	holds	
the	bitcoin	in	a	wallet	that	also	contains	other	bitcoin,	under	current	law,	the	government	cannot	forfeit	the	drug	
proceeds	unless	it	can	specifically	trace	particular	bitcoin	to	the	drug	transaction.	
Amending	Section	984	to	make	certain	digital	assets	subject	to	the	same	modified	traceability	requirement	as	
exists for cash would allow the government to seize and forfeit digital assets found in the same wallet used to 
hold crime-linked digital assets, without requiring the government to prove the forfeited assets were the exact 
same digital assets derived from or used to commit a criminal offense. 
RecommendationsRecommendations
• Congress should evaluate victim compensation regulations and propose amendments to address concerns 
regarding victim compensation and improve asset-forfeiture efforts in the digital assets space.
439
• Congress	should	tailor	18	U.S.C.	§	1014	to	protect	all	financial	institutions	(defined	under	Title	31	of	the	U.S.	
Code), including those offering digital asset services. In addition, Congress should clarify  that the law 
applies	to	all	false	statements	in	connection	with	obtaining	or	maintaining	access	to	services	from	financial	
institutions.	Relatedly,	U.S.S.G.	Section	2B1.1	should	be	updated	to	include	a	sentencing	enhancement	for	
making	false	statements	to	financial	institutions	where	the	scheme	involves	significant	volume	of	criminal	
funds	but	no	loss	to	the	institution.
• Congress	should	amend	the	NSPA	to	clarify	that	digital	assets	are	property	subject	to	this	act.	
• Congress	should	amend	the	anti-tip-off	provision	in	18	U.S.C.	§	1510	to	update	the	definition	of	“financial	
institution”	from	the	narrower	definition	found	in	18	U.S.C.	§	20	to	the	broader	definition	found	in	the	BSA,	31	U.S.C.	
§§	5312(a)(2)	and	(c),	to	cover,	among	other	additions,	certain	digital	asset	firms	that	operate	as	money	services	
businesses	(MSBs).	Congress	should	also	amend	the	same	anti-tip-off	provision	to	include	additional	serious	
underlying	offenses	as	covered	offenses	to	prohibit	agents	of	financial	institutions	from	tipping	off	suspects.
• Congress	should	amend	18	U.S.C.	§	984	to	make	certain	digital	assets	subject	to	the	same	modified	
traceability	requirement	as	exists	for	cash	to	allow	the	government	to	seize	and	forfeit	digital	assets	found	
in the same wallet used to hold crime-linked digital assets, without requiring the government to prove the 
forfeited assets were the exact same digital assets derived from or used to commit a criminal offense.
439      See DOJ, Memorandum from the Deputy Attorney General, supra note 370,	at	3.	The	DOJ	has	already	begun	these	efforts.

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Countering Illicit Finance Countering Illicit Finance  •  Disrupting and Mitigating Systemic Illicit Finance Risks
Protecting the Digital Asset Industry from Malicious Cyber ActorsProtecting the Digital Asset Industry from Malicious Cyber Actors
Strong	cybersecurity	practices	are	needed	to	safeguard	digital	assets	from	theft,	fraud,	and	
cyberattacks.	The	documented	efforts	of	nation-state	cyber	groups	and	other	illicit	actors	to	steal	or	
fraudulently	acquire	digital	assets	present	a	national	security	concern.	DPRK	has	been	particularly	
adept	at	stealing	digital	assets	from	market	participants,	illustrated	by	the	theft	of	$1.5	billion	from	a	
digital	asset	firm	in	February	2025.	DPRK	uses	complex	social	engineering	schemes	to	compromise	
networks, posing a persistent threat to organizations with access to large quantities of digital assets 
or products. Critically, the Federal government assesses that DPRK uses digital assets to fund its 
weapons	of	mass	destruction	and	ballistic	missile	programs.	These	hacks	and	the	risks	to	U.S.	digital	
asset	users	and	national	security	demonstrate	the	need	to	improve	cybersecurity	measures	within	the	
digital asset industry. 
This	section	discusses	some	of	the	cybersecurity	challenges	that	the	digital	asset	ecosystem	faces	
and	identifies	measures	that	can	be	implemented	to	bolster	cybersecurity.	Malicious	cyber	actors	
exploit	vulnerabilities	in	software,	hardware	protocols,	or	even	human	processes	to	penetrate	a	victim’s	
security controls to maliciously alter code or conduct unauthorized transactions. To discover and 
exploit	these	vulnerabilities,	malicious	cyber	actors	conduct	network	scanning	and	reconnaissance.	
The	availability	of	vulnerabilities	may	be	exacerbated	by	the	lack	of	cybersecurity	requirements	or	
audits in the digital asset space. Additionally, while there are several efforts to share threat information 
within	industry	and	between	the	public	and	private	sectors,	information	sharing	could	be	further	
improved	to	strengthen	industry’s	ability	to	defend	against	threats.	Treasury,	through	its	Office	of	
Cybersecurity	and	Critical	Infrastructure	Protection	(OCCIP),	is	currently	exploring	how	to	expand	
existing	mechanisms	to	share	cybersecurity-related	information	with	the	digital	asset	industry.	The	
below	explores	some	risks	present	in	three	segments	of	the	digital	asset	industry	designed	to	illustrate	
how	malicious	cyber	actors	exploit	digital	asset	participants:	custody	services,	smart	contracts,	and	
blockchain	network	validation	processes.	This	is	not,	however,	an	exhaustive	list.
OCCIP	works	to	strengthen	the	security	and	resilience	of	financial	services	sector	critical	infrastructure	
and	reduce	operational	risk.	The	office	works	closely	with	financial	sector	companies,	industry	
groups,	and	government	partners	to	share	information	about	cybersecurity	and	physical	threats	
and	vulnerabilities.	OCCIP’s	information	sharing	is	primarily	centered	around	traditional	financial	
institutions	but	is	exploring	how	to	expand	its	efforts	to	digital	asset	firms.	One	example	of	its	
information sharing initiatives is Treasury’s Automated Threat Information Feed (ATIF), which provides 
participants	with	access	to	a	tailored	cyber	threat	feed.	The	ATIF	aggregates	indicators	from	Treasury,	
open-source data feeds, Federal government partners, international partners, and participating 
members.	The	feed	is	available	through	Cloudflare	to	their	existing	customers,	or	through	the	Malware	
Information Sharing Platform, an open-source threat intelligence platform.
Additionally, Treasury chairs the Financial and Banking Information Infrastructure Committee (FBIIC), 
which is chartered under the President’s Working Group on Financial Markets and is charged with 
coordinating	efforts	to	improve	the	reliability	and	security	of	financial	information	infrastructure.	
OCCIP, as the delegated chair and the Secretariat of FBIIC, utilizes FBIIC for improving coordination 
and	communication	among	financial	regulators,	enhancing	the	resiliency	of	the	financial	sector,	and	
promoting	public-private	partnership.	

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Countering Illicit Finance Countering Illicit Finance  •  Disrupting and Mitigating Systemic Illicit Finance Risks
RecommendationsRecommendations
 ■As noted in Chapter III, the Working Group recommends that relevant agencies develop principles-
based	requirements	and	standards,	as	appropriate,	for	digital	asset	firms.	Such	principles-based	
requirements and standards should take into account the various activities and related risks of 
various	industry	participants	to	strengthen	industry’s	protection	from	malicious	cyber	actors.	
 ■The Working Group recommends that relevant agencies consider measures to increase 
information	sharing	on	potential	threats	across	the	private	sector	and	between	the	public	and	
private sectors. 
 ■Treasury’s OCCIP could work with industry to identify opportunities to increase information sharing 
on	cybersecurity	risks,	including	by	providing	U.S.	regulated	digital	asset	firms	access	to	the	ATIF.
 ■Treasury’s	OCCIP—through	the	existing	public-private	partnership	structure—could	explore	
identifying	gaps	in	addressing	operational	resiliency	of	digital	asset	firms	to	enable	broader	adoption.
Custody:	Digital	asset	firms	that	custody	digital	assets	for	retail	or	institutional	customers	can	be	
attractive	to	illicit	actors	because	of	the	large	amount	of	funds	that	they	hold.	Attackers	use	a	variety	
of	techniques—phishing,	often	leveraging	emailing	and	short	message	service	(SMS);	key	logging;	
or	social	engineering—to	illicitly	gain	access	to	a	digital	asset	firm’s	custody	infrastructure,	either	
controlled	by	the	firm	or	managed	by	a	third-party	provider.	In	some	instances,	this	can	include	
malicious	cyber	actors	gaining	access	to	the	private	keys	to	the	firm’s	wallet	addresses	or	exploiting	
other	security	gaps.	Attackers	can	use	access	to	steal	funds	from	digital	asset	firms,	potentially	
resulting	in	substantial	losses.	While	digital	asset	firms	that	take	custody	of	user	assets	are	frequent	
targets,	other	digital	asset	participants	that	aggregate	funds,	including	cross-chain	bridges	and	
unhosted	wallet	addresses	with	a	large	amount	of	digital	assets,	may	also	be	attractive	targets	for	
malicious	cyber	actors.	
Example Mitigation Measures
Digital	asset	firms	custodying	assets	could:	
 ■Implement	policies	and	procedures	designed	to	protect	the	confidentiality,	integrity,	and	
availability	of	information	systems.	These	should	be	informed	by	a	risk	assessment	and	cover,	
among other topics, asset inventory and device management, data controls and identity 
management, and systems and network monitoring. 
 ■Implement	policies	and	procedures	to	define	and	limit	user	access	privileges	for	digital	asset	
operations and transaction processes. This should include policies for secure key management 
practices,	specifically	for	signing	keys,	and	ensuring	that	third	party	service	providers,	if	applicable,	
have	a	solid	track	record	of	secure	key	management	practices	before	using	their	services.
 ■Use	tools	to	simulate	and	validate	transactions	prior	to	signing	to	confirm	the	intent	of	the	
transaction matches the outcome. 
 ■Use digital identity tools to protect private keys and digital assets accounts.
 ■Enforce credential requirements and multifactor authentication (MFA). North Korean malicious 
cyber	actors	continuously	target	user	credentials,	email,	social	media,	and	private	business	
accounts.	Organizations	should	be	aware	of	MFA	interception	techniques	for	some	MFA	
implementations and monitor for anomalous logins and require users to change passwords 
regularly	to	reduce	the	impact	of	password	spraying	and	other	brute	force	techniques.	The	

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Countering Illicit Finance Countering Illicit Finance  •  Disrupting and Mitigating Systemic Illicit Finance Risks
Working Group recommends organizations implement and enforce MFA to reduce the risk of 
credential theft. 
Smart Contracts:	Smart	contracts	are	programs	on	blockchain	networks	that	automatically	execute	
the	terms	of	an	agreement	when	specific	conditions	are	met.	Malicious	actors	can	exploit	unpatched	
vulnerabilities	in	smart	contracts	to	their	advantage.	Not	every	bug	will	result	in	a	catastrophic	failure	
or	allow	for	exploitation,	and	bugs	often	go	unnoticed	for	years.	While	the	ability	to	view	open-source	
code	for	DeFi	services’	smart	contracts	may	enable	security	engineers	to	review	code	for	potential	
exploits, no software is immune to defects in code, regardless of whether it is open- or closed-source 
or	used	by	one	person	or	millions	of	entities	worldwide.	Coding	flaws	can	be	exploited	by	malicious	
cyber	actors	to	remove	funds	from	DeFi	services	without	authorization,	so	it	is	essential	to	prioritize	the	
security	and	quality	of	code	on	an	ongoing	basis.	These	risks	may	be	exacerbated	for	smart	contracts	
that	lack	a	mechanism	for	alterations	if	a	critical	vulnerability	is	discovered	or	exploited.
Example Mitigation Measures 
 ■Adhere to secure development practices, conduct quality assurance and control of smart contracts 
prior to deployment, and employ third-party auditing to reduce risk of software defects.
 ■Leverage	trusted	code	libraries.
 ■Monitor	for	new	vulnerabilities.	
 ■Consider	emergency	stops	and	circuit	breakers	for	unexpected	smart	contract	issues.

VII.   TaxationVII.   Taxation
CHAPTER VII
TaxationTaxation
STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 124124    •		 
TaxationTaxation  •
TaxationTaxation
The nature of Bitcoin is such that once version 0.1 was released, the core design was set in 
stone	for	the	rest	of	its	lifetime.	Because	of	that,	I	wanted	to	design	it	to	support	every	possible	
transaction	type	I	could	think	of	. . . .	The	design	supports	a	tremendous	variety	of	possible	
transaction	types	that	I	designed	years	ago.	Escrow	transactions,	bonded	contracts,	third	
party	arbitration,	multi-party	signature,	etc.	If	Bitcoin	catches	on	in	a	big	way,	these	are	things	
we’ll	want	to	explore	in	the	future,	but	they	all	had	to	be	designed	at	the	beginning	to	make	
sure	they	would	be	possible	later.
BitcoinTalk Forum Post Re: “Transaction and Scripts” 
Satoshi Nakamoto, June 2010
440
The	advent	and	growth	of	digital	assets	has	raised	numerous	questions	about	the	application	of	federal	
income	tax	laws.	The	“tremendous	variety	of	possible	transaction	types”	Satoshi	Nakamoto	identified	for	
digital	assets—some	of	which	have	no	analog	in	traditional	assets—can	make	applying	current	provisions	to	
digital asset transactions challenging. As such, providing guidance or enacting legislation that addresses the 
special characteristics of these digital assets and transactions will help taxpayers understand their federal tax 
obligations,	and	in	turn	promote	the	growth	and	use	of	digital	assets	in	the	United	States.
Addressing	aspects	of	federal	tax	law	contrary	to	the	goals	of	the	Executive	Order	has	been	a	priority	since	
the	first	days	of	the	Trump	Administration.	H.J.	Res.	25,	a	joint	resolution	sponsored	by	Senator	Ted	Cruz	and	
Representative	Mike	Carey,	was	signed	into	law	by	President	Trump	in	April	2025.
441
 This resolution overturned 
a	Biden	Administration	effort	to	define	certain	DeFi	developers	as	“brokers”	for	tax	purposes,	even	though	
neither those developers nor their software ever held custody of their users’ digital assets.
442
 The Working 
Group applauds this action as an example of the pro-innovation approach to tax law the Federal government 
should	embrace.	
As	background,	federal	tax	law	consists	of	the	Internal	Revenue	Code	(Code),
443
 regulations implementing the 
Code,	related	statutes,	tax	treaties,	and	an	extensive	body	of	case	law	and	associated	common	law	doctrines	
that	provide	a	foundation	for	statutory	law	and	remain	essential	to	interpreting	it.	The	IRS	also	publishes	
Revenue	Rulings	and	Notices	providing	its	interpretation	of	the	law	to	particular	facts,	which	are	not	binding	for	
taxpayers	but	generally	relied	upon.
444
 
Crucial questions of federal tax law with respect to income derived from digital assets include evaluating 
timing, source, and character (i.e., capital income or ordinary income) and the appropriate application of 
statutory	provisions.	The	guidance	issued	to	date	by	Treasury	and	the	IRS	is	described	below.
440      satoshi, Comment to Re: Transactions and Scripts: DUP HASH160 . . . EQUALVERIFY CHECKSIG,	BitcoinTalk	(June	17,	2010	at	6:46	PM),	https://bitcointalk.
org/index.php?topic=195.msg1611#msg1611.
441						Pub.	L.	No.	119-5,	139	Stat.	48	(2025).	
442      Press Release, Sen. Cruz Applauds Signing of Cryptocurrency Resolution into Law (Apr. 11, 2025), https://www.cruz.senate.gov/newsroom/press-releases/sen-
cruz-applauds-signing-of-cryptocurrency-resolution-into-law; see	Gross	Proceeds	Reporting	by	Brokers	That	Regularly	Provide	Services	Effectuating	Digital	
Asset Sale, 89 Fed. Reg. 106928 (Dec. 30, 2024) (no longer of force or effect). 
443						Unless	otherwise	specified,	all	“Section”	or	“§”	references	in	this	tax	chapter	are	to	sections	of	the	Code	or	the	regulations	issued	thereunder.
444						A	Revenue	Ruling	is	an	official	interpretation	by	the	Internal	Revenue	Service	(IRS)	of	the	Code,	related	statutes,	tax	treaties	and	regulations	on	how	the	
law	is	applied	to	a	specific	set	of	facts	and	is	published	in	the	Internal	Revenue	Bulletin.	A	Notice	is	a	public	pronouncement	that	may	contain	guidance	
that	involves	substantive	interpretations	of	the	Code	or	other	provisions	of	the	law	and	is	also	published	in	the	Internal	Revenue	Bulletin.	Treas.	Reg.	§	
601.601(d)(2)(i)(a) (2024); Understanding IRS Guidance: A Brief Primer, IRS, https://www.irs.gov/newsroom/understanding-irs-guidance-a-brief-primer (last 
visited July 13, 2025). 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 125125    •		 
Taxation Taxation  •  Current Tax Guidance on Digital Assets 
Current Tax Guidance on Digital Assets Current Tax Guidance on Digital Assets 
Treasury and the IRS have issued regulations and related guidance addressing how digital assets are 
taxed	(“substantive	guidance”)	and	relating	to	reporting	on	digital	asset	transactions	by	brokers	and	other	
intermediaries (“third-party information reporting”). 
Notice 2014-21 provides core guidance for digital asset transactions.
445
 It provides that digital assets are treated 
as property, as opposed to currency, for federal income tax purposes, and that general federal income tax 
principles apply to digital asset transactions.
446
	The	Notice	also	provides	FAQs	addressing	several	specific	
issues	as	well.	Other	substantive	guidance	consists	in	part	of	published	sub-regulatory	guidance	addressing	
hard forks,
447
 staking,
448
	and	non-fungible	tokens	(NFTs).
449
 
Treasury has proposed regulations relating to the corporate alternative minimum tax (CAMT) that do 
not	reference	digital	assets	but	would	affect	how	they	are	taxed.	CAMT	was	signed	into	law	by	the	Biden	
Administration	as	part	of	the	Inflation	Reduction	Act	of	2022.
450
 A prior version of the CAMT was repealed, 
by	President	Trump,	by	the	Tax	Cuts	and	Jobs	Act	of	2017.
451
The	impetus—at	the	time—to	implement	CAMT	
was	to	address	differences	between	book	income	and	taxable	income,	and	CAMT	sought	to	do	so	by	creating	
a	minimum	tax	on	book	income.
452
	This	policy	is	problematic	for	a	multitude	of	reasons;	most	acutely,	it	
attempts	to	combine	two	separate	policy	matters	(financial	accounting	treatment	versus	tax	treatment).	
Moreover,	implementing	a	minimum	tax	on	book	income	has	the	potential	net	effect	of	burdening	investment.	
In fact, the Treasury Inspector General for Tax Administration, during the Biden Administration, found that 
“CAMT	is	a	complex	tax	law”	and	that	“IRS	employees	...	have	spent	approximately	21,237	hours	on	the	first	
six	CAMT	notice	publication	projects.”
453
 Further, given the complexities of the law, the “IRS waived failure to 
pay	estimated	tax	penalties	with	respect	to	CAMT	obligations	in	Tax	Year	2023.”
454
 Needless to say, although 
CAMT	does	not	specifically	target	the	digital	asset	sector,	it	creates	a	potential	punitive	effect	on	the	sector’s	
growth, much like it could have an adverse impact on other sectors like oil and gas extraction. CAMT therefore 
contradicts the policy goals of Executive Order No. 14219, which directs agencies to identify and remove certain 
regulations and other guidance that among other things, impede private enterprise and entrepreneurship.
455
 
Treasury	and	the	IRS	have	published	final	regulations	with	respect	to	third-party	information	reporting	
implementing	legislation	that	requires	centralized	brokers	and	other	persons	who	take	possession	of	customer	
445						2014-16	I.R.B.	938	(Apr.	14,	2014).	The	Infrastructure	and	Investment	Jobs	Act,	Pub.	L.	No.	117-58,	135	Stat.	429	(2021)	amended	the	Code	to	define	a	
digital	asset,	for	purposes	of	information	reporting	by	brokers,	as	any	digital	representation	of	value	which	is	recorded	on	a	cryptographically	secured	
distributed	ledger	or	any	similar	technology	as	specified	by	the	Secretary.	Notice	2014-21	referred	to	“convertible	virtual	currency.”	The	term	“digital	
asset”	includes	property	that	Treasury	and	the	IRS	have	previously	referred	to	as	convertible	virtual	currency.
446      IRS, Notice 2014-21, supra note 445. Note	that	Notice	2023-34,	2023-19	I.R.B.	837	(May	8,	2023)	modifies	Notice	2014-21	but	does	not	change	its	conclusions.
447      IRS, Revenue Ruling 2019-24, 2019-44 I.R.B. 1004 (Oct. 28, 2019).
448      IRS, Revenue Ruling 2023-14, 2023-33 I.R.B. 484 (Aug. 14, 2023).
449      IRS, Notice 2023-27, 2023-15 I.R.B. 634 (Apr. 10, 2023).
450						Pub.	L.	No.	117-169,	136	Stat.	1818	(2022).
451							Pub.	L.	No.	115-97,	131	Stat.	2054	(2017).
452						Book	income	refers	to	the	amount	of	income	corporations	report	on	their	financial	statements	based	on	applicable	financial	accounting	standards,	
with	material	differences	as	compared	to	taxable	income.	This	includes	different	treatment	of	losses,	timing	differences	for	when	or	whether	income	is	
recognized, and different treatment of costs and expenses (e.g., capitalization or deduction).
453						Treasury	Inspector	General	for	Tax	Administration,	Review	of	the	Corporate	Alternative	Minimum	Tax	Implementation	Identified	Weaknesses	in	the	Pre-
Rulemaking Process (Sept. 9, 2024), https://www.tigta.gov/sites/default/files/reports/2024-09/2024308036fr.pdf.
454      Id at 4.	The	IRS	has	subsequently	waived	failure	to	pay	estimated	tax	penalties	with	respect	to	CAMT	obligations	for	tax	years	2024	and	2025.	See IRS, 
Notice 2024-33, 2024-18 I.R.B. 959 (Apr. 29, 2024); IRS, Notice 2024-47, 2024-27 I.R.B. 1 (July 1, 2024); IRS, Notice 2024-66, 2024-40 I.R.B. 682 (Sept. 30, 
2024); IRS, Notice 2025-27, 2025-26 I.R.B. 1611 (June 23, 2025).
455						Exec.	Order	No.	14219,	Ensuring	Lawful	Governance	and	Implementing	the	President’s	“Department	of	Government	Efficiency”	Deregulatory	Initiative,	
90	Fed.	Reg.	10583	(Feb.	19,	2025).

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 126126    •		 
Taxation Taxation  •  Substantive Tax Issues
digital assets to report information to the IRS and customers on the customers’ sales of digital assets.
456
 In 
addition	to	the	broker	reporting	rules,	the	regulations	provide	substantive	guidance	for	taxpayers	to	determine	
their	basis,	gain,	and	loss	from	digital	asset	sales.	Treasury	and	the	IRS	have	also	published	sub-regulatory	
guidance providing transition relief with respect to the information reporting regulations.
457
 The IRS has issued 
a	form	and	instructions	on	which	brokers	must	report	the	information	to	the	IRS	and	taxpayers.	
Most recently, Treasury and the IRS have provided transition relief to U.S. digital asset exchanges and others 
implementing	the	digital	asset	broker	regulations
458
 and have withdrawn regulations that would have required 
certain	DeFi	participants	to	provide	broker	reporting	in	line	with	the	passage	of	H.J.	Res.	25.
459
The	section	below	covers	the	Working	Group’s	priority	items	for	the	publication	of	guidance,	along	with	priority	
legislative	recommendations.	The	following	sections	discuss	substantive	tax	issues,	taxpayer	reporting	issues,	
and third-party information reporting.
460
Substantive Tax IssuesSubstantive Tax Issues
Priority Guidance
CAMT
CAMT	imposes	a	minimum	tax	generally	equal	to	the	excess,	if	any,	of	15%	of	“adjusted	financial	statement	
income” (AFSI) less regular tax paid.
461
 The calculation of AFSI generally starts with a corporation’s net income 
as	reported	on	its	financial	statement,	subject	to	certain	adjustments.	CAMT	applies	generally	to	corporations	
with	average	AFSI	over	a	three-year	period	of	more	than	$1	billion	and	provides	statutory	adjustments	to	AFSI	
for	financial	statement	income	and	losses	resulting	from	stock	and	partnership	investments.	Regulations	
proposed	in	2024	provide	for	additional	adjustments	for	transactions	where	there	are	mismatches	in	financial	
statement	or	taxable	income	that	distort	true	economic	income	(e.g.,	a	hedging	transaction	in	which	only	one	
side of the transaction is marked to market).
462
Stakeholders have requested that Treasury and the IRS issue guidance to the effect that AFSI does not include 
financial	accounting	unrealized	gains	and	losses	on	cryptocurrency,	or	on	investments	generally.	
Priority GuidancePriority Guidance
Treasury	and	the	IRS	should	publish	guidance	addressing	the	determination	of	AFSI	with	respect	to	
financial	accounting	unrealized	gains	and	losses	on	investment	assets	other	than	stock	and	partnership	
interests. Toward this end, the IRS issued Notice 2025-27
463
 stating that Treasury and the IRS anticipate 
interim guidance under CAMT to address how unrealized gains and losses on certain investment assets 
reported	for	financial	statement	purposes	are	considered	for	purposes	of	determining	AFSI.
464
 
456						Gross	Proceeds	and	Basis	Reporting	by	Brokers	and	Determination	of	Amount	Realized	and	Basis	for	Digital	Asset	Transactions,	89	Fed.	Reg.	56480	(July	
9,	2024).	A	second	regulation	that	was	adopted	in	December	2024	addresses	certain	decentralized	finance	participants	but	no	longer	has	force	or	effect.	
See supra notes 441, 442.
457      IRS, Notice 2024-56, 2024-29 I.R.B. 64 (July 15, 2024); IRS, Notice 2024-57, 2024-29 I.R.B. 67 (July 15, 2024); IRS, Rev. Proc. 2024-28, 2024-31 I.R.B. 326 (July 
29, 2024); IRS, Notice 2025-7, 2025-5 I.R.B. 524 (Jan. 27, 2025). 
458      IRS, Notice 2025-33, 2025-27 I.R.B. 4 (June 30, 2025).
459						Gross	Proceeds	Reporting	by	Brokers	That	Regularly	Provide	Services	Effectuating	Digital	Asset	Sales,	90	Fed.	Reg.	30825	(July	11,	2025)	(effectuating	a	
change	to	the	Code	of	Federal	Regulations	to	reflect	that	89	Fed.	Reg.	106928	(Dec.	30,	2024)	no	longer	has	force	or	effect);	see supra notes 441, 442.
460						Descriptions	of	market	practices	and	the	use	of	terminology	used	by	digital	asset	participants	in	the	following	sections	of	this	chapter	are	not	intended	
as characterizations of those transactions for federal income tax purposes.
461						Section	10101	of	Pub.	L.	No.	117-169,	136	Stat.	1818,	1818-1828	(2022)	imposes	the	CAMT	for	taxable	years	beginning	after	December	31,	2022.
462						Corporate	Alternative	Minimum	Tax	Applicable	After	2022,	89	Fed.	Reg.	75062	(Sept.	13,	2024).	
463      2025-26 I.R.B. 1611 (June 23, 2025).
464      IRS, Notice 2025-27, supra note 454.

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Taxation Taxation  •  Substantive Tax Issues
Staking – Grantor Trust Classification
U.S. investment funds holding digital assets that qualify as exchange-traded products (ETPs) (pursuant to 
securities	laws)	are	often	organized	as	trusts.	Typically,	such	funds	take	the	position	that	they	are	classified	for	
U.S. federal income tax purposes as investment trusts treated as grantor trusts. An investment trust is a type 
of	legal-form	trust	that	satisfies	strict	restrictions	on	its	permitted	activities	and	is	consequently	eligible	to	
provide	simplified	tax	reporting	to	its	investors.	A	legal-form	trust	is	classified	as	an	investment	trust	rather	than	
a	business	entity	only	if	it	is	not	engaged	in	a	profit-making	business.	In	addition,	there	may	not	be	a	power	to	
vary the investments of the trust, and the trust may have only one class of ownership interests with a very limited 
exception.
465
 Investors in an investment trust that is a grantor trust are treated as if they were the direct owners 
of their pro rata interests in trust assets for federal income tax purposes. They receive tax reporting from the 
trust	or	their	brokers	on	IRS	Forms	1099	(e.g.,	an	IRS	Form	1099-B,	Proceeds from Broker and Barter Exchange 
Transactions,	reporting	gross	proceeds	and	basis	if	the	trust	sells	an	asset).	A	legal-form	trust	that	is	intended	to	
be	structured	as	an	investment	trust	treated	as	a	grantor	trust,	but	fails	to	satisfy	the	requirements	for	investment	
trust	status,	typically	is	classified	as	a	partnership	for	federal	income	tax	purposes.	In	this	case,	investors	would	
receive tax reporting on Schedule K-1 of IRS Form 1065, U.S. Return of Partnership Income.
Stakeholders have requested guidance addressing whether a trust holding digital assets that stakes those 
assets and receives staking rewards can qualify as an investment trust treated as a grantor trust.
466
 
Priority GuidancePriority Guidance
Treasury	and	the	IRS	should	publish	guidance	addressing	whether	a	trust	that	otherwise	qualifies	as	an	investment	
trust	treated	as	a	grantor	trust	fails	to	qualify	as	such	if	the	trust	stakes	digital	assets	owned	by	the	trust.
Wrapping
Wrapping	is	a	technique	used	to	convert	a	digital	asset	native	to	one	blockchain	(“original	digital	asset”)	into	a	
digital	asset	native	to	a	different	blockchain	(“wrapped	digital	asset”).	Wrapping	may	also	be	used	to	convert	
a	digital	asset	that	cannot	be	used	in	certain	smart	contracts	into	a	wrapped	digital	asset	that	can	be	used	in	
those	smart	contracts.	The	wrapped	digital	asset	is	backed	one-for-one	by	the	original	digital	asset,	which	
is	immobilized	by	a	custodian	or	through	smart	contracts.	The	original	digital	asset	may	not	be	used	in	any	
transactions	while	it	is	wrapped.	The	wrapped	digital	asset	can	be	unwrapped	or	be	converted	back	to	the	
original digital asset, at any time. 
Wrapping	is	commonly	used	to	transact	with	the	value	of	the	original	digital	asset	on	a	different	blockchain.	An	
example	is	wrapped	bitcoin,	which	can	be	used	in	DeFi	operations,	while	bitcoin	itself	generally	cannot.	Stakeholders	
have	asked	for	guidance	addressing	whether	wrapping	and	unwrapping	transactions	are	taxable	transactions.
Priority GuidancePriority Guidance
Treasury	and	the	IRS	should	publish	guidance	addressing	whether	wrapping	and	unwrapping	transactions	
are	taxable	transactions.	
IRS FAQs
As	described	in	the	Current	Tax	Guidance	on	Digital	Assets	section	above,	the	IRS	issued	FAQs	on	several	issues	
involving	digital	assets	starting	in	2014.	New	FAQs	have	been	added	from	time	to	time,	but	the	FAQs	have	not	
been	comprehensively	revised	to	consider	published	guidance	and	regulations	relating	to	digital	assets.
465      See Treas.	Reg.	§	301.7701-4	(tax	classification	of	trusts).
466      Stakeholders also have requested guidance on other issues relating to staking. See Chapter	VII,	Substantive	Tax	Issues:	Priority	Guidance	–	Other	Issues. 
For a description of staking, see Chapter II, Mining and Staking.

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Taxation Taxation  •  Substantive Tax Issues
Priority GuidancePriority Guidance
Treasury and the IRS should update the IRS FAQs on digital assets. These updates will provide industry and 
taxpayers	with	regulatory	certainty	by	reflecting	guidance	that	was	published	after	the	issuance	of	the	FAQs.	
Other Issues
Stakeholders	have	requested	guidance	on	several	issues	beyond	those	described	above.	The	Working	Group	
believes	many	of	these	issues	might	warrant	future	guidance	in	line	with	the	goals	of	the	Executive	Order.
 ■Mining and Staking. Stakeholders	have	asked:	
 ◆for	clarification,	modification,	or	reversal	of	IRS	guidance	on	the	timing	of	income	from	staking	and	
mining rewards;
467
 
 ◆whether	staking	activity	constitutes	a	trade	or	business	for	federal	income	tax	purposes	and	related	
questions	including:		
• whether	staking	gives	rise	to	income	effectively	connected	with	the	conduct	of	a	trade	or	business	in	
the United States; 
• whether	staking	gives	rise	to	unrelated	business	taxable	income	under	Section	512;	
• whether staking gives rise to income from commercial activity for purposes of Section 892; and
• whether	income	from	staking	is	treated	as	fixed,	determinable,	annual	or	periodic	income	to	foreign	
taxpayers;
 ◆the source of income from staking rewards;
 ◆whether the receipt of airdrops and hard forks invalidates investment trust status; and
 ◆whether	staking	benefits	from	the	securities	or	commodities	“trading	safe	harbors”	of	Section	864.	
 ■Valuation. Guidance on how to value digital assets that are traded on multiple exchanges or thinly traded, 
for	purposes	of	determining	amount	realized	and	basis.
 ■NFTs. Guidance	on	non-fungible	tokens,	including	whether	they	are	treated	as	collectibles	for	purposes	of	
Sections 408(m) and 1(h)(5). 
 ■Losses on digital assets. Guidance relating to losses on digital assets, including the standards and 
acceptable	proof	for	worthlessness	and	abandonment	and	when	losses	may	be	deducted	if	they	are	held	
by	a	taxpayer	that	becomes	bankrupt.	Guidance	relating	to	thefts	of	digital	assets.
 ■Charitable deductions. Legislation	removing	the	requirement	for	a	qualified	appraisal	for	charitable	
donations	of	digital	assets	worth	more	than	$5,000.
In	addition,	many	substantive	issues	that	could	be	addressed	either	through	future	guidance	or	legislation	
include:
 ■Whether tokenization of an asset gives rise to a new asset for federal income tax purposes, and if so under 
what circumstances.
 ■The application of the investment company rules of Sections 351 and 721 to digital assets.
 ■Distributions	of	digital	assets	in	partnership	liquidations	(the	“marketable	securities”	rules).	
 ■The application of the hot asset rules to sales of partnerships holding digital assets.
467      For further discussion of these issues, see Chapter	VII,	Taxpayer	Reporting:	Priority	Guidance – De Minimis Digital Asset Receipts and Chapter VII, 
Taxpayer	Reporting:	Legislative	Proposals	for	Other	Issues – Timing of Income from Mining and Staking.

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Taxation Taxation  •  Substantive Tax Issues
 ■Expanding	the	classes	of	assets	that	may	be	held	by	regulated	investment	companies	to	include	digital	assets.
 ■The	treatment	of	digital	assets	for	purposes	of	the	subpart	F,	GILTI,	and	PFIC	rules.
 ■The	tax	treatment	of	blockchain	splits	and	blockchain	mergers.
 ■The	rules	applicable	to	digital	assets	with	respect	to	retirement	accounts.
 ■The	tax	consequences	of	repatriation	by	an	offshore	foundation	
Regarding	offshore	foundations,	the	Working	Group	encourages	non-profit	organizations	supporting	the	
development	of	blockchain	technologies	to	domicile	in	the	United	States.	Toward	this	end,	the	Working	Group	
will engage with Treasury and the IRS to study ways to incentivize their repatriation and domestication. 
Priority Legislative Recommendations
Characterization as Securities or Commodities
As	described	in	the	Current	Tax	Guidance	on	Digital	Assets	Section	above,	IRS	Notices	characterize	virtual	
currency for federal income tax purposes as property, not currency. However, IRS guidance does not address 
whether a digital asset is considered a security or commodity for federal income tax purposes. The Code and 
case	law	define	the	term	“security”	in	different	ways	for	different	tax	purposes,	and	those	definitions	are	not	
the	same	as	the	securities	law	meaning	of	the	term	“security.”	Code	provisions	also	do	not	define	the	term	
“commodity”	or	define	it	in	a	circular	manner,	and	do	not	cross-reference	the	commodities	law	meaning	of	the	
term. The characterization of an asset as a security or commodity for federal income tax purposes affects the 
application	of	multiple	provisions	of	the	Code.	For	example,	Code	provisions	applicable	to	commodities	include	
Section 475(e) and (f) (elections for dealers or traders in commodities to mark commodities to market), Section 
864(b)(2)(B)	(trading	in	commodities	safe	harbor),	and	Section	7704(d)(1)(G)	(passive	income	exception	
applicable	to	commodities	partnership).	
Congress	is	considering	legislation	that	would	dictate	when	a	digital	asset	is	subject	to	regulation	by	the	SEC	or	
the CFTC, such as the Digital Asset Market Clarity Act of 2025 (CLARITY).
468
 This legislation does not address 
the	tax	classification	of	digital	assets.	Adding	digital	assets,	or	in	some	cases	actively	traded	fungible	assets	
(the	type	of	digital	assets	most	similar	to	securities	and	commodities),	as	a	new	category	of	asset	subject	to	
Code provisions would permit legislation to consider characteristics of digital assets that are different from 
those	of	traditional	securities	or	commodities.	An	alternative	approach	could	be	for	a	digital	asset,	or	one	
or	more	types	of	digital	assets,	to	be	defined	as	a	security	or	a	commodity	by	reference	to	securities	and	
commodities	laws.	Because	the	tax	rules	for	securities	and	commodities	differ	in	significant	respects,	it	would	
be	important	that	an	asset	have	a	single	tax	classification	throughout	its	existence.	
RecommendationRecommendation
Legislation	should	be	enacted	that	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.	Code	provisions	
that	should	be	expanded	to	apply	to	actively	traded	fungible	digital	assets	include	Sections	475	(mark-
to-market	election),	864(b)	(trading	safe	harbors),	1058	(securities	loans),	and	7704	(publicly	traded	
partnership rules).
469
 In addition, Sections 1091 (wash sale rules) and 1259 (constructive sales) also should 
apply to digital assets. Alternatively, legislation could instead clarify when a digital asset commodity or 
other digital asset is treated as a security or a commodity for federal income tax purposes.
468      H.R. 3633, 119th Cong. (2025).
469						A	2023	report	by	the	Joint	Committee	on	Taxation	discusses	the	current	state	of	the	law	and	possible	legislation	with	respect	to	most	of	these	
provisions. Joint Committee on Taxation (JCT), Selected Issues Regarding the Taxation of Digital Assets (June 2023), https://www.finance.senate.gov/imo/
media/doc/jct_report_on_digital_assets.pdf.

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Taxation Taxation  •  Substantive Tax Issues
Stablecoins
As	described	in	Chapter V,	a	stablecoin	is	a	digital	asset	that	intends	to	maintain	a	stable	value	relative	to	a	
reference	asset,	usually	a	currency.	Most	stablecoins	are	pegged	to	the	U.S.	dollar.
470
	Stablecoins	are	widely	
used in digital asset transactions in a manner similar to a cash-equivalent, like shares in a money market fund. 
For	example,	a	taxpayer	may	sell	bitcoin	for	a	stablecoin	and	later	use	the	stablecoin	to	buy	another	digital	
asset.	The	Guiding	and	Establishing	National	Innovation	for	U.S.	Stablecoins	Act	(GENIUS),	which	was	signed	
into	law	on	July	18,	2025,	regulates	the	issuance	of	payment	stablecoins	in	the	United	States.
471
 
The	tax	characterization	of	stablecoins	themselves	under	current	law	is	uncertain.	Characterization	as	debt,	
for	example,	is	not	certain—stablecoins	typically	do	not	have	an	unqualified	obligation	to	pay	a	fixed	amount,	
but	they	are	held	out	as	redeemable	for	cash.	Under	GENIUS,	U.S.-licensed	issuers	of	payment	stablecoins	
are	obligated	to	convert,	redeem,	or	repurchase	such	stablecoins	for	a	fixed	amount	of	monetary	value.
472
 The 
payment	stablecoins	must	also	be	collateralized	with	high	quality	liquid	assets.
473
 
The	determination	of	a	financial	instrument’s	status	as	debt	for	federal	income	tax	purposes	is	made	under	
factors	established	by	case	law.	A	common	requirement	is	for	the	instrument	to	have	an	unconditional	promise	
to	pay	on	demand,	or	on	a	specified	date,	a	sum	certain	in	money.
474
	The	instrument	must	also	be	evaluated	
based	on	other	criteria	established	by	case	law,	typically	including	whether	the	instrument	pays	interest,	
whether the issuer is adequately capitalized, whether the instrument is issued to a related party, and the 
seniority	of	the	payment	obligation.	Payment	stablecoins	would	satisfy	the	unconditional	promise	requirement	
and	several	of	the	other	typical	characteristics	of	debt.	They	also	would	have	the	economic	characteristics	of	
highly	rated	collateralized	debt.
The	expected	use	of	payment	stablecoins	as	financial	assets	that	function	in	a	manner	similar	to	cash-
equivalents	raises	the	question	of	whether	they	could	be	considered	as	either	money	or	currency	for	federal	
income	tax	purposes.	Those	terms	are	not	defined	by	statute	or	case	law,	but	Section	985(b)(1)(B)	defines	
functional	currency	for	certain	purposes	as	the	currency	of	the	economic	environment	in	which	a	significant	
part	of	a	business	unit’s	activities	is	conducted	and	which	is	used	by	such	unit	in	keeping	its	books	and	records.	
The	functional	currency	of	a	U.S.	individual	is	always	the	dollar.	Relatedly,	a	recent	IRS	Notice	described	“real”	
currency as (i) the coin and paper money of the United States or of any other country that is (ii) designated as 
legal tender, (iii) circulates, and (iv) customarily used and accepted as a medium of exchange in the country of 
issuance.
475
	At	present,	stablecoins	do	not	appear	to	satisfy	these	requirements.	Stablecoins	also	are	not	issued	
by	or	guaranteed	by	any	government.	
Treatment	of	payment	stablecoins	as	money	or	currency	for	federal	income	tax	purposes	does	not	seem	
likely	under	current	law.	Moreover,	even	if	payment	stablecoins	were	treated	as	currency,	they	could	be	
nonfunctional	currency	for	federal	income	tax	purposes,	in	which	case	gain	or	loss	on	stablecoins	would	
continue	to	need	to	be	reported	on	tax	returns.	Treating	payment	stablecoins	as	money	(and	functional	
currency)	would	affect	the	application	of	many	provisions	of	the	Code	in	ways	that	may	not	be	desirable.	For	
example,	the	Code	does	not	contemplate	the	possibility	of	gain	or	loss	on	money,
476
 so no rules exist to deal 
with	the	possibility	of	gains	or	losses	on	payment	stablecoins	treated	as	money.	In	addition,	treatment	
470      Supra note 333.
471       See supra note 97	(defining	“payment	stablecoin”).
472      S. 1582, 119th Cong. (2025) § 2(22)(A)(ii)(I) (enacted).
473      See S. 1582, 119th Cong. (2025) § 4(a)(i)(A) (enacted).
474             See	26	U.S.C.	§	385(b)(1).	
475      IRS, Notice 2014-21, supra note 445.
476						The	Code	has	rules	for	gains	or	losses	on	functional	currency	transactions	that	are	part	of	the	ordinary	business	operations	of	a	qualified	business	unit	
such	as	a	branch,	but	those	rules	generally	would	not	apply	to	the	use	of	stablecoins	by	U.S.	persons	in	the	United	States.

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Taxation Taxation  •  Substantive Tax Issues
of	payment	stablecoins	as	money,	as	opposed	to	property,	may	affect	basis	and	recognition	of	gain	or	loss	
to	corporations,	partnerships,	and	their	owners	in	the	context	of	distributions	and	contributions	of	payment	
stablecoins.
477
If	payment	stablecoins	were	treated	as	debt	for	federal	income	tax	purposes,	they	would	be	subject	to	multiple	
provisions	of	the	Code	that	apply	to	debt.	They	may	also	be	subject	to	provisions	applicable	to	securities	as	
defined	for	federal	income	tax	purposes	(which	is	independent	of	the	securities	law	definition	of	that	term),	
depending	on	which	tax	definition	of	security	is	applicable.	Treatment	of	a	payment	stablecoin	as	a	security	is	a	
separate	and	additional	inquiry	from	characterization	as	debt.	
Among	the	Code	provisions	that	could	apply	to	payment	stablecoins	treated	as	debt	are	(i)	the	wash	sale	
loss	disallowance	rules	of	Section	1091,	and	(ii)	the	anti-bearer	bond	rules	applicable	to	registration-required	
obligations	that	are	not	in	registered	form.
478
 As discussed in Chapter V,	while	stablecoins	today	are	primarily	
used	to	facilitate	trading	in	other	digital	assets,	they	could	be	more	widely	adopted	as	forms	of	payment	in	the	
future.	Stablecoins	can	diverge	from	their	pegs	and	can	therefore	give	rise	to	loss	on	disposition	when	used	to	
make payments. This would implicate the wash sale rules. 
To	the	extent	that	stablecoins	are	used	as	forms	of	payment,	applying	the	wash	sale	rules	would	be	difficult	
to administer and yield very little tax unless the taxpayer were transacting in large amounts. There may also 
be	limited	utility	in	applying	the	wash	sale	rules	to	dispositions	of	small	amounts	of	stablecoins	in	trading	
activities.
479
	Application	of	the	anti-bearer	bond	rules	would	make	stablecoins	impractical	for	several	reasons,	
including	that	U.S.	issuers	would	be	subject	to	an	excise	tax.	That	said,	stablecoins	function	somewhat	like	
bearer	bonds	since	they	are	readily	tradable	and	held	in	a	way	that	does	not	identify	the	owner.	
RecommendationRecommendation
 Legislation	should	be	enacted	that	would	characterize	payment	stablecoins	for	federal	income	tax	purposes,	
as	such	matters	are	not	addressed	by	GENIUS.	Characterization	as	debt	seems	most	appropriate	given	the	
ways	in	which	payment	stablecoins	are	structured	and	the	potential	for	gain	or	loss	on	disposition.	If	payment	
stablecoins	are	treated	as	debt,	the	legislation	should	also	consider	the	applicability	of	existing	federal	
income	tax	rules	that	could	impede	the	widespread	use	of	payment	stablecoins	as	financial	assets	that	
function in a similar manner to cash-equivalents. In particular, legislation should address the wash sale and 
anti-bearer	bond	rules.	To	address	the	wash	sale	rules,	possible	options	include:
• Providing	that	the	wash	sale	rules	do	not	apply	to	payment	stablecoins;
• Providing	that	the	wash	sale	rules	do	not	apply	to	de	minimis	losses	from	payment	stablecoins,	possibly	up	
to an aggregate threshold;
480
 or
• Providing	that	   gains	and	   losses	on	  payment	stablecoins	are	  not	   considered	for	  federal	income	tax	  purposes.
477      As discussed in Third-Party	Information	Reporting:	Other	Issues	–	Digital Assets Received in a Trade or Business,	below,	the	treatment	of	digital	assets	as	
cash	for	purposes	of	Section	6050I	has	raised	a	number	of	concerns	by	taxpayers.
478						The	anti-bearer	bond	rules	are	in	Sections	149(a),	163(f),	165(j),	312(m),	871(h),	881(c),	1287,	and	4701.
479						The	digital	asset	reporting	rules	that	apply	to	U.S.	digital	asset	exchanges	and	other	brokers	do	not	require	brokers	to	report	dispositions	of	stablecoins	
to	buy	other	digital	assets,	and	do	not	require	reporting	of	dispositions	of	stablecoins	for	cash	unless	aggregate	dispositions	of	stablecoins	during	a	
calendar	year	exceed	$10,000.	These	rules	apply	only	for	broker	reporting	purposes,	not	for	purposes	of	taxpayer	determinations	of	gain	or	loss	on	
stablecoin	transactions.	
480  				 Stakeholders	have	urged	that	either	Congress	or	the	IRS	adopt	a	broader	de	minimis	rule.	See infra note 488	for	a	discussion	of	possible	legislation	on	this	topic.

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Taxation Taxation  •  Substantive Tax Issues
If no such legislation is enacted, Treasury and the IRS should consider issuing guidance that would clarify 
the	tax	classification	of	payment	stablecoins,	and	address	the	potential	application	of	the	wash	sale
481
 and 
anti-bearer	bond	rules.
482
Wash Sales
Because wash sale rules apply to securities, they would not apply to digital assets that are not securities. 
Taxpayers	with	loss	positions	in	digital	assets	are	engaging	in	transactions	that	would	be	subject	to	the	wash	
sale	rules	if	the	digital	assets	were	subject	to	Section	1091.	For	example,	a	taxpayer	may	sell	a	digital	asset	at	
a loss on one day and repurchase the same digital asset the next day, claiming the loss for tax purposes while 
being	in	a	substantially	similar	position	economically.
RecommendationRecommendation
The	wash	sale	rules	should	be	amended	to	add	digital	assets	to	the	list	of	assets	subject	to	the	wash	sale	
rules.
483
	If	legislation	of	this	kind	is	enacted,	the	broker	reporting	regulations	should	be	amended	to	reflect	
these changes to the wash sale rules. As previously discussed, the wash sale rules should not apply to 
payment	stablecoins.	
Crypto Lending
Pursuant to Section 1058, loans of securities ordinarily are treated as an exchange of the security for an 
obligation	to	return	the	security	on	which	no	gain	or	loss	is	recognized.	This	is	contingent	upon	the	transfer	of	
the	security	being	pursuant	to	an	agreement	that	meets	certain	requirements.	Gain	or	loss	is	not	recognized	on	
the return of that security in exchange for rights under the agreement. The agreement must (i) provide for the 
return	to	the	transferor	of	securities	identical	to	the	securities	transferred;	(ii)	require	that	payments	be	made	
to	the	transferor	of	amounts	equal	to	all	interest,	dividends	and	distributions	on	the	security	during	the	term	
of the securities loan; (iii) not reduce the risk of loss or opportunity for gain of the transferor in the transferred 
securities;	and	(iv)	meet	such	other	requirements	as	the	Secretary	of	the	Treasury	may	prescribe.	These	rules	
are intended to ensure that the taxpayer making the loan of securities remains in an economic and tax position 
similar	to	the	position	it	would	have	been	in	absent	the	loan.
In a transaction commonly referred to as a crypto loan, a taxpayer (the original digital asset owner) transfers a 
digital asset to a third party transferee either directly or indirectly (such as through a centralized platform, or 
through	the	use	of	an	automatically	executing	smart	contract),	subject	to	an	obligation	(or	the	provisions	of	the	
automatically	executing	smart	contract)	for	the	transferee	to	deliver	the	same	type	of	digital	asset	back	to	the	
original digital asset owner in the future. At a later date, the transferee delivers the same type of digital asset to the 
original digital asset owner. The transferee may also deliver or credit additional digital assets or other consideration 
to the original digital asset owner as compensation for the use of the digital asset during the transaction.
484
 
481      IRS, Rev. Proc. 2014-45, 2014-34 I.R.B. 388 (Aug. 18, 2014) and IRS, Rev. Proc. 2023-35, 2023-42 I.R.B. 1079 (Oct. 16, 2023) provide that the IRS will not 
treat a redemption of shares in a money market fund as part of a wash sale. Revenue Procedure 2014-45 states that a money market fund is often used 
as an account into which, or from which, cash is automatically deposited or withdrawn, under a sweep arrangement. The Revenue Procedures relieve tax 
administration	burdens	attributable	to	changes	in	SEC	rules	that	made	it	more	likely	that	money	market	fund	shares	would	be	redeemed	at	a	loss.	If	no	
legislation	addressing	the	tax	treatment	of	payment	stablecoins	is	enacted,	Treasury	and	the	IRS	could	consider	issuing	similar	guidance	with	respect	to	
payment	stablecoins	under	a	similar	tax	administration	rationale.
482						If	legislation	is	not	enacted,	Treasury	and	the	IRS	could	consider	whether	it	is	possible	to	issue	guidance	concluding	that	payment	stablecoins	are	not	
registration-required.	Obligations	are	registration-required	unless	one	of	three	exceptions	applies.	Section	163(f)(2).
483						Proposed	wash	sale	legislation	expanding	the	scope	of	the	wash	sale	rules	to	cover	digital	assets	has	previously	been	considered,	and	was	scored	as	
raising	$26	billion	over	10	years,	although	that	version	of	the	legislation	also	included	non-digital	asset	provisions.	Office	of	Management	and	Budget,	
Budget	of	the	U.S.	Government:	Fiscal	Year	2025	163	(Mar.	11	2024),	https://www.whitehouse.gov/wp-content/uploads/2024/03/budget_fy2025.pdf. 
484      See Chapter	II,	Market	Activities:	Lending,	Borrowing,	and	Collateral (discussing cryptocurrency lending).

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 133133    •		 
Taxation Taxation  •  Substantive Tax Issues
Taxpayers	may	engage	in	crypto	borrowing	and	lending	transactions	for	reasons	similar	to	those	for	securities	lending,	
or	in	transactions	that	may	be	conceptually	similar	to	borrowing	cash	on	a	collateralized	basis.	That	said,	crypto	lending	
transactions	may	differ	in	a	number	of	regards	from	securities	loans.	For	example,	the	loan	may	be	effected	purely	
through smart contracts, with automatically executing software replacing a traditional legal agreement. Further, 
amounts	received	(typically,	airdrops)	on	the	loaned	asset	are	not	necessarily	passed	back	to	the	lender.
Section 1058 does not apply to loans of digital assets, unless the asset constitutes a security for federal income 
tax purposes. Stakeholders have requested guidance to the effect that crypto loans are treated as transactions 
in	which	no	gain	or	loss	is	recognized	under	circumstances	similar	to	those	provided	by	Section	1058.	
Loans	of	digital	assets	that	satisfy	requirements	similar	to	the	Section	1058	conditions	described	above	should	
be	accorded	similar	treatment.	While	the	Working	Group	understands	that	some	market	participants	take	
the	position	that	loans	of	digital	assets	that	meet	similar	conditions	are	non-taxable,	no	authority	directly	
addresses those transactions. As such, there is uncertainty for taxpayers on this crucial question.
485
 Moreover, 
crypto	lending	transactions	may	   not	   be	  carried	out	   in	 a	 way	   that	   fully	   complies	with	   the	   requirements	of	  Section	
1058,	as	described	above,	and	the	enactment	of	Section	1058	may	have	limited	the	extent	to	which	prior	non-
statutory law applies to loans of securities or other assets. 
RecommendationRecommendation
Legislation	should	be	enacted	to	amend	Section	1058	to	provide	that	it	applies	to	loans	of	actively	traded	
fungible	digital	assets,	provided	that	the	loan	has	terms	similar	to	those	currently	required	for	loans	of	
securities.	The	Secretary	of	the	Treasury	should	be	granted	authority	to	determine	when	a	digital	asset	is	
actively	traded,	and	to	address	differences	between	the	standard	terms	of	securities	loans	and	crypto	loans.	
Mark-to-Market Rules
Traders in securities, and dealers and traders in commodities, may elect to mark their securities or commodities to 
market for federal income tax purposes. No guidance addresses the extent to which these rules apply to digital assets.
RecommendationRecommendation
See the Characterization as Securities or Commodities discussion	above,	which	recommends	amending	
Section	475	to	include	actively	traded	fungible	digital	assets.
Trading in Securities or Commodities Safe Harbors
Non-U.S. traders in securities or commodities may trade through an independent U.S. agent, or trade for 
their	own	account	with	U.S.-based	personnel,	without	being	treated	as	engaged	in	the	conduct	of	a	trade	or	
business	in	the	United	States.	This	precludes	them	from	the	obligation	to	file	U.S.	income	tax	returns	due	to	
those	trading	activities,	provided	that	certain	conditions	are	met.	These	safe	harbors	do	not	apply	to	digital	
assets unless they qualify for federal income tax purposes as securities or commodities and those conditions 
are met. While the Working Group acknowledges that some market participants take the position that certain 
digital assets are treated as commodities for federal income tax purposes, no authority directly addresses 
whether	trading	in	those	assets	satisfies	the	commodities	trading	safe	harbor.
486
 
RecommendationRecommendation
See the Characterization as Securities or Commodities discussion	above,	which	recommends	amending	
Section	864(b)(2)	to	include	actively	traded	fungible	digital	assets.
485      See generally JCT, supra note 469.
486      Id.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 134134    •		 
Taxation Taxation  •  Taxpayer Reporting
Taxpayer ReportingTaxpayer Reporting
Priority Guidance
De Minimis Digital Asset Receipts
It is common for taxpayers holding digital assets to receive or have the opportunity to receive new digital assets 
that may have minimal or speculative value. For example, taxpayers who delegate their rights to stake to others 
who validate transactions may receive frequent small rewards. A taxpayer may also receive unsolicited airdrops 
of,	or	claims	to,	a	newly	created	digital	asset	as	a	marketing	promotion	by	the	creators	of	the	new	digital	asset.	
These	assets	may	be	illiquid	and	therefore	hard	to	value.	In	practice,	it	appears	that	they	frequently	lose	value	
shortly after the drop. When a hard fork of a digital asset takes place, the new digital asset’s value is often 
uncertain for a period of time and may rapidly decline. 
Under	applicable	law	and	current	IRS	guidance,
487
 taxpayers must include the fair market value of these assets in 
income when they have dominion and control over the asset. Digital asset exchanges have different practices as 
to	when	they	make	a	new	asset	available	to	customers.	As	such,	a	customer	of	multiple	exchanges	may	acquire	
dominion and control over a new asset at different times as a result of the exchanges’ varied practices.
These	fact	patterns	give	rise	to	administrative	burdens	to	taxpayers	to	track	and	record	each	event.	At	times,	
these	burdens	may	exceed	the	value	of	the	transactions.	These	burdens	arise	from	one	or	more	of:	(i)	high	
volume	but	low	value	assets,	(ii)	valuations	that	change	rapidly,	typically	with	a	loss	of	value,	and	(iii)	questions	
about	the	precise	moment	a	taxpayer	has	dominion	and	control	over	a	new	asset	given	differences	in	how	
digital	asset	exchanges	operate.	Moreover,	in	the	fact	patterns	described	above,	taxpayers	often	have	a	limited	
ability	to	influence	when	a	new	asset	or	the	right	to	obtain	a	new	asset	appears.
Priority GuidancePriority Guidance
Treasury and the IRS should issue administrative guidance that addresses de minimis receipts of digital 
assets.
488
 The guidance could apply to airdrops, staking, hard forks, and mining rewards for taxpayers who 
do not operate a node or carry out digital asset mining. 
Legislative Proposals for Other Issues
Timing of Income from Mining and Staking
The	receipt	of	cash	or	property	for	services	generally	is	taxable	as	ordinary	income	at	the	time	of	receipt.	For	
property received for services, the taxpayer generally includes the fair market value of the property on the date 
received	in	gross	income.	The	basis	of	property	in	the	hands	of	the	taxpayer	is	the	amount	included	in	gross	income.	
487  						 When	a	taxpayer	successfully	“mines”	virtual	currency,	the	fair	market	value	of	the	virtual	currency	as	of	the	date	of	receipt	is	includible	in	gross	income.	IRS,	
Notice 2014-21, supra note 445.	The	IRS	has	stated	that	if	a	cash	method	taxpayer	stakes	cryptocurrency	native	to	a	proof-of-stake	blockchain	and	receives	
additional units of cryptocurrency as rewards when validation occurs, the fair market value of the validation rewards is included in the taxpayer’s gross 
income	in	the	taxable	year	in	which	the	taxpayer	gains	dominion	and	control	over	the	validation	rewards.	IRS,	Revenue	Ruling	2023-14,	supra note 448.
488  						 Stakeholders	have	urged	that	taxpayers	should	not	be	required	to	include	in	income	de	minimis	gains	from	digital	assets,	or	digital	assets	used	for	personal	
transactions,	by	analogy	to	the	rules	for	personal	foreign	currency	transactions	by	individuals	under	Section	988(e).	Some	bills	previously	introduced	in	Congress	
have provided for a de minimis inclusion rule. Because digital assets are used for investment or speculation as well as payment, the rationale for the current 
exclusion	under	Section	988(e)	is	not	equally	applicable	to	digital	assets.	There	are	better	arguments	to	exclude	de	minimis	gains	or	losses	for	digital	assets	used	
primarily	for	payments	(see	the	stablecoins	discussion	above).	However,	any	de	minimis	rule	for	including	gains	and	losses	from	digital	assets	in	income	would	pose	
complications that are not relevant in the most common fact patterns where individuals dispose of foreign currency. Unless an individual lives outside the United 
States, the likely fact pattern for disposing of foreign currency is when a taxpayer is on vacation for a limited period of time, in which case it is easy to determine 
that	the	transaction	is	a	personal	one	and	it	is	likely	often	to	be	the	case	that	gain	from	the	disposition	is	under	the	statutory	threshold	as	a	practical	matter.	By	
contrast,	digital	assets	are	also	used	in	investment	or	trading	transactions	and	the	same	type	of	digital	asset	may	be	used	by	the	same	taxpayer	for	both	investment	
and	payment	purposes.	If	a	legislative	de	minimis	rule	were	modeled	on	Section	988(e),	questions	would	include:	how	taxpayers	would	distinguish	personal	from	
investment/	trading	transactions	and	what	records	would	be	considered	adequate	in	that	regard;	whether	an	aggregation	rule	should	apply	so	that	taxpayers	
cannot	split	a	large	transaction	into	multiple	small	ones;	whether	there	would	be	any	constraints	on	taxpayers’	ability	to	treat	gain	transactions	as	non-taxable	
personal	transactions	but	loss	transactions	as	investment	or	business	transactions;	and	how	brokers	should	report	transactions	if	they	do	not	know	whether	the	
transaction is personal or not. This list is not exclusive and would change if a legislative de minimis rule were drafted in a way that differs from Section 988(e).

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 135135    •		 
Taxation Taxation  •  Taxpayer Reporting
In contrast, income with respect to certain self-created property such as manufactured goods, farmed crops, and 
certain self-created intellectual property generally is not realized until the property is sold or otherwise disposed of. 
Treasury and the IRS have issued guidance stating that when a taxpayer successfully “mines” virtual currency, the 
fair	market	value	of	the	virtual	currency	as	of	the	date	of	receipt	is	includible	in	gross	income.
489
 In addition, Treasury 
and the IRS have issued guidance holding that if a cash method taxpayer stakes cryptocurrency native to a proof-of-
stake	blockchain	and	receives	additional	units	of	cryptocurrency	as	rewards	when	validation	occurs,	the	fair	market	
value	of	the	validation	rewards	is	included	in	the	taxpayer’s	gross	income	in	the	taxable	year	in	which	the	taxpayer	
gains dominion and control over the validation rewards.
490
	Stakeholders	have	asked	for	clarification,	modification,	or	
reversal of this IRS guidance on the timing of income from mining and staking rewards. 
Possible GuidancePossible Guidance
In	light	of	these	stakeholder	requests	and	given	the	significant	growth	and	maturation	of	digital	assets	
and surrounding infrastructure since the issuance of guidance in 2014, 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, taking into account any recent intervening developments since 
the issuance of such guidance. 
Possible LegislationPossible Legislation
Several	bills	have	been	introduced	in	Congress	to	change	the	timing	of	income	from	mining	and	staking	
rewards	and	several	other	bills	have	been	proposed.	For	example,	H.R.	8149	(2024)	proposed	to	defer	the	
inclusion of validation rewards until the year of the sale or other disposition of the rewards. By contrast, 
other	bills,	such	as	the	Responsible	Financial	Innovation	Act,	S.	2281	(2023)	proposed	only	to	defer	the	
inclusion of de minimis amounts of income relating to mining or staking until the year of the sale or other 
disposition of the digital assets. 
If Congress decides to pass legislation regarding the timing of the inclusion of income relating to mining 
or staking, Congress should consider whether similar rules should apply to rewards from other digital 
asset	validation	methods,	what	the	character	of	income	upon	disposition	should	be	and	if	ordinary,	what	
rules should apply to determine the order of dispositions of ordinary versus capital units, and potential 
differences	between	the	fair	market	value	of	rewards	at	the	time	of	receipt	compared	with	the	fair	market	
value of rewards at the time of sale or other disposition.
Section 6038D Digital Asset Reporting
Section	6038D	requires	an	individual	that	holds	an	interest	in	one	or	more	specified	foreign	financial	assets	with	
an	aggregate	value	of	at	least	$50,000	during	a	taxable	year	to	attach	a	statement	with	required	information	to	
the	individual’s	tax	return.	A	specified	foreign	financial	asset	means	a	financial	account	maintained	by	a	foreign	
financial	institution	and	certain	specified	foreign	assets	not	held	in	a	financial	account	maintained	by	such	a	
financial	institution.	Penalties	apply	to	taxpayers	who	fail	to	provide	the	required	information,	and	the	time	for	
IRS	assessment	of	tax	and	the	statute	of	limitations	for	assessment	are	extended	beyond	the	deadlines	that	
otherwise apply. These rules allow the IRS to cross-check the information that it receives from U.S. taxpayers 
against	the	information	that	it	receives	from	foreign	financial	institutions	about	U.S.	customer	accounts	pursuant	
to the Foreign Account Tax Compliance Act (FATCA) of the Hiring Incentives to Restore Employment Act of 2010, 
Pub.	L.	No.	111-147,	124	Stat.	71	(2010).	Section	6038D	does	not	explicitly	refer	to	digital	asset	accounts.
489      IRS, Notice 2014-21, supra note 445; see also Statement on Certain Proof-of-Work Mining Activities, SEC Division of Corporation Finance (Mar. 20, 2025), 
https://www.sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025.
490      IRS, Revenue Ruling 2023-14 (July 31, 2023), https://www.irs.gov/pub/irs-drop/rr-23-14.pdf; see also Statement on Certain Protocol Staking Activities, SEC 
Division of Corporation Finance (May 29, 2025), https://www.sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 136136    •		 
Taxation Taxation  •  Taxpayer Reporting
U.S. taxpayers can transact with offshore digital asset exchanges and wallet providers without leaving the 
United	States.	The	global	nature	of	the	digital	asset	market	offers	opportunities	for	U.S.	taxpayers	to	conceal	
assets	and	   taxable	income	by	  using	offshore	digital	asset	exchanges	and	   wallet	providers.	As	  a	 result,	taxpayers	
who wish to hide their assets from the IRS in an offshore account may have an incentive to hold digital assets 
rather	than	traditional	financial	assets,	which	could	distort	financial	markets	and	undermine	the	effectiveness	
of	the	reporting	required	by	Section	6038D.
As	described	in	the	section	below	titled	“Crypto-Asset	Reporting	Framework	Implementation,”	pursuant	to	a	
recently adopted international tax reporting standard, many foreign countries are in the process of adopting 
rules	that	will	require	that	crypto-asset	service	providers	report	certain	transactions	by	foreign	customers	to	
the tax administration or agency of the service provider’s jurisdiction, which would then exchange appropriate 
information with other similar jurisdictions. This could include the United States. 
Possible LegislationPossible Legislation
Legislation	could	be	enacted	that	would	require	taxpayers	to	report	foreign	digital	asset	accounts.	A	
foreign	digital	asset	account	would	be	a	custodial	account	that	holds	digital	assets	that	is	maintained	
by	a	foreign	digital	asset	exchange	or	other	foreign	digital	asset	service	provider.	If	the	United	States	
implements	the	Crypto-Asset	Reporting	Framework	(CARF),	taxpayers	could	be	required	to	report	
accounts with foreign crypto-asset service providers that are required to report information on U.S. 
customers to a non-U.S. tax authority. This would allow the IRS to cross-check the information that it 
receives from U.S. taxpayers with the information it would receive from foreign digital asset exchanges 
about	U.S.	customer	accounts.	Providing	the	Secretary	with	authority	to	coordinate	this	provision	with	
other	rules	could	mitigate	duplication	or	minimize	burden	with	respect	to	other	types	of	reporting	rules.
Section 6038D and FBAR Reporting
The	information	required	to	be	reported	under	Section	6038D	on	IRS	Form	8938,	Statement	of	Specified	
Foreign Financial Assets, is similar to information that many taxpayers are required to report under 31 U.S.C. 
§	5314	and	the	regulations	published	thereunder	on	a	form	known	as	a	Report	of	Foreign	Bank	and	Financial	
Accounts,	or	an	FBAR,	resulting	in	some	duplicative	reporting.	The	Form	8938	is	filed	with	the	IRS.	The	FBAR	is	
filed	with	the	Treasury	Financial	Crimes	Enforcement	Network	(FinCEN).	If	reporting	under	Section	6038D	and	
on	the	FBAR	are	expanded	to	require	reporting	of	digital	asset	holdings,	more	taxpayers	would	be	subject	to	
these	duplicative	reporting	obligations.	
Possible LegislationPossible Legislation
Legislation	could	be	enacted	that	would	streamline	the	reporting	required	under	Section	6038D	and	on	the	
FBAR.	Legislation	could	permit	a	taxpayer	that	is	subject	to	both	reporting	obligations	to	submit	a	single	form	
that	would	be	available	both	to	the	IRS	and	to	FinCEN.	This	could	be	accomplished	by	amending	31	U.S.C.	
§	5314	and	26	U.S.C.	§	6038D	so	that	the	reporting	requirements	under	both	titles	match,	similar	to	how	31	
U.S.C.	§	5331	and	26	U.S.C.	§	6050I	both	require	reporting	on	certain	large	cash	payments	on	FinCEN/IRS	
Form	8300.	If	the	form	is	submitted	as	an	attachment	to	a	federal	income	tax	return,	for	tax	administration	
reasons	this	option	should	be	available	only	to	taxpayers	that	use	a	calendar	taxable	year	and	file	tax	returns	
electronically.	Consideration	could	be	given	to	conforming	the	information	required	to	be	reported	and	the	
different reporting thresholds and penalties that currently apply with respect to Section 6038D reporting and 
FBARs, and, if necessary, to further amending the Code to allow the IRS to provide the reported information 
to	FinCEN.	To	the	extent	that	single-filing	legislation	is	enacted,	resources	should	be	provided	to	the	IRS	
sufficient	to	carry	out	the	reprogramming	of	its	systems	necessary	to	implement	the	legislation.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 137137    •		 
Taxation Taxation  •  Third-Party Information Reporting
Third-Party Information ReportingThird-Party Information Reporting
Priority Guidance
Electronic Furnishing of Digital Asset Payee Statements (Form 1099-DA)
Third parties that report information to the IRS are also generally required to provide or furnish a copy of 
that information to the relevant taxpayer. These documents are referred to as payee statements. The default 
rule	for	furnishing	payee	statements	to	taxpayers	is	in	paper	format.	Payee	statements	can	be	furnished	to	
taxpayers	in	electronic	format	only	with	taxpayer	consent,	which	must	be	provided	by	the	taxpayer	in	the	
manner	required	by	the	IRS.	Current	rules	provide	that	the	taxpayer	must	have	affirmatively	consented	to	
receive the copy in electronic format.
491
 The consent requirement is intended to ensure that taxpayers have the 
capacity and willingness to receive payee statement electronically. 
Unlike	traditional	financial	institutions,	digital	asset	exchanges	communicate	with	their	customers	exclusively	
electronically.	Customers	have	therefore	demonstrated	that	they	are	able	to	obtain	the	information	they	need	from	
digital asset exchanges electronically. Requiring digital asset exchanges to send customers a copy of IRS Form 
1099-DA, Digital Asset Proceeds From Broker Transactions,	in	paper	form	unless	a	customer	affirmatively	consents	
to	electronic	delivery	imposes	unnecessary	and	burdensome	costs	on	brokers	serving	the	digital	asset	space.
Priority GuidancePriority Guidance
Treasury	and	the	IRS	should	propose	regulations	that	provide	brokers	that	facilitate	sales	or	exchanges	of	
digital	assets	through	electronic	means	with	a	less	burdensome	method	of	obtaining	consent	from	their	
customers to furnish Form 1099-DA payee statements in an electronic format.
Crypto-Asset Reporting Framework Implementation
When	a	U.S.	taxpayer	sells	securities,	its	U.S.	broker	provides	reporting	about	the	sale	on	IRS	Form	1099-B.	
The reporting goes to the IRS with a copy to the selling taxpayer. Historically, taxpayers wishing to avoid IRS 
scrutiny	did	so	by	holding	their	cash	and	securities	investments	with	offshore	banks	that	actively	solicited	
U.S.	customers	and	had	no	obligations	to	report	information	to	the	IRS.	To	address	this	problem,	the	IRS	has	
received	information	since	2015	from	certain	foreign	jurisdictions	on	financial	accounts	that	U.S.	taxpayers	
maintain	at	foreign	financial	institutions.	In	exchange,	the	IRS	provides	information	to	many	of	those	foreign	
jurisdictions	on	financial	accounts	held	by	residents	of	those	jurisdictions	at	U.S.	financial	institutions,	provided	
the	recipient	jurisdiction	satisfies	certain	data	confidentiality	and	security	conditions.	
As	with	securities,	jurisdictional	arbitrage	presents	a	key	tax	evasion	risk	for	digital	assets.	The	ease	of	cross-
border	transfer	and	access	to	offshore	exchanges	enables	U.S.	taxpayers	seeking	to	evade	their	tax	obligations	
an offramp to do so. As the ecosystem matures in the United States, leaving these pathways untouched would 
create	a	structural	disadvantage	for	brokers	and	exchanges	domiciled	in	the	United	States.	
Other	countries	have	similar	concerns	about	the	potential	for	their	taxpayers	to	carry	out	digital	asset	
transactions	in	a	way	that	avoids	domestic	tax	scrutiny	by	moving	their	assets	offshore.	The	Crypto-Asset	
Reporting Framework (CARF) is an international tax transparency standard that seeks to improve tax 
491						Section	401	of	the	Job	Creation	and	Worker	Assistance	Act	of	2002,	Pub.	L.	No.	107-147,	116	Stat.	21	(2002)	provides	that	any	person	required	to	furnish	
a payee statement under certain information reporting provisions of the Code (including Section 6045) may electronically furnish such statement 
to any recipient who has consented to the electronic provision of the statement in a manner similar to the one permitted under regulations issued 
under	Section	6051	of	the	Code	or	in	such	other	manner	as	provided	by	the	Secretary.	The	rules	that	currently	apply	to	furnishing	payee	statements	
electronically	under	Section	6045	are	based	on	the	Section	6051	regulations,	which	apply	to	furnishing	employee	statements	on	Forms	W-2.	See IRS, 
Pub.	No.	1179,	General	Rules	and	Specifications	for	Substitute	Forms	1096,	1098,	1099,	5498,	and	Certain	Other	Information	Returns	(July	22,	2024),	
https://www.irs.gov/pub/irs-pdf/p1179.pdf. 

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compliance	for	transactions	involving	digital	assets	by	requiring	that	digital	asset	service	providers	report	
certain transactions to the tax administration or agency of the provider’s jurisdiction, which would then 
exchange appropriate information with other jurisdictions participating in CARF. As of May 2025, more than 65 
jurisdictions have committed to implementing CARF. U.S. implementation of CARF pursuant to Section 6045 
would	allow	the	IRS	to	obtain	information	on	digital	asset	transactions	of	U.S.	taxpayers	in	foreign	jurisdictions	
by	collecting	and	exchanging	information	on	U.S.	transactions	of	residents	of	those	jurisdictions.	
U.S. regulations implementing CARF would discourage U.S. taxpayers from moving their digital assets to 
offshore digital asset exchanges. Implementing CARF would promote the growth and use of digital assets in 
the United States and alleviate concerns that the lack of a reporting program could disadvantage the United 
States or U.S. digital asset exchanges.
However, U.S. digital asset exchanges are currently implementing regulations under Section 6045 that will 
require	those	exchanges	to	start	reporting	information	on	2025	sales	and	exchanges	of	digital	assets	by	U.S.	
customers	in	2026,	with	additional	stages	of	reporting	and	backup	withholding	coming	into	effect	after	2025.	
In	order	to	minimize	burdens	on	U.S.	digital	asset	exchanges,	any	new	reporting	obligations	on	U.S.	digital	asset	
exchanges	should	take	into	account	both	the	timing	of	the	rollout	of	reporting	and	withholding	obligations	
under the existing regulations and also coordination with the operative rules of the existing regulations, for 
example	the	identification	of	entities	subject	to	reporting,	the	types	of	assets	and	transactions	required	to	be	
reported,	and	the	procedures	for	customer	due	diligence	that	must	be	carried	out.
Priority GuidancePriority Guidance
Treasury and the IRS should consider proposing regulations to implement CARF that take stakeholder concerns 
into	account	and	minimize	burdens	on	brokers	to	the	extent	consistent	with	CARF	rules.	The	proposed	
regulations	should	not	impose	any	new	reporting	requirements	on	DeFi	transactions	and	should	be	used	as	a	
forum	to	gather	further	feedback,	including	a	reasonable	timetable	for	implementation.
Other Issues
Basis Reporting on Transferred Digital Assets
Digital	asset	exchanges	that	are	brokers	for	federal	tax	information	reporting	purposes	are	required	to	report	
information to the IRS and to taxpayers on the gross proceeds from sales of digital assets, for transactions on or 
after	January	1,	2025,	and	the	basis	of	certain	digital	assets	sold,	for	transactions	on	or	after	January	1,	2026.
492
 
The	combination	of	gross	proceeds	and	basis	information	is	necessary	for	taxpayers	and	the	IRS	to	determine	
the	taxpayers’	gain	or	loss	from	the	digital	asset	sale.	Without	basis	information,	broker	reporting	to	customers	
would	provide	an	incomplete	picture,	because	it	would	identify	transactions	carried	out	by	customers	and	
gross	proceeds	received	but	not	gain	or	loss.	Reporting	of	that	kind	is	likely	to	be	confusing	to	customers,	who	
would not receive the full information they need to properly report transactions on their income tax returns. 
Because	the	IRS	would	not	receive	basis	information,	this	could	result	in	IRS	audits	of	tax-compliant	taxpayers	
who	correctly	took	basis	into	account	on	their	tax	returns.	Accurate	basis	reporting	is	thus	essential	to	
preventing and identifying tax evasion and tax avoidance and prioritizing enforcement resources.
Under	the	final	regulations,	digital	asset	exchanges	are	required	to	report	basis	only	if	they	have	reliable	basis	
information—namely	where	the	taxpayer	acquired,	held	and	sold	the	digital	asset	at	that	exchange.	However,	
taxpayers frequently transfer digital assets in and out of accounts at exchanges, so it is common for a taxpayer 
to	acquire	an	asset	with	one	exchange	but	then	sell	or	exchange	it	through	a	second	exchange.	In	recognition	
492						At	the	request	of	industry,	brokers	are	provided	with	an	additional	year	to	develop	basis	tracking	systems,	which	are	more	difficult	to	build	than	the	gross	
proceeds reporting systems.

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of	this	common	practice,	the	2021	Infrastructure	Investment	and	Jobs	Act	(IIJA)	amended	Section	6045A	
to	require	reporting	of	basis	information	when	digital	assets	are	transferred	to	digital	asset	exchanges	that	
are	brokers.	These	requirements	are	already	in	place	when	securities	are	transferred	to	or	from	securities	
brokers.	When	a	taxpayer	buys	a	security	at	one	broker	and	later	transfers	the	security	to	a	second	broker,	the	
first	broker	must	provide	basis	and	other	information	to	the	second	broker,	but	not	to	the	IRS,	on	a	transfer	
statement.	As	a	result,	if	the	taxpayer	later	sells	the	security	through	the	second	broker,	the	second	broker	can	
report	to	the	taxpayer	and	the	IRS	both	the	gross	proceeds	of	the	sale	and	the	basis	of	the	security	sold.
Transfers	between	centralized	digital	asset	exchanges	are	similar	in	kind	to	the	transfers	of	securities	described	
above.	The	IIJA	amendment	to	Section	6045A	provides	for	transfer	statements	when	digital	assets	are	
transferred	to	a	digital	asset	exchange	that	is	a	broker.	Implementing	this	legislation	would	improve	the	quality	
of	the	tax	information	taxpayers	will	receive	from	digital	asset	exchanges	when	they	sell	digital	assets,	by	
providing	reliable	basis	information	to	those	exchanges	with	respect	to	digital	assets	transferred	to	one	digital	
asset exchange from another digital asset exchange.
Possible RegulationsPossible Regulations
Treasury	and	the	IRS	should	consider	proposing	regulations	requiring	basis	information	to	be	reported	
when	digital	assets	are	transferred	between	centralized	digital	asset	exchanges.	
Digital Assets Received in a Trade or Business
If	a	trade	or	business	receives	more	than	$10,000	of	cash	in	a	transaction	for,	among	other	things,	goods	or	
services,	the	business	generally	must	report	that	information	to	the	IRS	and	to	FinCEN.	These	coordinating	
rules	are	intended	to	detect	and	prevent	tax	evasion	and	financial	crimes.	Existing	rules	permit	taxpayers	to	use	
the	   same	form	to	  report	information	to	  either	the	   IRS	   or	  FinCEN,	instead	of	  to	  both	    agencies,	which	reduces	the	
burden	on	filers.	
The	IIJA	expanded	the	scope	of	reporting	to	the	IRS	by	requiring	reporting	if	a	taxpayer	uses	digital	assets	to	
make payment. The implicit premise of this expansion is that using digital assets to pay for real-world goods 
and services normally purchased with money has the same effect as converting the digital assets to cash 
(which	is	required	to	be	reported	to	the	IRS)	and	using	the	cash	to	pay	for	the	goods	and	services	(which	is	also	
required	to	be	reported	to	the	IRS).	The	IIJA	did	not	expand	FinCEN’s	corresponding	rule	requiring	the	filing	of	
reports that are highly useful to law enforcement.
493
 This discrepancy causes disparate treatment of the use of 
digital assets to pay for goods and services. 
Stakeholders	have	raised	privacy	and	other	concerns	about	the	IIJA	amendment.	One	concern	is	that	reporting	
by,	for	example,	certain	service	providers	may	reveal	personal	information	to	the	IRS	that	it	otherwise	would	
not	have.	Another	concern	expressed	by	stakeholders	is	that	the	amendment	could	apply	not	only	to	the	use	
of	digital	assets	for	traditional	goods	and	services,	but	also	to	crypto-native	transactions	such	as	the	swapping	
of one digital asset for another. A third concern that stakeholders have raised is that the amendment could 
provide a disincentive for taxpayers to use digital assets in the ordinary course of commerce, considering the 
current statutory dollar threshold. 
Possible RegulationsPossible Regulations
Treasury and the IRS should consider proposing regulations implementing reporting of digital assets paid 
to	a	trade	or	business	in	a	manner	that	takes	the	stakeholder	concerns	described	above	into	account.
493      Additional information on FinCEN’s reporting rules under the BSA are included in Chapter VI.

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Possible LegislationPossible Legislation
Consideration	should	be	given	to	legislation	to	conform	the	information	required	to	be	reported	to	FinCEN,	
for BSA purposes, and the IRS, for federal income tax purposes. The legislation could also reexamine the 
reporting	dollar	thresholds	and	the	breadth	of	uses	of	digital	assets	to	which	this	provision	would	apply.	
Additional proposals related to the Form 8300 are included in Chapter VI.
Legislative Proposal for Other Issue
Implementation of CARF
A	well-known	technique	used	to	avoid	tax	reporting	by	a	financial	institution	or	broker	is	to	invest	through	a	
shell company. CARF provides that digital asset exchanges should identify and report on the controlling person 
of certain passive entities. The IRS does not have authority to require digital asset exchanges to report on 
controlling persons of many shell companies and therefore cannot provide that information to other countries.
A	number	of	major	trading	partners	of	the	United	States	are	unwilling	to	provide	information	on	U.S.	persons	
who control shell companies carrying out digital asset transactions on foreign exchanges if those trading 
partners do not receive similar information from the IRS. Enactment of legislation that would permit the IRS 
to require U.S. digital asset exchanges to report information on foreign controlling persons of shell companies 
would	ensure	that	the	IRS	could	obtain	similar	information	on	U.S.	taxpayers	that	control	shell	companies.
Possible LegislationPossible Legislation
Legislation	could	require	digital	asset	brokers	to	report	information	on	foreign	controlling	persons	of	
certain passive entities.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 141141    •		 
Table of Recommendations Table of Recommendations  •  Third-Party Information Reporting
Table of RecommendationsTable of Recommendations
Digital Asset Market Structure
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Enabling the Trading of Digital Assets at the Federal Level 
Immediate Actions 
The SEC should consider using its rulemaking and exemptive authority under the 
Securities	Act	to	advance	the	following	initiatives:
SEC
• Establish	a	fit-for-purpose	exemption	from	registration	under	Section	5	of	the	Securities	Act	for	securities	
distributions	involving	digital	assets.	
• Establish	a	time-limited	safe	harbor	or	exemption	from	certain	securities	law	requirements	for	transactions	
involving	digital	assets	that	may	be	subject	to	an	investment	contract	because	they	are	not	yet	fully	functional	or	
associated	with	a	sufficiently	decentralized	network	to	allow	for	progressive	functionality	or	decentralization.	
• Establish	a	safe	harbor	for	certain	airdrops	from	characterization	as	“sales”	under	Section	2(a)(3)	of	the	
Securities Act or an exemption from the corresponding registration requirements under Section 5 of the 
Securities	Act.	Consider	also	an	exemption	for	distributions	of	digital	assets	by	decentralized	physical	
infrastructure (DePIN) providers in securities transactions for purposes of rewarding participation in DePIN 
networks,	as	well	as	distributions	of	certain	NFT	offerings.
The SEC should consider using its rulemaking and exemptive authority under the 
Exchange	Act	to	advance	the	following	initiatives:
SEC
• Enable	non-security	digital	assets	that	are	tied	to	an	investment	contract	to	be	traded	on	non-SEC	registered	
trading	platforms	immediately	following	the	primary	distribution	of	the	digital	asset.
• Provide	relief	for	certain	DeFi	service	providers	from	the	broker-dealer	(Section	15),	exchange	(Sections	5	and	
6), and clearing agency (Section 17A) registration provisions of the Exchange Act.
• Amend	Regulation	ATS	to	(or	create	a	framework	similar	to	Regulation	ATS	that	would)	better	accommodate	
trading	of	non-security	digital	assets	alongside	securities	under	a	regulatory	framework	that	is	fit-for-purpose	for	
digital asset trading. 
• Create a conditional “innovation exemption” under the Exchange Act to allow SEC registrants to engage in 
innovative	new	business	models.
• Address	the	definition	of	“facility”	under	Section	3(a)(2)	of	the	Exchange	Act	to	consider	business	models	
used in digital asset trading.
• Consider	amendments	to	Regulation	NMS	(or	to	applicable	national	market	system	plans)	to	better	
accommodate tokenization of NMS securities, or trading of non-security digital assets alongside NMS 
securities,	including	requirements	applicable	to	transaction	reporting	and	mechanisms	for	collecting	bids,	
offers, quotation sizes, and other national market system information. This may include consideration of how 
amendments could facilitate the use of oracles, aggregators, and other DeFi constructs in the trading of NMS 
securities	and/or	non-security	digital	assets.
• Modernize	transfer	agent	rules	to	clearly	permit	the	use	of	blockchain	technology	by	transfer	agents.	
• Provide	clarity	regarding	whether	and	when	self-hosted	wallet	providers	would	be	acting	as	broker-dealers	
subject	to	SEC	registration.

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Digital Asset Market Structure
RecommendationRecommendation
Policy Responsibility
CongressRegulator
The SEC should consider using its rulemaking and exemptive authority under the 
Investment	Advisers	Act,	the	Investment	Company	Act,	and	other	applicable	laws	to	
advance	the	following	initiatives:
SEC
• Provide clarity on the custody of digital assets that are securities for Registered Investment Companies and 
Registered	Investment	Advisers	by	updating	the	rules	under	Section	17(f)	of	the	Investment	Company	Act	and	
Rule 206(4)-2 of the Investment Advisers Act.
• Evaluate	whether	certain	state-chartered	trusts	should	be	deemed	“qualified	custodians,”	as	defined	within	
Advisers	Act	Rule	206(4)-2(a)(6)	or	a	“bank”	under	the	Investment	Company	Act.
The CFTC should consider using its rulemaking, interpretative, and exemptive authority 
under	the	Commodity	Exchange	Act	(CEA)	to	advance	the	following	initiatives:
CFTC
• Provide guidance to designated contract markets (DCMs) regarding the listing of leveraged, margined, or 
financed	spot	retail	commodity	transactions	on	digital	assets	pursuant	to	CEA	section	2(c)(2)(D).
• Provide	guidance	as	to	how	digital	assets	may	be	considered	commodities	under	Section	1a(9)	of	the	CEA.	For	
example, the agency can consider expanding upon prior guidance on “actual delivery” of virtual assets.
• To	the	extent	that	digital	asset	investment	vehicles	or	their	managers	may	be	considered	“Commodity	Pools”	
or prompt registration of “Commodity Pool Operators,” the CFTC will consider updating rules and guidance as 
appropriate.
• Collaborate	with	FinCEN	to	provide	guidance	regarding	customer	identification	programs	(CIPs)	utilizing	
new	technologies	for	eligible	intermediaries	and	other	market	participants	who	carry	customer	accounts	
holding	digital	assets	on	behalf	of	customers.	This	collaboration	can	explore	intermediaries’	and	other	market	
participants’	reliance	on	other	financial	institutions’	identification	and	verification	functions.
• Enable	firms	to	provide	bundled	trading	and	custody	services.
• Provide	clarity	on	the	applicability	of	various	CFTC	registration	requirements	to	DeFi	activities,	smart	contract	
protocols, or decentralized autonomous organizations (DAOs) consistent with technology-neutral principles.
• Provide	guidance	to	FCMs	in	calculating	and	administering	segregation	obligations	when	digital	assets	are	
held	on	behalf	of	customers,	including	separate	account	treatment	under	Regulation	1.44.
• Provide	clarity	on	haircuts	on	digital	assets	held	by	registered	intermediaries	(including	FCMs,	swap	dealers,	
and	DCOs)	for	purposes	of	calculating	and	reporting	margin,	financial	resources/capital,	segregation,	and	
settlement	obligations,	including	working	with	the	SEC	around	the	non-marketable	securities	haircut	
framework	and	its	applicability	to	non-security	digital	assets.
• Review	the	application	of	eligible	depository	rules	to	accounts	holding	digital	assets	as	collateral	under	CFTC	
Regulation 1.49.
• Provide	guidance	for	DCO	acceptance	of	digital	asset	collateral	(including	payment	stablecoins)	including	
DCO	financial	resource	requirements,	valuation	of	assets	and	haircuts	for	margin	purposes,	settlement	
finality,	treatment	of	digital	asset	custodians	and	self-custody,	systems	safeguards	requirements,	end-of-
day	reporting	for	assets	that	trade	24/7,	and	legal	risk	considerations	in	such	areas	as	netting	and	interests	in	
collateral under CFTC Regulations 39.11, 39.13, 39.14, 39.15, 39.18, 39.19, and 39.27.
• Provide guidance on the adoption of tokenized non-cash collateral as regulatory margin to implement the 
CFTC’s GMAC DAMS recommendation.
• Provide	guidance	on	the	classification	of	swaps	on	digital	assets	to	address	application	of	margin,	reporting,	
and other requirements under CFTC Regulations 1.3, 23.154, 43.2, and 45.1.
• Consider	allowing	the	use	of	blockchain	technology	to	satisfy	recordkeeping	obligations	under	CFTC	
Regulation 1.31.

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Digital Asset Market Structure
RecommendationRecommendation
Policy Responsibility
CongressRegulator
The	SEC	and	the	CFTC	should	coordinate	to	ensure	efficient	rulemaking	processes.	The	
SEC	and	CFTC	should	coordinate	on	seeking	comments	from	the	public	on	suggestions	
for rulemaking.
SEC, 
CFTC
If	the	SEC	and	CFTC	establish	a	regulatory	sandbox	or	safe	harbor,	it	should	have	clear	
criteria	to	determine	which	types	of	digital	assets	and	market	participants	are	eligible	
for	the	sandbox	or	safe	harbor.	Moreover,	there	should	be	a	clear	pathway	for	entities	to	
graduate	from	the	sandbox	or	safe	harbor.
SEC, 
CFTC
In coordination with the SEC, the CFTC should consider using its authority within CEA 
section	1a(18)	to	establish	a	category	of	eligible	contract	participants	(ECPs)	with	the	
ability	to	engage	in	certain	types	of	derivatives,	including	perpetual	contracts,	through	
additional	regulated	intermediaries	(e.g.,	persons	that	are	counterparties	to	a	specified	
transaction conducted on or pursuant to the rules of an alternative trading system).
CFTC, 
SEC
Longer-Term Considerations
The	SEC	and	CFTC	should	explore	offering	flexibility	to	allow	registrants	to	offer	
multiple services within a single user interface.
SEC, 
CFTC
• The	Working	Group	encourages	regulatory	exploration	of	more	vertically	integrated	business	models	in	the	
digital	asset	space.	These	business	models	should	include	appropriate	structural	safeguards,	governance	
mechanisms,	and	disclosures	to	mitigate	conflicts	of	interest.
• While	addressing	conflicts	and	ensuring	existing	registrants	are	not	disadvantaged,	regulators	may	consider	
adopting	regulatory	regimes	that	allow	registrants	to	integrate	multiple	financial	services	in	one	business	
model, which could further reduce frictions and enhance user experience. 
 ◆Combining	exchange	services	with	custody	of	trading	assets	allows	for	real-time	settlement.	The	
custodian	holds	the	assets,	and	the	exchange	matches	orders	to	buy	and	sell	those	assets.	Additionally,	
the	digital	assets	custodied	by	an	exchange	should	be	cryptographically	verifiable. 
 ◆Combining	exchange	and	broker	services	allows	for	economies	of	scale	and	reduces	operational	
complexity	by	permitting	straight-through	processing	of	customer	orders	with	the	same	technology	
stack. 
 ◆Exchanges	and	intermediaries	must	segregate	customer	property	away	from	proprietary	funds,	subject	to	
reasonable	exceptions.
The	CFTC	should	consider	how	existing	rules	could	be	amended	to	enable	the	use	of	
blockchain-based	derivatives.
CFTC
• Such	considerations	should	include	evaluating	the	benefits	of	blockchain-based	derivative	transactions	or	
systems with respect to the regulatory requirements of central clearing, and frameworks around reporting 
obligations,	margin	levels,	and	contract	listings	in	a	non-intermediated	environment.
Absent	congressional	action,	the	SEC	and	CFTC	should	use	their	existing	authorities	to	
provide	fulsome	regulatory	clarity	that	best	keeps	blockchain-based	innovation	within	
the United States. 
SEC, 
CFTC
• The Working Group strongly recommends that Congress expeditiously advance market structure legislation 
to the President’s desk. 
• However,	as	market	structure	deliberations	continue	in	Congress,	the	Working	Group	similarly	recognizes	that	
the market regulators can work to provide appropriate accommodation for digital asset trading and innovation 
in	their	rules	to	ensure	responsible	innovation	occurs	in	the	United	States.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 144144    •		 
Table of RecommendationsTable of Recommendations  •
Digital Asset Market Structure
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Creating a Lasting Framework for Digital Asset Market Structure 
Jurisdiction of Market Regulators 
The CFTC should have clear authority to regulate spot markets in non-security digital 
assets.	SEC	and	CFTC	registrants	should	be	permitted	to	engage	in	multiple	business	
lines	under	the	most	efficient	licensing	structure	possible,	ensuring	a	clear	and	simple	
regulatory framework for digital asset market activities.
Congress
SEC, 
CFTC
• Regulation	should	be	crafted	to	avoid	regulatory	arbitrage	between	the	SEC	and	CFTC	digital	asset	regulatory	
regimes, understanding that the regulation of digital asset securities is necessarily different than that applied 
to non-security digital assets.
 ◆Interagency coordination could guide these efforts.
• Registrant	platforms	should	have	the	flexibility	to	offer	a	broad	range	of	digital	asset	and	other	regulated	
products	within	a	single	user	interface,	subject	to	clearly	defined	regulatory	oversight	of	the	registrant.
• SEC	registrants	should	be	able	to	offer	the	trading	of	digital	asset	securities	and	be	able	to	engage	in	non-
security	digital	asset	transactions	pursuant	to	the	licensing	structure	defined	by	Congress.	
• CFTC	registrants	should	be	able	to	offer	the	trading	of	digital	commodity	derivatives,	retail	digital	commodity	
transactions,	and	other	CFTC-jurisdictional	products	alongside	non-security	digital	assets,	as	specified	by	
Congress.
• To the extent Congress permits activity in non-security digital assets outside CFTC registrants, Congress 
should direct the market regulator leading the rulemaking process to set rules for market conduct and 
activities for non-security digital assets in consultation with the SEC or CFTC, as appropriate. 
• Rules	for	digital	assets	should	include	portfolio	margining	standards,	as	suggested	by	CLARITY.
• The SEC and CFTC should adopt rules ensuring customer asset segregation for digital assets.
• Trading	venues	for	non-security	digital	assets	should	be	required	to	report	market	data,	subject	to	reporting	
obligations	established	by	the	CFTC.	If	a	trading	venue	is	engaged	solely	in	the	provisioning	of	non-security	
digital	assets,	there	should	only	be	reporting	obligations	to	the	CFTC.
 ◆Prior	to	the	enactment	of	any	reporting	obligations,	the	CFTC	should	consult	with	the	SEC	on	the	data	to	
be	reported	and	the	format	in	which	it	is	reported	to	minimize	industry	burden.	
Congress should provide that federal law preempts state law with respect to securities 
and	commodities	laws	applicable	to	SEC-	and	CFTC-registered	intermediaries,	including	
in	the	areas	of	state	virtual	currency	business,	“blue	sky,”	and	commodity	broker	laws.
Congress
Guidelines for Market Intermediaries
Digital	asset	trading	platforms,	brokers,	dealers,	custodians	and	other	registrants	should	
be	subject	to	a	tailored	registration	regime	that	is	fit-for-purpose	under	the	SEC	or	
CFTC,	as	appropriate	and	based	upon	the	intermediary’s	activities.
• Consistent	with	the	existing	financial	markets	regulatory	framework,	the	regime	
should	include	principles-based	requirements	that	are	no	more	onerous	than	those	
safeguards applied to existing registrants.
Congress
SEC, 
CFTC
Intermediaries	should	be	allowed	to	lend	against,	net,	and	hedge	securities	against	non-
securities, as risk characteristics permit.
• Coordinated regulatory treatment can ensure appropriate market oversight, while 
recognizing economic equivalence across different asset types. 
• The	SEC	and	CFTC	should	have	appropriate	flexibility	in	setting	applicable	rules	for	
their registrants.
Congress
SEC, 
CFTC

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 145145    •		 
Table of RecommendationsTable of Recommendations  •
Digital Asset Market Structure
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Issuers of digital asset securities, and of securities involving digital assets, should 
be	subject	to	disclosure	requirements	that	are	appropriately	tailored	to	address	the	
novel	characteristics	of	digital	assets	and	blockchain	technology.	Digital	asset	trading	
platforms,	brokers,	dealers,	and	other	CFTC-registered	intermediaries	that	make	
available	non-security	digital	assets	should	be	required	to	disclose	any	such	information	
that	the	CFTC	determines	to	be	appropriate	for	non-security	digital	assets.
CongressCFTC
• Further,	these	parties	should	not	be	subject	to	ongoing	disclosure	requirements	other	than	those	required	by	
Congress	in	future	legislation	or	by	the	relevant	market	regulator.	Furthermore,	any	such	ongoing	disclosures	
should	be	fit-for-purpose	and	guided	by	publicly	available	information,	such	as	open-source	code,	whenever	
possible.
• Digital	asset	trading	platforms,	and	   other	intermediaries	as	  appropriate,	should	publish	the	   criteria	that	   govern	
the listing of digital assets that are traded.
 ◆In addition, digital asset trading platforms, and other intermediaries as appropriate, should consider 
prominently	disclosing	features	that	may	be	unique	to	digital	assets,	such	as	token	economics	(i.e.,	
allocation	percentages	and	rationales)	and	source	code,	if	applicable.		
For	institutional	over-the-counter	block	trades	of	digital	assets	that	occur	offchain	
through	regulated	intermediaries,	there	should	be	similar	reporting	and	disclosure	
requirements to those that apply to similar activities in traditional markets.
Congress
• These	reporting	and	disclosure	requirements	need	not	be	instantaneous,	but	it	is	critical	to	ensure	there	are	
not	loopholes	or	“blind	spots”	associated	with	digital	asset	trading	activity	that	occurs	offchain.
Digital	asset	trading	platforms,	brokers,	dealers,	and	other	SEC	and	CFTC	registrants	
should	disclose	the	capacity	in	which	they	are	acting	on	behalf	of	the	customer,	client,	or	
counterparty	(i.e.,	dealer,	broker,	counterparty,	routing	to	an	order	book,	etc.).
Congress
• Digital	asset	firms	may	serve	in	a	variety	of	capacities	when	offering	digital	asset	trading.	Congress	should	
consider	disclosure	requirements	or	standards	depending	on	the	nature	of	the	relationship	between	the	firm	
and the market participant (e.g., retail, institutional, customer, client, counterparty, etc.).
Trading	platforms	should	be	permitted	to	custody	customer	digital	assets	with	appropriate	
controls. 
Congress
• Safeguards	may	include	requirements	for	asset	segregation,	disclosures,	principles-based	cybersecurity	
standards,	bankruptcy	remoteness,	separation	of	legal	entities,	separation	from	margin	and	rehypothecation	
entity, capital requirements, liquidity and redemption requirements, and regulatory supervision.
• Trading	platforms	should	also	enable	users	engaging	in	self-custody	to	transact,	and	should	be	prohibited	
from	discriminating	against	third-party	custodians	who	offer	products	that	compete	with	those	provided	by	
the	trading	platform	or	an	affiliate.
Market	intermediaries	should	be	subject	to	principles-based	rules	regarding	the	margin	
and	leverage	they	can	extend	to	retail	participants,	based	on	the	functions	of	margin	
and	leverage	in	their	respective	activities. Congress	should	clearly	define	the	rules	and	
responsibilities	between	the	SEC	and	CFTC	regarding	margin	and	leverage,	but	allow	
the	regulators	appropriate	flexibility	in	setting	such	rules.
Congress
• Financing	rates	offered	to	retail	customers	should	be	publicly	disclosed	by	the	party	offering	leverage.
Congress should consider extending Exchange Act Section 31 fee structures to all SEC-
registered	products	offered	on	SEC-regulated	platforms. 	
Congress
• Intermediaries	offering	digital	asset	services	should	pay	fees	equivalent	to	those	that	traditional	finance	
intermediaries pay in the equity markets. 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 146146    •		 
Table of RecommendationsTable of Recommendations  •
Digital Asset Market Structure
RecommendationRecommendation
Policy Responsibility
CongressRegulator
SEC	and	CFTC	registrants	should	be	required	to	adopt	best	practices	for	cybersecurity	
standards.
Congress
• These	standards	may	be	adopted	as	part	of	a	principles-based	regulatory	framework	or	proposed	as	industry	best	
practices.  
Regulatory Treatment of DeFi
As contemplated in provisions of CLARITY, Congress should consider the following 
factors	when	determining	the	regulatory	treatment	of	DeFi:	
Congress
• The extent to which a given software application exercises “control” over user assets.
 ◆Without	the	ability	to	exercise	control	over	user	assets	or	funds,	a	software	application	may	not	transmit	
money	or	exchange	currency,	and	therefore	might	not	be	subject	to	the	BSA	as	an	MSB.	Importantly,	
without	control,	software	applications	generally	lack	the	ability	to	misappropriate	user	assets.
• The	extent	to	which	a	given	software	application,	once	built	or	deployed,	is	technologically	capable	of	being	
modified.
 ◆Software	applications	in	DeFi	use	smart	contracts.	In	many	cases,	smart	contracts	cannot	be	modified	
or withdrawn once deployed. Implementing changes in those cases requires the creation of entirely new 
smart contracts. 
 ◆The operations of a software application, including the smart contracts or the economics of the service 
more	broadly,	may	be	administered	by	a	single	actor	or	a	group	of	actors	working	together.	
 ◆As such, Congress should consider the degree to which a single actor, or group of actors working together, 
has	the	unilateral	ability	to	upgrade	a	software	application’s	smart	contracts	or	change	its	economics	in	a	
manner not previously disclosed in the software or protocol rules. 
• The	extent	to	which	a	software	application	is	controlled	by,	or	operates	with,	a	centralized	structure	or	
management. 
 ◆If	a	product	or	service	is	operated,	managed,	or	otherwise	controlled	by	a	business	and	facilitates	access	
to	a	DeFi	system	engaged	in	otherwise	regulated	activity,	that	product	or	service	should	be	subject	to	
regulation accounting for underlying regulated activity and pursuant to the principles of fair competition, 
customer	protection,	conflicts	of	interest,	integrity	of	code,	cybersecurity	standards,	and	other	principles	
as appropriate. 
• The	extent	to	which	a	given	software	application	is	technologically	or	logistically	capable	of	complying	with	
current	regulatory	obligations.
 ◆Many	DeFi	protocols	and	non-controlling	blockchains	do	not	have	the	functional	ability	to	register	as	
MSBs	or	otherwise	comply	with	MSB	obligations	under	the	BSA,	while	businesses	(as	described	above)	
could	register.	Nevertheless,	Congress	could	consider	how	obligations	can	be	fit-for-purpose	to	the	
technology	and	embrace	the	unique	characteristics	of	DeFi,	rather	than	placing	the	current	financial	
regulatory regime on top of DeFi services.
 ◆Care	should	be	taken	to	ensure	that	actors	are	not	permitted	to	structure	products	to	subvert	legal	
responsibilities.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 147147    •		 
Table of RecommendationsTable of Recommendations  •
Digital Asset Market Structure
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Accounting Recommendations
The	Working	Group	observed	that	many	questions	on	the	accounting	for	digital	asset	
transactions relate to the following key concepts that FASB should consider for further 
consultation	through	public	engagement:	
FAS B
• Recognition and derecognition. Whether an entity should recognize or derecognize digital asset tokens when 
entering into certain transactions. For example, should a lender of digital assets derecognize such assets, and 
should	there	be	symmetry	in	accounting	between	a	lender	and	borrower?	Similar	questions	may	arise	related	
to wrapping tokens or transacting with decentralized lending or exchange protocols.
• Issuer accounting. How an entity should account for digital asset tokens it creates and issues. The accounting 
by	the	token	issuer	will	depend	on	the	issuer’s	facts	and	circumstances,	and	the	enforceable	rights	and	
obligations	of	the	parties	involved.	To	the	extent	a	token	conveys	rights	or	obligations	that	align	with	
traditional	assets	or	instruments	(e.g.,	ownership	of	tangible	commodities,	debt,	or	equity),	then	established	
accounting	guidance	already	exists.	Additionally,	FASB	should	consider	whether	to	treat	payment	stablecoins	
as	cash	equivalents	under	GAAP.	Further	clarification	is	required	in	cases	where	tokens	provide	utility	or	
access	without	clearly	enforceable	rights	–	particularly	when	tied	to	the	future	development	of	a	platform.	
There is no explicit guidance to address the accounting for those types of token issuances. 
 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •  148148    •   
Table of RecommendationsTable of Recommendations  •
Banking and Digital Assets
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Current Regulatory Framework  
Relaunch agency crypto innovation efforts—as appropriate—to address outstanding 
bank activities.
FRB, FDIC, 
OCC
• These efforts should prioritize providing clarity on the activities that banks are most interested in conducting 
with a clear process for considering other or new activities. The objectives would be to:
 ◆Clarify or expand the recognized, permissible digital asset activities in which banks may engage, 
consistent with applicable law;
 ◆To the extent possible, and consistent with applicable law, ensure parity in permissibility between bank 
charter types; and 
 ◆Clarify supervisory expectations on safe and sound conduct that protects consumers and is compliant 
with applicable laws and regulations in bank engagement with digital assets, private and permissionless 
blockchains, tokenized deposits, and where to conduct principal bank activities (e.g., in the insured 
depository institution or the holding company). 
• The initial activities and topics to consider include: 
 ◆Custody of Digital Assets. While the Banking Agencies have clarified permissibility and certain risk 
management considerations,  it could be beneficial to provide additional guidance on technical best practices.
 ◆Third Parties. While the Banking Agencies have clarified the permissibility of using third parties as sub-
custodians, it may be beneficial to ensure any additional guidance on permissibility or risk management 
for other digital asset activities reiterates the ability to use third parties as infrastructure providers or for 
other digital asset services.
 ◆Holding Stablecoin Reserves as Deposits. While the OCC has clarified permissibility, it could be beneficial 
to offer additional guidance now that GENIUS has been enacted.
 ◆Principal Activities. Provide clarity on the permissibility for depository institutions to hold digital assets on 
their balance sheet and any associated safety and soundness concerns.
 ◆Pilots. Clarity is needed on the ability for depository institutions to participate in pilots and experiments 
related to digital assets.
 ◆Tokenization. Provide clear risk-based guidelines that consider underlying risk and asset features to 
determine the permissibility of bank tokenization activities, including tokenization of deposits.
 ◆Permissionless Blockchains. Provide clarity regarding the use of permissionless blockchains that ensures 
a technology-neutral approach focusing on underlying risks of the activity or technology versus using 
technology alone as a proxy for risk.
Encourage innovation in banking technologies and products by state-chartered banks. 
FRB
• The FRB should rescind the 2023 Section 9(13) Policy Guidance and 12 C.F.R. § 208.112 (which effectively 
codifies the Policy Guidance into Regulation H), to ensure that state member banks are permitted to explore 
innovative banking technologies and products.

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 149149    •		 
Table of RecommendationsTable of Recommendations  •
Banking and Digital Assets
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Develop	guidance	and	best	practices	to	support	banks	and	supervisors	that	is	
technically	sound	and	principles-based.	
FRB, FDIC, 
O CC,   
Commerce
• Risk	management	principles	and	best	practices	described	in	existing	agency	issuances	generally	
provide	flexible	guidance	for	banking	organizations’	considerations	that	can	apply	to	the	safe	and	sound	
implementation of innovative technologies and products, including those related to digital assets and DLT. 
Nonetheless,	it	is	important	that	agency	examination	teams	and	banks	are	properly	equipped	to	adopt	current	
risk management principles to digital asset technologies.
• This	could	involve	engagement	with	NIST	and	others	to	identify	applicable	standards	or	best	practices	that	
could	be	used	in	guidance	for	some	digital	asset	activities	such	as	providing	digital	asset	custody	services,	
ensuring	compliance	with	applicable	AML/CFT	obligations	(see	Chapter VI,	which	discusses	the	AML-specific	
regulatory	duties	for	digital	assets	for	more	details),	or	managing	cyber	risks	particular	to	digital	assets.
• This	could	also	include	best	practices	or	standards	applicable	to	banks’	use	of	third	parties	in	the	provision	of	
digital asset services.
• Finally, the Banking Agencies and state regulators should ensure that their examination teams are adequately 
educated	on	issues	related	to	digital	assets	and	the	consistent	application	of	best	practices	and	standards	across	 
Clarify	the	role	of	supervisors	and	banks	in	offering	banking	services	to	potential	
customers.
FRB, FDIC, 
OCC
• The	Banking	Agencies	should	ensure	that	existing	and	new	best	practices	or	guidance	on	risk	management	
and	bank	engagement	are	technology-neutral	and	that	expectations	regarding	offering	banking	services	
do	not	discriminate	against	lawful	businesses	solely	due	to	their	industry.	For	example,	OCC	Bulletin	2014-
58:	Banking	Money	Services	Businesses:	Statement	on	Risk	Management,	which	makes	clear	that	the	OCC	
expects	OCC-regulated	banks	to	assess	the	risks	posed	by	an	MSB	customer	on	a	case-by-case	basis	rather	
than	to	consider	all	MSBs	high	risk,	could	be	extended,	and	the	FRB	and	FDIC	could	issue	similar	guidance.
• Notably,	much	work	has	already	been	done	in	in	this	area	as	the	Banking	Agencies	withdrew	previous	
guidance	on	bank	engagement	with	digital	assets	that	did	not	fully	adhere	to	that	principle.
• Additionally,	the	removal	of	reputation	risk	as	a	basis	for	supervisory	criticism	by	the	Banking	Agencies	is	also	
underway	and	should	be	finalized	as	soon	as	possible.	 
Access to Providing Banking Services
Provide	clarity	and	transparency	regarding	the	process	for	eligible	institutions	to	obtain	
a	bank	charter	or	a	Reserve	Bank	master	account.
FRB, FDIC, 
OCC
• The	relevant	Banking	Agencies	should	clarify	and	define	in	regulation	the	expected	timelines	for	decision-
making	on	completed	applications	for	charter	licensing	(including	federal	deposit	insurance	where	applicable)	
and requesting a Reserve Bank master account. 
• If	regulatory	timelines	are	not	met	for	a	given	application,	the	application	should	be	deemed	approved	absent	
extraordinary circumstances.
• The	Banking	Agencies	should	also	confirm	that	otherwise	eligible	entities	are	not	prohibited	from	obtaining	
bank	charters,	obtaining	federal	deposit	insurance,	or	receiving	Reserve	Bank	master	accounts	or	services	
solely	because	they	engage	in	digital	asset-related	activities.
• Finally,	the	Banking	Agencies	should	provide	additional	transparency,	as	appropriate,	on	the	number	of,	and	
average time to review, complete applications, including new charter applications, federal deposit insurance 
applications,	and	Reserve	Bank	master	account	applications,	on	both	an	aggregated	and	annual	basis.	 

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 150150    •		 
Table of RecommendationsTable of Recommendations  •
Banking and Digital Assets
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Capital and Other Applicable Regulatory Treatment 
The	Banking	Agencies	should	clarify	the	circumstances,	using	risk-based	guidelines,	
under	which	tokenized	assets	and	tokenized	asset	collateral	would	be	subject	to	the	
same capital and liquidity treatment as the underlying asset or collateral.
FRB, 
FDIC, 
OCC
The	United	States	should	adopt	capital	requirements	for	bank	digital	asset	activities	that	
accurately	reflect	the	risk	of	the	asset	or	activity.	Additionally,	the	United	States	should	
advocate that the BCBS revisit the cryptoasset standards to ensure similar treatment to 
U.S. capital requirements.
FRB, 
FDIC, 
OCC
Simplification	of	the	cryptoasset	grouping.
FRB, FDIC, 
OCC
• BCBS’s	four	groups	of	cryptoassets	should	be	simplified.	Applying	a	separate	classification	to	traditional	
assets	due	to	the	use	a	specific	technology	does	not	adhere	to	the	principle	of	technology-neutrality.	
Furthermore, the treatment of tokenized traditional assets as cryptoassets is misleading and may create 
unintended	negative	consequences.	Additionally,	the	BCBS	distinction	between	Group	2a	and	Group	2b	
cryptoassets	does	not	create	a	clear	enough	distinction	between	cryptoassets	widely	used	for	payment	and	
investment purposes and other cryptoassets, such as memecoins.
• The	U.S.	prudential	cryptoasset	framework	should:	(i)	clarify	when	tokenized	traditional	assets	are	equivalent	
to	traditional	assets	and	are	subject	to	the	same	capital	and	liquidity	requirements	as	traditional	assets;	(ii)	
work	to	align	the	BCBS	definition	of	stablecoins	eligible	for	Group	1b	treatment	with	requirements	set	forth	in	
GENIUS;	and	(iii)	simplify	the	classification	of	Group	2	cryptoassets	and	address	the	treatment	of	cryptoassets	
outside of Group 2.
Use	of	permissionless	blockchain	for	all	groups	of	cryptoassets.
FRB, FDIC, 
OCC
• Under	the	BCBS	standards,	cryptoassets	relying	on	permissionless	blockchains	pose	risks	that	may	prevent	
them	from	being	included	in	Group	1.	However,	experimentation	and	testing	with	permissionless	blockchains	
by	regulated	financial	institutions	suggests	that	technical	solutions	to	mitigate	the	risks	identified	by	the	
BCBS	are	being	actively	developed	and	implemented.	The	BCBS	also	raises	concerns	with	the	probabilistic	
settlement	of	permissionless	blockchains.	However,	over	the	last	several	years,	market	participants	have	been	
developing	industry	standards	for	  determining	when	a	 settlement	has	   completed	on	  probabilistic	blockchains.
• The United States should consider incorporating those standards to inform the prudential treatment of those 
characteristics	of	distributed	ledger	technology.
Review	the	calibration	of	capital	requirements	for	credit	risk,	market	risk,	operational	
risk, and liquidity risk to incorporate empirical evidence of recent changes in cryptoasset 
performance and risk.
FRB, FDIC, 
OCC
• Changes in the grouping of cryptoassets may not fully modernize the BCBS cryptoasset prudential standards. 
The	United	States	should	also	revisit	the	calibration	of	the	prudential	standards	to	consider	incorporating	recent	
innovations	and	changes	in	the	cryptoasset	market	since	the	BCBS	standards	were	first	published	in	2022.
• The Banking Agencies should undertake a comprehensive data analysis on the performance and risk of 
cryptoassets	informed	by	issuing	a	request	for	information	from	the	public,	inclusive	of	representatives	from	
cryptoasset	data	vendors,	distributed	ledger	infrastructure	providers,	banking	organizations	of	all	sizes,	
and industry associations. The analysis would assist the Banking Agencies in determining the appropriate 
calibration	for	cryptoasset	capital	and	liquidity	standards.	

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 151151    •		 
Table of RecommendationsTable of Recommendations  •
Insurance
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Engage	with	the	appropriate	regulatory	agencies	to	establish	or	amend	legal	definitions	
of securities, property, or currency so that insurance policies explicitly cover digital 
assets. Treasury could also work with the insurance sector to create standardized terms, 
conditions, and policy language for digital assets.
Treasury
Engage with the NAIC and state insurance regulators on potential revisions to state 
regulations relating to digital assets, including allowing insurers to invest in digital 
assets, as appropriate.
Treasury
Prioritize	engagement	between	the	public	and	private	sector	to	help	develop	a	robust	
insurance market for digital assets.
Treasury
Stablecoins and Payments
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Innovation in Payments 
Faithfully and expeditiously implement GENIUS.Primary	Responsibility: 
Treasury, FRB, FDIC,  
OCC, NCUA 
Secondary	Responsibility:	 
SEC, CFTC
Central Bank Digital Currencies (CBDCs)
Discourage,	oppose,	and	prohibit	the	ability	of	any	agency	from	
undertaking	any	action	to	establish,	issue,	or	promote	any	CBDCs	in	
the	United	States	or	abroad.
Primary	Responsibility: 
FRB, Treasury 
Secondary	Responsibility: 
FDIC, OCC, NCUA
Support	legislation	prohibiting	the	adoption	of	any	CBDCs	in	the	
United States, including, for example, the Anti-CBDC Surveillance 
State	Act,	which	was	passed	by	the	House	of	Representatives	on	
July 17, 2025.
Congress
Support U.S. technological leadership and competitiveness in capital 
markets and work to upgrade domestic payment systems, FMIs, and 
cross-border	payments;	urge	other	countries	to	adopt	policies	that	
promote the role of the private sector within a technology-neutral 
regulatory regime.
Treasury, FRB, FDIC, OCC, 
NCUA
Examine the extent to which U.S. federal agencies (including the 
Banking	Agencies)	and	relevant	international	financial	institutions	
have engaged in CBDC research or pilot programs contrary to the 
policies set forth in Executive Order No. 14178. 
Primary	Responsibility:	 
FRB, Treasury
Secondary	Responsibility:	 
FDIC, OCC, NCUA

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 152152    •		 
Table of RecommendationsTable of Recommendations  •
Stablecoins and Payments
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Promoting the Competitiveness of the U.S. Dollar
Relevant U.S. agencies, including Treasury, should promote 
U.S.	private	sector	leadership	in	the	responsible	development	
of	innovative	cross-border	payments	and	financial	markets	
technologies. Toward this end, Treasury should consider using 
its convening authority to encourage and provide clarity to U.S. 
financial	institutions	in	leading	these	efforts.	
Treasury, FRB, FDIC,  
OCC, NCUA
Treasury and other relevant agencies should 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.	Standards,	including	international	
standards,	should	be	calibrated	to	accurately	reflect	the	risk	of	
innovative digital products and services.
Primary	Responsibility:	 
Treasury, FRB 
Secondary	Responsibility:	 
FDIC, OCC, NCUA
Domestically and internationally, U.S. authorities should encourage 
payment	solutions	that:	(i)	protect	the	two-tier	banking	system	
and	promote	the	private	sector’s	role	in	financial	intermediation,	
payments, and capital formation; (ii) preserve individual rights and 
limit	government	control	of	personal	financial	information;	and	(iii)	
incorporate	robust	and	effective	AML/CFT	and	sanctions	controls.
Primary	Responsibility:	 
Treasury, FRB, OCC
Secondary	Responsibility: 
FDIC, NCUA
Treasury, in coordination with other relevant agencies, should 
engage	with	international	counterparts	and	institutions	by	leading	
initiatives to upgrade domestic payment systems, FMIs, and cross-
border	payment	systems,	to	help	protect	the	primacy	of	the	dollar-
based	international	monetary	system.
Primary	Responsibility:	 
Treasury, FRB 
Secondary	Responsibility:	 
FDIC, OCC, NCUA
 
Countering Illicit Finance
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Improving the AML/CFT and Sanctions Frameworks
Prescribing BSA Obligations
Treasury	should	faithfully	and	expeditiously	implement	the	Guiding	and	Establishing	
National	Innovation	for	U.S.	Stablecoins	Act	(GENIUS),	which,	among	other	things,	
requires	Treasury	to	adopt	rules	to	treat	permitted	payment	stablecoin	issuers	as	
financial	institutions	under	the	BSA	and	to	seek	public	comment	and	conduct	research	
to identify innovative or novel methods, techniques, or strategies that regulated 
financial	institutions	use	to	detect	illicit	activity	involving	digital	assets.
Treasury

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Table of RecommendationsTable of Recommendations  •
Countering Illicit Finance
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Digital asset market structure legislation should consider creating digital asset specific 
financial institution types or sub-types within the BSA. Now that GENIUS has been 
enacted into law, and pending additional market structure legislation being considered 
by Congress, 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. 
Treasury
• 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.
Legislation should consider specifying actors within the decentralized finance 
ecosystem that should have AML/CFT obligations, taking into consideration those 
actors’ roles in the ecosystem and attendant risks.
Congress
Treasury should consider next steps regarding its proposed rulemaking concerning CVC 
mixing.
Treasury
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.
Congress
Congress should evaluate the self-custody language that is included in CLARITY and 
codify the following principles through legislation that reinforce the importance of self-
custody:
Congress
• Principle 1: The importance of U.S. individuals maintaining the capability to lawfully hold, or custody, their own 
digital assets without a financial intermediary.
• Principle 2: The importance of enabling U.S. individuals to engage in lawful, direct digital asset transfers that 
do not involve a financial intermediary with another individual that lawfully self-custodies digital assets. 
Congress should codify principles regarding how control over an asset impacts BSA 
obligations, particularly for money transmitters, through legislation such as the 
Blockchain Regulatory Certainty Act, which has been incorporated into CLARITY. 
Congress
• Specifically, such legislation could codify that a software provider that does not maintain total independent 
control over value is not engaged in money transmission for purposes of the BSA.
Enhancing Effective Supervision
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. 
Treasury, 
FRB, FDIC, 
OCC, 
NCUA, SEC, 
CFTC, FHFA
Supervisors should evaluate whether additional compliance tools, training, and internal 
resources are needed to ensure examiners can effectively and efficiently evaluate 
institutions’ digital asset-related policies, procedures, and programs.
Treasury, 
FRB, FDIC, 
OCC, 
NCUA, SEC, 
CFTC, FHFA

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Table of RecommendationsTable of Recommendations  •
Countering Illicit Finance
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Adapting BSA Reporting to Better Account for Digital Assets
Treasury should continue to evaluate modernizing Suspicious Activity Report (SAR) 
reporting, including the SAR form itself, to ensure it captures highly useful information. 
Treasury
Congress should, through appropriate legislation, ensure that the information required 
by	statute	to	be	reported	to	FinCEN	for	BSA	purposes	under	31	U.S.C.	§	5331	conforms	
with	the	information	required	to	be	reported	by	statute	to	the	IRS	for	federal	income	tax	
purposes under 26 U.S.C. § 6050I, as was the case prior to 2021.
Congress
Improving Sanctions Compliance with Regard to Digital Assets
Treasury should issue a Request for Information (RFI) to directly solicit sanctions 
compliance information, input, and recommendations from industry participants 
to understand ongoing developments and innovations and gaps in existing OFAC 
guidance	as	well	as	to	identify	opportunities	for	enhanced	private	sector	collaboration.
Treasury
Treasury should consider revising and updating OFAC’s existing Sanctions Compliance 
Guidance for the Virtual Currency Industry	brochure,	which	highlights	existing	
compliance	tools	such	as	traditional	sanctions	screening	and	blockchain	analytics	to	
help	improve	sanctions	compliance	by	all	industry	participants,	in	accordance	with	
insight gleaned from the RFI process.
Treasury
Equipping Digital Asset Actors to Mitigate Risk
Enabling Private Sector Investigations
Congress	should	consider	enacting	a	digital	asset-specific	“hold	law”	that	offers	a	
safe	harbor	to	institutions	that	temporarily	and	voluntarily	hold	property	involved	
in suspected illegal activity during a short duration investigation. Such a law should 
consider transparency when an asset is frozen and consumer protection measures. 
Congress
Increasing Public-Private Cooperation
Treasury should undertake efforts to encourage greater information sharing, including 
through	FinCEN’s	314(a)	and	314(b)	programs.	Such	efforts	should	include	encouraging	
domestic	and	cross-border	information	sharing,	greater	participation	in	sharing	
programs	by	digital	asset	financial	institutions	and	improved	information	sharing	
between	digital	asset	and	traditional	financial	institutions.	
Treasury
Public	and	private	sector	participation	in	real-time	information	sharing	through	IVAN	
should	be	encouraged	to	the	extent	consistent	with	legal	obligations.	
Treasury, 
DOJ, SEC, 
CFTC, FRB, 
FDIC, OCC

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 155155    •		 
Table of RecommendationsTable of Recommendations  •
Countering Illicit Finance
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Disrupting and Mitigating Systemic Illicit Finance Risks
Applying Treasury Authorities to Digital Asset Ecosystem
Congress should, consistent with how it has approached Fentanyl and Russian illicit 
finance,	add	a	sixth	special	measure	to	Section	311	authorizing	FinCEN	to	prohibit,	
or impose conditions upon, certain “transmittals of funds” that are not tied to a 
correspondent	banking	relationship.	This	would	enable	Treasury	to	target	foreign	digital	
asset	exchanges	or	digital	asset	transactions	involving	criminal	or	state	actors—without	
regard to the nature of their illicit activity.
Congress
Treasury should continue to use OFAC’s sanctions authorities, which range from 
applying	full	blocking	sanctions	to	more	calibrated	restrictions,	to	target	malicious	
actors seeking to harm Americans and to limit the access of foreign digital asset actors 
engaged in illicit activity to U.S. markets, in support of the Trump Administration’s 
priorities.
Treasury
Tailoring Law Enforcement Capabilities and Authorities
Congress should evaluate victim compensation regulations and propose amendments 
to address concerns regarding victim compensation and improve asset-forfeiture 
efforts in the digital assets space.
Congress
Congress	should	tailor	18	U.S.C.	§	1014	to	protect	all	financial	institutions	(defined	under	
Title 31 of the U.S. Code), including those offering digital asset services. In addition, 
Congress should clarify that the law applies to all false statements in connection with 
obtaining	or	maintaining	access	to	services	from	financial	institutions.	Relatedly,	U.S.S.G.	
Section	2B1.1	should	be	updated	to	include	a	sentencing	enhancement	for	making	false	
statements	to	financial	institutions	where	the	scheme	involves	significant	volume	of	
criminal	funds	but	no	loss	to	the	institution.
Congress
Congress	should	amend	the	NSPA	to	clarify	that	digital	assets	are	property	subject	to	
this act. 
Congress
Congress	should	amend	the	anti-tip-off	provision	in	18	U.S.C.	§	1510	to	update	the	definition	
of	“financial	institution”	from	the	narrower	definition	found	in	18	U.S.C.	§	20	to	the	broader	
definition	found	in	the	BSA,	31	U.S.C.	§§	5312(a)(2)	and	(c),	to	cover,	among	other	additions,	
certain	digital	asset	firms	that	operate	as	money	services	businesses	(MSBs).	Congress	should	
also amend the same anti-tip-off provision to include additional serious underlying offenses 
as	covered	offenses	to	prohibit	agents	of	financial	institutions	from	tipping	off	suspects.
Congress
Congress	should	amend	18	U.S.C.	§	984	to	make	certain	digital	assets	subject	to	the	
same	modified	traceability	requirement	as	exists	for	cash	to	allow	the	government	to	
seize and forfeit digital assets found in the same wallet used to hold crime-linked digital 
assets, without requiring the government to prove the forfeited assets were the exact 
same digital assets derived from or used to commit a criminal offense.
Congress

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Table of RecommendationsTable of Recommendations  •
Countering Illicit Finance
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Advancing Privacy through Digital Identity and Related Tools
Treasury should consider coordinating with the National Institute of Standards and 
Technology	(NIST),	and	other	federal	agency	partners	as	appropriate,	to:
Treasury, 
Commerce
• Identify	emerging	approaches	to	implement	customer	identification	in	digital	asset	scenarios,	including	
possible	applications	of	the	Fourth	Revision	of	the	NIST	Digital	Identity	Guidelines	(SP	800-63-4)	to	these	
scenarios. 
• Evaluate	lessons	learned	in	the	project	“Accelerate	Adoption	of	Digital	Identities	on	Mobile	Devices”	being	
executed	in	the	National	Cybersecurity	Center	of	Excellence	for	applicability	to	customer	identification	
programs in digital asset scenarios. 
• Evaluate the digital asset ecosystem, including existing identity credentialing tools and technical aspects of 
digital	asset	services,	to	determine	potential	approaches	for	defining,	mandating,	and	enforcing	customer	
identification	programs	and	evaluate	the	potential	efficacy	of	such	schemes	in	detecting,	deterring,	and	
investigating fraudulent transactions. 
As	is	required	by	GENIUS,	Treasury	should	issue	an	RFI	to	gather	information	on	
innovative tools to detect illicit activity, including with respect to digital identity 
verification.
Treasury
Treasury should, in consultation with the federal functional regulators, consider issuing 
guidance	to	financial	institutions	on	how	they	can	utilize	digital	identity	solutions	within	
their	existing	customer	identification	programs.	Treasury	should	ensure	that	future	
guidance	balances	secure	identity	verifications	with	protection	of	personally	identifiable	
information.
Treasury, 
SEC, CFTC, 
FDIC, OCC, 
FRB, NCUA
Ta x a t i o n
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Substantive Tax Issues
Treasury	and	the	IRS	should	publish	guidance	addressing	the	determination	of	“adjusted	
financial	statement	income”	(AFSI)	with	respect	to	financial	accounting	unrealized	gains	
and losses on investment assets other than stock and partnership interests. Toward 
this end, the IRS issued Notice 2025-27 stating that Treasury and the IRS anticipate 
interim guidance under CAMT to address how unrealized gains and losses on certain 
investment	assets	reported	for	financial	statement	purposes	are	considered	for	
purposes of determining AFSI.
Treasury, 
IRS
Treasury	and	the	IRS	should	publish	guidance	addressing	whether	a	trust	that	otherwise	
qualifies	as	an	investment	trust	treated	as	a	grantor	trust	fails	to	qualify	as	such	if	the	
trust	stakes	digital	assets	owned	by	the	trust.
Treasury, 
IRS
Treasury	and	the	IRS	should	publish	guidance	addressing	whether	wrapping	and	
unwrapping	transactions	are	taxable	transactions.
Treasury, 
IRS
Treasury and the IRS should update the IRS FAQs on digital assets.
Treasury, 
IRS

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Table of RecommendationsTable of Recommendations  •
Ta x a t i o n
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Legislation	should	be	enacted	that	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.	Code	provisions	that	should	be	expanded	to	apply	to	actively	
traded	fungible	digital	assets	include	Sections	475	(mark-to-market	election),	864(b)	
(trading	safe	harbors),	1058	(securities	loans),	and	7704	(publicly	traded	partnership	
rules). In addition, Sections 1091 (wash sale rules) and 1259 (constructive sales) also 
should apply to digital assets. Alternatively, legislation could instead clarify when a 
digital asset commodity or other digital asset is treated as a security or a commodity for 
federal income tax purposes.
Congress
Legislation	should	be	enacted	that	would	characterize	payment	stablecoins	for	federal	
income	tax	purposes,	as	such	matters	are	not	addressed	by	GENIUS.	If	payment	
stablecoins	are	treated	as	debt,	legislation	should	consider	the	applicability	of	existing	
federal	income	tax	rules	that	could	impede	the	widespread	use	of	payment	stablecoins	
as	financial	assets	that	function	in	a	similar	manner	to	cash-equivalents.	In	particular,	
legislation	should	address	the	wash	sale	and	anti-bearer	bond	rules.	To	address	the	
wash	sale	rules,	possible	options	include:
Congress
Treasury, 
IRS
• Providing	that	the	wash	sale	rules	do	not	apply	to	payment	stablecoins;
• Providing	that	the	wash	sale	rules	do	not	apply	to	de	minimis	losses	from	payment	stablecoins,	possibly	up	to	
an aggregate threshold; or
• Providing	that	gains	and	losses	on	payment	stablecoins	are	not	considered	for	federal	income	tax	purposes.
If no such legislation is enacted, Treasury and the IRS should consider issuing guidance that would clarify the tax 
classification	of	payment	stablecoins,	and	address	the	potential	application	of	the	wash	sale	and	anti-bearer	bond	rules.
The	wash	sale	rules	should	be	amended	to	add	digital	assets	to	the	list	of	assets	
subject	to	the	wash	sale	rules.	If	legislation	of	this	kind	is	enacted,	the	broker	reporting	
regulations	should	be	amended	to	reflect	these	changes	to	the	wash	sale	rules.	Further,	
the	wash	sale	rules	should	not	apply	to	payment	stablecoins.
Congress
Legislation	should	be	enacted	to	amend	Section	1058	to	provide	that	it	applies	to	loans	
of	actively	traded	fungible	digital	assets,	provided	that	the	loan	has	terms	similar	to	
those	currently	required	for	loans	of	securities.	The	Secretary	of	the	Treasury	should	be	
granted authority to determine when a digital asset is actively traded, and to address 
differences	between	the	standard	terms	of	securities	loans	and	crypto	loans.
CongressTreasury
Taxpayer Reporting
Treasury and the IRS should issue administrative guidance that addresses de minimis 
receipts of digital assets. The guidance could apply to airdrops, staking, hard forks, and 
mining rewards for taxpayers who do not operate a node or carry out digital asset mining.
Treasury, 
IRS
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, taking into account any recent intervening developments since the issuance 
of such guidance.
Treasury, 
IRS
If Congress decides to pass legislation regarding the timing of the inclusion of income 
relating to mining or staking, Congress should consider whether similar rules should 
apply to rewards from other digital asset validation methods, what the character of 
income	upon	disposition	should	be	and	if	ordinary,	what	rules	should	apply	to	determine	
the order of dispositions of ordinary versus capital units, and potential differences 
between	the	fair	market	value	of	rewards	at	the	time	of	receipt	compared	with	the	fair	
market value of rewards at the time of sale or other disposition.
Congress

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 158158    •		 
Table of RecommendationsTable of Recommendations  •
Ta x a t i o n
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Legislation	could	be	enacted	that	would	require	taxpayers	to	report	foreign	digital	asset	
accounts.	A	foreign	digital	asset	account	would	be	a	custodial	account	that	holds	digital	
assets	that	is	maintained	by	a	foreign	digital	asset	exchange	or	other	foreign	digital	asset	
service provider. If the United States implements the Crypto-Asset Reporting Framework 
(CARF),	taxpayers	could	be	required	to	report	accounts	with	foreign	crypto-asset	service	
providers that are required to report information on U.S. customers to a non-U.S. tax authority.
Congress
Legislation	could	be	enacted	that	would	streamline	the	reporting	required	under	
Section	6038D	and	on	the	FBAR.	Legislation	could	permit	a	taxpayer	that	is	subject	to	
both	reporting	obligations	to	submit	a	single	form	that	would	be	available	both	to	the	
IRS and to FinCEN.
Congress
Third-Party Information Reporting 
Treasury	and	the	IRS	should	propose	regulations	that	provide	brokers	that	facilitate	
sales	or	exchanges	of	digital	assets	through	electronic	means	with	a	less	burdensome	
method	of	obtaining	consent	from	their	customers	to	furnish	Form	1099-DA	payee	
statements in an electronic format.
Treasury, 
IRS
Treasury should consider proposing regulations to implement CARF that take 
stakeholder	concerns	into	account	and	minimize	burdens	on	brokers	to	the	extent	
consistent with CARF rules. The proposed regulations should not impose any new 
reporting	requirements	on	DeFi	transactions	and	should	be	used	as	a	forum	to	gather	
further	feedback,	including	a	reasonable	timetable	for	CARF	implementation.
Treasury, 
IRS
Treasury	and	the	IRS	should	consider	proposing	regulations	requiring	basis	information	
to	be	reported	when	digital	assets	are	transferred	between	centralized	digital	asset	
exchanges.
Treasury, 
IRS
Treasury and the IRS should consider proposing regulations implementing reporting of 
digital	assets	paid	to	a	trade	or	business	in	a	manner	that	takes	stakeholder	concerns	
into account.
Treasury, 
IRS
Consideration	should	be	given	to	legislation	to	conform	the	information	required	to	be	
reported to FinCEN, for BSA purposes, and the IRS, for federal income tax purposes. The 
legislation	could	also	reexamine	the	reporting	dollar	thresholds	and	the	breadth	of	uses	
of digital assets to which this provision would apply.
Congress

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •	 159159    •		 
Table of RecommendationsTable of Recommendations  •
Miscellaneous Recommendations
RecommendationRecommendation
Policy Responsibility
CongressRegulator
Cybersecurity
The Working Group recommends that relevant agencies develop principles-
based	requirements	and	standards,	as	appropriate,	for	digital	asset	firms.	
Such	principles-based	requirements	and	standards	should	take	into	account	
the various activities and related risks of various industry participants to 
strengthen	industry’s	protection	from	malicious	cyber	actors.	
Treasury, SEC, 
CFTC, FRB, FDIC, 
OCC, NCUA 
The Working Group recommends that relevant agencies consider measures 
to increase information sharing on potential threats across the private sector 
and	between	the	public	and	private	sectors.	
Treasury, SEC, 
CFTC, FRB, FDIC, 
OCC, NCUA
Treasury’s OCCIP could work with industry to identify opportunities to 
increase	information	sharing	on	cybersecurity	risks,	including	by	providing	
U.S.	regulated	digital	asset	firms	access	to	the	ATIF.
Treasury
Treasury’s	OCCIP—through	the	existing	public-private	partnership	
structure—could	explore	identifying	gaps	in	addressing	operational	resiliency	
of	digital	asset	firms	to	enable	broader	adoption.
Treasury
Repatriation and Domestication of Offshore Foundations
The	Working	Group	encourages	non-profit	organizations	supporting	the	
development	of	blockchain	technologies	to	domicile	in	the	United	States.	
Toward this end, the Working Group will engage with Treasury and the IRS to 
study ways to incentivize their repatriation and domestication.
Congress
Working Group, 
Treasury, IRS

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY   •  160160    •   
Table of RecommendationsTable of Recommendations  •
Cementing U.S. Leadership through the Bitcoin Strategic Reserve  Cementing U.S. Leadership through the Bitcoin Strategic Reserve  
and U.S. Digital Asset Stockpileand U.S. Digital Asset Stockpile
Under President Trump’s Executive Order No. 14178, the Working Group shall “evaluate the potential 
creation and maintenance of a national digital asset stockpile and propose criteria for establishing such 
a stockpile, potentially derived from cryptocurrencies lawfully seized by the U.S. Government through 
its law enforcement efforts.”
494
 On March 6, 2025, the President issued Executive Order No. 14233, 
which clarified and expanded on this directive and provided that it is the policy of the United States to 
establish a Strategic Bitcoin Reserve (the “Reserve”) and a United States Digital Asset Stockpile (the 
“Stockpile”).
495
Consistent with the framework established by these executive orders:
 ■The Reserve and the Stockpile will be administered by Treasury, which will establish an office to 
administer and maintain control of the associated custodial accounts
 ■The Reserve and the Stockpile will be capitalized by forfeited digital assets—in other words, digital 
assets owned by the U.S. government.
 ■However, forfeited digital assets needed to satisfy statutory objectives will continue to be used for 
those objectives, including to compensate identifiable and verifiable victims of crimes, to support 
law enforcement operations, to be equitably shared with state and local law enforcement partners, 
and to fulfill other statutory forfeiture program requirements.
 ■The bitcoin in the Reserve will generally not be sold and will be maintained as reserve assets of the 
United States utilized to meet governmental objectives in accordance with applicable law.
 ◆Treasury and Commerce will develop strategies that could be used to acquire additional 
bitcoin
496
 for the Reserve in ways that are budget neutral and do not impose incremental costs 
on United States taxpayers.
 ■Custody will be studied by Treasury and Commerce in order to safeguard the assets of the United 
States.
Pursuant to Section 3(e) of Executive Order No. 14233, Treasury delivered considerations to the White 
House regarding the establishment and management of the Reserve and the Stockpile. Treasury will 
continue to coordinate with the White House and other members of the Working Group to move 
forward with appropriate next steps to operationalize the Reserve and the Stockpile for the benefit of 
the United States government and taxpayers.
497
494      Exec. Order No. 14178, supra note 2, at § 4(c)(2).
495      Exec. Order No. 14233, Establishment of the Strategic Bitcoin Reserve and United States Digital Asset Stockpile, 90 Fed. Reg. 11789 (Mar. 6, 2025).
496      Bitcoin enthusiasts use the phrase “stacking sats” to describe acquiring incremental amounts of bitcoin. “Sat” is short for “Satoshi,” the smallest possible 
unit of bitcoin the network can accommodate (0.00000001 bitcoin). See Stack the Sats Meaning, Ledger Academy (Mar. 2024), https://www.ledger.com/
academy/glossary/stack-the-sats. 
497      See Exec. Order No. 14233, supra note 495, at § 3(e). See Exec. Order No. 14233, supra note 495, at § 3(e).

STRENGTHENING AMERICAN STRENGTHENING AMERICAN 
LEADERSHIP IN DIGITAL  LEADERSHIP IN DIGITAL  

FINANCIAL TECHNOLOGYFINANCIAL TECHNOLOGY



STR EN GT H EN IN G A M ER ICA N LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY

ContentsContents
I.     Introduction I.     Introduction ............................................................................................................................................................................................................................................................................ 44

II.    The Digital Asset EcosystemII.    The Digital Asset Ecosystem................................................................................................................................................................................................................................ 1414
Market Size and Trends................................................................................................................................................. 16

Market Participants....................................................................................................................................................... 18

Key Regulators and Oversight........................................................................................................................................ 29

Market Activities ........................................................................................................................................................... 31

III.   Digital Asset Market StructureIII.   Digital Asset Market Structure........................................................................................................................................................................................................................ 4242
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 AssetsIV.   Banking and Digital Assets.................................................................................................................................................................................................................................. 6262
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 PaymentsV.     Stablecoins and Payments.................................................................................................................................................................................................................................... 8787
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 FinanceVI.   Countering Illicit Finance...................................................................................................................................................................................................................................... 9999
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.  TaxationVII.  Taxation.......................................................................................................................................................................................................................................................................................... 123123
Current Tax Guidance on Digital Assets ......................................................................................................................... 125

Substantive Tax Issues................................................................................................................................................... 126

Taxpayer Reporting....................................................................................................................................................... 134

Third-Party Information Reporting.............................................................................................................................. 137

Table of RecommendationsTable of Recommendations.............................................................................................................................................................................................................................................. 141141



STR EN GT H EN IN G A M ER ICA N LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY

Acronyms and AbbreviationsAcronyms and Abbreviations

ACH		  Automated Clearing House
Advisers Act	 Investment Advisers Act of 1940 
AEC		  Anonymity-Enhanced Cryptocurrency
AFSI		  Adjusted Financial Statement Income
AICPA	 	 �American Institute of Certified Public 

Accountants
AML		  Anti-Money Laundering
AML Act	 Anti-Money Laundering Act of 2020
API		  Application Programming Interface
ASIC	 	 Application-Specific Integrated Circuit
ATIF		  Automated Threat Information Feed
ATS		  Alternative Trading System
BCBS		�  Basel Committee on Banking 

Supervision
BHC		  Bank Holding Company
BSA		  Bank Secrecy Act
CAMT		  Corporate Alternative Minimum Tax
CARF		  Crypto-Asset Reporting Framework
CBDC		  Central Bank Digital Currency
CCP		  Central Counterparty
CCULR		  Complex Credit Union Leverage Ratio
CEA		  Commodity Exchange Act
CEX		  Centralized Digital Asset Exchange
CFT		�  Countering the Financing of Terrorism
CFPB		  Consumer Financial Protection Bureau
CFTC		�  Commodity Futures Trading 

Commission
CIP	 	 Customer Identification Program
CLARITY	 Digital Asset Market Clarity Act of 2025
CSD		  Central Securities Depository
CTA		  Commodity Trading Advisor
CUSO		  Credit Union Service Organization
CVC	 	 Convertible Virtual Currency
DAMS		�  CFTC GMAC Digital Asset Markets 

Subcommittee
DAO		  Decentralized Autonomous Organization
dApp		  Decentralized Application
DCM		  Designated Contract Markets
DCO		  Derivatives Clearing Organization
DeFi		  Decentralized Finance
DePIN		  Decentralized Physical Infrastructure
DEX		  Decentralized Exchange
DIF		  Deposit Insurance Fund
DLT	 	 Distributed Ledger Technology

DOJ		  U. S. Department of Justice
DPRK	 	 Democratic People’s Republic of Korea
ECB		  European Central Bank
ECP	 	 Eligible Contract Participant
ETF		  Exchange-Traded Fund
ETN		  Exchange-Traded Note
ETP		  Exchange-Traded Product
EU		  European Union
Exchange Act	 Securities Exchange Act of 1934 
FASB		  Financial Accounting Standards Board
FATCA		  Foreign Account Tax Compliance Act
FATF		  Financial Action Task Force
FBAR		�  Report of Foreign Bank and Financial 

Accounts
FBI		  Federal Bureau of Investigation
FBIIC		�  Financial and Banking Information 

Infrastructure Committee
FCM		�  Futures Commission Merchant
FCUA		�  Federal Credit Union Act
FDIC		�  Federal Deposit Insurance Corporation
FHFA		  Federal Housing Finance Agency
FHC		�  Financial Holding Company
FinCEN		� Financial Crimes Enforcement Network
FINRA		�  Financial Industry Regulatory Authority
FIPS		�  Federal Information Processing 

Standards
FMI		�  Financial Market Infrastructure
FRB		�  Board of Governors of the Federal 

Reserve System
FRS		�  Federal Reserve System
FSA		�  Federal Savings Association
FSB	 	 �Financial Stability Board
FSOC	 	 �Financial Stability Oversight Council
FX		�  Foreign Exchange
GAAP		�  Generally Accepted Accounting 

Principles
GENIUS	�	 �Guiding and Establishing National 

Innovation for U.S. Stablecoins Act
GMAC	 	 �CFTC Global Markets Advisory 

Committee
HQLA		�  High-Quality Liquid Assets
IB		�  Introducing Broker
ICO		�  Initial Coin Offering
IEC		�  International Electrotechnical Commission



STR EN GT H EN IN G A M ER ICA N LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY

IEEE		�  Institute of Electrical and Electronics 
Engineers

IEEPA		�  International Emergency Economic 
Powers Act

IIJA 		  Infrastructure Investment and Jobs Act
Investment	
Company Act	 Investment Company Act of 1940 
IRS		  Internal Revenue Service
ISO		�  International Organization for 

Standardization
IVAN	 	 �Illicit Virtual Asset Notification
JCT		  Joint Committee on Taxation
LICU		�  Low-Income Credit Union
MEV	 	 �Maximum Extractable Value
MFA		�  Multifactor Authentication
MiCA		�  Markets in Crypto-Assets
MSB		�  Money Services Business
NAIC		�  National Association of Insurance 

Commissioners
NBA		�  National Bank Act
NCUA		�  National Credit Union Administration
NFA		�  National Futures Association
NFT	 	 �Non-Fungible Token
NIST		�  National Institute for Standards and 

Technology
NMS		  National Market System
NSPA		�  National Stolen Property Act
NYDFS		�  New York State Department of  

Financial Services
OCC	 	 �Office of the Comptroller of the 

Currency
OCCIP	 	 �Office of Cybersecurity and Critical 

Infrastructure Protection

OFAC	 	 �Office of Foreign Assets Control
OTC		�  Over-the-Counter
P2P		�  Peer-to-Peer 
PCAOB	 	 �Public Company Accounting Oversight 

Board
PoS		�  Proof-of-Stake
PoW		�  Proof-of-Work
PQC		�  Post-Quantum Cryptography
RBC		�  Risk Based Capital
RFI		�  Request for Information
RPC		�  Remote Procedure Call
SAB		�  SEC Staff Accounting Bulletin
SAFT		�  Simple Agreement for Future Tokens
SAR		�  Suspicious Activity Report
SDO		�  Standards Development Organization
SEC		�  Securities and Exchange Commission
Securities Act	� Securities Act of 1933
SEF		�  Swap Execution Facility
SIPA		�  Securities Investor Protection Act of 1970
SMS		�  Short Message Service
SRO		�  Self-Regulatory Organization
SWIFT	 	 �Society for Worldwide Interbank 

Financial Telecommunication
TradFi		�  Traditional Finance
Treasury	 U.S. Department of the Treasury
TVL		�  Total Value Locked
TWEA		�  Trading with the Enemy Act of 1917
UK		�  United Kingdom
VASP		�  Virtual Asset Service Provider
W3C	 	 �World Wide Web Consortium
Working Group	� President’s Working Group on Digital 

Asset Markets 



STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  11   •   

STRENGTHENING AMERICAN LEADERSHIP  STRENGTHENING AMERICAN LEADERSHIP  
IN DIGITAL FINANCIAL TECHNOLOGY IN DIGITAL FINANCIAL TECHNOLOGY 11

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.

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 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



STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  22   •   

MEMBERS OF THE WORKING GROUPMEMBERS OF THE WORKING GROUP22

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. 

Chair David SacksChair David Sacks, Special Advisor for AI and Crypto

Scott BessentScott Bessent, Secretary of the Treasury

Pam BondiPam Bondi, Attorney General

Howard LutnickHoward Lutnick, Secretary of Commerce

Kristi NoemKristi Noem, Secretary of Homeland Security

Russell VoughtRussell Vought, Director of the Office of Management and Budget

Marco RubioMarco Rubio, Acting Assistant to the President for National Security Affairs 

Robin ColwellRobin Colwell, Deputy Assistant to the President for National Economic Policy

Stephen MillerStephen Miller, Homeland Security Advisor

Paul AtkinsPaul Atkins, Chairman of the Securities and Exchange Commission

 Caroline Pham Caroline Pham, Acting Chairman of the Commodity Futures Trading Commission

Robert “Bo” HinesRobert “Bo” Hines, Executive Director of the Working Group



STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  33   •   

Staff AcknowledgmentsStaff 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. 



I.   Introduction I.   Introduction 

CHAPTER I

IntroductionIntroduction

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 



STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  55   •   

Introduction Introduction  •  

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.”). 

https://www.harrisx.com/posts/crypto-policy-june-25
https://nca.org/resources
https://www.security.org/digital-security/cryptocurrency-annual-consumer-report
https://www.gemini.com/blog/introducing-the-2025-global-state-of-crypto-report
https://www.ey.com/en_us/insights/financial-services/growing-enthusiasm-and-adoption-of-digital-assets
https://www.ey.com/en_us/insights/financial-services/growing-enthusiasm-and-adoption-of-digital-assets
https://www.galaxy.com/insights/research/crypto-venture-capital-q1-2025
https://pitchbook.com/news/articles/sygnum-rides-vc-crypto-wave-to-unicorn-status
https://pitchbook.com/news/articles/sygnum-rides-vc-crypto-wave-to-unicorn-status
https://www.cooperkirk.com/wp-content/uploads/2023/03/Operation-Choke-Point-2.0.pdf
https://www.cooperkirk.com/wp-content/uploads/2023/03/Operation-Choke-Point-2.0.pdf
https://www.congress.gov/119/meeting/house/117858/witnesses/HHRG-119-BA09-Wstate-GrewalP-20250206.pdf
https://www.sec.gov/newsroom/speeches-statements/peirce-uyeda-statement-flyfish-091624
https://www.sec.gov/newsroom/speeches-statements/peirce-uyeda-statement-crypto-world-turns-03-06-24
https://www.sec.gov/newsroom/speeches-statements/peirce-uyeda-statement-crypto-world-turns-03-06-24
https://www.sec.gov/newsroom/speeches-statements/peirce-uyeda-statement-stonercats-091323


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  66   •   

Introduction 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).

https://www.whitehouse.gov/issues/tech-innovation


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  77   •   

Introduction 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.



STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  88   •   

Introduction 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.



STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  99   •   

Introduction Introduction  •  

Crypto 101Crypto 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. 

https://bitcointalk.org/index.php?topic=234.msg1976#msg1976
https://bitcoin.org/bitcoin.pdf
https://www.morpher.com/blog/double-spending
https://www.morpher.com/blog/double-spending
https://www.kraken.com/learn/what-is-blockchain-consensus-mechanism


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  1010   •   

Introduction 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.



STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  1 11 1   •   

Introduction 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).

https://consensys.io/knowledge-base/a-blockchain-glossary-for-beginners#token
https://consensys.io/knowledge-base/a-blockchain-glossary-for-beginners#token


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  1212   •   

Introduction 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). 

https://www.citigroup.com/global/news/press-release/2023/citi-develops-new-digital-asset-capabilities-for-institutional-clients
https://www.citigroup.com/global/news/press-release/2023/citi-develops-new-digital-asset-capabilities-for-institutional-clients
https://www.franklintempleton.com/investments/options/money-market-funds/products/29386/SINGLCLASS/franklin-on-chain-u-s-government-money-fund/FOBXX
https://www.franklintempleton.com/investments/options/money-market-funds/products/29386/SINGLCLASS/franklin-on-chain-u-s-government-money-fund/FOBXX
https://blockworks.co/news/future-tokenization-permissioned-blockchains
https://blockworks.co/news/future-tokenization-permissioned-blockchains
https://satoshi.nakamotoinstitute.org/emails/cryptography/1
https://satoshi.nakamotoinstitute.org/posts/p2pfoundation/1
https://bitcointalk.org
https://bitcointalk.org


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  1313   •   

Introduction Introduction  •  

Phases of Cryptocurrency and Digital Asset Market Adoption28

2008-2010
2011-2013

2014 -2016
2017

2018 -2019
2020 -2021

2022 -2023
2024

2025 &
 

Beyond

The G
reat Bull 

Run
Central bank 
policies lead 
investors to 
Bitcoin. Public 
m

ining com
panies 

em
erge. DeFi 

ecosystem
 

expands. 
Stablecoins arrive. 
Alt L1s launch. 
N

FTs em
erge.

AAddooppttiioonn,,  
IInnnnoovvaattiioonn
Bitcoin and 
crypto treasury 
com

pany sector 
expands. 
Regulatory clarity 
em

erges. 
Congress w

orks 
on legislation. 
Tokenization 
heats up. 
Stablecoin 
adoption grow

s.

TThhee  BBiigg  BBuubbbbllee
Bitcoin aw

areness 
reaches the 
m

ainstream
. Retail 

exchanges 
dom

inate. ICO
s 

grow
 and bring 

attention to 
Ethereum

. N
ew

 
netw

orks launch. 
Security token 
hype drives m

any 
startups.

Infrastructure
A new

 w
ave of 

entrepreneurs 
arrives to fill the 
infrastructure gaps 
the Big Bubble laid 
bare. Custody, 
trading, 
derivatives, 
lending, 
settlem

ent, 
m

arket m
aking, 

and data solutions 
developed.

FTX M
eltdow

n
Collapse of Terra 
Luna and FTX 
create contagion 
across the sector. 
M

ajor lending 
firm

s go bankrupt. 
“O

peration Choke 
Point 2.0”  hits 
industry. N

ew
 

narratives em
erge: 

DeSoc, Restaking, 
Data Availability, 
RW

A.

BBiittccooiinn  oonn  tthhee  
BBaalllloott
BTC &

 ETH ETFs are 
approved by the 
SEC. M

em
ecoins 

drive on-chain 
activity. Bitcoin L2s 
capture VC 
interest. Politicians 
em

brace Bitcoin 
and crypto. Trum

p 
election starts 
crypto regulatory 
renaissance.

Regulatory clarity and 
fram

ew
orks drive further 

adoption

Crypto treasury com
panies

M
ore IPOs by crypto firm

s

Tokenization expands

Blockchain scalability 
im

proves

Sovereign adoption, 
com

petition increases

““BBlloocckkcchhaaiinn,,
NN

oott  BBiittccooiinn””
Bear m

arket &
 

negative 
perceptions of 
bitcoin lead to 
hype around 
“blockchain 
technology,” 
w

hich banks and 
corporations 
explore. 
Ethereum

 
launches.

FFiirrsstt  TTrraaddiinngg
The early years. 
Bitcoin undergoes 
its first “bubble.” 
Eurom

aidan 
protestors 
fundraise w

ith 
BTC. First altcoins 
appear. Bitcoin 
m

iners add GPUs, 
then FPGAs, and 
the first ASICs in 
2013. 

Cypherpunks
Satoshi releases 
the w

hitepaper, 
distributes first 
version of 
softw

are, sends 
first transaction 
to Hal Finney. 
Code originally on 
SourceForge, 
discussions 
happen on 
BitcoinTalk forum

. 

28     �Graphic prepared by Galaxy. 

P
hases of C

ryptocurrency and D
igital A

sset M
arket A

doption
28



II.   The Digital Asset EcosystemII.   The Digital Asset Ecosystem

CHAPTER I I

The Digital Asset EcosystemThe Digital Asset Ecosystem

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 



STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  1515   •   

The Digital Asset Ecosystem The Digital Asset Ecosystem  •  

The Digital Asset EcosystemThe 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.

https://www.coinbase.com/learn/crypto-basics/why-are-there-so-many-cryptocurrencies-and-why-do-we-need-them
https://www.coinbase.com/learn/crypto-basics/why-are-there-so-many-cryptocurrencies-and-why-do-we-need-them


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  1616   •   

The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Size and Trends

Market Size and TrendsMarket 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. 

https://cryptoforinnovation.org/real-world-use-cases-for-smart-contracts-and-dapps
https://cryptoforinnovation.org/real-world-use-cases-for-smart-contracts-and-dapps
https://www.finra.org/investors/investing/investment-products/exchange-traded-funds-and-products
https://www.finra.org/investors/investing/investment-products/exchange-traded-funds-and-products
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 SEC%27s approval of 11,free to flow into bitcoin
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 SEC%27s approval of 11,free to flow into bitcoin
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 SEC%27s approval of 11,free to flow into bitcoinSTR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  1717   •   

The Digital Asset Ecosystem 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).  

https://coinbase.bynder.com/m/576175a8cce59ea9/original/Charting-Crypto_Q2-2025.pdf
https://coinbase.bynder.com/m/576175a8cce59ea9/original/Charting-Crypto_Q2-2025.pdf
https://consensys.io/knowledge-base/a-blockchain-glossary-for-beginners#nft
https://a16zcrypto.com/stateofcryptoindex


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  1818   •   

The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Participants

Market ParticipantsMarket 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  
Development Teams

Developers and protocols associated with the technologies that 
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. 

https://www.coinbase.com/learn/crypto-basics/what-is-a-protocol
https://www.coinbase.com/learn/crypto-basics/utility-tokens-vs-security-tokens-what-are-the-differences
https://chain.link/education/asset-tokenization
https://www.investopedia.com/terms/h/hodl.asp


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  1919   •   

The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Participants

Recent Trends in Retail Interest in Crypto46

Source: SensorTower , Crypto App Downloads, aggregated and analyzed by Payward, Inc (d/b/a Kraken).

Number of Downloads of US- Based Crypto Apps  

Jan. 2023                              Jul. 2023                               Jan. 2024                              Jul. 20 24                              Jan. 2025

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.

https://www.cftc.gov/media/5476/DigitalAssetsPrimer/download


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  2020   •   

The Digital Asset Ecosystem 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).

https://www.coinbase.com/learn/crypto-basics/what-is-staking
https://www.coinbase.com/learn/crypto-basics/what-is-staking
https://decrypt.co/resources/a-brief-history-of-defi-learn
https://www.coingecko.com/learn/total-value-locked
https://defillama.com


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The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Participants

Total Value Locked in DeFi Protocols55

$b

$20b

$40b

$60b

$80b

$100b

$120b

$140b

$160b

$180b

$200b

2019 2020 2021 2022 2023 2024 2025

Total Value Locked in DeFi

Total TVL
$130b

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). 

https://www.theblock.co/data/decentralized-finance/dex-non-custodial/dex-to-cex-spot-trade-volume
https://defillama.com/dexs


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  2222   •   

The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Participants

Architecture of DeFiArchitecture 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.

https://hedera.com/learning/decentralized-finance/defi-stack


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  2323   •   

The Digital Asset Ecosystem 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. 

https://www.coinapi.io/learn/glossary/native-token
https://medium.com/multi-io/automated-market-makers-amm-breakdown-d3338f027230
https://medium.com/multi-io/automated-market-makers-amm-breakdown-d3338f027230
https://www.gemini.com/cryptopedia/amm-what-are-automated-market-makers


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  2424   •   

The Digital Asset Ecosystem 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).

https://docs.uniswap.org/contracts/v2/concepts/core-concepts/pools
https://cryptoforinnovation.org/how-do-coins-and-tokens-shape-the-crypto-ecosystem
https://cryptoforinnovation.org/how-do-coins-and-tokens-shape-the-crypto-ecosystem
https://www.developerreport.com/geography


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The Digital Asset Ecosystem 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.

https://www.cnbc.com/2023/05/18/ripple-ceo-says-more-crypto-firms-may-leave-us-due-to-confusing-rules.html
https://www.cnbc.com/2023/05/18/ripple-ceo-says-more-crypto-firms-may-leave-us-due-to-confusing-rules.html
https://www.coinbase.com/learn/crypto-basics/what-is-a-governance-token
https://www.coinbase.com/learn/crypto-basics/what-is-a-governance-token
https://www.helius.dev/blog/proof-of-history-proof-of-stake-proof-of-work-explained
https://consensys.io/blog/understanding-slashing-in-ethereum-staking-its-importance-and-consequences


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  2626   •   

The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Participants

Mining and StakingMining 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).

https://river.com/learn/how-bitcoin-fees-work/#what-are-bitcoin-transaction-fees
https://www.coinbase.com/learn/crypto-glossary/what-is-a-51-percent-attack-and-what-are-the-risks


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The Digital Asset Ecosystem 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. 

https://blockdoc.substack.com/p/randao-under-the-hood
https://messari.io/copilot/share/staking-vs-delegating-in-crypto-5edee0a3-a57b-489b-9d88-4ce0f6ff764c
https://www.sec.gov/newsroom/speeches-statements/peirce-statement-protocol-staking-052925
https://www.sec.gov/newsroom/press-releases/2023-25


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The Digital Asset Ecosystem 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 
Operators

Allow individuals to easily interact with decentralized applications and 
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). 

https://ethereum.org/en/roadmap/merge/
https://www.bitwave.io/blog/is-proof-of-stake-really-more-energy-efficient-than-proof-of-work
https://www.bitwave.io/blog/is-proof-of-stake-really-more-energy-efficient-than-proof-of-work


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  2929   •   

The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Key Regulators and Oversight

Key Regulators and OversightKey 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.

https://carta.com/learn/equity/liquidity-events/secondary-transactions
https://www.sec.gov/newsroom/press-releases/2025-30
https://www.sec.gov/newsroom/press-releases/2025-30
https://www.cftc.gov/About/AboutTheCommission
https://www.investopedia.com/terms/s/sro.asp


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  3030   •   

The Digital Asset Ecosystem 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 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 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).

https://www.dfs.ny.gov/virtual_currency_businesses
https://www.lawoftheledger.com/2022/04/articles/cryptocurrency/new-yorks-superintendent-of-financial-services-addresses-bitlicense-delays
https://www.lawoftheledger.com/2022/04/articles/cryptocurrency/new-yorks-superintendent-of-financial-services-addresses-bitlicense-delays
https://wyomingbankingdivision.wyo.gov/banks-and-trust-companies/special-purpose-depository-institutions
https://wyomingbankingdivision.wyo.gov/banks-and-trust-companies/special-purpose-depository-institutions
https://a16zcrypto.com/posts/article/duna-for-daos
https://a16zcrypto.com/posts/article/duna-for-daos
https://dfpi.ca.gov/regulated-industries/digital-financial-assets
https://www.gemini.com/cryptopedia/initial-coin-offering-explained-ethereum-ico
https://www.coinbase.com/learn/crypto-basics/what-is-a-crypto-airdrop
https://www.coinbase.com/learn/crypto-basics/what-is-a-crypto-airdrop
https://consensys.io/knowledge-base/a-blockchain-glossary-for-beginners#fork


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The Digital Asset Ecosystem 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).

https://saft-project.org/static/SAFT-Project-Whitepaper.pdf
https://www.theblock.co/post/171609/why-equity-plus-token-warrants-is-the-new-go-to-formula-for-crypto-vcs
https://www.lw.com/admin/upload/SiteAttachments/Token Presale Agreements.v2.pdf
https://www.lw.com/admin/upload/SiteAttachments/Token Presale Agreements.v2.pdf
https://www.fidelity.com/learning-center/trading-investing/hard-fork
https://www.gemini.com/cryptopedia/what-are-perpetual-futures
https://legacy.pyth.network/usecases/perpetual-futures


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The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Activities 

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. 

https://www.anchorage.com/insights/porto-by-anchorage-digital-your-wallet-our-security
https://blog.casa.io/introducing-casa-business
https://blog.casa.io/introducing-casa-business
https://www.anchorage.com/insights/dont-sleep-on-the-occ-reflections-from-four-years-being-the-only-federally-regulated-crypto-company
https://www.anchorage.com/insights/dont-sleep-on-the-occ-reflections-from-four-years-being-the-only-federally-regulated-crypto-company
https://www.fireblocks.com/blog/hot-vs-warm-vs-cold-which-crypto-wallet-is-right-for-me
https://www.fireblocks.com/blog/hot-vs-warm-vs-cold-which-crypto-wallet-is-right-for-me
https://www.fireblocks.com/what-is-mpc
https://www.coingecko.com/learn/mpc-wallet-vs-multi-sig-wallets


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The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Activities 

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.

https://www.fincen.gov/sites/default/files/2019-10/CVC Joint Policy Statement_508 FINAL_0.pdf
https://www.fincen.gov/sites/default/files/2019-10/CVC Joint Policy Statement_508 FINAL_0.pdf


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The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Activities 

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. 

https://www.nfa.futures.org/registration-membership/who-has-to-register/fcm.html
https://www.nfa.futures.org/registration-membership/who-has-to-register/fcm.html
https://docs.wildcat.finance/overview/introduction
https://www.galaxy.com/insights/research/the-state-of-crypto-leverage-q1-2025
https://consensys.io/blockchain-use-cases
https://www.coinbase.com/blog/the-state-of-crypto-the-future-of-money-is-here
https://www.moonpay.com/learn/cryptocurrency/what-are-utility-tokens


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TokenizationTokenization
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. 

https://web-assets.bcg.com/81/71/6ff0849641a58706581b5a77113f/tokenized-funds-the-third-revolution-in-asset-management-decoded.pdf
https://tokeny.com/erc3643-an-official-standard-for-permissioned-tokens
https://tokeny.com/erc3643-an-official-standard-for-permissioned-tokens
https://www.21shares.com/en-us/research/newsletter-issue-260
https://www.franklintempleton.co.uk/articles/2025/disruption/tokenized-money-market-funds-the-bridge-to-a-new-financial-infrastructure
https://www.franklintempleton.co.uk/articles/2025/disruption/tokenized-money-market-funds-the-bridge-to-a-new-financial-infrastructure
https://libertystreeteconomics.newyorkfed.org/2022/11/what-is-atomic-settlement
https://www.cftc.gov/PressRoom/PressReleases/9009-24
https://www.cftc.gov/PressRoom/PressReleases/9009-24STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  3737   •   

The Digital Asset Ecosystem The Digital Asset Ecosystem  •  Market Activities 

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.

https://www.sec.gov/newsroom/speeches-statements/peirce-statement-tokenized-securities-070925
https://www.sec.gov/newsroom/speeches-statements/peirce-statement-tokenized-securities-070925
https://beincrypto.com/what-is-art-tokenization
https://beincrypto.com/what-is-art-tokenization


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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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Cryptocurrency and the Technical Standards Landscape 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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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. 

https://bitcoinmagazine.com/technical/what-happens-to-bitcoin-when-quantum-computers-arrive
https://www.deloitte.com/nl/en/services/risk-advisory/perspectives/quantum-computers-and-the-bitcoin-blockchain.html
https://www.deloitte.com/nl/en/services/risk-advisory/perspectives/quantum-computers-and-the-bitcoin-blockchain.html
https://www.deloitte.com/nl/en/services/risk-advisory/perspectives/quantum-risk-to-the-ethereum-blockchain.html
https://globalriskinstitute.org/publication/2024-quantum-threat-timeline-report
https://globalriskinstitute.org/publication/2024-quantum-threat-timeline-report


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The Digital Asset Ecosystem 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.

https://csrc.nist.gov/csrc/media/Events/2025/crypto-agility-workshop/documents/presentations/s8-kigen-fukuda-presentation.pdf
https://csrc.nist.gov/csrc/media/Events/2025/crypto-agility-workshop/documents/presentations/s8-kigen-fukuda-presentation.pdf


III.   Digital Asset Market StructureIII.   Digital Asset Market Structure

CHAPTER I I I

 Digital Asset Market Structure Digital Asset Market Structure

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 



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Digital Asset Market StructureDigital 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). 

https://bitcointalk.org/index.php?topic=69.msg614#msg614
https://bitcointalk.org/index.php?topic=845.msg11403#msg11403
https://bitcointalk.org/index.php?topic=845.msg11403#msg11403
https://www.gemini.com/cryptopedia/crypto-exchanges-early-mt-gox-hack
https://fortune.com/crypto/2023/02/13/the-localbitcoins-era-of-crypto-is-over-but-its-spirit-lives-on
https://fortune.com/crypto/2023/02/13/the-localbitcoins-era-of-crypto-is-over-but-its-spirit-lives-on
https://www.wsj.com/articles/SB10001424052702304311204579508300513992292
https://www.reuters.com/article/technology/mt-gox-bitcoin-debacle-huge-heist-or-sloppy-glitch-idUSL3N0LX2SP
https://www.reuters.com/article/technology/mt-gox-bitcoin-debacle-huge-heist-or-sloppy-glitch-idUSL3N0LX2SP
https://www.ledger.com/academy/glossary/to-the-moon


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Digital Asset Market StructureDigital 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-
first approach that disproportionately 
targeted disfavored industries.

	■ Established a Crypto Task Force under 
Commissioner Peirce’s leadership, which 
solicited broad public input, held over one 
hundred meetings with market participants, 
and conducted five public roundtables.

	■ Rescinded SAB No. 121 (a staff bulletin that 
created significant regulatory burdens for 
companies that provide digital asset custody 
services).

	■ Provided staff-level clarity on the security 
status of memecoins, stablecoins, and 
mining and staking activities.

	■ Issued staff-level clarity on disclosure 
requirements for crypto-related offerings 
and registrations.

	■ Withdrew, together with FINRA, the unduly 
restrictive joint staff statement on broker-
dealer custody of digital asset securities.

	■ Published staff-level FAQs providing clarity 
on broker-dealer financial responsibility and 
transfer agent issues.

	■ Abandoned the Biden-era SEC’s rule 
proposals related to crypto, including 
proposed rules to further define the 
statutory term “exchange” and proposed 
safeguarding rules.

	■ Ended regulation-by-enforcement and 
refocused the Division of Enforcement on 
fraud and helping victims.

	■ Hosted a first-ever Crypto CEO Forum of 
industry-leading firms on digital asset 
market structure. 

	■ Acted on recommendations of CFTC’s 
Digital Asset Markets Subcommittee 
(DAMS) of the Global Markets Advisory 
Committee (GMAC) on U.S. digital asset 
taxonomy and tokenized non-cash collateral.

	■ Committed to participate as an observer in 
industry tokenization initiatives. 

	■ Launched two significant digital asset 
market structure innovations that are 
currently active on CFTC DCMs, perpetual 
derivatives and 24/7 trading hours, and 
requested public comment.

	■ Issued staff-level clarity on cross-border 
definitions for U.S. location and U.S. persons 
for both futures and swaps activity, including 
crypto exchanges, trading firms, and other 
market participants.

	■ Withdrew two outdated staff-level 
advisories relating to virtual currency 
derivative product listings and clearing that 
were unduly restrictive given digital asset 
market growth and maturity.

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. 



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Digital Asset Market Structure Digital Asset Market Structure  •  Establishing a Taxonomy for Digital Assets

Establishing a Taxonomy for Digital AssetsEstablishing 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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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.

https://www.finra.org/rules-guidance/key-topics/crypto-assets


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Digital Asset Market Structure 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.

https://www.sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/frequently-asked-questions-relating-crypto-asset-activities-distributed-ledger-technology
https://www.sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/frequently-asked-questions-relating-crypto-asset-activities-distributed-ledger-technology


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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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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 and 
cleared in accordance with the CEA or entered into by non-retail market participants on a bilateral basis. DCMs 
and SEFs are required to comply with core principles under Sections 5 and 5h of the CEA,178 including CFTC 
rules related to market integrity, fair access, position limits, pre- and post-trade transparency, and system 
safeguards. 

Once executed on a DCM or (or voluntarily on a SEF), digital asset derivatives are cleared by a registered 
derivatives clearing organization (DCO), which acts a central counterparty to every buyer and seller. DCOs 
mitigate counterparty credit risk by guaranteeing the performance of cleared contracts and applying risk 
management standards under CEA Section 5b.179 DCOs are required to collect initial and variation margin, 
maintain default funds, conduct stress testing, and ensure operational resilience.180 

FCMs, IBs, commodity trading advisors (CTAs), and swap dealers must register with the CFTC and comply with 
applicable conduct, financial, and recordkeeping requirements under the CEA and CFTC rules. FCMs that 
handle customer funds for derivative contracts, including digital asset derivatives, must adhere to segregation 
and safeguarding requirements under Section 4d of the CEA181 and Parts 1, 22, and 30 of the CFTC’s 
regulations. These protections are designed to ensure that customer property is not misused and that firms 
can meet their obligations during periods of market stress. 

IBs and CTAs are also subject to registration and supervisory requirements under Part 3 of the CFTC’s 
regulations. Additionally, all registered FCMs and IBs must implement and maintain customer identification 
programs (CIPs) under CFTC Regulation 42.2,182 which incorporates CIP requirements for FCMs and IBs under 
the BSA. CIPs requirements include procedures for identity verification, record retention, and screening 
against certain government watch lists for known or suspected terrorists.183 

To support regulatory oversight, CFTC registrants and certain market participants are required to report daily 
transaction and position data to the CFTC under Parts 16, 17, 18, 20, 43, and 45 of the CFTC’s regulations. These 
reporting and recordkeeping requirements enable the CFTC to monitor for systemic risk, large trader activity, 
and market abuse, and provide the data infrastructure for effective market surveillance and enforcement. 

178     �7 U.S.C. §§ 7 and 7b-3.
179     �7 U.S.C. § 7a-1.
180    See 17 C.F.R. §§ 39.13, 39.11, and 39.18 (2024).
181     �7 U.S.C. § 6d.
182     �17 C.F.R. § 42.2 (2024).
183     31 C.F.R. § 1026.220 (2024).



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Even in the case where no derivatives are listed on a particular digital asset commodity, the CFTC maintains 
anti-fraud and anti-manipulation enforcement authority in the spot markets for such commodities under 
Section 6(c)(1) of the CEA184 and CFTC Regulation 180.1.185 This authority helps ensure that the CFTC can 
protect market integrity and customer interests in connection with a contract of sale of a commodity in 
interstate commerce. 

The CFTC oversees derivatives on digital asset commodities, primarily bitcoin and ether, on DCMs. For example, 
the Chicago Mercantile Exchange lists cash-settled bitcoin and ether futures and options. These derivative 
contracts are structured to comply with the CEA and CFTC regulations, focusing on transparency, market 
integrity, and contract enforceability, and are subject to surveillance, reporting, and position limit rules under 
Section 5 of the CEA.186

Network Tokens

A network token, sometimes called a protocol token, refers to a token that is intrinsically connected to 
the functioning of a decentralized network or protocol. Importantly, to the extent that a token’s network 
is sufficiently decentralized, its continued value is not dependent on the intervention or control of a single 
person or group. Some network tokens are used to pay transaction fees (e.g., gas fees) or to stake to secure 
the network’s consensus. Others grant voting rights in a DeFi protocol.187 Examples of network tokens include 
bitcoin and ether, each of which derives its value from the blockchain network on which it operates.

Network tokens are issued to allow users to participate in an open decentralized network rather than to provide 
holders of the token future profit flows from the efforts of a managerial entity. Unlike securities, network 
tokens do not typically grant equity, debt, or profit-sharing rights. Their value is not derived from a corporate 
issuer’s revenue, but from the utility within the network (for example, demand for block space or voting power). 
When no single company controls the supply or demand of a token and the token is essential to the ongoing 
operation of the blockchain network, it begins to resemble a commodity or a type of operational utility token. 

Efforts to regulate network tokens should focus on ensuring that tokens, even if initially issued as part of an 
investment contract in a securities transaction, are not classified as securities once the network becomes 
fully functional and sufficiently decentralized. Criteria for determining what constitutes “fully functional” and 
“sufficiently decentralized” should be clear and objective to ensure fairness and provide market participants 
with certainty.

Tokens for Commercial and Consumer Use

A commercial or consumer use token provides access to some specific good, service, or privilege, and is 
subject to other federal and state laws applicable to commercial transactions. These tokens are usually 
non-fungible, meaning they cannot be easily interchanged or substituted with other “like” digital assets. A 
commercial use token is a digital representation of traditional commercial instruments, such as warehouse 
receipts, documents of title, bills of lading, event tickets, memberships, and identity credentials. Unlike network 
tokens, these assets are often not associated with a decentralized network protocol and are usually issued by a 
centralized entity. Consumer use tokens also include arcade tokens and loyalty tokens that users can redeem 
for a consumptive purpose, usually within a closed system. Examples of these types of tokens include video 
game rewards or tokenized loyalty points issued by a company.

184     �7 U.S.C. § 9(1).
185     �17 C.F.R. § 180.1 (2024).
186     �7 U.S.C. § 7.
187     �See Vitalik Buterin, Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform (2014), https://ethereum.org/content/whitepaper/

whitepaper-pdf/Ethereum_Whitepaper_-_Buterin_2014.pdf. 

https://ethereum.org/content/whitepaper/whitepaper-pdf/Ethereum_Whitepaper_-_Buterin_2014.pdf
https://ethereum.org/content/whitepaper/whitepaper-pdf/Ethereum_Whitepaper_-_Buterin_2014.pdf


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Other variations of consumer use tokens include collectible tokens, such as tokenized artwork, trading cards, 
and other tokenized versions of traditional collectible items. Often, tokens serve as a record of ownership or 
otherwise associate ownership rights with a digital identity.

The value of redeemable tokens is derived from the use they provide the holder when redeemed for the 
relevant good, service, or privilege. Other commercial use tokens may have no intrinsic marketable value 
(for example, tokens recording identity credentials). Regulation should focus on consumer protections and 
ensuring that these types of tokens are marketed with appropriate disclosures while allowing companies to 
experiment with blockchain-based systems. To provide clarity to market participants and ensure innovative 
uses of blockchain technology for consumer use can continue to grow, regulators may consider some type of 
guidance, safe harbor framework, or exemptive relief for this asset class. 

Enabling the Trading of Digital Assets at the Federal LevelEnabling the Trading of Digital Assets at the Federal Level
To ensure that American businesses can compete internationally, the SEC and the CFTC should use their 
existing rulemaking and exemptive authorities to enable the trading of digital assets.

RecommendationsRecommendations

Immediate Actions

The SEC should consider using its rulemaking and exemptive authority under the Securities Act to 
advance the following initiatives:

•	 Establish a fit-for-purpose exemption from registration under Section 5 of the Securities Act for securities 
distributions involving digital assets. 

•	 Establish a time-limited safe harbor or exemption from certain securities law requirements for transactions 
involving digital assets that may be subject to an investment contract because they are not yet fully 
functional or associated with a sufficiently decentralized network to allow for progressive functionality or 
decentralization. 

•	 Establish a safe harbor for certain airdrops from characterization as “sales” under Section 2(a)(3) of the 
Securities Act or an exemption from the corresponding registration requirements under Section 5 of the 
Securities Act. Consider also an exemption for distributions of digital assets by decentralized physical 
infrastructure (DePIN) providers in securities transactions for purposes of rewarding participation in DePIN 
networks, as well as distributions of certain NFT offerings.

The SEC should consider using its rulemaking and exemptive authority under the Exchange Act to 
advance the following initiatives:

•	 Enable non-security digital assets188 that are tied to an investment contract to be traded on non-SEC 
registered trading platforms immediately following the primary distribution of the digital asset.

•	 Provide relief for certain DeFi service providers from the broker-dealer (Section 15), exchange (Sections 5 
and 6), and clearing agency (Section 17A) registration provisions of the Exchange Act.

•	 Amend Regulation ATS to (or create a framework similar to Regulation ATS that would) better 
accommodate trading of non-security digital assets alongside securities under a regulatory framework that 
is fit-for-purpose for digital asset trading. 

•	 Create a conditional “innovation exemption” under the Exchange Act to allow SEC registrants to engage in 
innovative new business models.

188     �As used in this report, “non-security digital asset” does not include payment stablecoins. See supra note 97 (defining “payment stablecoin”).



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•	 Address the definition of “facility” under Section 3(a)(2) of the Exchange Act to consider business models 
used in digital asset trading.

•	 Consider amendments to Regulation NMS (or to applicable national market system plans) to better 
accommodate tokenization of national market system (NMS) securities, or trading of non-security 
digital assets alongside NMS securities, including requirements applicable to transaction reporting and 
mechanisms for collecting bids, offers, quotation sizes, and other national market system information. This 
may include consideration of how amendments could facilitate the use of oracles, aggregators, and other 
DeFi constructs in the trading of NMS securities and/or non-security digital assets.

•	 Modernize transfer agent rules to clearly permit the use of blockchain technology by transfer agents. 

•	 Provide clarity regarding whether and when self-hosted wallet providers would be acting as broker-dealers 
subject to SEC registration.

The SEC should consider using its rulemaking and exemptive authority under the Investment Advisers 
Act, the Investment Company Act, and other applicable laws to advance the following initiatives:

•	 Provide clarity on the custody of digital assets that are securities for Registered Investment Companies and 
Registered Investment Advisers by updating the rules under Section 17(f) of the Investment Company Act 
and Rule 206(4)-2 of the Investment Advisers Act.

•	 Evaluate whether certain state-chartered trusts should be deemed “qualified custodians,” as defined within 
Advisers Act Rule 206(4)-2(a)(6) or a “bank” under the Investment Company Act.

The CFTC should consider using its rulemaking, interpretative, and exemptive authority under the 
Commodity Exchange Act (CEA) to advance the following initiatives:

•	 Provide guidance to designated contract markets (DCMs) regarding the listing of leveraged, margined, or 
financed spot retail commodity transactions on digital assets pursuant to CEA section 2(c)(2)(D).

•	 Provide guidance as to how digital assets may be considered commodities under Section 1a(9) of the CEA. For 
example, the agency can consider expanding upon prior guidance on “actual delivery” of virtual assets.189 

•	 To the extent that digital asset investment vehicles or their managers may be considered “Commodity 
Pools” or prompt registration of “Commodity Pool Operators,” the CFTC will consider updating rules and 
guidance as appropriate.

•	 Collaborate with FinCEN to provide guidance regarding customer identification programs (CIPs) utilizing 
new technologies for eligible intermediaries and other market participants who carry customer accounts 
holding digital assets on behalf of customers.190 This collaboration can explore intermediaries’ and other 
market participants’ reliance on other financial institutions’ identification and verification functions.

•	 Enable firms to provide bundled trading and custody services.

•	 Provide clarity on the applicability of various CFTC registration requirements to DeFi activities, smart contract 
protocols, or decentralized autonomous organizations (DAOs) consistent with technology-neutral principles.

•	 Provide guidance to FCMs in calculating and administering segregation obligations when digital assets are 
held on behalf of customers, including separate account treatment under Regulation 1.44.

•	 Provide clarity on haircuts on digital assets held by registered intermediaries (including FCMs, swap 
dealers, and DCOs) for purposes of calculating and reporting margin, financial resources/capital, 

189     �See 85 Fed. Reg. 37734, supra note 96. Furthermore, the CFTC’s Global Markets Advisory Committee considered a variety of digital assets issues, 
including proposing a taxonomy for digital assets. See CFTC Global Markets Advisory Committee Digital Asset Markets Subcommittee, Digital Assets 
Classification Approach and Taxonomy (Mar. 6, 2024), https://www.cftc.gov/media/10321/CFTC_GMAC_DAM_Classification_Approach_and_Taxonomy_for_Digital_
Assets_030624/download.

190     �See 31 C.F.R. § 1026.220(a)(6) (2024); Anti-Money Laundering: Customer Identification Programs, CFTC, https://www.cftc.gov/IndustryOversight/
AntiMoneyLaundering/dsio_aml_cia.html (last visited July 13, 2025).

https://www.cftc.gov/media/10321/CFTC_GMAC_DAM_Classification_Approach_and_Taxonomy_for_Digital_Assets_030624/download
https://www.cftc.gov/media/10321/CFTC_GMAC_DAM_Classification_Approach_and_Taxonomy_for_Digital_Assets_030624/download
https://www.cftc.gov/IndustryOversight/AntiMoneyLaundering/dsio_aml_cia.html
https://www.cftc.gov/IndustryOversight/AntiMoneyLaundering/dsio_aml_cia.html


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Digital Asset Market Structure Digital Asset Market Structure  •  Enabling the Trading of Digital Assets at the Federal Level

segregation, and settlement obligations, including working with the SEC around the non-marketable 
securities haircut framework and its applicability to non-security digital assets.

•	 Review the application of eligible depository rules to accounts holding digital assets as collateral under 
CFTC Regulation 1.49.

•	 Provide guidance for DCO acceptance of digital asset collateral (including payment stablecoins)191 including 
DCO financial resource requirements, valuation of assets and haircuts for margin purposes, settlement 
finality, treatment of digital asset custodians and self-custody, systems safeguards requirements, end-of-
day reporting for assets that trade 24/7, and legal risk considerations in such areas as netting and interests 
in collateral under CFTC Regulations 39.11, 39.13, 39.14, 39.15, 39.18, 39.19, and 39.27.

•	 Provide guidance on the adoption of tokenized non-cash collateral as regulatory margin to implement the 
CFTC’s GMAC DAMS recommendation.

•	 Provide guidance on the classification of swaps on digital assets to address application of margin, reporting, 
and other requirements under CFTC Regulations 1.3, 23.154, 43.2, and 45.1.

•	 Consider allowing the use of blockchain technology to satisfy recordkeeping obligations under CFTC 
Regulation 1.31.

The SEC and the CFTC should coordinate to ensure efficient rulemaking processes. The SEC and CFTC 
should coordinate on seeking comments from the public on suggestions for rulemaking.

If the SEC and CFTC establish a regulatory sandbox or safe harbor, it should have clear criteria to 
determine which types of digital assets and market participants are eligible for the sandbox or safe harbor. 
Moreover, there should be a clear pathway for entities to graduate from the sandbox or safe harbor.

In coordination with the SEC, the CFTC should consider using its authority within CEA section 1a(18) 
to establish a category of eligible contract participants (ECPs) with the ability to engage in certain 
types of derivatives, including perpetual contracts, through additional regulated intermediaries (e.g., 
persons that are counterparties to a specified transaction conducted on or pursuant to the rules of an 
alternative trading system).

Longer-Term Considerations

The SEC and CFTC should explore offering flexibility to allow registrants to offer multiple services 
within a single user interface.

•	 The Working Group encourages regulatory exploration of more vertically integrated business models in the 
digital asset space. These business models should include appropriate structural safeguards, governance 
mechanisms, and disclosures to mitigate conflicts of interest.

•	 While addressing conflicts and ensuring existing registrants are not disadvantaged, regulators may 
consider adopting regulatory regimes that allow registrants to integrate multiple financial services in one 
business model, which could further reduce frictions and enhance user experience. 

	◆ Combining exchange services with custody of trading assets allows for real-time settlement. The 
custodian holds the assets, and the exchange matches orders to buy and sell those assets. Additionally, 
the digital assets custodied by an exchange should be cryptographically verifiable. 

	◆ Combining exchange and broker services allows for economies of scale and reduces operational 
complexity by permitting straight-through processing of customer orders with the same technology stack. 

	◆ Exchanges and intermediaries must segregate customer property away from proprietary funds, subject 
to reasonable exceptions.

191     �See supra note 97 (defining “payment stablecoin”).



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The CFTC should consider how existing rules could be amended to enable the use of blockchain-based 
derivatives.

•	 Such considerations should include evaluating the benefits of blockchain-based derivative transactions or 
systems with respect to the regulatory requirements of central clearing, and frameworks around reporting 
obligations, margin levels, and contract listings in a non-intermediated environment.

Absent congressional action, the SEC and CFTC should use their existing authorities to provide 
fulsome regulatory clarity that best keeps blockchain-based innovation within the United States. 

•	 As discussed below, the Working Group strongly recommends that Congress expeditiously advance 
market structure legislation to the President’s desk. 

•	 However, as market structure deliberations continue in Congress, the Working Group similarly recognizes 
that the market regulators can work to provide appropriate accommodation for digital asset trading and 
innovation in their rules to ensure responsible innovation occurs in the United States.

Creating a Lasting Framework for Digital Asset Market StructureCreating a Lasting Framework for Digital Asset Market Structure
Due to the underlying distributed ledger technology, digital asset markets function differently from markets 
for stocks, bonds, commodities, and derivatives. Traditional financial markets require a series of third-
party intermediaries between a buyer and a seller to execute and settle a trade. In digital asset markets, 
programmable smart contracts allow buyers and sellers of certain digital assets on decentralized exchanges to 
be matched and ownership to change hands without a custodial third-party. Other platforms offering trading 
of digital assets are structured in a more centralized way, but differences remain that need to be addressed in 
crafting a market structure framework. 

The House of Representatives’ Digital Asset Market Clarity Act of 2025 (CLARITY)192 proposes a division of 
digital asset market jurisdiction between the SEC and CFTC. It protects the right of Americans to self-custody 
their digital assets. By requiring the SEC and CFTC to jointly promulgate rules for portfolio margining, it 
facilitates a system where investors, both retail and institutional, can efficiently trade digital assets without 
artificial costs imposed by regulatory barriers. 

CLARITY also importantly recognizes decentralized governance systems, which are an innovation in how 
individuals collectively reach agreement on development and administration of blockchain systems. Much as 
joint stock corporations provided an avenue for shareholders to engage in common undertakings, decentralized 
governance systems are a further evolution in decision-making. CLARITY recognizes the promise of 
decentralized finance and the ability of software to allow individuals to freely transact with one another.

Lastly, CLARITY provides legal certainty in highlighting the treatment of digital assets on banking institutions’ 
balance sheets, providing federal pre-emption for jurisdiction over digital asset intermediaries, and explaining 
the criteria by which institutions can be considered Qualified Custodians of digital assets. 

Altogether, CLARITY represents an excellent foundation for digital asset market structure in the United States. 
However, the Working Group encourages Congress to consider a handful of additional factors when finalizing 
this legislation to ensure American markets for digital assets help enshrine the United States as the crypto 
capital of the world. 

192     �H.R. 3633, 119th Cong. (2025).



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RecommendationsRecommendations

Congress should consider the following when finalizing provisions of market structure legislation to ensure 
the most cost-efficient and pro-innovation regulatory structure for digital assets.

Jurisdiction of Market Regulators

The CFTC should have clear authority to regulate spot markets in non-security digital assets. SEC 
and CFTC registrants should be permitted to engage in multiple business lines under the most 
efficient licensing structure possible, ensuring a clear and simple regulatory framework for digital 
asset market activities.

•	 Regulation should be crafted to avoid regulatory arbitrage between the SEC and CFTC digital asset 
regulatory regimes, understanding that the regulation of digital asset securities is necessarily different than 
that applied to non-security digital assets. Interagency coordination could guide these efforts.

•	 Registrant platforms should have the flexibility to offer a broad range of digital asset and other regulated 
products within a single user interface, subject to clearly defined regulatory oversight of the registrant.

•	 SEC registrants should be able to offer the trading of digital asset securities and be able to engage in non-
security digital asset transactions pursuant to the licensing structure defined by Congress. 

•	 CFTC registrants should be able to offer the trading of digital commodity derivatives, retail digital 
commodity transactions, and other CFTC-jurisdictional products alongside non-security digital assets, as 
specified by Congress.

•	 To the extent Congress permits activity in non-security digital assets outside CFTC registrants, Congress 
should direct the market regulator leading the rulemaking process to set rules for market conduct and 
activities for non-security digital assets in consultation with the SEC or CFTC, as appropriate. 

•	 Rules for digital assets should include portfolio margining standards, as suggested by CLARITY.193 

•	 The SEC and CFTC should adopt rules ensuring customer asset segregation for digital assets.194

•	 Trading venues for non-security digital assets should be required to report market data, subject to reporting 
obligations established by the CFTC. If a trading venue is engaged solely in the provisioning of non-security 
digital assets, there should only be reporting obligations to the CFTC.

	◆ Prior to the enactment of any reporting obligations, the CFTC should consult with the SEC on the data 
to be reported and the format in which it is reported to minimize industry burden. 

Congress should provide that federal law preempts state law with respect to securities and 
commodities laws applicable to SEC- and CFTC-registered intermediaries, including in the areas of 
state virtual currency business, “blue sky,” and commodity broker laws.

193     �See H.R. 3633, 119th Cong. § 105(e) (2025).
194     �Note that the CFTC-registered futures commission merchants (FCMs) already have segregation obligations under current law. See CFTC, Futures 

Commissions Merchants (FCMs): Segregation of Customer Funds, https://www.cftc.gov/IndustryOversight/Intermediaries/FCMs/fcmsegregationfunds 
(last visited July 13, 2025). In 2020, the Division of Swap Dealer and Intermediary Oversight of the CFTC issued a staff letter advisory as to how FCM 
segregation obligations apply to virtual currency. CFTC Letter No. 20-34, Accepting Virtual Currencies from Customers into Segregation (Oct. 21, 2020), 
https://www.cftc.gov/csl/20-34/download. 

https://www.cftc.gov/IndustryOversight/Intermediaries/FCMs/fcmsegregationfunds
https://www.cftc.gov/csl/20-34/download


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Guidelines for Market Intermediaries

Digital asset trading platforms, brokers, dealers, custodians and other registrants should be subject to 
a tailored registration regime that is fit-for-purpose under the SEC or CFTC, as appropriate and based 
upon the intermediary’s activities.

•	 Consistent with the existing financial markets regulatory framework, the regime should include principles-
based requirements that are no more onerous than those safeguards applied to existing registrants. 

Intermediaries should be allowed to lend against, net, and hedge securities against non-securities, as 
risk characteristics permit.

•	 Coordinated regulatory treatment can ensure appropriate market oversight, while recognizing economic 
equivalence across different asset types. 

•	 The SEC and CFTC should have appropriate flexibility in setting applicable rules for their registrants.

Issuers of digital asset securities, and of securities involving digital assets, should be subject to 
disclosure requirements that are appropriately tailored to address the novel characteristics of digital 
assets and blockchain technology. Digital asset trading platforms, brokers, dealers, and other CFTC-
registered intermediaries that make available non-security digital assets should be required to disclose 
any such information that the CFTC determines to be appropriate for non-security digital assets.

•	 Further, these parties should not be subject to ongoing disclosure requirements other than those required 
by Congress in future legislation or by the relevant market regulator. Furthermore, any such ongoing 
disclosures should be fit-for-purpose and guided by publicly available information, such as open-source 
code, whenever possible.

•	 Digital asset trading platforms, and other intermediaries as appropriate, should publish the criteria that 
govern the listing of digital assets that are traded.

	◆ In addition, digital asset trading platforms, and other intermediaries as appropriate, should consider 
prominently disclosing features that may be unique to digital assets, such as token economics (i.e., 
allocation percentages and rationales) and source code, if applicable. 

For institutional over-the-counter block trades of digital assets that occur offchain through regulated 
intermediaries, there should be similar reporting and disclosure requirements to those that apply to 
similar activities in traditional markets.

•	 These reporting and disclosure requirements need not be instantaneous, but it is critical to ensure there are 
not loopholes or “blind spots” associated with digital asset trading activity that occurs offchain.

Digital asset trading platforms, brokers, dealers, and other SEC and CFTC registrants should disclose 
the capacity in which they are acting on behalf of the customer, client, or counterparty (i.e., dealer, 
broker, counterparty, routing to an order book, etc.).

•	 Digital asset firms may serve in a variety of capacities when offering digital asset trading. Congress should 
consider disclosure requirements or standards depending on the nature of the relationship between the 
firm and the market participant (e.g., retail, institutional, customer, client, counterparty, etc.).

Trading platforms should be permitted to custody customer digital assets with appropriate controls. 

•	 Safeguards may include requirements for asset segregation, disclosures, principles-based cybersecurity 
standards, bankruptcy remoteness, separation of legal entities, separation from margin and rehypothecation 
entity, capital requirements, liquidity and redemption requirements, and regulatory supervision.STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  5757   •   

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•	 Trading platforms should also enable users engaging in self-custody to transact, and should be prohibited 
from discriminating against third-party custodians who offer products that compete with those provided 
by the trading platform or an affiliate.

Market intermediaries should be subject to principles-based rules regarding the margin and leverage 
they can extend to retail participants, based on the functions of margin and leverage in their respective 
activities. Congress should clearly define the rules and responsibilities between the SEC and CFTC 
regarding margin and leverage, but allow the regulators appropriate flexibility in setting such rules.

•	 Financing rates offered to retail customers should be publicly disclosed by the party offering leverage.

Congress should consider extending Exchange Act Section 31 fee structures to all SEC-registered 
products offered on SEC-regulated platforms. 

•	 Intermediaries offering digital asset services should pay fees equivalent to those that traditional finance 
intermediaries pay in the equity markets. 

SEC and CFTC registrants should be required to adopt best practices for cybersecurity standards.

•	 These standards may be adopted as part of a principles-based regulatory framework or proposed as 
industry best practices. 

Regulatory Treatment of DeFi

By embracing and supporting the option of DeFi for investors, policymakers can help position the United 
States as a leader in the global crypto economy. Encouraging the development of regulatory frameworks 
that balance innovation with security will pave the way for a robust financial future. The integration of DeFi 
into mainstream finance has the potential to unlock new economic opportunities and drive significant 
advancements across various industries and sectors. 

There are ongoing discussions regarding whether non-controlling blockchain developers, DeFi service 
providers, and DeFi apps or front ends can or should be required to comply with institutional obligations 
under the Bank Secrecy Act (BSA), either as money services businesses (MSBs), broker-dealers, FCMs, or 
some other category of “financial institution” under the BSA.195 Such considerations are discussed further 
in the Further Improvements to the AML/CFT Regime section of Chapter VI, covering topics related to 
countering illicit finance.

As contemplated in provisions of CLARITY,196 Congress should consider the following factors when 
determining the regulatory treatment of DeFi: 

•	 The extent to which a given software application exercises “control” over user assets.

	◆ Without the ability to exercise control over user assets or funds, a software application may not transmit 
money or exchange currency, and therefore might not be subject to the BSA as an MSB. Importantly, 
without control, software applications generally lack the ability to misappropriate user assets.

•	 The extent to which a given software application, once built or deployed, is technologically capable of being 
modified.

195     �See 31 U.S.C. § 5312(a)(2) and 5312(c).
196     �See Press Release, Representative Tom Emmer, Emmer’s Securities Clarity Act and Blockchain Regulatory Certainty Act Pass House Financial Services 

Committee Markup (June 11, 2025), https://emmer.house.gov/media-center/press-releases/emmer-s-securities-clarity-act-and-blockchain-regulatory-certainty-
act-pass-house-financial-services-committee-markup (noting that the ”elements of the Blockchain Regulatory Certainty Act that are include in the 
CLARITY Act codify that digital asset developers and service providers that do not custody consumer funds are not money transmitters.”). 

https://emmer.house.gov/media-center/press-releases/emmer-s-securities-clarity-act-and-blockchain-regulatory-certainty-act-pass-house-financial-services-committee-markup
https://emmer.house.gov/media-center/press-releases/emmer-s-securities-clarity-act-and-blockchain-regulatory-certainty-act-pass-house-financial-services-committee-markup


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	◆ Software applications in DeFi use smart contracts. In many cases, smart contracts cannot be modified 
or withdrawn once deployed. Implementing changes in those cases requires the creation of entirely new 
smart contracts. 

	◆ The operations of a software application, including the smart contracts or the economics of the service 
more broadly, may be administered by a single actor or a group of actors working together. 

	◆ As such, Congress should consider the degree to which a single actor, or group of actors working 
together, has the unilateral ability to upgrade a software application’s smart contracts or change its 
economics in a manner not previously disclosed in the software or protocol rules. 

•	 The extent to which a software application is controlled by, or operates with, a centralized structure or 
management. 

	◆ If a product or service is operated, managed, or otherwise controlled by a business and facilitates 
access to a DeFi system engaged in otherwise regulated activity, that product or service should be 
subject to regulation accounting for underlying regulated activity and pursuant to the principles of fair 
competition, customer protection, conflicts of interest, integrity of code, cybersecurity standards, and 
other principles as appropriate. 

•	 The extent to which a given software application is technologically or logistically capable of complying with 
current regulatory obligations.

	◆ Many DeFi protocols and non-controlling blockchains do not have the functional ability to register as 
MSBs or otherwise comply with MSB obligations under the BSA, while businesses (as described above) 
could register. Nevertheless, Congress could consider how obligations can be fit-for-purpose to the 
technology and embrace the unique characteristics of DeFi, rather than placing the current financial 
regulatory regime on top of DeFi services.

	◆ Care should be taken to ensure that actors are not permitted to structure products to subvert legal 
responsibilities.

Accounting Recommendations

Financial Accounting Standards Board (FASB)197 processes include outreach to a broad set of stakeholders 
including investors, preparers, accounting firms, academics, and regulators.198 The FASB issued accounting 
guidance in December 2023 addressing the subsequent measurement of certain digital asset holdings 
at fair value.199 It has also specifically requested stakeholder input on any additional accounting guidance 
needed to address digital asset matters under U.S. Generally Accepted Accounting Principles (GAAP).200 

The Working Group observed that many questions on the accounting for digital asset transactions relate to 
the following key concepts that FASB should consider for further consultation through public engagement: 

•	 Recognition and derecognition: Whether an entity should recognize or derecognize digital asset tokens 
when entering into certain transactions. For example, should a lender of digital assets derecognize such 
assets, and should there be symmetry in accounting between a lender and borrower? Similar questions 
may arise related to wrapping tokens or transacting with decentralized lending or exchange protocols.

197     �The SEC has recognized the FASB’s accounting standards as authoritative since 1973. See SEC, Policy Statement: Reaffirming the Status of the FASB as a 
Designated Private-Sector Standard Setter (Apr. 25, 2003) https://www.sec.gov/rules-regulations/policy-statements/33-8221. 

198     �See Financial Accounting Standards Board (FASB), Rules of Procedure: Amended and Restated Through February 12, 2025 (2025), https://www.fasb.org/
page/ShowPdf?path=Rules%20of%20Procedure-Feb%202025.pdf&title=Rules%20of%20Procedure-February%202025.

199     �FASB, Accounting Standards Update No. 2023-08, Accounting for and Disclosure of Crypto Assets (Dec. 2023), https://www.fasb.org/page/
PageContent?pageId=/projects/recentlycompleted/accounting-for-and-disclosure-of-crypto-assets.html.

200    �FASB, Invitation to Comment: Agenda Consultation (Jan. 3, 2025), https://fasb.org/page/ShowPdf?path=ITC%E2%80%94Agenda%20Consultation.
pdf&title=Invitation%20to%20Comment%E2%80%94Agenda%20Consultation.

https://www.sec.gov/rules-regulations/policy-statements/33-8221
https://www.fasb.org/page/ShowPdf?path=Rules of Procedure-Feb 2025.pdf&title=Rules of Procedure-February 2025
https://www.fasb.org/page/ShowPdf?path=Rules of Procedure-Feb 2025.pdf&title=Rules of Procedure-February 2025
https://www.fasb.org/page/PageContent?pageId=/projects/recentlycompleted/accounting-for-and-disclosure-of-crypto-assets.html
https://www.fasb.org/page/PageContent?pageId=/projects/recentlycompleted/accounting-for-and-disclosure-of-crypto-assets.html
https://fasb.org/page/ShowPdf?path=ITC%E2%80%94Agenda Consultation.pdf&title=Invitation to Comment%E2%80%94Agenda Consultation
https://fasb.org/page/ShowPdf?path=ITC%E2%80%94Agenda Consultation.pdf&title=Invitation to Comment%E2%80%94Agenda Consultation


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•	 Issuer accounting. How an entity should account for digital asset tokens it creates and issues. The 
accounting by the token issuer will depend on the issuer’s facts and circumstances, and the enforceable 
rights and obligations of the parties involved. To the extent a token conveys rights or obligations that 
align with traditional assets or instruments (e.g., ownership of tangible commodities, debt, or equity), 
then established accounting guidance already exists. Additionally, FASB should consider whether to treat 
payment stablecoins as cash equivalents under GAAP. Further clarification is required in cases where 
tokens provide utility or access without clearly enforceable rights – particularly when tied to the future 
development of a platform. There is no explicit guidance to address the accounting for those types of token 
issuances. 

Additionally, the principles-based nature of the Public Company Accounting Oversight Board’s (PCAOB’s) 
audit standards and guidance published by the PCAOB, as well as non-authoritative guidance from the 
American Institute of Certified Public Accountants (AICPA), have allowed auditors of public companies and 
broker dealers to adapt traditional procedures to address digital asset tokens. As the technology and its use 
continues to develop, there may be value in additional or new standards to promote consistency in application 
and execution and help align regulatory and stakeholder expectations (avoiding expectation gaps).

International Regulatory Standards and LandscapeInternational Regulatory Standards and Landscape
The Working Group advises the United States to reassert global leadership on digital assets. Reassertion 
of such leadership depends on establishing a clear and robust policy framework for digital asset activity. 
Large financial centers like the European Union (EU), Japan, Singapore, and the United Kingdom (UK) are 
finalizing and implementing their own digital asset frameworks, offering a foundation upon which they 
seek to attract firms and grow their markets. The United States has a window of opportunity to shape the 
way these frameworks intersect and interact, fostering a level playing-field on which American firms and 
markets can compete with the rest of the world. As such, the Working Group advises the United States to 
engage and lead internationally to achieve these objectives.

In parallel, some digital asset firms have chosen to operate globally out of smaller jurisdictions, some 
of which have become significant centers for digital asset activity, but which may lack adequate 
regulation, effective supervision, or enforcement capacity to oversee that activity, including illicit 
finance controls (see Chapter VI), which discusses the regulatory framework around illicit finance as 
pertains to digital assets). A clear and robust U.S. framework will serve as a standard and indicator of 
credibility for firms that onshore their activities in the United States. Paired with active U.S. leadership in 
international engagement, an American regulatory framework will also serve to discourage firms from 
operating in jurisdictions that compete with inadequate regulation, supervision, and enforcement. 

International Standards

U.S. regulators, including the Department of Treasury and its Office of International Financial Markets, 
have been active in international discussions to shape emerging regulatory standards for digital assets, 
recognizing emerging best practices as authorities develop their respective domestic regulatory 
frameworks. In July 2023, the Financial Stability Board (FSB) published its global regulatory framework 
for digital asset activities. The framework includes high-level recommendations for the regulation, 
supervision, and oversight of digital asset activities and markets and of widely used stablecoins. These 
recommendations promote the creation of risk-based regulatory regimes, in which digital asset issuers 
and service providers have adequate governance, risk management, and disclosure obligations, 



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including for potential conflicts of interest.201 The Working Group suggests that the United States 
advance policies at the FSB aligned with recommendations for digital asset regulatory frameworks 
outlined in this report. 

In addition, the Financial Action Task Force (FATF), the international standard setting body for AML/
countering the financing of terrorism (CFT), clarified under the 2018 U.S. presidency that its standards 
apply to virtual assets and virtual asset service providers (VASPs).202 The FATF recommended that 
jurisdictions must assess risk associated with virtual assets and require that VASPs in their jurisdiction 
are regulated and supervised for implementation of AML/CFT obligations. The Working Group would 
be supportive of adopting several FATF standards for virtual assets, consistent with recommendations 
in this report, and advises the United States to remain a leader on FATF efforts on this topic.

Other financial sector standard-setting bodies have also addressed market conduct and capital 
standards for digital assets activity in financial markets and banking. The International Organization of 
Securities Commissions in 2023 published high-level guidance for, among other policies, addressing 
market abuse, digital asset custody arrangements, and trading disclosures.203 In 2022, the Basel 
Committee on Banking Supervision (BCBS) published capital standards for banks’ exposure to 
cryptoassets and stablecoins.204 This framework, which was later amended in 2024205 and is discussed 
in further detail later in this report, assigns risk weights reflecting the BCBS’s assessment of different 
types of cryptoassets and the ledgers on which they trade; it assigns the highest risk weight to 
cryptoassets traded on permissionless ledgers. Where standards are misaligned, the Working Group 
advises that the United States assert leadership and advocate that relevant bodies develop guidance 
in line with the goals of the Working Group to establish the United States as a global leader on digital 
assets regulation.

Evolving Regulatory Landscape 

Large financial-center jurisdictions have developed their own separate regimes for the regulation of 
digital assets, with some common features.206 Common elements of current and proposed stablecoin 
regimes in the EU, Hong Kong, Singapore, Japan, and the UK include: a licensing regime; reserve 
and other prudential requirements; requirements to segregate customer assets from those of the 
digital asset service provider itself; provisions for client redemption rights; mandatory disclosures and 
periodic audits; varying prohibitions on algorithmic stablecoins; and AML/CFT obligations. Similarly, 
emerging digital asset market structure regimes around the world restrict advertising for consumer 
protection and prevent market abuse, broadly equivalent to traditional financial market rules, although 
the details of these restrictions vary. 

However, many regulatory regimes are not comprehensive and may require expansion or updating. The 
EU’s Markets in Crypto-Assets (MiCA) Regulation exemplifies a comprehensive global digital assets 

201     �See Financial Stability Board, High-Level Recommendations for the Regulation, Supervision and Oversight of Crypto-Asset Activities and Markets: Final 
report (July 17, 2023), https://www.fsb.org/2023/07/high-level-recommendations-for-the-regulation-supervision-and-oversight-of-crypto-asset-activities-and-
markets-final-report.

202     �See generally Financial Action Task Force, Updated Guidance for a Risk-Based Approach: Virtual Assets and Virtual Asset Service Providers (Oct. 2021), 
https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/Updated-Guidance-VA-VASP.pdf.coredownload.inline.pdf.

203     �See generally International Organization of Securities Commission, Policy Recommendations for Crypto and Digital Asset Markets: Final Report (Nov. 16, 
2023), https://www.iosco.org/library/pubdocs/pdf/IOSCOPD747.pdf.

204     �Basel Committee on Bank Supervision (BCBS), Prudential Treatment of Cryptoasset Exposures (Dec. 2022), https://www.bis.org/bcbs/publ/d545.pdf.
205     �BCBS, Cryptoasset Standard Amendments (July 2024), https://www.bis.org/bcbs/publ/d579.pdf. 
206     �For an overview of global approaches to digital assets policy, see Cryptocurrency Regulation Tracker, The Atlantic Council, https://www.atlanticcouncil.org/

programs/geoeconomics-center/cryptoregulationtracker (last visited July 13, 2025).

https://www.fsb.org/2023/07/high-level-recommendations-for-the-regulation-supervision-and-oversight-of-crypto-asset-activities-and-markets-final-report
https://www.fsb.org/2023/07/high-level-recommendations-for-the-regulation-supervision-and-oversight-of-crypto-asset-activities-and-markets-final-report
https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/Updated-Guidance-VA-VASP.pdf.coredownload.inline.pdf
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD747.pdf
https://www.bis.org/bcbs/publ/d545.pdf
https://www.bis.org/bcbs/publ/d579.pdf
https://www.atlanticcouncil.org/programs/geoeconomics-center/cryptoregulationtracker
https://www.atlanticcouncil.org/programs/geoeconomics-center/cryptoregulationtracker


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  6161   •   

Digital Asset Market Structure Digital Asset Market Structure  •  Creating a Lasting Framework for Digital Asset Market Structure

regime currently in force.207 European authorities adopted MiCA in late 2024, but some European policy 
makers have already called for a “MiCA 2” to address gaps in the new rules. These gaps include, at least, 
limited jurisdiction over digital asset service providers operating from outside Europe and omission of 
DeFi, NFTs, and digital asset lending.

Similarly, Japan was an early leader in the regulation of digital asset activities and was, in 2014, among 
the first countries to legally define and classify digital assets. However, Japan has subsequently 
amended its framework to accommodate the maturing global digital asset market. In April 2025, 
Japan’s Financial Services Agency announced a new approach to digital assets, including reclassifying 
these assets as financial products and has signaled its intention to recalibrate its stablecoin reserve 
requirements to retain global competitiveness. 

The evolution of digital asset frameworks in other large financial centers across the globe creates an 
opportunity for the United States to shape global regulatory standards and norms in ways that align 
with U.S. interests. It also creates an opportunity for the United States to support a less fragmented 
digital asset ecosystem, with fewer unwarranted regulatory frictions, which can better support the 
allocation of capital to its most efficient use.

Regulatory Fragmentation 

Regulatory fragmentation among jurisdictions with different—or even conflicting—regimes could 
impact market flows of digital assets. For stablecoins, a lack of broad, coherent, and robust oversight can 
undermine stablecoins’ reliability as a payment instrument, limiting their circulation, their stability, or their 
ability to circulate without discount. Regulatory fragmentation can also lead to market fragmentation, 
and to reduced or trapped liquidity within specific stablecoin arrangements; this, in turn, can limit 
market depth in ways that can affect the broader health of digital asset markets. More fundamentally, 
fragmentation may impose inefficient compliance and operational costs on U.S. stablecoin issuers and 
other registrants operating internationally, making them less competitive and the international playing 
field less even. This is true also for digital asset markets, in which existing frameworks diverge with 
respect to legal classifications, taxation, margin trading, staking, and other areas. 

A robust U.S. policy framework for digital assets can help minimize these risks and promote the growth 
of the digital asset industry globally. U.S. engagement on these issues must prioritize U.S. interests—
including an innovative, fair, open, and efficient digital asset ecosystem.

207     �See Financial Stability Board, FSB Notes Significant Progress in Monitoring, Regulating and Supervising Crypto-Asset Activities in France (Dec. 11, 2024), 
https://www.fsb.org/2024/12/fsb-notes-significant-progress-in-monitoring-regulating-and-supervising-crypto-asset-activities-in-france.

https://www.fsb.org/2024/12/fsb-notes-significant-progress-in-monitoring-regulating-and-supervising-crypto-asset-activities-in-france


IV.   Banking and Digital AssetsIV.   Banking and Digital Assets

CHAPTER IV

 Banking and Digital Assets Banking and Digital Assets

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 



STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  6363   •   

Banking and Digital AssetsBanking and Digital Assets  •

Banking and Digital AssetsBanking and Digital Assets
Commerce on the Internet has come to rely almost exclusively on financial institutions serving 
as trusted third parties to process electronic payments. While the system works well enough 
for most transactions, it still suffers from the inherent weaknesses of the trust based model. 

Introduction from Bitcoin: A Peer-to-Peer Electronic Cash System 
Satoshi Nakamoto, October 2008208

The genesis block of Bitcoin, the first block ever mined, famously contains a headline from the day it was 
created: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”209 Though Satoshi was 
cautious of banks, the technology and industry that evolved from his work would come to interact with the 
banking system in unexpected ways. Some banks, recognizing the promise of the space, began providing 
core banking services to growing crypto enterprises. Others, building on their banking-as-a-service offerings 
to fintech companies, supported new clients engaged in digital assets. Additionally, some “crypto banks”210—
chartered financial institutions offering the ability to buy, sell, and custody digital assets alongside traditional 
banking services, such as access to traditional fiat payment rails—emerged and blurred the line between the 
TradFi and crypto-native worlds.211 Outside the traditional banking sector, the growth in retail access to digital 
assets has created opportunities for unbanked Americans to access the financial system. A survey from 
May 2025 indicated that 10% of cryptocurrency owners stated they owned cryptocurrency before opening a 
checking account, savings account, or an account with certain common payments apps.212 

Although many in the banking industry supported the growth and development of the crypto ecosystem, 
regulatory leadership set up roadblocks. The Biden Administration’s Operation Choke Point 2.0 resulted in the 
widescale debanking of digital asset firms and their founders. As Acting Federal Deposit Insurance Corporation 
(FDIC) Chairman Travis Hill noted in February 2025 when publishing internal documents related to the FDIC’s 
supervision of banks that engaged in, or sought to engage in, crypto-related activities: 

[T]he FDIC’s approach “has contributed to a general perception that the agency was closed 
for business if institutions are interested in anything related to blockchain or distributed 
ledger technology.” . . . The documents that we are releasing today show that requests from 
these banks were almost universally met with resistance, ranging from repeated requests 
for further information . . . to directives from supervisors to pause, suspend, or refrain from 
expanding all crypto- or blockchain-related activity. Both individually and collectively, these 
and other actions sent the message to banks that it would be extraordinarily difficult—if not 
impossible—to move forward. As a result, the vast majority of banks simply stopped trying.213 

208     �Nakamoto, supra note 18.
209     �See mempool.space (Jan. 3, 2009), https://mempool.space/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f. See also Jon 

Southurst, Bitcoin Genesis Block Constructed 11 Years Ago Today, CoinGeek (Jan. 3, 2020), https://coingeek.com/bitcoin-genesis-block-constructed-11-
years-ago-today.

210      �Note that such “crypto banks,” which either hold state charters or an OCC national trust bank charter, do not necessarily offer the full range of traditional 
banking services, absent additional approvals.

211       �Coin World, Crypto Firms Expand into Traditional Finance, Blurring Lines with New Offerings, AInvest (Apr. 25, 2025, 2:07 PM ET), https://www.ainvest.com/
news/crypto-firms-expand-traditional-finance-blurring-lines-offerings-2504.

212       �Justin Slaughter & Dominique Little, Paradigm Policy Market Mapping Exercise Spring 2025, Paradigm (July 1, 2025), https://www.paradigm.xyz/2025/07/
paradigm-policy-market-mapping-exercise-spring-2025. 

213       �See FDIC, FDIC Releases Documents Related to Supervision of Crypto-Related Activities, (Feb. 5, 2025), https://www.fdic.gov/news/press-releases/2025/
fdic-releases-documents-related-supervision-crypto-related-activities; see also Hist. Assocs. Inc. v. FDIC, No. 1:24-cv-1857-ACR (D.D.C.).

https://mempool.space/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f
https://coingeek.com/bitcoin-genesis-block-constructed-11-years-ago-today
https://coingeek.com/bitcoin-genesis-block-constructed-11-years-ago-today
https://www.ainvest.com/news/crypto-firms-expand-traditional-finance-blurring-lines-offerings-2504
https://www.ainvest.com/news/crypto-firms-expand-traditional-finance-blurring-lines-offerings-2504
https://www.paradigm.xyz/2025/07/paradigm-policy-market-mapping-exercise-spring-2025
https://www.paradigm.xyz/2025/07/paradigm-policy-market-mapping-exercise-spring-2025
https://www.fdic.gov/news/press-releases/2025/fdic-releases-documents-related-supervision-crypto-related-activities
https://www.fdic.gov/news/press-releases/2025/fdic-releases-documents-related-supervision-crypto-related-activities


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  6464   •   

Banking and Digital AssetsBanking and Digital Assets  •

Under the Trump Administration, Operation Choke Point 2.0 is dead—not just in spirit, but in substance. 
The Securities and Exchange Commission (SEC) staff rescinded Staff Accounting Bulletin (SAB) No. 121, an 
accounting guidance that effectively prohibited publicly traded banks from offering custody services for digital 
assets.214 The FDIC rescinded a prior-notification requirement for supervised institutions in March 2025, and 
affirmed that banks under their purview “may engage in permissible activities, including activities involving 
new and emerging technologies such as crypto-assets and digital-assets, provided that they adequately 
manage the associated risks.”215 That month, the Office of the Comptroller of the Currency (OCC) published 
Interpretive Letter No. 1183, confirming that national banks and federal savings associations may engage in 
digital asset custody, stablecoin-related activities, and use blockchains to facilitate payments without seeking 
prior approval.216 The OCC also announced that it would no longer examine banks for “reputation risk,” and the 
Board of Governors of the Federal Reserve System (FRB) announced the same in June.217 Then, in April, the FRB 
rescinded two supervisory letters related to banks’ “crypto-asset and dollar token activities,” with the express 
purpose of ensuring the FRB’s “expectations remain aligned with evolving risks and further support innovation 
in the banking system.”218

By April 2025, the OCC, FDIC, and FRB had all withdrawn from joint statements issued in January and February 
2023 cautioning banking organizations against engaging in digital asset activity.219 And in July 2025, the OCC, 
FDIC, and FRB issued a new joint statement reaffirming the legal permissibility for banks to custody digital 
assets.220 In contrast to the Trump Administration’s leadership, the Biden Administration endorsed that now-

214     �SAB No. 121 mandated that certain entities safeguarding digital assets record both a liability and a corresponding asset on their balance sheets at the fair 
value of the assets held, even if such assets were never lent by the entities. Staff Accounting Bulletin No. 121, 87 Fed. Reg. 21015 (Apr. 11, 2022) (formerly 
codified at 17 C.F.R. pt. 211 (2024)). SAB No. 121 was rescinded by a new staff accounting bulletin, SAB No. 122. Staff Accounting Bulletin No. 122, 90 Fed. 
Reg. 8492 (Jan. 30, 2025) (codified at 17 C.F.R. pt. 211 (2024)). SEC Staff Accounting Bulletins are not rules or interpretations of the SEC, nor are they 
published as bearing the SEC’s official approval. They represent interpretations and practices followed by the SEC Division of Corporation Finance and 
the SEC Office of the Chief Accountant in administering the disclosure requirements of federal securities laws. Note that the Guiding and Establishing 
National Innovation for U.S. Stablecoins Act (GENIUS), which was signed into law by President Trump on July 18, 2025 prohibits the SEC, FDIC, OCC, FRB, 
and NCUA from adopting rules for public and private depository institutions similar to SAB No. 121. S. 1582, 119th Cong. (2025) § 16(c) (enacted).

215     �Press Release, FDIC, FDIC Clarifies Process for Banks to Engage in Crypto-Related Activities (Mar. 28, 2025), https://www.fdic.gov/news/financial-institution-
letters/2025/fdic-clarifies-process-banks-engage-crypto-related. 

216     �OCC, Interpretive Letter No. 1183, OCC Letter Addressing Certain Crypto-Asset Activities (Mar. 7, 2025), https://www.occ.gov/topics/charters-and-licensing/
interpretations-and-actions/2025/int1183.pdf. The OCC subsequently issued Interpretive Letter No. 1184, which provided further clarity on permissible 
custody activities. See OCC, Interpretive Letter No. 1184, Clarification of Bank Authority Regarding Crypto-Asset Custody Services (May 7, 2025), https://
www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1184.pdf. 

217     �OCC Ceases Examinations for Reputation Risk, OCC (Mar. 20, 2025), https://www.occ.gov/news-issuances/news-releases/2025/nr-occ-2025-21.html; Federal 
Reserve Board Announces That Reputational Risk Will No Longer Be a Component of Examination Programs in Its Supervision of Banks, FRB (June 23, 
2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250623a.htm. The FDIC is also “working on a rulemaking related to reputation risk 
that would prohibit FDIC supervisors from (1) criticizing or taking adverse action against institutions on the basis of reputational risk and (2) requiring, 
instructing, or encouraging institutions to close, modify, or refrain from offering accounts on the basis of political, social, cultural, or religious views.” 
Acting Chairman Travis Hill, FDIC, Speech at American Bankers Association Washington Summit: View from the FDIC: Update on Key Policy Issues (Apr. 
8, 2025), https://www.fdic.gov/news/speeches/2025/view-fdic-update-key-policy-issues. 

218     �Press Release, FRB, Federal Reserve Board Announces the Withdrawal of Guidance for Banks Related to Their Crypto-Asset and Dollar Token Activities 
and Related Changes to Its Expectations for These Activities (Apr. 24, 2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250424a.htm. 

219     �See id.; see also FRB, FDIC & OCC, Joint Statement on Crypto-Asset Risks to Banking Organizations (Jan. 3, 2023), https://www.federalreserve.gov/
newsevents/pressreleases/files/bcreg20250424a1.pdf; FRB, FDIC & OCC, Joint Statement on Liquidity Risks to Banking Organizations Resulting from 
Crypto-Asset Market Vulnerabilities (Feb. 23, 2023), https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a2.pdf. Silvergate 
Capital Corporation, the parent company of one of the banks that failed in March 2023, disclosed risk in a public filing on March 1, less than two 
weeks before it announced plans to wind down and self-liquidate, that “the safety and soundness concerns expressed by the federal banking 
agencies regarding banking institutions with business models that are concentrated in digital asset related activities” could cause its financial 
performance to differ materially from its projections. Silvergate Capital Corporation, Form 12b-25 (Mar. 1, 2023), https://www.sec.gov/Archives/edgar/
data/1312109/000110465923027353/tm238251d1_nt10k.htm. Similarly, former Congressman Barney Frank, one of the Board members of Signature Bank, 
which was forcibly closed by the New York State Department of Financial Services (NYDFS) in March 2023, speculated that NYDFS was “using us as a 
poster child to say ‘stay away from crypto.’” Jen Wieczner, Barney Frank Talks More About the Surprise Shuttering of Signature Bank, N.Y. Magazine (Mar. 
15, 2023), https://nymag.com/intelligencer/2023/03/barney-frank-says-more-shuttering-signature-bank.html.

220    �FRB, FDIC & OCC, Crypto-Asset Safekeeping by Banking Organizations (July 14, 2025), https://www.occ.gov/news-issuances/news-releases/2025/nr-ia-2025-68a.pdf.

https://www.fdic.gov/news/financial-institution-letters/2025/fdic-clarifies-process-banks-engage-crypto-related
https://www.fdic.gov/news/financial-institution-letters/2025/fdic-clarifies-process-banks-engage-crypto-related
https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1183.pdf
https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1183.pdf
https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1184.pdf
https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1184.pdf
https://www.occ.gov/news-issuances/news-releases/2025/nr-occ-2025-21.html
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250623a.htm
https://www.fdic.gov/news/speeches/2025/view-fdic-update-key-policy-issues
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250424a.htm
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a1.pdf
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a1.pdf
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a2.pdf
https://www.sec.gov/Archives/edgar/data/1312109/000110465923027353/tm238251d1_nt10k.htm
https://www.sec.gov/Archives/edgar/data/1312109/000110465923027353/tm238251d1_nt10k.htm
https://nymag.com/intelligencer/2023/03/barney-frank-says-more-shuttering-signature-bank.html
https://www.occ.gov/news-issuances/news-releases/2025/nr-ia-2025-68a.pdf


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  6565   •   

Banking and Digital Assets Banking and Digital Assets  •  Bank Engagement with Digital Assets

rescinded January 2023 guidance and encouraged regulators to continue efforts designed to “limit financial 
institutions’ exposure to the risks of digital assets.”221

Regulatory efforts to deny banking services to the digital asset industry have ceased under the Trump 
Administration. With growth now in focus, the Working Group supports banks’ participation in digital asset-
related activities and the ability for banks to use blockchain technologies to improve their services. 

This section details how banks222 and credit unions (collectively, “depository institutions”) are engaging 
with digital assets and outlines the prudential regulatory framework applicable to: (i) depository institutions 
engaging in digital asset activities or offering banking services to digital asset firms; and (ii) digital asset firms 
interested in offering bank-like services. It then makes recommendations that would help ensure depository 
institutions can continue to innovate to meet customer demand for engagement in digital asset markets and 
use DLT throughout this new opportunity for growth.

Bank Engagement with Digital AssetsBank Engagement with Digital Assets
Banks have primarily engaged with the digital asset industry through: (i) providing core banking products and 
services to digital asset market participants; and (ii) facilitating customer access to digital asset markets through 
services such as custody, trade execution, and settlement. Due to general skepticism or concerns about risk, 
banks were initially slow to engage with digital assets. However, interest in digital asset-related product lines 
accelerated in 2020 and 2021 as the broader digital asset market experienced a period of substantial price gains 
and opportunities to leverage DLT became more apparent. This was accompanied by the OCC’s issuance of a 
series of interpretive letters toward the end of President Trump’s first administration related to the permissibility 
of certain digital asset activities, which added some regulatory certainty.223 However, in 2022, a series of 
market events, including a substantial decrease in the value of digital assets, 224 and the onset of the Biden 
Administration’s Operation Choke Point 2.0 impacted many banks’ interest in pursuing or increasing engagement 
with digital assets. Though banking agencies have steadily removed many of the previous regulatory 
impediments, certain areas of regulatory uncertainty remain and need to be addressed.225 

221     �Brian Deese, Arati Prabhakar, Cecilia Rouse & Jake Sullivan, The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks, The White House (Jan. 27, 
2023), https://bidenwhitehouse.archives.gov/nec/briefing-room/2023/01/27/the-administrations-roadmap-to-mitigate-cryptocurrencies-risks. 

222     �As used in this chapter of the report, “banks” broadly refers to and includes insured depository institutions and OCC-chartered trust banks.
223     �OCC, Interpretive Letter No. 1170, Authority of a National Bank to Provide Cryptocurrency Custody Services for Customers (July 22, 2020), https://occ.gov/

topics/charters-and-licensing/interpretations-and-actions/2020/int1170.pdf; OCC, Interpretive Letter No. 1172, OCC Chief Counsel’s Interpretation on National 
Bank and Federal Savings Association Authority to Hold Stablecoin Reserves (Sept. 21, 2020), https://occ.gov/topics/charters-and-licensing/interpretations-
and-actions/2020/int1172.pdf; OCC, Interpretive Letter No. 1174, OCC Chief Counsel’s Interpretation on National Bank and Federal Savings Association 
Authority to Use Independent Node Verification Networks and Stablecoins for Payment Activities (Jan. 4, 2021), https://occ.gov/topics/charters-and-
licensing/interpretations-and-actions/2021/int1174.pdf.

224     �See Financial Stability Oversight Council (FSOC), Report on Digital Asset Financial Stability Risks and Regulation 27 (2022), https://home.treasury.gov/
system/files/261/FSOC-Digital-Assets-Report-2022.pdf (noting that “... the substantial decline in crypto-asset prices during late 2021 and early 2022 
reportedly coincided with some key market developments” and throughout the report referring to the failure of the hedge fund Three Arrows Capital, 
the collapse of the TerraUSD stablecoin and associated liquidation of the Luna Foundation Guard’s bitcoin holdings, and the bankruptcies of Celsius and 
Voyager Digital). Additionally, the cryptocurrency exchange FTX filed for bankruptcy in November 2022. FTX Trading Ltd., Form 201, No. 22-11068-JTD 
(D. Del. Nov. 11, 2022).

225     �See FSOC, supra note 224, at 18 (noting that “some banks have indicated publicly that they have interest in offering crypto-asset products and services 
but are waiting on regulatory clarity before doing so.”).

https://bidenwhitehouse.archives.gov/nec/briefing-room/2023/01/27/the-administrations-roadmap-to-mitigate-cryptocurrencies-risks
https://occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1170.pdf
https://occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1170.pdf
https://occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1172.pdf
https://occ.gov/topics/charters-and-licensing/interpretations-and-actions/2020/int1172.pdf
https://occ.gov/topics/charters-and-licensing/interpretations-and-actions/2021/int1174.pdf
https://occ.gov/topics/charters-and-licensing/interpretations-and-actions/2021/int1174.pdf
https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf
https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  6666   •   

Banking and Digital Assets Banking and Digital Assets  •  Bank Engagement with Digital Assets

Current Products and Services

Banks provide a variety of traditional banking products and services to digital asset firms such as commercial 
deposit accounts, loans, and capital markets advisory services. Some banks also offer other services, directly 
or indirectly, related to the trading, settlement, and custody of native digital assets, though uptake is currently 
limited. The use of third parties commonly serves as a vehicle for banks to leverage new technologies, access 
greater expertise for a particular activity, or enter new marketplaces. Community banks in particular often 
find that they can harness the resources of third parties to leverage emerging technologies and create new 
opportunities for the bank and its customers. In recent years, banks have explored a range of business lines 
through external relationships, including custody services, facilitating customer purchases and sales of digital 
assets, loans involving digital assets, and DLT payments networks. Additionally, some banks and digital asset 
market participants partner to offer hybrid traditional banking and digital asset products, such as debit or 
credit cards that provide digital asset rewards. 

Adopting new technologies or offering new products or services are business decisions. Regulatory guidance 
from the OCC, FDIC, and FRB (collectively, the “Banking Agencies”) would be helpful for banks to evaluate 
digital asset activities. In any event, it is imperative that any banking regulatory framework not reflect a 
regulatory preference for a particular technology or sector so that banks may determine the mix of products 
and services to offer based on their business strategies and risk management capabilities and consistent with 
applicable law. 

Traditional (Core) Banking Services

Depository institutions play a valuable role in providing traditional banking services to digital asset market 
participants. Access to traditional banking services (e.g., deposit accounts, payments, lending) is essential for 
any company or individual. It enables them to manage cash flows, pay employees and vendors, and conduct 
their operations efficiently. For digital asset firms, maintaining a reliable banking relationship provides them 
with the critical infrastructure to interact with the broader economy. Those core banking services are provided 
to digital asset firms by depository institutions in accordance with their individual risk appetites and business 
decisions, while operating within a regulated framework. 

In the past, regulatory uncertainty contributed to reduced availability or stability of banking relationships 
for firms and individuals operating in digital asset markets. However, regulators have recently reiterated that 
banks are neither prohibited nor discouraged from providing banking services to customers of any specific 
class or type, as permitted by law or regulation. Therefore, banks themselves should make risk-based business 
decisions regarding each potential customer relationship based on the banks’ specific risk management 
capabilities and tolerances. 

Payments 

Some banks are seeking to harness DLT to facilitate faster payments. For example, some banks have formed 
consortia to establish new networks leveraging DLT for low-cost, real-time payment capabilities available 
24/7/365.226 Such DLT-based solutions, sometimes relying on third-party providers, may also have the 
capability to facilitate smart contracts that can extend functionality. Other banks are utilizing DLT to facilitate 
payments within a banking organization. Some are exploring leveraging public blockchains.

226     �See, e.g., Regulated Settlement Network Proof-of-Concept, Securities Industry and Financial Markets Association, https://www.sifma.org/resources/
general/regulated-settlement-network-proof-of-concept (last visited July 13, 2025); Big Banks Explore Interoperable Stablecoin, PYMNTS.com (May 23, 
2025), https://www.pymnts.com/cryptocurrency/2025/big-banks-eye-consortium-backed-stablecoin-to-counter-fintech-threat; How It Works, Fnality, https://
fnality.com/how-it-works (last visited July 13, 2025).

https://www.sifma.org/resources/general/regulated-settlement-network-proof-of-concept
https://www.sifma.org/resources/general/regulated-settlement-network-proof-of-concept
https://www.pymnts.com/cryptocurrency/2025/big-banks-eye-consortium-backed-stablecoin-to-counter-fintech-threat
https://fnality.com/how-it-works
https://fnality.com/how-it-works


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Banking and Digital Assets Banking and Digital Assets  •  Bank Engagement with Digital Assets

Tokenization

Tokenization entails bringing traditional products and services onchain using DLT. This enables both the 
bank and its clients to benefit from capabilities that are commonly implemented on distributed ledgers, 
such as the potential to encode rules or conditions into the tokenized assets and liabilities themselves (i.e., 
programmability). Tokenization has the potential to transform execution, settlement, and other banking 
activities that could benefit from these efficiencies.227 Clarity within the regulatory perimeter may contribute to 
dislocation of legacy system intermediaries and traditional financial market infrastructures (FMIs). 

When deciding which traditional products to tokenize, banks and their clients generally appear to be focusing 
on the financial activities they view as most reliant on inefficient market structures and on products that align 
with their core competencies. Although tokenization is occurring across all financial services, bank tokenization 
projects garnering the most public attention are tokenized deposits, digital foreign exchange (FX), custody 
of tokenized securities, tokenized repurchase agreements, and tokenized private funds.228 Tokenization also 
presents an opportunity for banks to bring loans onchain, potentially improving operational efficiency and access 
to capital,229 especially for lending to small and medium-sized enterprises (including by community banks).

Tokenized Deposits

Tokens may represent a range of different kinds of assets and liabilities, including commercial bank deposits. 
Banks are generally permitted to tokenize deposits in the U.S., as tokenization can be viewed as a form of 
technology to record bank deposits;230 nonetheless, further clarity on this point from the Banking Agencies 
would be helpful.231

A tokenized deposit may offer the familiarity and safety of a bank deposit, with the added functionality of 
instantaneous settlement of DLT. Depository institutions are actively exploring and deploying use cases; some 
banks have used tokenization and tokenized deposits to facilitate 24/7, real-time, intra-bank transfers or have 
expressed interest in pursuing the tokenization of deposits. These improvements to internal systems may 
enable more efficient transfers of funds, as well as new types of financial products. Others are seeking to use 
tokenized deposits to facilitate transfers among trusted participants in a network. For example, as discussed 
below, some are pursuing tokenized deposits to facilitate wholesale, cross-border payments. 

Tokenization of deposits, like any novel technology, may raise certain questions regarding practical 
implementation and broader impact on the banking system. For example, banks should establish certainty for 

227     �Many of the product designs under development have the potential to integrate features from different sources. For example, a bank-owned distributed 
ledger platform could leverage components and solutions developed in house or by third-party providers. Likewise, a bank may decide to tokenize its 
products through white-label offerings on third-party platforms. Finally, a bank could choose to provide services to clients through connectivity to a DeFi 
FMI platform using dApps. A quality known as “composability,” similar to but more expansive than mere interoperability, enables clients or customers to 
design new or unique financial products using off the shelf templates and tools, presenting both opportunities and risks for firms.

228     �See Oliver Wyman & J.P. Morgan Chase & Co., Deposit Tokens: A Foundation for Stable Digital Money (2022), https://www.jpmorgan.com/kinexys/
documents/deposit-tokens.pdf; Citigroup, Bringing Traditional Assets to Digital Networks: Exploring the Tokenization of Private Markets (2024), https://
www.citigroup.com/rcs/citigpa/storage/public/Fund-Tokenization-Summary-Report.pdf; Citi and Fidelity International Demonstrate Tokenized Money Market 
Fund and Digital Foreign Exchange Swap Solution, Citigroup (Nov. 4, 2024), https://www.citigroup.com/global/news/press-release/2024/citi-and-fidelity-
international-demonstrate-tokenized-money-market-fund-and-digital-foreign-exchange-swap-solution; Reinventing Asset Servicing with Distributed Ledger 
Technology, HSBC (May 20, 2024), https://www.gbm.hsbc.com/en-gb/insights/market-and-regulatory-insights/reinventing-asset-servicing-with-distributed-
ledger-technology; BNP Paribas Trades Intraday Repo on J.P. Morgan’s Onyx Digital Assets Platform, BNP Paribas (May 16, 2022), https://globalmarkets.cib.
bnpparibas/bnp-paribas-trades-intraday-repo-on-j-p-morgans-onyx-digital-assets-platform-2.

229     �See Tokenization in Financial Services: Delivering Value and Transformation, PwC (Mar. 11, 2024), https://www.pwc.com/us/en/tech-effect/emerging-tech/
tokenization-in-financial-services.html (“Historically illiquid assets, such as private credit and private equity, can also be viable tokenization candidates. In 
the roughly $1.5 trillion private credit market, for example, it can take a tremendous amount of time and effort to match buyers and sellers. When private 
credit starts utilizing tokenization, lenders can “fractionalize” loans, making them into a variety of sizes, increasing the pool of potential borrowers.”).

230     �See Acting Chairman Hill, supra note 217 (“From the FDIC’s perspective, we should provide certainty that ‘deposits are deposits, regardless of the 
technology or recordkeeping deployed.’”) (quoting Vice Chairman Travis Hill, FDIC, Speech at Mercatus Center, Banking’s Next Chapter? Remarks on 
Tokenization and Other Issues (Mar. 11, 2024), https://www.fdic.gov/news/speeches/2024/spmar1124.html).

231     �Whether any particular tokenized deposit product meets the statutory or regulatory definitions of “deposit” for purposes under 12 U.S.C. § 1813(l) or 12 
C.F.R. pt. 204 (2025) (commonly referred to as Regulation D) depends on a fact-specific analysis of the product.

https://www.jpmorgan.com/kinexys/documents/deposit-tokens.pdf
https://www.jpmorgan.com/kinexys/documents/deposit-tokens.pdf
https://www.citigroup.com/rcs/citigpa/storage/public/Fund-Tokenization-Summary-Report.pdf
https://www.citigroup.com/rcs/citigpa/storage/public/Fund-Tokenization-Summary-Report.pdf
https://www.citigroup.com/global/news/press-release/2024/citi-and-fidelity-international-demonstrate-tokenized-money-market-fund-and-digital-foreign-exchange-swap-solution
https://www.citigroup.com/global/news/press-release/2024/citi-and-fidelity-international-demonstrate-tokenized-money-market-fund-and-digital-foreign-exchange-swap-solution
https://www.gbm.hsbc.com/en-gb/insights/market-and-regulatory-insights/reinventing-asset-servicing-with-distributed-ledger-technology
https://www.gbm.hsbc.com/en-gb/insights/market-and-regulatory-insights/reinventing-asset-servicing-with-distributed-ledger-technology
https://globalmarkets.cib.bnpparibas/bnp-paribas-trades-intraday-repo-on-j-p-morgans-onyx-digital-assets-platform-2
https://globalmarkets.cib.bnpparibas/bnp-paribas-trades-intraday-repo-on-j-p-morgans-onyx-digital-assets-platform-2
https://www.pwc.com/us/en/tech-effect/emerging-tech/tokenization-in-financial-services.html
https://www.pwc.com/us/en/tech-effect/emerging-tech/tokenization-in-financial-services.html
https://www.fdic.gov/news/speeches/2024/spmar1124.html


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  6868   •   

Banking and Digital Assets Banking and Digital Assets  •  Bank Engagement with Digital Assets

their customers regarding the ability to transfer tokenized deposits. Additionally, banks and their customers 
must have confidence in the reliability and security of the underlying technology, and in the privacy of any 
confidential information shared when making a payment. Further, if there are many different ledgers, banks 
must consider how these ledgers interact or interoperate so that customers are able to transfer value freely.232 
Finally, programmability associated with tokenized deposits may increase the speed and automation of 
transactions, which may have an ancillary effect of increasing the speed of, and herding behavior leading 
to, bank runs. Conversely, programmability could also be used to introduce frictions into the transaction or 
settlement processes to reduce the speed of bank runs or otherwise provide incentives to mitigate the risk of 
herding behavior.233

Payments showcase how stablecoins234 and tokenized bank deposits can be used for the same general purpose 
but differ significantly in implementation and legal treatment. Both stablecoins and tokenized deposits could 
be used as means of payment and operate on the same underlying technology. However, tokenized deposits 
are intended to evidence a bank’s deposit liability and a holder’s deposit claim against a regulated bank as 
recorded on a digital ledger. Bank deposits (including tokenized deposits) are supported by the bank’s balance 
sheet and therefore can be subject to federal deposit insurance. Additionally, in the event of insolvency, 
the disposition of bank deposits would be addressed through receivership, which features special rules for 
deposit claims, rather than through bankruptcy proceedings. Stablecoins, on the other hand, may represent 
a liability of a bank subsidiary or nonbank counterparty or a claim on reserve assets. Certain customers and 
counterparties may value the added security of tokenized deposits, while others may value the full reserve-
based nature of certain stablecoins and their currently wider interoperability and acceptance within the digital 
asset ecosystem.

Digital Asset Custody 

As the digital asset market has grown, there has been an increasing demand for trusted institutions to provide 
custody services for digital assets, including safekeeping (e.g., controlling the cryptographic keys of customers’ 
digital assets, transaction processing, and settlement).235 Depository institutions have long provided custody 
services for a wide variety of physical and electronic assets, including assets that are unique and hard to 
value. As digital assets generally consist of entries on distributed ledgers, providing custody typically entails 
maintaining control of cryptographic keys (and potentially other sensitive information) used to transfer the 
assets on these ledgers. As in traditional custody services, customers may seek to engage the custodian to 
undertake ancillary services. In the digital asset context, ancillary services that customers may seek from 
a custodian include staking, facilitating digital asset lending, and DLT governance services. Depository 
institutions may provide custody services themselves or through sub-custodians to hold cryptographic keys or 
white-labeling digital asset custody platforms. 

Currently, only a small number of banks offer digital asset custody, with a focus primarily on institutional 
customers. Several factors likely contributed to the relatively small number of banks that have decided to 
engage in this activity—most notably, the now-rescinded SEC SAB No. 121 to the extent such banks were (or 
were subsidiaries of) companies required to file certain periodic reports under applicable securities laws. The 
Biden Administration’s Operation Choke Point 2.0 further contributed by creating additional procedural steps 
and costs to engage in digital asset activities alongside statements from federal banking regulators and the 

232     �The potential availability of multiple distributed ledgers or blockchains has some potential benefits, including offering redundancies in systems that 
improve system-wide resilience.

233     �See Vice Chairman Hill, Banking’s Next Chapter? Remarks on Tokenization and Other Issues, supra note 230 (discussing the potential for tokenization to 
exacerbate and mitigate risks of speed and intensity of bank runs).

234     �See Chapter V. 
235     �See OCC, Interpretive Letter No. 1170, supra note 223, at 7, 8 (noting that providing custody services for digital assets falls within longstanding authorities 

to engage in safekeeping and custody activities, and that providing such services is permissible in both non-fiduciary and fiduciary capacities). 



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Banking and Digital Assets Banking and Digital Assets  •  Bank Engagement with Digital Assets

White House discouraging such engagement.236 Digital asset companies interested in providing custody 
services as banks also faced strong difficulty in receiving bank charters from the OCC.237 The need for custody 
expertise, competence with digital assets, and cybersecurity implications may also have reduced engagement 
by banks in such activities. Interest may also have been chilled by long-term volatility within the digital asset 
market and specific market events in 2022.238 Finally, other factors that may have impacted a bank’s decision 
to offer digital asset custody include competition (especially given that established digital asset companies 
frequently provide custody solutions—sometimes for little or no cost—and have substantial market share), 
significant capital requirements, the availability of self-custody options, the nascent nature of the technology 
in banking, and perceived risk implications. In July 2025, however, the Banking Agencies jointly reaffirmed the 
legal permissibility for banks to custody digital assets under existing laws, regulations, and risk-management 
principles without creating any new supervisory expectations.239

Facilitating Digital Asset Trading

Banks offer customers digital asset trading in varying forms. Some banks provide trade execution geared 
towards institutional and high net worth customers interested in gaining exposure to certain digital assets, 
supplementing custody services offered. Banks interested in offering retail customers exposure to digital asset 
markets may seek to provide these services through a third party. This simplest form of this arrangement 
enables bank customers to access the third party’s digital asset trading service through the bank’s website or 
app. In some cases, this falls within a banking organization’s finder authority, which generally encompasses a 
bank bringing together parties to a transaction that the parties themselves negotiate and execute.240 Other 
types of arrangements related to digital asset trading may not fall within such authority,241 but may, depending 
on the facts of the arrangement, fall under other authorities or require additional regulatory approvals. 

A bank’s role in such an arrangement depends on the relationship. In certain cases, it may include providing a 
variety of the third party’s disclosures and statements to customers, providing customer service and complaint 
resolution, and performing requisite transaction compliance functions for the third party. Banks may receive 
a portion of the transaction fees paid by their customers and pay fees to the third party. Several banks have 
expressed an interest in expanding trade facilitation services. However, very few banks are currently using their 
finder authorities to provide digital asset trading to their customers. 

Digital Asset-Related Lending

Some banks have entered into business arrangements to extend credit in transactions that involve digital 
assets. Examples include loans secured by digital assets or digital asset mining equipment, or loans used to 
fund the borrower’s digital asset-related operations. While loan structures vary, such lending generally has 
unique credit administration considerations compared to traditional lending, including perfecting a security 
interest in digital asset collateral or providing for self-execution of loan terms. As such, banks looking to offer 
this line of business often engage a third party to custody collateral, provide valuations, manage margin calls, 
develop smart contracts, or provide other services as appropriate. 

Digital asset-related lending activities by banks has so far been limited. Several factors likely contributed to 
this low interest, including the Biden Administration’s Operation Choke Point 2.0, regulatory uncertainty, and 

236    �See supra note 221; infra notes 266-270. 
237    �See supra note 102.
238    See supra note 224.
239    �Crypto-Asset Safekeeping by Banking Organizations, supra note 220.
240   �See, e.g., 12 C.F.R. § 7.1002 (2025) (national bank and federal savings association acting as finder); 12 C.F.R. § 225.86(d)(1) (2025) (financial holding 

company acting as finder).
241     �For example, an arrangement under which a bank purchased digital assets as agent or principal or negotiated a purchase or sale may be inconsistent with 

a bank’s finder authority. Finders bring together interested parties for a transaction that the parties themselves negotiate and execute.



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difficulties managing volatility of valuations (both for digital assets and mining equipment). However, as digital 
asset markets continue to mature and bank customers increasingly hold digital assets, interest in using those 
assets as collateral is likely to increase.

Current Regulatory FrameworkCurrent Regulatory Framework
Federal law provides the Banking Agencies with authorities related to: (i) the supervision and regulation of 
banks, including the activities they can engage in and applicable requirements; (ii) the examination of banks to 
ensure compliance with applicable laws and regulations; and (iii) the imposition of corrective actions for unsafe 
or unsound practices or violations of law or regulation. In implementing federal law, the Banking Agencies may 
adopt rules and regulations to achieve the law’s objectives and have also issued guidance, policy statements, 
and other supervisory directives to provide further direction to banks and to provide transparency and 
direction on how activities will be supervised. 

In adapting the current banking regulatory framework to incorporate digital assets, it is imperative that the 
Banking Agencies employ a technology-neutral approach. Technological transformation does not necessarily 
alter the risk profile of an activity, and the same business presenting the same risk should be governed by the 
same rules. Banks should be able to engage in permissible digital asset activities in a safe and sound manner 
without prior regulatory approval or notice. Further, the Banking Agencies should monitor banks’ digital asset 
activities through an appropriate supervisory process.

Legal Permissibility

Banks and their holding companies are subject to limitations on what types of activities they may conduct. The 
National Bank Act (NBA) generally defines the permissible activities for national banks and is administered by 
the OCC. The OCC’s determination of whether a new activity is permissible for a national bank often involves 
consideration of whether that activity is part of, or incidental to, the “business of banking” under 12 U.S.C. § 24.242 

One of the clearest benefits of the U.S. dual banking system, in which banks can be chartered at either the state 
or federal level, is the ability for states to “serve as laboratories for innovation,”243 which has resulted in state 
banks “[taking] the lead in safe and sound product innovations, including variable-rate mortgages and home 
equity loans.”244 The OCC itself has stated that “[s]tate banking does not deliver the benefits of having separate 
state systems serve as ‘laboratories’ if state bank powers simply copycat national bank powers.”245 Nonetheless, 
since 2023, the permissible activities engaged in as principal by state non-member banks246 and state member 
banks247 are generally limited to those permitted under the NBA as interpreted by the OCC.

242     �For federal savings associations, the permissibility of an activity typically depends on the Home Owners’ Loan Act, 12 U.S.C. § 1461 et seq.
243     �OCC, National Banks and the Dual Banking System 8, 9 (Sept. 2003), https://www.occ.gov/publications-and-resources/publications/banker-education/files/

pub-national-banks-and-the-dual-banking-system.pdf. 
244     �Julie L. Stackhouse, Why America’s Dual Banking System Matters, Federal Reserve Bank of St. Louis (Sept. 18, 2017), https://www.stlouisfed.org/on-the-

economy/2017/september/americas-dual-banking-system-matters.
245     �OCC, supra note 243, at 11.
246     �Section 24 of the Federal Deposit Insurance Act generally prohibits all insured state banks (member and non-member) and their subsidiaries from 

engaging as principal in activities that are not permissible for national banks and their subsidiaries, unless (i) the FDIC has determined that the activity 
would pose no significant risk to the Deposit Insurance Fund; and (ii) the state bank is, and continues to be, in compliance with applicable capital 
standards. 12 U.S.C. § 1831a. See also 12 U.S.C. § 1831e with respect to activities of state savings associations. Additionally, under certain circumstances, the 
FDIC may approve additional activities for insured state-chartered banks. See 12 C.F.R. § 362 (2025).

247     �Under Section 9(13) of the Federal Reserve Act, a state member bank retains its full charter and statutory rights as a state bank and may continue to 
exercise all corporate powers granted it by the state in which it was created. However, the Board may limit the activities of state member banks and their 
subsidiaries in a manner consistent with Section 24 of the Federal Deposit Insurance Act. See supra note 246. The Board issued a policy statement, which 
it ultimately codified in Regulation H, interpreting Section 9(13) of the Federal Reserve Act to create a rebuttable presumption against permissibility of 
“novel and unprecedented” activities, including crypto-asset-related activities. Policy Statement on Section 9(13) of the Federal Reserve Act, 88 Fed. 
Reg. 7848 (Feb. 7, 2023) (codified at 12 C.F.R. pt. 208 (2025)).

https://www.occ.gov/publications-and-resources/publications/banker-education/files/pub-national-banks-and-the-dual-banking-system.pdf
https://www.occ.gov/publications-and-resources/publications/banker-education/files/pub-national-banks-and-the-dual-banking-system.pdf
https://www.stlouisfed.org/on-the-economy/2017/september/americas-dual-banking-system-matters
https://www.stlouisfed.org/on-the-economy/2017/september/americas-dual-banking-system-matters


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In February 2023, as a continuation of the Biden Administration’s Operation Choke Point 2.0 efforts to shut 
down interest from state member banks in engaging in digital asset-related activities and other “novel and 
unprecedented” activities, the FRB issued a policy statement interpreting Section 9(13) of the Federal Reserve 
Act to “set out a rebuttable presumption that it will exercise its discretion under that provision to limit state 
member banks to engaging as principal in only those activities that are permissible for national banks—in each 
case, subject to the terms, conditions, and limitations placed on national banks with respect to the activity—
unless those activities are permissible for state banks by federal statute or under part 362 of the Federal Deposit 
Insurance Corporation’s regulations.”248 State member banks interested in engaging in such activities are now 
required to demonstrate to the FRB a “clear and compelling rationale” for permitting the activities and that the 
bank has “robust plans for managing the risks” of such activities in accordance with principles of safe and sound 
banking. The FRB then revised Regulation H, which defines the membership requirements for state-chartered 
banks, to incorporate the 2023 policy statement, effectively codifying the rebuttable presumption into law.249

As a consequence, the activities that the OCC has authorized for national banks, if permitted under state 
law, generally represent the full breadth of activities in which a state member bank may engage as principal 
without limitation under Section 9(13), contrary to the longstanding tenet that the dual banking system should 
promote innovation in new banking products on the state level. The FRB’s utilization of Section 9(13) and its 
discretionary powers under § 208.3(d)(2) of Regulation H has resulted in a de facto prohibition by state member 
banks from engaging in most digital asset related activities.

At the organizational level, the Bank Holding Company Act, which is administered by the FRB, generally 
governs the permissibility of the activities of bank holding companies (BHCs) and financial holding companies 
(FHCs).250 The BHC Act primarily restricts the activities of BHCs and their subsidiaries to activities that are 
closely related to banking.251 In addition, BHCs that elect to be treated as FHCs (per the Gramm-Leach-Bliley 
Act) can engage in a broader range of nonbanking activities that are “financial in nature,” “incidental to a 
financial activity,” or “complementary to a financial activity.”252 Any significant acquisitions or expansions into 
new activities by BHCs and FHCs generally require FRB approval. 

In July 2020, the OCC issued Interpretive Letter No. 1170 that concluded that national banks and federal 
savings associations (FSAs) may provide digital asset custody services, including the safekeeping of 
cryptographic keys for customers.253 In September 2020, the OCC issued Interpretive Letter No. 1172 that 
concluded that national banks and FSAs may hold deposits that serve as reserves backing stablecoins.254 Then, 
in January 2021, the OCC issued Interpretive Letter No. 1174 that concluded that national banks and FSAs may 
use DLT and related stablecoins to conduct bank-permissible payment activities.255 Later, the OCC issued 
Interpretive Letter No. 1179, which set forth a supervisory non-objection process for engaging in the activities 
described in Interpretive Letters Nos. 1170, 1172, and 1174.256 In March 2025, the OCC issued Interpretive Letter 
No. 1183, which rescinded Interpretive Letter No. 1179 thereby eliminating the supervisory non-objection 

248     88 Fed. Reg. 7848, supra note 246.
249     �12 C.F.R. § 208.112 (2025).
250    �The Home Owners’ Loan Act governs the activities of savings and loan holding companies. 12 U.S.C. § 1467a(c).
251     �This includes extending credit and related activities, leasing personal or real property, trust company functions, financial and investment advisory 

activities, agency transactional services for customer investments (e.g., securities brokerage), management consulting, certain insurance activities, and 
data processing.

252     �12 U.S.C. § 1843(k)(1). For example, FHCs may, among other things, act as finder in bringing together one or more buyers and sellers of a product or service; 
engage in merchant banking and certain insurance underwriting activities; and engage in underwriting, dealing in, or making a market in securities.

253    �OCC, Interpretive Letter No. 1170, supra note 223.
254    �OCC, Interpretive Letter No. 1172, supra note 223.
255    �OCC, Interpretive Letter No. 1174, supra note 223.
256    �OCC, Interpretive Letter No. 1179, Chief Counsel’s Interpretation Clarifying: (1) Authority of a Bank to Engage in Certain Cryptocurrency Activities; 

and (2) Authority of the OCC to Charter a National Trust Bank (Nov. 18, 2021), https://www.occ.treas.gov/topics/charters-and-licensing/interpretations-and-
actions/2021/int1179.pdf.

https://www.occ.treas.gov/topics/charters-and-licensing/interpretations-and-actions/2021/int1179.pdf
https://www.occ.treas.gov/topics/charters-and-licensing/interpretations-and-actions/2021/int1179.pdf


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process described in that letter. Interpretive Letter No. 1183 also reaffirmed that the activities addressed in 
Interpretive Letters Nos. 1170, 1172, and 1174 are permissible.257 In May 2025, the OCC issued Interpretive Letter 
No. 1184, which confirmed that national banks and FSAs could buy and sell digital assets held in custody at the 
customer’s direction and outsource bank-permissible digital asset activities to a third party.258 Finally, in July 
2025, the Banking Agencies issued a joint statement reaffirming the legal permissibility for banks to custody 
digital assets under the existing regulatory framework without creating any new supervisory expectations.259

In November 2021, the Banking Agencies issued a joint statement outlining plans to provide greater clarity 
on whether certain activities related to digital assets conducted by banks are legally permissible and to 
describe expectations for safety and soundness, consumer protection, and compliance with existing laws and 
regulations related to a number of digital asset related activities, specifically highlighting custody, facilitation 
of customer purchases and sales, digital asset collateralized lending, stablecoin activities, and holding digital 
assets on balance sheet. However, under the Biden Administration, the Banking Agencies did not carry out 
those plans to provide guidance specific to those digital asset activities, and as mentioned above, the Federal 
Reserve’s policy statement on Section 9(13) and corresponding revisions to Regulation H further complicated 
the degree to which state member banks could engage in digital asset-related activities. 

Therefore, there remains significant outstanding uncertainty regarding the permissibility of digital asset-related 
activities at the bank level, especially beyond those addressed in OCC Interpretive Letters Nos. 1170, 1172, 1174, 
1183, and 1184, and outside the bank chain within a BHC/FHC structure. For example, banks are interested in 
acquiring and using digital assets to pay transaction fees (e.g., gas fees) to conduct bank-permissible activities 
on public blockchains. Likewise, banks are seeking clarity on whether and how they may purchase and sell digital 
assets as riskless principals for customers and whether banks may make markets in digital assets. Similarly, banks 
are seeking clarity regarding their authority to act as finders and lenders in the context of digital asset-related 
activities, and whether some activities are permissible only at the BHC/FHC level.

Depository Institution and Market Participant Concerns

A clear regulatory framework is required to ensure that depository institutions can continue to innovate 
responsibly to facilitate customer engagement with digital assets and to use digital asset technology in 
a safe and sound manner that complies with applicable laws and regulations. Any regulatory framework 
should be derived from a clear statutory basis and be efficient and fair. Therefore, it is essential that 
the Banking Agencies ensure that they employ a technology-neutral approach to bank regulation and 
supervision when incorporating digital assets into the current banking regulatory framework. As a policy 
matter, and from the perspectives of efficiency and competition, it could be detrimental to innovation in 
the financial system for the Banking Agencies to treat decentralization and permissionless infrastructure as 
categorically negative given the potential benefits of this technology. While the regulators have retracted 
much of the Biden Administration’s approach to digital asset supervision that may have hampered banks’ 
ability to engage with digital assets, additional work is needed to address many of the remaining concerns 
expressed by depository institutions. 

Depository institutions have expressed many concerns regarding the current regulatory framework, most 
notably:

	■ A lack of legal clarity on whether banks can offer certain digital asset-related products and services and 
use DLT technology in certain areas. Specifically, banks have asked for further clarity as to whether they 
may use public, permissionless blockchains now that the effective prohibition of such use under the Biden 

257     �OCC, Interpretive Letter No. 1183, supra note 216.
258     �OCC, Interpretive Letter No. 1184, supra note 216.
259     �Crypto-Asset Safekeeping by Banking Organizations, supra note 220.



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Administration has been lifted.260 Additionally, banks have asked for guidance on how they can safely and 
soundly engage in such activities. 

	■ A lack of clear standards on safe and sound engagement with digital assets; the Banking Agencies have not 
ensured supervisory consistency and expertise in bank digital asset engagement.

	■ A lack of clear capital standards on balance sheet treatment for many digital assets and concern that the 
BCBS standards may not accurately reflect current risks.

	■ Difficulties reported by some digital asset market participants in either finding or maintaining banking 
services. 

	■ A lack of clarity for eligible firms on the expectations and process for obtaining a bank charter or a Reserve 
Bank master account.

Recommendations Recommendations 

Relaunch agency crypto innovation efforts—as appropriate—to address outstanding bank activities.

•	 These efforts should prioritize providing clarity on the activities that banks are most interested in 
conducting with a clear process for considering other or new activities. The objectives would be to:

	◆ Clarify or expand the recognized, permissible digital asset activities in which banks may engage, 
consistent with applicable law;

	◆ To the extent possible, and consistent with applicable law, ensure parity in permissibility between bank 
charter types; and 

	◆ Clarify supervisory expectations on safe and sound conduct that protects consumers and is compliant 
with applicable laws and regulations in bank engagement with digital assets, private and permissionless 
blockchains, tokenized deposits, and where to conduct principal bank activities (e.g., in the insured 
depository institution or the holding company). 

•	 The initial activities and topics to consider include: 

	◆ Custody of Digital Assets. While the Banking Agencies have clarified permissibility and certain risk 
management considerations,261 it could be beneficial to provide additional guidance on technical best 
practices.

	◆ Third Parties. While the Banking Agencies have clarified the permissibility of using third parties as 
sub-custodians,262 it may be beneficial to ensure any additional guidance on permissibility or risk 
management for other digital asset activities reiterates the ability to use third parties as infrastructure 
providers or for other digital asset services.

	◆ Holding Stablecoin Reserves as Deposits. While the OCC has clarified permissibility,263 it could be 
beneficial to offer additional guidance now that GENIUS has been enacted.

	◆ Principal Activities. Provide clarity on the permissibility for depository institutions to hold digital assets 
on their balance sheet and any associated safety and soundness concerns.264 

260     �See Acting Chairman Hill, supra note 217 (“One specific area that merits attention is the use of public, permissionless blockchains by banks. Other 
jurisdictions have allowed banks to interact with public chains for many years, but the U.S. banking agencies have effectively prohibited it . . . . The 
banking agencies will need to formally revisit the January 2023 and February 2023 interagency guidance and develop durable standards for the 
responsible use of public chains, as well as other activities implicated by the guidance.”)

261     �Crypto-Asset Safekeeping by Banking Organizations, supra note 220; OCC, Interpretive Letter No. 1170, supra note 223; OCC, Interpretive Letter No. 1183, 
supra note 216; OCC, Interpretive Letter No. 1184, supra note 216.

262     �Crypto-Asset Safekeeping by Banking Organizations, supra note 220; OCC, Interpretive Letter No. 1170, supra note 223; OCC, Interpretive Letter No. 1184, 
supra note 216.

263     �OCC, Interpretive Letter No. 1172, supra note 223; OCC, Interpretive Letter No. 1174, supra note 223; OCC, Interpretive Letter No. 1183, supra note 216.
264     �Banks have also expressed interest in holding and using small amounts of cryptocurrency to pay transaction or gas fees for customers and in conducting 

riskless principal cryptocurrency transactions.



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Banking and Digital Assets Banking and Digital Assets  •  Current Regulatory Framework

	◆ Pilots. Clarity is needed on the ability for depository institutions to participate in pilots and experiments 
related to digital assets.

	◆ Tokenization. Provide clear risk-based guidelines that consider underlying risk and asset features to 
determine the permissibility of bank tokenization activities, including tokenization of deposits.

	◆ Permissionless Blockchains. Provide clarity regarding the use of permissionless blockchains that 
ensures a technology-neutral approach focusing on underlying risks of the activity or technology versus 
using technology alone as a proxy for risk.

Encourage innovation in banking technologies and products by state-chartered banks. 

•	 The FRB should rescind the 2023 Section 9(13) Policy Guidance and 12 C.F.R. § 208.112 (which effectively 
codifies the Policy Guidance into Regulation H), to ensure that state member banks are permitted to 
explore innovative banking technologies and products.

Develop guidance and best practices to support banks and supervisors that is technically sound and 
principles-based. 

•	 Risk management principles and best practices described in existing agency issuances generally 
provide flexible guidance for banking organizations’ considerations that can apply to the safe and sound 
implementation of innovative technologies and products, including those related to digital assets and 
DLT.265 Nonetheless, it is important that agency examination teams and banks are properly equipped to 
adopt current risk management principles to digital asset technologies.

•	 This could involve engagement with NIST and others to identify applicable standards or best practices that 
could be used in guidance for some digital asset activities such as providing digital asset custody services, 
ensuring compliance with applicable AML/CFT obligations (see Chapter VI, which discusses the AML-
specific regulatory duties for digital assets for more details), or managing cyber risks particular to digital 
assets.

•	 This could also include best practices or standards applicable to banks’ use of third parties in the provision 
of digital asset services.

•	 Finally, the Banking Agencies and state regulators should ensure that their examination teams are 
adequately educated on issues related to digital assets and the consistent application of best practices and 
standards across institutions.

Supervision

Bank supervisors should expect bank risk management processes to be applied based on risk, with the 
intensity and rigor of risk management corresponding to, among other things, the complexity, criticality, and 
magnitude of the technological change or new activity. Banks considering the adoption of new technologies 
should consider their overarching business strategy, policy objectives, and existing risk management 
and compliance frameworks when identifying whether and how existing controls may be adapted and 
supplemented. Similarly, the Banking Agencies should examine banks’ activities from a technology-neutral 
approach, focusing on such activities’ material risks and the banks’ abilities to manage such risks. 

While certain digital asset activities were legally permissible in the past, many banks were deterred in part to 
the Biden Administration’s supervisory framework governing such activities. Following the issuance of the 
OCC’s interpretive letters in 2020 and 2021 clarifying the permissibility of certain digital asset activities at 
the end of President Trump’s first administration, the Banking Agencies subsequently effected notification 

265     �See, e.g., OCC, Bulletin 2017-43, New, Modified, or Expanded Bank Products and Services: Risk Management Principles (Oct. 20, 2017), https://www.occ.
treas.gov/news-issuances/bulletins/2017/bulletin-2017-43.html.

https://www.occ.treas.gov/news-issuances/bulletins/2017/bulletin-2017-43.html
https://www.occ.treas.gov/news-issuances/bulletins/2017/bulletin-2017-43.html


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Banking and Digital Assets Banking and Digital Assets  •  Current Regulatory Framework

and non-objection processes for banks seeking to engage in digital asset activities and issued statements 
highlighting heightened risks associated with certain digital asset activities.

As noted above, in November 2021, the OCC issued Interpretive Letter No. 1179 which set forth a supervisory 
non-objection process for engaging in certain crypto-related activities;266 in April 2022, the FDIC issued 
Financial Institution Letter 16-2022 requesting that supervised institutions notify the FDIC prior to engaging 
in crypto-related activity;267 and in August 2022, the FRB issued SR Letter 22-6 requesting that supervised 
institutions notify Federal Reserve supervisors prior to engaging in crypto-related activity.268 In January 2023, 
the Banking Agencies jointly issued a statement on digital asset risks to banking, asserting that business 
models that are concentrated in digital assets raise significant safety and soundness concerns and that 
issuing or holding as principal digital assets that are issued, stored, or transferred on an open, public, and/or 
decentralized network is highly likely to be inconsistent with safe and sound banking practices.269 In February 
2023, the Banking Agencies jointly issued a statement on the liquidity risks to banks presented by certain 
sources of funding from digital asset related entities.270

The Biden Administration’s approach severely curtailed bank engagement in digital assets. However, as 
previously mentioned, the Banking Agencies rescinded their notification and non-objection processes in early 
2025 to clarify that banks may engage in permissible digital asset related activities without receiving prior 
regulatory approval.271 The Banking Agencies also withdrew the January 2023 and February 2023 joint statements 
to provide further clarity that banks may engage in permissible digital asset activities and provide products and 
services to persons and firms engaged in digital asset-related activities, consistent with safety and soundness 
and applicable laws and regulations.272 Those series of actions have moved the supervision of bank digital assets 
activities back to the regular supervisory process. Nonetheless, some banks have indicated that additional 
guidance, such as on best practices, could provide additional clarity on supervisory expectations for risk 
management related to specific aspects of digital asset activities (e.g., custody, BSA/AML, and cyber security).273 

Recommendations Recommendations 

Clarify the role of supervisors and banks in offering banking services to potential customers.

•	 The Banking Agencies should ensure that existing and new best practices or guidance on risk management 
and bank engagement are technology-neutral and that expectations regarding offering banking services 
do not discriminate against lawful businesses solely due to their industry. For example, OCC Bulletin 2014-
58: Banking Money Services Businesses: Statement on Risk Management, which makes clear that the OCC 
expects OCC-regulated banks to assess the risks posed by an MSB customer on a case-by-case basis 
rather than to consider all MSBs high risk, could be extended, and the FRB and FDIC could issue similar 
guidance.274

266    �OCC, Interpretive Letter No. 1179, supra note 256.
267    � FDIC, FIL 16-22, Notification of Engaging in Crypto-Related Activities (Apr. 7, 2022), https://www.fdic.gov/news/inactive-financial-institution-letters/2022/

fil22016.html. 
268    �FRB, SR 22-6, Engagement in Crypto-Asset-Related Activity by Federal Reserve-Supervised Banking Organizations (Aug. 16, 2022), https://www.

federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a3.pdf. 
269     �Joint Statement on Crypto-Asset Risks to Banking Organizations, supra note 219.
270     �Joint Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities, supra note 219.
271     �See FDIC Press Release, supra note 215; FRB Press Release, supra note 218; Press Release, OCC, OCC Clarifies Bank Authority to Engage in Certain 

Cryptocurrency Activities (Mar. 7, 2025), https://www.occ.treas.gov/news-issuances/news-releases/2025/nr-occ-2025-16.html. 
272     �See Press Release, FDIC, Agencies Withdraw Joint Statements on Crypto-Assets (Apr. 24, 2025), https://www.fdic.gov/news/press-releases/2025/agencies-

withdraw-joint-statements-crypto-assets. 
273     �See Chapter VI.
274     �See OCC, Bulletin 2014-58, Banking Money Services Businesses: Statement on Risk Management (Nov. 19, 2014), https://www.occ.gov/news-issuances/

bulletins/2014/bulletin-2014-58.html.

https://www.fdic.gov/news/inactive-financial-institution-letters/2022/fil22016.html
https://www.fdic.gov/news/inactive-financial-institution-letters/2022/fil22016.html
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a3.pdf
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20250424a3.pdf
https://www.occ.treas.gov/news-issuances/news-releases/2025/nr-occ-2025-16.html
https://www.fdic.gov/news/press-releases/2025/agencies-withdraw-joint-statements-crypto-assets
https://www.fdic.gov/news/press-releases/2025/agencies-withdraw-joint-statements-crypto-assets
https://www.occ.gov/news-issuances/bulletins/2014/bulletin-2014-58.html
https://www.occ.gov/news-issuances/bulletins/2014/bulletin-2014-58.html


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Banking and Digital Assets Banking and Digital Assets  •  Access to Providing Banking Services 

	◆ Notably, much work has already been done in in this area as the Banking Agencies withdrew previous 
guidance on bank engagement with digital assets that did not fully adhere to that principle.275

	◆ Additionally, the removal of reputation risk as a basis for supervisory criticism by the Banking Agencies 
is also underway and should be finalized as soon as possible.276 

Access to Providing Banking Services Access to Providing Banking Services 
Some digital asset firms that provide payments, lending, or custody services may consider obtaining a bank 
charter to provide additional services in a prudentially regulated environment and to reduce reliance on third-
party banks. Digital asset firms may consider a bank charter (including certain uninsured state or national 
charters) to gain strategic autonomy and cost efficiencies, allow better integration with the mainstream 
financial system, and gain regulatory credibility which could increase trust from both retail and institutional 
clients. Additionally, some firms may seek bank charters to obtain Federal Reserve Bank (Reserve Bank) master 
accounts and payment service access, which could reduce costs, delays, and counterparty risks in processing 
payments. These benefits could offer those digital asset firms a competitive advantage over other digital asset 
firms and fintech companies, and a level playing field with traditional financial institutions.

Charters

A bank charter is a legal authorization that allows a legal entity to operate as a bank. Banks generally accept 
deposits, make loans, and provide other financial services such as payments, wealth management, custody, 
and currency exchange. While some charters (and relevant federal and state laws) permit banks to engage 
in all of these activities, some may be limited to a subset of commercial bank services. A bank also generally 
meets the legal threshold for a Reserve Bank master account and payment services access,277 and applicable 
laws may make an institution eligible to apply for FDIC insurance (but do not necessarily require it for some 
novel charters) and provide eligibility for other U.S. banking infrastructure. States may charter general-purpose 
commercial banks that must be federally insured before commencing operations; these state-chartered banks 
are regulated by both the state chartering authority and a federal regulator. The FRB is the primary federal 
regulator for state-chartered banks that are members of the Federal Reserve System (FRS), and the FDIC is 
the primary federal regulator for federally-insured state-charted institutions that are not members of the FRS. 
The OCC charters national banks and federal savings associations and is their primary federal regulator. The 
FDIC also has back up examination authority over insured banks for which either the OCC or FRB is the primary 
federal regulator.

Chartered banks are subject to, among other things, prudential regulation, capital and liquidity requirements, 
consumer protection laws, and regulatory supervision and enforcement. Chartering authorities may charter 
institutions that do not provide the full range of commercial bank services or that are not required to obtain 
deposit insurance. For example, certain banks engage in a more limited business model, such as special-
purpose credit-card banks or banks with activities limited to those of a trust company and activities related 
thereto. States may also charter depository institutions that have the authority to take deposits but are 
not required to obtain federal deposit insurance. Different resolution frameworks would apply as well. The 
activities undertaken by the institution determine the necessary type of charter, regulatory framework, and 

275     �See OCC, Bulletin 2025-2, Bank Activities: OCC Issuances Addressing Certain Crypto-Asset Activities (Mar. 7, 2025), https://occ.gov/news-issuances/
bulletins/2025/bulletin-2025-2.html; FDIC Press Release, supra note 272.

276     �The OCC and the Board have announced that they will no longer examine banks for reputation risk. Supra note 217. The FDIC is also “working on a 
rulemaking related to reputation risk that would prohibit FDIC supervisors from (1) criticizing or taking adverse action against institutions on the basis 
of reputational risk and (2) requiring, instructing, or encouraging institutions to close, modify, or refrain from offering accounts on the basis of political, 
social, cultural, or religious views.” Acting Chairman Hill, supra note 217.

277     �As explained in further detail below, the FRB has established guidelines for the Reserve Banks to use when evaluating whether to exercise their discretion 
to grant access to master accounts or payments services.

https://occ.gov/news-issuances/bulletins/2025/bulletin-2025-2.html
https://occ.gov/news-issuances/bulletins/2025/bulletin-2025-2.htmlSTR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  7777   •   

Banking and Digital Assets Banking and Digital Assets  •  Access to Providing Banking Services 

federal safety nets under which a bank is supervised. A bank charter is essential for firms looking to provide 
a full suite of banking products and services as it grants certain needed legal authorities while often allowing 
the opportunity to apply for FDIC deposit insurance (or requiring the application) and obtain Reserve Bank 
payment services.

Obtaining a bank charter and FDIC insurance is a detailed, rigorous process designed to ensure that the 
financial institution applying will be financially sound, well-capitalized and well-managed, and capable of 
operating safely and in compliance with applicable banking rules and regulations.278 Federal and state agencies 
generally use the Interagency Charter and Federal Deposit Insurance Application to collect information for 
and evaluate a de novo charter (a charter for a newly formed bank) and deposit insurance application, where 
applicable. While there are some differences in what is required and evaluated across different bank charter 
types, the interagency application gives a general overview of what banks are required to consider.279 Some 
firms considering a bank charter have expressed frustration with a lack of clarity on timing for completing the 
process and transparency on the application process.280

Master Accounts

A Reserve Bank master account is a deposit account maintained by a bank or other type of depository 
institution at a regional Reserve Bank and provides a gateway to the Federal Reserve’s balance sheet, which is 
used to promote financial stability and conduct monetary policy. A master account “is both a record of financial 
transactions that reflects the financial rights and obligations of an account holder and of the Reserve Bank 
with respect to each other, and the place where opening and closing balances are determined.”281 The Federal 
Reserve Act authorizes the FRS to hold deposits—which, as noted, are held in master accounts—for depository 
institutions, FRS member banks, and certain U.S. branches and U.S. agencies of foreign banks.282 Depository 
institutions and other eligible entities use deposits held in a master account at the Federal Reserve for the 
settlement of interbank payments.

Institutions seeking a master account must request access from their regional Reserve Bank. The Reserve 
Banks utilize guidelines approved by the FRB in 2022 when evaluating requests for a master account.283 Some 
firms that may be eligible for a master account have expressed frustration with a lack of clarity on timing for 
completing the process though the FRB is providing transparency on process outcomes. 

278     �See 12 C.F.R. § 5.20 (2025); OCC, Comptroller’s Licensing Manual: Charters (Dec. 2021), https://www.occ.treas.gov/publications-and-resources/publications/
comptrollers-licensing-manual/files/charters.pdf; 12 C.F.R. pt. 303 (2025); FDIC, Applying for Deposit Insurance: A Handbook for Organizers of De Novo 
Institutions (Dec. 2019), https://www.fdic.gov/regulations/applications/depositinsurance/handbook.pdf; FDIC, Deposit Insurance Applications: Procedures 
Manual Supplement - Applications from Non-Bank and Non-Community Bank Applicants (Dec. 2019), https://www.fdic.gov/regulations/applications/
depositinsurance/procmanual-supplement.pdf. 

279     �See Andrew P. Scott, An Analysis of Bank Charters and Selected Policy Issues, CRS R47014 (2022) (“The application’s basic structure covers the following 
areas: overview of institution’s business model, activities, public and private offerings, and the articles of association or incorporation and bylaws; description 
of the management, including directors, executives, officers, board members, conflicts of interest, and stock benefit plans; details of the institution’s capital 
plans, including capital to be raised, class and amount of stock to be issued, capital adequacy projections, and corporate tax status; description of how 
the institution meets the needs of the community, consistent with its business plan, and a separate plan to meet obligations pursuant to the [Community 
Reinvestment Act]; description of the premises and fixed assets, security plans to protect property, plans to establish branches, and identification of 
the main office; records of the information systems used, including a description of the physical and logical components of security systems used; other 
information, such as functions to be outsourced, fidelity coverage, a plan to comply with the Bank Secrecy Act, and the organization’s planned expenses.”).

280    �The OCC’s Licensing Manual states that the OCC seeks to make a decision within 120 days after receipt of a complete application via a standard 
submission. OCC, supra note 278, at 36.

281      �FRB, Reserve Maintenance Manual 5 (Nov. 2019), https://www.federalreserve.gov/monetarypolicy/files/reserve-maintenance-manual.pdf. 
282     �12 U.S.C. §§ 342, 347d. Section 19(b)(1)(A) of the Federal Reserve Act defines depository institution for purposes of the Federal Reserve Banks’ authority to 

maintain deposits. 12 U.S.C. § 461(b)(1)(A). The Reserve Banks are also permitted to maintain accounts for other entities, including foreign banks, foreign 
states or as fiscal agent of the United States. 12 U.S.C. §§ 358 and 391.

283     �Guidelines for Evaluating Account and Services Requests, 87 Fed. Reg. 51099 (Aug. 19, 2022).

https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-licensing-manual/files/charters.pdf
https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-licensing-manual/files/charters.pdf
https://www.fdic.gov/regulations/applications/depositinsurance/handbook.pdf
https://www.fdic.gov/regulations/applications/depositinsurance/procmanual-supplement.pdf
https://www.fdic.gov/regulations/applications/depositinsurance/procmanual-supplement.pdf
https://www.federalreserve.gov/monetarypolicy/files/reserve-maintenance-manual.pdf


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Banking and Digital Assets Banking and Digital Assets  •  Access to Providing Banking Services 

Recommendations Recommendations 
•	 Provide clarity and transparency regarding the process for eligible institutions to obtain a bank charter 

or a Reserve Bank master account.

	◆ The relevant Banking Agencies should clarify and define in regulation the expected timelines for 
decision-making on completed applications for charter licensing (including federal deposit insurance 
where applicable) and requesting a Reserve Bank master account. 

	◆ If regulatory timelines are not met for a given application, the application should be deemed approved 
absent extraordinary circumstances.

	◆ The Banking Agencies should also confirm that otherwise eligible entities are not prohibited from 
obtaining bank charters, obtaining federal deposit insurance, or receiving Reserve Bank master 
accounts or services solely because they engage in digital asset-related activities.

	◆ Finally, the Banking Agencies should provide additional transparency, as appropriate, on the number of, 
and average time to review, complete applications, including new charter applications, federal deposit 
insurance applications, and Reserve Bank master account applications, on both an aggregated and 
annual basis.

Federal Credit UnionsFederal Credit Unions
Some credit unions have engaged in the digital asset ecosystem primarily as service providers to digital 
asset market participants or as intermediaries facilitating member access to these markets. 

	■ Traditional (Core) Financial Services: Similar to banks, some credit unions offer core financial 
services to digital asset-related businesses, including deposit accounts, payment services, 
and settlement capabilities. NCUA share insurance only covers member shares (akin to bank 
deposits) at most credit unions. As a result, digital asset firms frequently partner with credit unions 
designated as low-income (LICUs), as share insurance covers both member and non-member 
shares at these institutions.

	■ Custody and Member Access Services: A small but growing number of credit unions have explored 
partnerships to facilitate digital asset custody. Several credit unions facilitate digital asset exchange 
services (buy, sell, and hold cryptocurrency assets) through third-party platforms, with information 
relating to digital asset holdings integrated into the credit union’s digital banking experience.

	■ Tokenization and DLT Use: Select credit unions and Credit Union Service Organizations (CUSOs) 
are exploring the use of DLT to improve internal operations, streamline settlement, and participate 
in stablecoin operations (issuing payment stablecoins through a CUSO and serving as a depository 
institution for fiat currency reserves). A small number of credit unions are exploring but have not 
yet implemented tokenization of financial assets or member shares.

	■ Digital Asset Lending: A limited number of credit unions have expressed interest in originating 
loans secured by certain digital assets.

Current Regulatory Framework

	■ Legal Permissibility: The NCUA has issued guidance that affirms that credit unions are not 
prohibited from using DLT if they comply with applicable laws and regulations.284

284     �NCUA, 22-CU-07, Federally Insured Credit Union Use of Distributed Ledger Technologies (May 2022), https://ncua.gov/regulation-supervision/letters-credit-
unions-other-guidance/federally-insured-credit-union-use-distributed-ledger-technologies. 

https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/federally-insured-credit-union-use-distributed-ledger-technologies
https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/federally-insured-credit-union-use-distributed-ledger-technologies


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Banking and Digital Assets Banking and Digital Assets  •  Capital and Other Applicable Regulatory Treatment

	◆ Federally chartered and insured credit unions are subject to field-of-membership requirements 
and statutory limits on permissible activities, raising unique questions related to share 
insurance coverage. In 2024, the NCUA updated the Share Insurance FAQs to clarify that share 
insurance does not cover digital assets or cryptocurrencies.285

	◆ The Federal Credit Union Act (FCUA) only provides limited authority for federal credit unions to 
provide custody services. The FCUA does not provide explicit authority for federal credit unions 
to provide custody or safekeeping services, and these custody services are provided through 
third parties. Additionally, state-chartered and privately insured credit unions may be permitted 
to provide custody services if permitted by state law.

	■ Supervision: Credit unions would like additional clarity on risk-management and compliance 
expectations.

	■ Capital and Other Applicable Regulatory Treatment: The NCUA Final Rules on Risk Based Capital 
(RBC) and Complex Credit Union Leverage Ratio (CCULR) do not specifically address risk weights 
for digital assets. Therefore, if credit unions hold these assets, they would fall into the catch-all 
category, which is 100%.

	◆ Only complex credit unions with total assets of $500 million or more are subject to risk-based 
capital requirements under NCUA’s RBC and CCULR frameworks.

Access to Providing Banking Services

CUSOs play a key role in expanding access to digital asset services for credit unions and their 
members. These entities have piloted offerings in custody, payments, and tokenization. However, many 
CUSOs seek clarity around what services they can provide on behalf of credit unions and what level of 
NCUA oversight or registration is required for such activities.

Capital and Other Applicable Regulatory TreatmentCapital and Other Applicable Regulatory Treatment
The U.S. risk-based capital framework does not contain any provisions specific to cryptoasset286 exposures. 
Under the current U.S. capital framework, the risk weight assigned to a novel exposure, such as an exposure to 
a cryptoasset depends on several factors, including whether the asset is a security or a commodity. The U.S. 
Banking Agencies and Treasury should advocate for modernization of the international Basel Committee on 
Banking Supervision (BCBS) standards to incorporate new data on digital asset market performance and risk 
and recent DLT technological innovations. 

BCBS Cryptoasset Exposures Capital and Liquidity Standards

In December 2022, the BCBS published its standard on the prudential treatment of cryptoasset exposures.287 
The standard was later amended in July 2024.288 The BCBS framework divides cryptoassets into two groups. 
Group 1 assets, which are cryptoassets that reference or are otherwise backed by other traditional assets or 
exposures and meet several specified conditions, are subject to capital requirements based on the risk weights 

285     �Frequently Asked Questions About Share Insurance: Digital Assets and Cryptocurrencies, NCUA, https://ncua.gov/consumers/share-insurance-coverage/
frequently-asked-questions-about-share-insurance (last modified May 28, 2024). 

286     �This section (Capital and Other Applicable Regulatory Treatment) uses the term “cryptoasset” instead of “digital asset” to match the term used by BCBS. 
However, the terms are intended by this report to be interchangeable. Note, however, that BCBS understands the terms to differ slightly in meaning. BCBS, 
supra note 204, at 5 (“Cryptoassets are defined as private digital assets that depend on cryptography and distributed ledger technologies (DLT) or similar 
technologies. Digital assets are a digital representation of value, which can be used for payment or investment purposes or to access a good or service.”). 

287     �BCBS, supra note 204.
288     �BCBS, supra note 205. 

https://ncua.gov/consumers/share-insurance-coverage/frequently-asked-questions-about-share-insurance
https://ncua.gov/consumers/share-insurance-coverage/frequently-asked-questions-about-share-insurance


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of the underlying exposures.289 Group 1 assets are further divided into Groups 1a and 1b.290 Group 1a includes 
tokenized traditional assets, and Group 1b includes stablecoins that meet certain classification conditions.291 
Group 2 comprises cryptoassets that fail to meet at least one Group 1 classification condition.292 Within Group 
2, cryptoassets that meet hedge recognition criteria would fall under Group 2a, and those that do not would fall 
under Group 2b.293

Generally, cryptoassets that are grouped into Group 1a are subject to the existing capital rules for traditional 
assets.294 For Group 1b assets, banks must analyze all the risks that could cause a loss (e.g., credit risk from 
reference assets, risk of default of the redeemer, etc.) and capitalize for those risks individually using the credit 
risk standards. In addition to the capital requirement, there is a potential add-on for infrastructure risk for 
Group 1 assets.295 The standard sets the initial add-on at 0, but national authorities can initiate or increase the 
add-on based on observed weakness in the infrastructure of specific cryptoassets.296 

Capital treatment for Group 2a involves adapted market risk rules and a 100% capital charge on the exposure’s 
net position.297 Group 2b cryptoassets are those that do not meet hedging criteria and thus are not permitted 
to recognize hedging and are subject to a 1250% risk weight.298 Examples of Group 2 cryptoassets include 
bitcoin and ether,299 which together comprise over 70% of the total value of the digital asset market.300

289     �BCBS, supra note 204, at 1.
290     �At a high level, in order to be classified as Groups 1a or Group 1b, a cryptoasset must meet the following classification conditions: (i) the cryptoasset 

must either be a tokenized traditional asset or have a stabilization mechanism that is considered effective at all times in linking its value to a traditional 
asset or a pool of traditional reference assets; (ii) all rights, obligations and interests arising from the cryptoasset arrangement are clearly defined and 
legally enforceable in all the jurisdictions where the asset is issued and redeemed, and the applicable legal framework ensures settlement finality; 
(iii) the functions of the cryptoasset and the network on which it operates, including the distributed ledger or similar technology on which it is based, 
are designed and operated to sufficiently mitigate and manage any material risks; and (iv) entities that execute redemptions, transfers, storage, or 
settlement finality of the cryptoasset, or manage or invest reserve assets, must be regulated and supervised, or subject to appropriate risk management 
standards, and have in place and disclose a comprehensive governance framework. Id. at 1.

291     �Id. at 6, 9-10. 
292     �Id. at 1.
293     �There are three hedge recognition criteria for Group 2a cryptoassets. First, the exposure needs to be either (i) a direct holding of a spot Group 2 

cryptoasset where there is a derivative or ETF that is traded on a regulated exchange and solely references the cryptoasset; (ii) a derivative or ETF/
exchange-traded note (ETN) that references a Group 2 asset, and that derivative has been explicitly approved by market regulators or a qualifying 
central counterparty; (iii) a derivative, ETF, or ETN that references a derivative meeting the previous requirement; or (iv) a derivative, ETF, or ETN, that 
references a related reference rate that is published by a regulated exchange. Second, the exposure or reference exposure must have at least a $10 billion 
average market cap over the previous year and the 10% trimmed mean of daily trading volume with major fiat currencies must be at least $50 million 
over the prior year. Third, sufficient data availability is required. Specifically, there need to at least 100 “real” price observations over the previous year and 
there must be sufficient data on trading volumes and market capitalization. Id. at 1, 17-18.

294     �Id. at 12.
295     �Id. at 13.
296     �Id. at 17.
297     �Id. at 17-19.
298     �Id. at 17, 21.
299     �Global Financial Markets Association, et al., Re: Comments in Response to the Second Consultation on the Prudential Treatment of Cryptoasset 

Exposures (Sept. 23, 2022), https://www.icmagroup.org/assets/Joint-TA-response-to-BCBS-2nd-consultation-crypto-assets-30092022.pdf. 
300     �See CoinMarketCap.com, https://coinmarketcap.com/ (last visited July 13, 2025).

https://www.icmagroup.org/assets/Joint-TA-response-to-BCBS-2nd-consultation-crypto-assets-30092022.pdf
https://coinmarketcap.com/


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Categorizing Cryptoassets into Basel Group 1 or Group 2301

The BCBS framework also includes a limit for a bank’s Group 2 exposures.302 Both direct (cash and derivatives) 
and indirect holdings (e.g., those via investment funds, exchange-traded funds (ETFs)/exchange-traded 
notes (ETNs), or any legal arrangements designed to provide exposure to cryptoassets) should not amount 
to more than 1% of Tier 1 capital and functionally cannot exceed 2%.303 Any breach that does occur must be 
communicated to the supervisor, and until compliance with the 1% limit is restored, a bank’s exposures that 
exceed the threshold are subject to the capital requirements that apply to Group 2b cryptoasset exposures.304 
If the threshold of 2% is actually exceeded, all Group 2 cryptoasset exposures (not just those in excess of 1%) 
will be subject to the capital requirements that apply to Group 2b cryptoasset exposures.305

Cryptoassets are included in the BCBS leverage ratio exposure measure according to their value for financial 
reporting purposes, based on applicable accounting treatment for exposures that have similar characteristics. 
For the cases where the cryptoasset exposure is an off-balance sheet item, the relevant credit conversion 
factor set out in the leverage ratio framework will apply in calculating the exposure measure.306

Under the BCBS liquidity standards,307 Group 1a cryptoasset and crypto-liability exposures are generally 
treated consistent with exposures involving their equivalent non-tokenized traditional assets and liabilities, 

301     �BCBS, supra note 204, at 6.
302     �Id. at 28.
303     �Id.
304     �To reduce cliff effects, which can create a significant increase in regulatory capital required once a bank crosses a given threshold, if a bank breaches the 

1% limit, the Group 2b 1250% risk weight would apply to only the amount which exceeds the limit and not to all Group 2 exposures, but if the 2% limit is 
breached the whole of Group 2 exposures would be subject to the 1250% risk weight. Id. at 32.

305     �Id. at 28.
306     �Id. at 27.
307     �Such standards are the liquidity coverage ratio and net stable funding ratio.



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including qualification as high-quality liquid assets (HQLA).308 Group 1b and Group 2 cryptoassets do not 
qualify as HQLA,309 and corresponding asset and liability exposures are treated with inflow and outflow rates 
and required stable funding and available stable funding factors tied to the maturity of the coin (i.e., 30 days, 6 
months, 1 year) and the underlying collateral (HQLA vs non-HQLA).310 

The second consultation on the BCBS standard (published before the standards were finalized in December 
2022) states that “as currently specified, it is highly unlikely that any cryptoassets based on permissionless 
blockchains will be able to meet the classification conditions to be included in Group 1.”311 However, in the 
final standard, the Committee notes that the BCBS will continue to reflect on whether the risks posed by 
cryptoassets that use permissionless blockchains can be sufficiently mitigated to allow for their inclusion in 
Group 1 and, if so, what adjustments to the classification conditions would be needed.312 

The BCBS does not possess any formal supranational authority, and its decisions do not have legal force. In 
principle, the “standards” set by the BCBS are determined by consensus of BCBS members.313 It is important for the 
United States to lead in such international forums to ensure transparency of any such consensus decision making.

Recommendations Recommendations 
•	 The Banking Agencies should clarify the circumstances, using risk-based guidelines, under which 

tokenized assets and tokenized asset collateral would be subject to the same capital and liquidity 
treatment as the underlying asset or collateral.

•	 The United States should adopt capital requirements for bank digital asset activities that accurately 
reflect the risk of the asset or activity. Additionally, the United States should advocate that the BCBS 
revisit the cryptoasset standards to ensure similar treatment to U.S. capital requirements.

In adopting capital requirements for bank digital asset activities, the following actions should be taken to 
evaluate and improve the BCBS cryptoasset standards:

•	 Simplification of the cryptoasset grouping.

	◆ BCBS’s four groups of cryptoassets should be simplified. Applying a separate classification to traditional 
assets due to the use a specific technology does not adhere to the principle of technology-neutrality. 
Furthermore, the treatment of tokenized traditional assets as cryptoassets is misleading and may 
create unintended negative consequences.314 Additionally, the BCBS distinction between Group 2a and 
Group 2b cryptoassets does not create a clear enough distinction between cryptoassets widely used for 
payment and investment purposes and other cryptoassets, such as memecoins.

	◆ The U.S. prudential cryptoasset framework should: (i) clarify when tokenized traditional assets are 
equivalent to traditional assets and are subject to the same capital and liquidity requirements as 
traditional assets; (ii) work to align the BCBS definition of stablecoins eligible for Group 1b treatment 
with requirements set forth in GENIUS; and (iii) simplify the classification of Group 2 cryptoassets and 
address the treatment of cryptoassets outside of Group 2.

308     �Group 1a tokenized claims of a bank not secured by an underlying pool of assets would be treated under BCBS liquidity standards as unsecured funding, 
with the outflow rates and ASF factors linked to the type of customer (retail, wholesale, financial) and the term (30 days, 6 months, 1 year), and cannot be 
treated with as stable retail deposit or certain preferential operational deposits. Id. at 24.

309   �Id.
310     �Id. at 26-27.
311     � BCBS, Second Consultation on the Prudential Treatment of Cryptoasset Exposures 4 (June 2022), https://www.bis.org/bcbs/publ/d533.pdf.
312     �BCBS, supra note 204, at 4.
313     �BCBS, Basel Committee Charter § 8.4 (updated June 5, 2018), https://www.bis.org/bcbs/charter.htm.
314     �For example, treating tokenized traditional assets differently from traditional assets may hinder their eligible collateral status. 

https://www.bis.org/bcbs/publ/d533.pdf
https://www.bis.org/bcbs/charter.htm


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•	 Use of permissionless blockchain for all groups of cryptoassets.

	◆ Under the BCBS standards, cryptoassets relying on permissionless blockchains pose risks that 
may prevent them from being included in Group 1. However, experimentation and testing with 
permissionless blockchains by regulated financial institutions suggests that technical solutions to 
mitigate the risks identified by the BCBS are being actively developed and implemented.315 The BCBS 
also raises concerns with the probabilistic settlement of permissionless blockchains.316 However, over 
the last several years, market participants have been developing industry standards for determining 
when a settlement has completed on probabilistic blockchains.

	◆ The United States should consider incorporating those standards to inform the prudential treatment of 
those characteristics of distributed ledger technology.

•	 Review the calibration of capital requirements for credit risk, market risk, operational risk, and liquidity 
risk to incorporate empirical evidence of recent changes in cryptoasset performance and risk.

	◆ Changes in the grouping of cryptoassets may not fully modernize the BCBS cryptoasset prudential 
standards. The United States should also revisit the calibration of the prudential standards to consider 
incorporating recent innovations and changes in the cryptoasset market since the BCBS standards 
were first published in 2022.

	◆ The Banking Agencies should undertake a comprehensive data analysis on the performance and risk of 
cryptoassets informed by issuing a request for information from the public, inclusive of representatives 
from cryptoasset data vendors, distributed ledger infrastructure providers, banking organizations of 
all sizes, and industry associations. The analysis would assist the Banking Agencies in determining the 
appropriate calibration for cryptoasset capital and liquidity standards.

Insurance and Digital AssetsInsurance and Digital Assets
Insurance is important for U.S. consumers, the economy, and the financial system. 

Digital assets can be a significant part of the net worth of an individual or business. The cost and 
availability of adequate digital asset insurance affects the growth and stability of the digital asset market. 

Insurability

Insurable events have four characteristics that are relevant to the analysis of the insurability of digital 
assets. First, insurable events must be “pure risks,” meaning they cannot result in gain, only loss. Thus, 
events like a decline in a business’s revenues or the market value of an asset are generally not insurable. 
Second, they must be defined, reasonably uncorrelated, measurable, and limited. An insurer must 
be able to measure a loss objectively and limit that loss contractually. Third, insurable events must be 
unpredictable individually, but predictable in the aggregate. Finally, insurable events must be random 
and unintentional from the standpoint of an insured.317 These principles inform what events can and 
cannot be covered, as discussed further below.

315     �For example, depending on the programmability of the cryptoasset, the cryptoasset can be permissioned by smart contracts (e.g., an ERC1400 token 
on Ethereum). Such standards allow the role of a “controller” (i.e., an actor that can control access, freeze, reverse, or destroy cryptoassets or block 
transactions), enabling compliance with know-your-customer, anti-money laundering, and countering the financing of terrorism checks.

316     �Specifically, it noted that in many permissionless distributed ledger technologies, settlement remains probabilistic, meaning the probability that 
a transaction could be revoked converges to, but never reaches, zero with the passage of time. This could create settlement risk in permissionless 
blockchains. 

317     �See Judy Feldman Anderson & Robert L. Brown, Risk and Insurance, Education and Examination Committee of the Society of Actuaries 5-6 (2005), 
https://www.soa.org/globalassets/assets/files/edu/P-21-05.pdf.

https://www.soa.org/globalassets/assets/files/edu/P-21-05.pdf


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Coverages

There are broadly two types of insurance relevant to the digital asset market. The first is insurance 
provided for individuals, or “personal lines.”318 The second is insurance provided for businesses and 
organizations, or “commercial lines.”319 The personal lines market for digital assets is currently limited. 
The lack of a robust personal lines market for digital assets may be caused by various factors, including 
regulatory uncertainty both domestically and globally, the lack of historical underwriting experience, 
potential volatility in certain types of digital assets, uncertainty regarding how courts will interpret 
insurance policy language, and questions regarding whether digital assets would be classified as 
currencies or personal property.320 However, there is a small but growing commercial lines market. 
Treasury’s Federal Insurance Office estimates that twenty insurers provide various types of commercial 
insurance for digital assets with limits up to $1 billion. Gross revenue has been estimated to be between 
$1.94 billion and $3.11 billion.321 Large commercial insurance brokerages and both new and established 
insurance companies all participate in the digital asset insurance market.

The following types of insurance coverage for commercial entities, such as digital asset exchanges, 
custodians, asset managers, commercial mining operations, etc. are generally available, with generally 
broader coverage terms and limits for cold storage versus hot storage:

	■ Various forms of theft, such as embezzlement, fraud, malicious destruction of digital assets, 
kidnap, ransom, or extortion, etc. This type of coverage would indemnify, for example, a digital 
asset custodian if an employee destroyed a cold wallet. 

	■ Damages incurred because of professional errors (referred to as errors and omissions coverage) or 
errors in software (known as cyber or tech errors and omissions coverage). For example, this type 
of coverage could indemnify a software company whose code inadvertently allowed for a malicious 
outside actor to steal digital assets from a hot wallet. 

	■ Accidental loss or destruction of digital assets or keys. This insurance coverage would, for example, 
indemnify a digital asset manager for the loss of a cold storage wallet. 

	■ Other standard coverages for any commercial entity, such as property, directors and officers, 
general liability, etc. Directors and officers insurance indemnifies the board of directors and 
senior officers of a company for certain damages awarded in the event of shareholder litigation. 
Property insurance would cover a warehouse and air conditioning system for a digital asset mining 
operation. General liability would indemnify a mining operation for damages accidentally sustained 
by a third party due to the negligence of the mining operation. 

318     �Facts + Statistics: Commercial Lines, Insurance Information Institute, https://www.iii.org/fact-statistic/facts-statistics-commercial-lines (last visited July 13, 2025). 
319     �Id.
320   �Chantal M. Roberts, Crypto Is a Popular Cybercrime Target, but Insurance Options Remain Limited, Bankrate (May 5, 2025), https://www.bankrate.com/

insurance/cryptocurrency-insurance-options-remain-limited/. 
321     �Joe Toppe, How Insurance Plays a Role in Cryptocurrency Risks, PropertyCasualty360 (Mar. 25, 2025 at 11:15 AM), https://www.propertycasualty360.

com/2025/03/25/how-insurance-plays-a-role-in-cryptocurrency-risks. 

https://www.iii.org/fact-statistic/facts-statistics-commercial-lines
https://www.bankrate.com/insurance/cryptocurrency-insurance-options-remain-limited/
https://www.bankrate.com/insurance/cryptocurrency-insurance-options-remain-limited/
https://www.propertycasualty360.com/2025/03/25/how-insurance-plays-a-role-in-cryptocurrency-risks
https://www.propertycasualty360.com/2025/03/25/how-insurance-plays-a-role-in-cryptocurrency-risks


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Examples of Estimated Digital Asset Insurance Capacity and Relative Cost322

Kidnap and Ransom

Specie

Deposit/Credit

Property for Miners

Crime

Staking

Directors & Officers

Cyber/Tech Errors & 
Omissions

Errors & Omissions

$0

$200

$400

$600

$800

$1,000

$1,200
E

st
im

at
ed

 C
ap

ac
ity

 (U
S

D
 M

illi
on

s)

Relative Insurance Cost per Unit of Exposure

State Regulation of Insurance

The business of insurance in the United States is primarily regulated at the state level.323 Insurance 
laws are enacted by state legislators and governors and are implemented and enforced by state 
regulators. Broadly speaking, state regulation is divided into prudential regulation (frequently referred 
to as “solvency” regulation) and marketplace regulation. Prudential regulation consists of oversight 
of an insurer’s financial condition and its ability to satisfy policyholder claims. Marketplace regulation 
governs an insurer’s business conduct, such as the pricing of premiums, advertising, minimum 
standards governing the terms of insurance policies, and licensing of insurance agents and brokers 
(producers), together with general issues of consumer protection and access to insurance. 

Regulatory and Market Issues or Challenges

Some regulatory and market issues or challenges for digital asset insurance are:

	■ Existing federal regulations such as the CFTC’s definition of a “swap” require that insurance 
products have a beneficiary with an insurable interest in the insured asset, limit payout to the 
insurable interest, and have the same beneficiary with an insurable interest throughout the 
duration of the insurance product. This definition is relevant because an insurance product cannot 
cover the loss of market value of a digital asset, such as a stablecoin. Any “insurance” policy 
marketed as covering a loss in market value of a digital asset would fall out of the insurance safe 
harbor of federal regulations.324 

	■ As noted above, homeowners insurance policies generally do not cover, or highly restrict, digital 
assets.

322     �Graphic based on information provided by Aon plc.
323     �U.S. Department of the Treasury Federal Insurance Office, How to Modernize and Improve the System of Insurance Regulation in the United States 1 (2013). 
324     �Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap Agreement 

Recordkeeping, 77 Fed. Reg. 48208 (Aug. 13, 2012). 



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	■ Insurers must match their forecasted liabilities to their assets. State prudential regulations require 
insurance companies to invest the vast majority of their assets in stable forms so that insurers can 
eventually pay claims. Insurers that take payment in digital assets but pay claims in fiat currency, or 
vice versa, take on volatility risk that may undermine their regulatory compliance. 

Potential Policy Actions

There are various steps Treasury and state regulators could take to help improve regulatory certainty 
and develop a more robust market for digital asset insurance:

	■ Engage with the appropriate regulatory agencies to establish or amend legal definitions of 
securities, property, or currency so that insurance policies explicitly cover digital assets.

	◆ Treasury could also work with the insurance sector to create standardized terms, conditions, 
and policy language for digital assets.

	■ Engage with the National Association of Insurance Commissioners (NAIC) and state insurance 
regulators on potential revisions to state regulations relating to digital assets, including allowing 
insurers to invest in digital assets, as appropriate.

	■ Prioritize engagement between the public and private sector to help develop a robust insurance 
market for digital assets.



V.   Stablecoins and PaymentsV.   Stablecoins and Payments

CHAPTER V

 Stablecoins and Payments Stablecoins and Payments

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 



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Stablecoins and PaymentsStablecoins and Payments
With e-currency based on cryptographic proof, without the need to trust a third party 
middleman, money can be secure and transactions effortless.

P2P Foundation Forum Post re: “Bitcoin open source implementation of P2P currency” 
Satoshi Nakamoto, February 2009325

Stablecoins are natively digital assets that seek to maintain a stable value relative to a reference asset, most 
often a fiat currency. Dollar-denominated stablecoins seek to combine the accessibility and frictionless use 
of digital assets with the stability and benefits of a dollar-based payment system. For many years, stablecoins 
operated in a legal gray area. But the Guiding and Establishing National Innovation for U.S. Stablecoins Act 
(GENIUS)326 , which President Trump signed into law on July 18, 2025, provides regulatory clarity for this 
growing market, as well as incentives to bring stablecoin innovation onshore. 

In the midst of debugging version 0.1.0, Satoshi sent the first test transaction of 10 bitcoin to Hal Finney, a 
renowned cypherpunk and early collaborator in building out the network. With the United States’ long history 
of innovating in the payments space, it is rather fitting that the first peer-to-peer transaction employing a 
distributed ledger went to an American (and possibly from one, as well). With Bitcoin, Satoshi pioneered peer-
to-peer transactions using digital currency. Stablecoins leverage the same technological concept to facilitate 
instantaneous transactions using digital dollars. GENIUS brings this groundbreaking payment technology into 
the financial mainstream. 

U.S. consumers and businesses benefit from reliable processing of trillions of dollars of payments daily. But as 
Satoshi highlighted, there are inefficiencies in the legacy systems that support most of this volume. Payments, 
particularly retail payments, may take several days to process and ultimately settle. This lag increases the risk 
that one party to the transaction fails to perform (i.e., a “settlement failure”) and increases costs for businesses 
and consumers. These inefficiencies are even more pronounced for cross-border payments, where costs are 
significantly higher (e.g., 6.4% for a small remittance payment in 2024) and delays significantly longer (e.g., only 
33.5% of retail payments settled within one hour).327 Technology has enabled commerce and communication 
to be delivered 24/7/365 globally, and Americans are increasingly looking for payments that match this ease of 
use and access. Distributed ledger technology (DLT) offers potential avenues to reduce these costs and delays. 
Stablecoins are one of the most promising DLT solutions. 

GENIUS marks a watershed moment for stablecoins and digital payments. Befitting its name, GENIUS lays the 
regulatory groundwork for new financial rails that could significantly increase the scope and influence of the 
U.S. dollar system. Under President Trump’s leadership, GENIUS was passed with strong bipartisan support by 
Congress and signed into law on July 18, 2025. The Working Group supports GENIUS and applauds Congress 
and President Trump for delivering this critical legislation, which will bolster the U.S. economy and cement 
global dollar dominance. 

GENIUS establishes a clear licensing regime to ensure oversight and compliance with anti-money laundering 
laws and regulations. It promotes stability and transparency by requiring stablecoin issuers to maintain full 
reserves backed by high quality liquid assets, such as U.S. Treasuries, and to publish monthly reports of the 
composition of their reserves. And it protects consumers by, among other things, prioritizing stablecoin 

325     �satoshi, Comment to Bitcoin open source implementation of P2P currency, P2P Foundation (Feb. 11, 2009 at 10:27 PM), https://web.archive.org/
web/20110415095236/https://p2pfoundation.ning.com/forum/topics/bitcoin-open-source. 

326     �S. 1582, 119th Cong. (2025) (enacted).
327     �Financial Stability Board (FSB), G20 Roadmap for Enhancing Cross-Border Payments: Consolidated Progress Report for 2024 23 (Oct. 21, 2024),  

fsb.org/uploads/P211024-1.pdf.

https://web.archive.org/web/20110415095236/https:/p2pfoundation.ning.com/forum/topics/bitcoin-open-source
https://web.archive.org/web/20110415095236/https:/p2pfoundation.ning.com/forum/topics/bitcoin-open-source
https://www.fsb.org/uploads/P211024-1.pdf


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holders’ claims in insolvency, prohibiting issuers from rehypothecating reserves for speculative purposes, and 
requiring custodians of stablecoin reserves to segregate their own funds from the reserves.

GENIUS also clarifies that stablecoins are neither a security nor a commodity, opening the door to stablecoins 
being used for consumer payments in the United States and across the world. It encourages continued 
stablecoin adoption, which will reinforce the strength of the global dollar system over the coming decade. 
GENIUS aligns with the principles of this report and is a critical first step in establishing a comprehensive 
framework for the digital asset industry.

Payment Systems Payment Systems 
Generally speaking, a payment system connects a broad range of financial institutions and customers, facilitates 
the movement of funds from one account to another, and includes rules and processes for transferring funds. 
As a simplified explanation, to make a payment, a sender must first provide instructions to a financial institution. 
After the instructions are received, the transaction must be “cleared” by a financial institution, such as bank 
or clearing house, which then facilitates the transfer of funds by performing functions such as reconciling 
and confirming payment details, ensuring the availability of funds, and complying with applicable regulatory 
requirements. Payment is then “settled” when funds are actually transferred from the sender to the recipient.

Payment systems can be either retail or wholesale. Retail payment systems are designed to process high volumes 
of smaller value transactions, and typically settle some hours or days after clearing. Wholesale payment systems 
are designed for high-value transactions and typically settle more quickly than retail payments.

Innovation in payments seeks to address inefficiencies in existing systems and provide products and services 
that improve customer experience. Some innovators are building solutions on top of legacy payment systems, 
often accessed through mobile apps. These products can offer an enhanced customer experience but, 
because they typically rely on legacy payment systems, may not enhance the efficiency of the underlying 
systems and, in some cases, may increase the number of intermediaries required to process a payment. 

Both public sector and private sector actors are seeking to build new payment systems. For example, in 2017, 
The Clearing House, a consortium of large banks, launched an instant (real-time) payment system called 
RTP.328 Since its launch, RTP has expanded to nearly 900 participating banks and conducts approximately 100 
million transactions per quarter for over $160 billion.329 In 2023, the Federal Reserve System (FRS) launched 
its own instant (real-time) payment system called FedNow, which, as of July 2025, has over 1,400 participating 
banks.330 As was the case with the establishment of other new payment systems, such as Automated Clearing 
House (ACH) payments in the 1970s and 1980s,331 initial adoption of instant payment systems has been modest 
due to the resources banks need to deploy to fully integrate them. Instant payment systems currently also 
have relatively high per transaction costs relative to ACH and other systems. Internationally, there is significant 
interest and experimentation across jurisdictions in building new or improving existing financial market 
infrastructures (FMIs) for cross-border payments or financial transactions utilizing new technologies.

Finally, institutions are also pursuing innovation in money-like payments products. Some banks are interested 
in offering a tokenized form of deposit that could be used as a settlement asset on existing or future payment 
systems. Stablecoins, likewise, are used to pay for other digital assets on trading platforms and may be 
used more widely in payments in the future. Blockchain or DLT-based assets present material opportunities 

328     �RTP: Frequently Asked Questions, The Clearing House, https://www.theclearinghouse.org/payment-systems/rtp/institution (last visited July 13, 2025).
329     �RTP: Real Time Payments for All Financial Institutions, The Clearing House, https://www.theclearinghouse.org/payment-systems/rtp (last visited July 13, 2025).
330    �See FedNow Service Participants and Service Providers: Participating Financial Institutions (XLSX), FRBservices.org, https://www.frbservices.org/binaries/

content/assets/crsocms/financial-services/fednow/fednow-live-participants.xlsx (updated July 7, 2025). 
331      �See Automated Clearing House Payments, Federal Reserve History (Sept. 28, 2023), https://www.federalreservehistory.org/essays/automated-clearing-house 

(“Despite high initial hopes for ACH payments, checks remained enduringly popular and ACH transaction volume remained limited for many years.”).

https://www.theclearinghouse.org/payment-systems/rtp/institution
https://www.theclearinghouse.org/payment-systems/rtp
https://www.frbservices.org/binaries/content/assets/crsocms/financial-services/fednow/fednow-live-participants.xlsx
https://www.frbservices.org/binaries/content/assets/crsocms/financial-services/fednow/fednow-live-participants.xlsx
https://www.federalreservehistory.org/essays/automated-clearing-house


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to improve functionality in payments. Through smart contracts, payments utilizing DLT can be executed 
automatically when certain conditions are met. Some foreign central banks are also issuing or in the process 
of developing Central Bank Digital Currencies (CBDCs), with objectives varying from increasing efficiency of 
clearing and settlement across financial institutions to surveilling the financial activities of private citizens.

Innovations in payments have the potential to strengthen America’s leadership, reduce costs for businesses 
and consumers, and bring the benefits of technological advancements to payments. Both domestically 
and internationally, the United States has the opportunity to shape the development of new payment 
arrangements and, through this effort, reinforce U.S. global financial leadership. If U.S. leadership is absent, new 
types of alternative payment arrangements could be developed that may not share U.S. interests and values 
and could pose risks to U.S. economic and national security.

Innovation in Payments Innovation in Payments 

Stablecoins

Many stablecoins derive their value from a pool of liquid, high-quality reserve assets, but some different forms 
of stablecoins are backed by other types of assets (e.g., digital assets, precious metals, corporate bonds with 
lower credit ratings), and others attempt to maintain a stable value through pre-programmed responses to 
market actions rather than maintaining a pool of reserve assets (called “algorithmic stablecoins,” which are 
typically endogenously collateralized).332 In practice, stablecoins “pegged” to the U.S. dollar dominate the 
market, accounting for more than 99% of the more than $258B stablecoins outstanding by value as of July 
2025, with the vast majority of issued stablecoins backed by a pool of reserve assets.333

Process of Minting Stablecoins334

Payment 
setup

1. Customer links their bank 
account with the Stablecoin 

Issuer 

2. The Issuer does the necessary checks and, on successful 
linking, provides instructions to initiate payment

Customer Issuer

Payment

3. Customer sends USD to Issuer’s bank 
account using the instructions

Note: Funds are sent/pulled via supported payment 
rails such as wires

Customer Issuer

Stablecoin 
settlement

8. Issuer settles stablecoin to customer’s 
account

7. Triggers Issuer process to mint 
stablecoin on chain

Customer

4. Issuer receives USD at 
its settlement/
reserve bank

6. Issuer does preliminary 
checks to ensure customer is 
in good standing. If checks 

fail, then payment is 
manually reviewed and may 

get returned

Note: This process assumes customer has gone through a stablecoin issuer’s KYC process and met the onboarding requirements.

Issuer’s settlement/reserve account

5. Issuer gets notified of 
the settlement

332     �There are a variety of different stablecoin products. As discussed, the primary form of stablecoin is a “fiat-backed” stablecoin product that seeks to track 
to the U.S. dollar (e.g., USDT, USDC, BUSD, TUSD, USDP). There are also asset-collateralized stablecoins (e.g., PAXG, GLC, XAUT), crypto-collateralized/
over-collateralized stablecoins (e.g., DAI, MIM), and algorithmic stablecoins (e.g., FEI, Frax, USDN, USDD, USN) that are linked to or are redeemable for 
other cryptocurrencies.

333     �See Stablecoins (Filtered by Pegged USD), DefiLlama, https://defillama.com/stablecoins?pegtype=PEGGEDUSD (last visited July 13, 2025); Stablecoins, 
DefiLlama, https://defillama.com/stablecoins (last visited July 13, 2025). 

334     �Graphic prepared by Circle.

https://defillama.com/stablecoins?pegtype=PEGGEDUSD
https://defillama.com/stablecoins


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Growth in Market Capitalization of Dollar-Backed Stablecoins335

$b

$50b

$100b

$150b

$200b

$250b

2018 2019 2020 2021 2022 2023 2024 2025

Historical Stablecoin Market Cap

Total
Mkt Cap
$238b

Today, stablecoins are used primarily to facilitate trading in other digital assets or to interact with smart 
contracts, but they could be more widely adopted as a form of payment in the future. Some stablecoin issuers 
have partnered with existing payment services. These partnerships seek to offer customers an alternative 
payment mechanism that can be used with a range of merchants and potentially offer novel features, such 
as programmable payments. Additionally, stablecoins could facilitate real-time peer-to-peer cross-border 
payments, potentially improving the current system for retail cross-border payments. Stablecoins also 
facilitate access to U.S. dollar denominated assets, including in areas where that access may be limited today. 
Stablecoin reserve assets often include U.S. Treasuries and deposits in commercial banks, which creates a 
connection between the traditional financial system and the digital asset ecosystem. Although stablecoins 
have been used in illicit finance, traditional means of money laundering and terrorist financing remain more 
prevalent.336 A unique feature of stablecoins is that stablecoin issuers can coordinate with law enforcement to 
freeze and seize assets to counter illicit use.

335     �Graphic prepared by DefiLlama. Data cover fiat-backed stablecoins (as opposed to crypto-backed or algorithmic stablecoins) that are pegged to the U.S. 
dollar as of July 14, 2025.

336     �See U.S. Department of the Treasury (Treasury), 2024 National Terrorist Financing Risk Assessment (Feb. 2024), https://home.treasury.gov/system/
files/136/2024-National-Terrorist-Financing-Risk-Assessment.pdf; U.S. Department of the Treasury, 2024 National Money Laundering Risk Assessment (Feb. 
2024), https://home.treasury.gov/system/files/136/2024-National-Money-Laundering-Risk-Assessment.pdf.

https://home.treasury.gov/system/files/136/2024-National-Terrorist-Financing-Risk-Assessment.pdf
https://home.treasury.gov/system/files/136/2024-National-Terrorist-Financing-Risk-Assessment.pdf
https://home.treasury.gov/system/files/136/2024-National-Money-Laundering-Risk-Assessment.pdf


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Stablecoins and Payments Stablecoins and Payments  •  Innovation in Payments 

Stablecoin Freeze and Seize Process337

Stablecoin issuers operating in the United States are generally subject to certain federal requirements, such 
as those stipulated under the Bank Secrecy Act (BSA).338 Many states have also developed money transmitter 
frameworks under which nonbank stablecoin issuers must acquire a license. The District of Columbia,339 Puerto 
Rico,340 and all states but Montana341 have money transmitter licensing frameworks, though various states 
exempt stablecoin issuers (or persons otherwise engaged exclusively in digital asset activities) from their 
licensing requirements.342 Accordingly, a nonbank stablecoin issuer generally must obtain numerous licenses 
to operate nationwide. While states have made efforts to coordinate exams and harmonize some standards, 
there are significant differences in these frameworks and often overlapping supervision. Further, the lack of 
clarity regarding the SEC’s jurisdiction over stablecoins has also limited development, including with respect to 
the payment of interest and ancillary services like staking. However, recent statements by SEC staff regarding 
stablecoins have begun to provide regulatory clarity on which types of stablecoins may fall under the agency’s 
jurisdiction.343 As a result, some U.S.-based issuers have sought licenses in other jurisdictions with more 
developed and, in some cases more stringent, regulatory frameworks.344

337     � Graphic prepared by Paxos.
338     �GENIUS explicitly subjects permitted payment stablecoin issuers to the BSA. S. 1582, 119th Cong. (2025) § 4(a)(5)(A) (enacted). More generally, domestic 

and foreign stablecoin issuers offering services wholly or in substantial part in the United States are treated as banks or MSBs under the BSA and its 
implementing regulations. See 31 C.F.R. § 1010.00(ff) (2024); Financial Crimes Enforcement Network (FinCEN), FIN-203-G001, Application of FinCEN’s 
Regulations to Persons Administering, Exchanging, or Using Virtual Currencies 1 (Mar. 18, 2013), https://www.fincen.gov/sites/default/files/shared/FIN-
2013-G001.pdf (stating that any person “creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies . . . . is an MSB under 
FinCEN’s regulations, specifically, a money transmitter, unless a limitation to or exemption from the definition applies to the person.”) (emphasis omitted). 
Stablecoin issuers that are U.S. persons must also comply with OFAC restrictions. Finally, note that, on January 10, 2025, during the last days of the Biden 
Administration, the Consumer Financial Protection Bureau (CFPB) proposed a rule that would have interpreted the Electronic Fund Transfer Act and its 
implementing regulation, Regulation E, to apply to stablecoins. Electronic Fund Transfers Through Accounts Established Primarily for Personal, Family, or 
Household Purposes Using Emerging Payment Mechanisms, 90 Fed. Reg. 3723 (Jan. 15, 2025). In May 2025, the Trump Administration’s CFPB withdrew the 
proposed rule. Protecting Americans From Harmful Data Broker Practices (Regulation V); Withdrawal of Proposed Rule, 90 Fed. Reg. 20568 (May 15, 2025).

339     �D.C. Code § 26–1001 et seq.
340     �10 L.P.R.A. § 2601 et seq.
341     �The Challenge of Being the Only State Not Regulating Money Transmitters, Mont. Division of Banking & Financial Institutions (Apr. 12, 2023), https://

banking.mt.gov/News/The-Challenge-of-Being-the-Only-State-Not-Regulating-Money-Transmitters.
342     �See, e.g., Wyo. Stat. Ann. § 40-22-104(a)(vi).
343     �SEC Division of Corporate Finance, Statement on Stablecoins (Apr. 4, 2025), https://www.sec.gov/newsroom/speeches-statements/statement-

stablecoins-040425. Note that GENIUS also prohibits the payment of interest or yield solely in connection with the holding, use, or retention of a payment 
stablecoin issued by a U.S.-licensed or foreign payment stablecoin issuer. S. 1582, 119th Cong. (2025) § 4(a)(11) (enacted).

344     �For a comparison of stablecoin licensing frameworks in different countries, see PwC, PwC Global Crypto Regulation Report 2025 4 (Apr. 3, 2025), https://
legal.pwc.de/content/services/global-crypto-regulation-report/pwc-global-crypto-regulation-report-2025.pdf. 

https://www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf
https://www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf
https://banking.mt.gov/News/The-Challenge-of-Being-the-Only-State-Not-Regulating-Money-Transmitters
https://banking.mt.gov/News/The-Challenge-of-Being-the-Only-State-Not-Regulating-Money-Transmitters
https://www.sec.gov/newsroom/speeches-statements/statement-stablecoins-040425
https://www.sec.gov/newsroom/speeches-statements/statement-stablecoins-040425
https://legal.pwc.de/content/services/global-crypto-regulation-report/pwc-global-crypto-regulation-report-2025.pdf
https://legal.pwc.de/content/services/global-crypto-regulation-report/pwc-global-crypto-regulation-report-2025.pdf


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  9393   •   

Stablecoins and Payments Stablecoins and Payments  •  Innovation in Payments 

Internationally active stablecoin issuers also face a fragmented regulatory landscape. Large financial centers 
are developing and implementing stablecoin frameworks. Some stablecoin firms have chosen to operate 
globally out of smaller jurisdictions that lack a comprehensive regulatory framework or the ability to implement 
one. The lack of a coherent and unified framework for stablecoins can undermine their reliability as money 
instruments, limiting their utility, stability, or ability to circulate without trading at a discount. It could also 
lead to technical challenges, as issuers attempt to meet differing standards on issues such as interoperability, 
privacy, and governance. Regulatory fragmentation can also lead to market fragmentation and to reduced or 
trapped liquidity within specific stablecoin arrangements; this can limit market depth in ways that affect the 
broader health of digital asset markets. More immediately, fragmentation may impose inefficient compliance 
and operational costs on U.S. stablecoin issuers operating internationally, damaging their competitiveness.

Stablecoins may be used in a range of applications, including retail and institutional payments and to facilitate 
trading in other digital assets. These use cases implicate other regulatory frameworks, including market 
structure,345 which is discussed in detail in Chapter III. Customers also may rely on third-party custodians or 
other intermediaries to hold their stablecoins. 

Recommendation Recommendation 

Faithfully and Expeditiously Implement GENIUS 

Executive Order No. 14178 outlines the policy of the Trump Administration to promote and protect the 
sovereignty of the U.S. dollar, including through actions to promote the development and growth of lawful and 
legitimate dollar-backed stablecoins worldwide.346 Additionally, Congress and President Trump have worked 
together to enact GENIUS, which enshrines a pro-innovation framework for stablecoins in Federal law.

The Working Group especially applauds the following aspects of GENIUS, which are essential to enabling 
growth and stability in the digital asset market.

•	 Integrity of Payment Stablecoins. The composition of reserve assets is essential to promote trust in and 
use of dollar-backed stablecoins. Payment stablecoins347 are required to be backed by high-quality and liquid 
assets so that a claim on a stablecoin issuer representing $1 is worth $1 when redeemed. High quality and liquid 
reserve assets reduce the potential for losses to holders of stablecoins and the risk of a run on the stablecoin. 

•	 Onshore Innovation. In order to offer or sell payment stablecoins to a person in the United States, issuers 
are required to retain a U.S. license – which would entitle them to modest, additional benefits – or meet 
comparable regulatory standards under a foreign licensing regime. Such regulation mitigates risks to 
U.S. financial stability, promotes U.S. national security interests, and ensures that U.S.-licensed issuers are 
competitive globally. 

•	 Facilitate Cross-Border Flows. Internationally active stablecoin issuers may face unwarranted 
impediments to operating across multiple jurisdictions. GENIUS encourages cross-border flows by allowing 
U.S. authorities to evaluate foreign frameworks and grant reciprocity to jurisdictions with comparable or 
equivalent regimes. Evaluation considerations include reserve requirements, prudential standards, and 
supervisory and enforcement capacity.

345     �Once a federal regulatory framework for stablecoins is in place, policymakers also should consider addressing the Federal income tax treatment of 
stablecoins. The tax rules applicable to any asset depend on how that asset is classified, (e.g., as currency, property, securities or commodities) and how 
returns on the assets are treated for tax purposes. The tax characterization of stablecoins is currently uncertain, which means that it is not certain which 
set of tax rules apply to them. For further discussion of this issue, see Chapter VII.

346     �Exec. Order No. 14178, supra note 1, at § 1(a)(ii).
347     �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).



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Stablecoins and Payments Stablecoins and Payments  •  Central Bank Digital Currencies

•	 Mitigate Risks to Financial System. Risks that might undermine confidence in payment stablecoins 
are addressed to promote use of dollar-backed stablecoins. Specifically, the GENIUS licensing structure 
mitigates risks of runs (and secondary runs on underlying assets), risks of operational failure, and risks to 
financial stability. 

•	 Promote Competition. Payment stablecoins compete with each other and with the services of other 
payments providers. GENIUS promotes competition and choice for consumers while recognizing 
differences in business models. Fostering a competitive financial ecosystem while also supporting bank 
(including community bank) digitalization ensures the continued relevance of both traditional financial 
institutions and of business models relying on new technologies.

•	 Protect Consumers. U.S.-licensed stablecoin issuers are required to address risks to consumers. They must 
provide adequate, monthly disclosures of reserve assets and ensure that payment stablecoin owners can 
redeem their stablecoins for cash 1:1 on demand. Issuers are not permitted to misrepresent that payment 
stablecoins are backed by the full faith and credit of the United States, guaranteed by the United States 
Government, or subject to federal deposit insurance or federal share insurance. Moreover, stablecoin 
holders’ claims in insolvency are prioritized, and third parties providing custodial services for stablecoin 
issuers must segregate stablecoin reserves from their own assets.

•	 Clarify Regulatory Status of Stablecoins. Payment stablecoins issued by U.S.-licensed issuers (which, 
under GENIUS, cannot be yield-bearing) are treated as neither securities nor commodities under relevant 
securities and commodities laws and regulations. Additionally, U.S.-licensed stablecoin issuers are not 
treated as investment companies under relevant securities laws.

•	 National Security. Illicit actors, including sanctions evaders, can use stablecoins as a relatively safe and 
stable way to hold illicit proceeds before exchanging into fiat currency and to access U.S. dollar liquidity. 
In response to specific requests from U.S. and foreign law enforcement, some stablecoin issuers have, in 
some cases, taken steps to freeze assets. To promote integrity in stablecoins, protect U.S. national security 
interests, and build upon existing AML/CFT and sanctions requirements for stablecoin issuers, GENIUS 
explicitly treats U.S.-licensed stablecoin issuers as “financial institutions” under the BSA and therefore 
subject to applicable AML/CFT obligations.348 Foreign payment stablecoin issuers are also required to 
comply with lawful U.S. orders to freeze and seize assets to counter illicit use.349

The Working Group believes that GENIUS will create a thriving and durable stablecoin ecosystem in the 
United States.

To enable this ecosystem to realize its full potential under GENIUS, the Working Group urges all 
relevant federal agencies, including Treasury, the OCC, the FDIC, the FRB, the NCUA, the SEC, and the 
CFTC, to faithfully and expeditiously implement GENIUS, as required by law.

Central Bank Digital CurrenciesCentral Bank Digital Currencies
A Central Bank Digital Currency is a digital form of fiat money and direct liability of the central bank. CBDC 
projects around the world may be targeted at retail payments or wholesale payments. In retail usage, the CBDC 
targets individuals by making them holders of a liability of the central bank used for low-value transactions, 
including payments. In wholesale usage, the CBDC targets institutions with a function much like a tokenized 
central bank reserve, representing an obligation of the central bank to the token holder. 

348     �Note that domestic and foreign stablecoin issuers offering services wholly or in substantial part in the United States are already subject to the BSA. 
Supra note 338.

349     �See Chapter V, “Stablecoin Freeze and Seize Process.”



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The Executive Order prohibits the promotion of CBDCs both domestically and abroad.350 CBDCs are provided 
by a central bank government authority, and the retail use of CBDCs introduces the greatest risks to the private 
sector and private citizens. CBDCs consolidate government control of personal financial information, severely 
compromising individual economic and privacy rights. Combined with the potential incorporation of smart 
contracts, retail CBDCs could effectively turn fiscal policy over to unelected monetary authorities and could 
be used to channel resources away from certain activities and toward others at the whims of those authorities. 
According to one estimate, at least 90 countries are actively considering or experimenting with CBDCs.351 
China’s CBDC, the e-CNY, has an expansive pilot project that involves 60 banks and payment service providers. 
In 2021, the European Central Bank (ECB) launched a two-year investigation phase for the issuance of a CBDC, 
the digital euro, and has been in the preparation phase for the digital euro’s issuance since November 2023.352 
The ECB is targeting October 2025 for a Governing Council decision regarding the potential launch of the next 
phase in the digital euro’s development.353 

Retail CBDC efforts, both domestically and abroad, pose severe risks to individual rights, financial systems, and 
the sovereignty of the United States. In contrast, private sector technological innovations like stablecoins and 
other forms of tokenized assets preserve economic liberty. 

RecommendationsRecommendations
•	 Discourage, oppose, and prohibit the ability of any agency from undertaking any action to establish, issue, 

or promote any CBDCs in the United States or abroad.

•	 Support legislation prohibiting the adoption of any CBDCs in the United States, including, for example, the 
Anti-CBDC Surveillance State Act, which was passed by the House of Representatives on July 17, 2025.354

•	 Support U.S. technological leadership and competitiveness in capital markets and work to upgrade 
domestic payment systems, FMIs, and cross-border payments; urge other countries to adopt policies that 
promote the role of the private sector within a technology-neutral regulatory regime.

•	 Examine the extent to which U.S. federal agencies (including the Banking Agencies) and relevant international 
financial institutions have engaged in CBDC research or pilot programs contrary to the policies set forth in 
Executive Order No. 14178.355 

Promoting the Competitiveness of the U.S. Dollar Through Digital Asset Payments  Promoting the Competitiveness of the U.S. Dollar Through Digital Asset Payments  
and Capital Marketsand Capital Markets
A promising use case for stablecoins and other new forms of money is cross-border payments and financial 
transactions. A wide range of jurisdictions, private sector groups, and international organizations are engaged 
in initiatives to improve cross-border payments.356 Some aim to improve the current regime for cross-border 
payments, to which the U.S. dollar and U.S. financial institutions are central, while other projects may aim to 
transform global payments to the detriment of the United States. 

The dollar is the leading currency in the international monetary system within which cross-border payments 
and financial markets have matured. The dollar’s share of global trade (54%) and financial activities (59% of 

350     �Exec. Order No. 14178, supra note 1, at § 5(a) (“Except to the extent required by law, agencies are hereby prohibited from undertaking any action to 
establish, issue, or promote CBDCs within the jurisdiction of the United States or abroad.”). The Executive Order defines “Central Bank Digital Currency” 
as “a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank.” Id. at § 2(c).

351     � See Today’s Central Bank Digital Currencies Status, CBDC Tracker, https://cbdctracker.org (updated May 2025). 
352     �Timeline and Progress on a Digital Euro, European Central Bank, https://www.ecb.europa.eu/euro/digital_euro/progress/html/index.en.html (last visited July 13, 2025). 
353     �Staying Ahead of the Curve: Towards Further Testing and Development, European Central Bank, https://www.ecb.europa.eu/euro/digital_euro/progress/

shared/pdf/241202-timeline-digital-euro-project.en.pdf (last visited July 13, 2025). 
354     �H.R. 1919, 119th Cong. (2025). 
355     �See Exec. Order No. 14178, supra note 1.
356     �See FSB, supra note 327.

https://cbdctracker.org
https://www.ecb.europa.eu/euro/digital_euro/progress/html/index.en.html
https://www.ecb.europa.eu/euro/digital_euro/progress/shared/pdf/241202-timeline-digital-euro-project.en.pdf
https://www.ecb.europa.eu/euro/digital_euro/progress/shared/pdf/241202-timeline-digital-euro-project.en.pdf


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Stablecoins and Payments Stablecoins and Payments  •  Promoting the Competitiveness of the U.S. Dollar Through Digital Asset Payments and Capital Markets

foreign currency reserves)357 has been much larger than the United States’ share of global Gross Domestic 
Product (now around 26%).358 For example, 88% of all FX transactions use the U.S. dollar in one leg of the 
transaction.359 More than 80% of the global trade finance market is denominated in dollars.360 Around 60% 
of global banking sector liabilities and claims are denominated in dollars.361 This affords the United States 
broad commercial and security advantages, such as reduced currency risk for U.S. businesses doing business 
globally. The U.S. dollar also delivers significant benefits to foreign investors, markets, and economies in the 
form of a stable store of value, a widely accepted retail instrument, and a highly liquid global currency, reducing 
transaction costs for people and businesses around the world. 

Stablecoin Adoption: Converging with Existing Frameworks

Stablecoins: simplifying global banking - streamlined 
framework, process and approach.

Stablecoins enable effortless, borderless transactions by unifying traditional and digital financial 
systems. Their adoption reduces complexity, enhances transparency, and makes global finance 
more accessible and efficient for individuals and businesses alike.

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Current Banking Networks

Stablecoin Access Partners

Direct Transactions

Exchange Fiat to Stablecoin Exchange Stablecoin to Fiat
Providers that enable users to access 

stablecoins and the blockchain. Moving 
balances from existing financial systems.

Providers that enable users to access 
stablecoins and the blockchain. Moving 
balances to existing financial systems.

Sender’s Wallet Recipient’s Wallet
Users that hold stablecoin balances 
(reserves) that provide immediate 
accessibility and transferability.

Users that hold stablecoin balances 
(reserves) that provide immediate 
accessibility and transferability.

Stablecoin Adoption : Converging with Existing Frameworks

2 to 5+ business days

30 minutes or less

Seconds or less

Comprehensive Solutions from the Leading Global Crypto Advisor

The traditional banking system experiences significant inefficiencies 
in cross-border payments stemming from the extensive 

intermediation inherent in the correspondent banking network.

Bridge to Adoption Built by “On-Ramp” & “Off-Ramp” Providers:

01 Seamless Conversion 
between Fiat & Stablecoin

On-ramp and off-ramp providers make it easy to 
convert fiat currencies into stablecoins and vice 
versa. This creates a smooth bridge between 
traditional financial systems and the crypto 
ecosystem, reducing barriers for users and 
businesses (i.e., a stablecoin “customer service”).

These intermediary providers offer direct access to 
stablecoins and services without requiring external 
integrations. This facilitate smooth adoption but 
simplifying processes, enhancing key areas of 
security, and reducing operational complexity for 
businesses and users alike.

With built-in AML and KYC protocols, on-ramp and 
off-ramp providers ensure transactions are secure, 
transparent, and meet regulatory standards. This 
fosters trust among users, supports broader 
adoption of stablecoins, and ensures compliance 
with global financial regulations.

02 No Third-Party 
Integration Required 03 Integrated Regulatory 

Compliance Process

357     �Sam Boocker & David Wessel, The changing role of the US dollar, Brookings (Aug. 23, 2024), https://www.brookings.edu/articles/the-changing-role-of-
the-us-dollar.

358    �GDP (current US$) – United States, World, World Bank Group, https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2024&locations=US-
1W&start=1960&view=chart (last visited July 13, 2025). 

359    �U.S. Department of the Treasury Under Secretary for International Affairs Jay Shambaugh, Remarks at the Third Conference on the International Roles 
of the U.S. Dollar Hosted by the Federal Reserve Board and the Federal Reserve Bank of New York (May 20, 2024), https://home.treasury.gov/news/press-
releases/jy2352.

360    �First Deputy Managing Director Gita Gopinath, International Monetary Fund, Geopolitics and its Impact on Global Trade and the Dollar, International 
Monetary Fund (May 7, 2024), https://www.imf.org/en/News/Articles/2024/05/07/sp-geopolitics-impact-global-trade-and-dollar-gita-gopinath.

361     �Carol Bertaut, Bastian von Beschwitz & Stephanie Curcuro, “The International Role of the U.S. Dollar” Post-COVID Edition, Board of Governors of the 
Federal Reserve System: FEDS Notes (June 23, 2023), https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-us-dollar-post-
covid-edition-20230623.html.

Graphic prepared by Alvarez & Marsal

https://www.brookings.edu/articles/the-changing-role-of-the-us-dollar
https://www.brookings.edu/articles/the-changing-role-of-the-us-dollar
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2024&locations=US-1W&start=1960&view=chart
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2024&locations=US-1W&start=1960&view=chart
https://home.treasury.gov/news/press-releases/jy2352
https://home.treasury.gov/news/press-releases/jy2352
https://www.imf.org/en/News/Articles/2024/05/07/sp-geopolitics-impact-global-trade-and-dollar-gita-gopinath
https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-us-dollar-post-covid-edition-20230623.html
https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-us-dollar-post-covid-edition-20230623.htmlSTR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  9797   •   

Stablecoins and Payments Stablecoins and Payments  •  Promoting the Competitiveness of the U.S. Dollar Through Digital Asset Payments and Capital Markets

International payments are mainly conducted via the correspondent banking system, in which the primary 
participants are large banks and financial intermediaries with access to U.S. dollar clearing services and 
liquidity. Smaller institutions typically access this system through accounts at larger banks. Participants 
send payment instructions and confirmations through specialized messaging systems, like that operated by 
the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Payments ultimately settle on 
commercial and central bank balance sheets, often on a net basis at predetermined times of day for reasons 
of operational and liquidity efficiency. A single payment may travel across several bank balance sheets and 
require reconciliation all along the chain in a complex system that has evolved over decades. In many FX 
transactions between two non-U.S. currencies, the original currency is converted first to U.S. dollars and then 
to the final currency, because it is often cheaper than a direct conversion or because there is higher liquidity 
for conversion to or from the U.S. dollar. This explains the U.S. dollar’s dominant role in FX transactions, and 
why U.S. institutions and U.S. dollar accounts are central to cross-border payments. This centrality incentivizes 
foreign financial institutions to implement U.S. sanctions and maintain robust AML/CFT controls, both of which 
are key U.S. economic and national security tools. 

For individuals sending remittances, especially to countries with poorer connectivity to the correspondent 
banking system, payments may be slower, more expensive, and more opaque. According to 2024 World Bank 
data, the global average cost of remitting $200 was 6.4%, with high variation across regions and only 77% of 
remittances were available within one day.362 Such direct and indirect costs impede economic development, 
creating a demand for alternatives that may be filled by U.S. adversaries. Additionally, as capital markets 
accelerate, slower payment infrastructure could increase the risk of failed transactions and may increase 
costs for securities firms active across global markets. Despite next day (T+1) settlement for most securities 
transactions in the United States, FX transactions still settle in two days (T+2), requiring banks to hold capital 
against FX transactions to insure against settlement failure. Additionally, large sections of the system may have 
dependencies on unreliable core infrastructures, introducing concentration and operational risks. For example, 
in late February 2025, a “hardware defect” in Europe’s Target 2 legacy payment system caused a seven-hour 
outage, delaying trillions of euros worth of payments.363 Finally, foreign jurisdictions, seeking to evade U.S. 
sanctions, may seek to create alternatives that avoid U.S. jurisdiction. 

Digital asset proponents are applying the full suite of new money-like products to cross-border retail 
payments. Digital assets and stablecoins already flow across borders, although the evidence indicates that, 
except for in select countries, these flows predominantly finance activity within the global digital asset 
ecosystem.364 

Large-value wholesale cross-border payments can also benefit from the advantages of digital assets and DLT. 
While some of this work advances piecemeal upgrades or technical improvements to existing systems, there is 
significant interest in designing new multilateral FMIs or common platforms for cross-border payments. In its 
most ambitious form, a new FMI would accommodate varied types of tokenized assets traded across borders. 
Development of new FMIs remains conceptual for now, and further exploration is ongoing to determine the 
technical, operational, and economic viability. The ability to instantaneously transfer deposits globally, or to 
program payments with specific conditions, has the potential to significantly enhance client firms’ treasury 
operations and cash management. Atomic settlement of wholesale FX payments could also help significantly 
reduce settlement risk. Private sector financial institutions, including U.S. firms, both individually and in 
consortia, are driving some of these projects. 

362     �FSB, supra note 327, at 33.
363     �Tom Simms, Francesco Canepa & John O’Donnell, ECB’s multi-trillion payments breakdown sends shudders through Europe, (Feb. 28, 2025), https://www.

reuters.com/markets/europe/deutsche-boerses-clearstream-deals-with-residual-impact-ecb-outage-2025-02-28. 
364     �Raphael Auer et al., DeFiying gravity? An empirical analysis of cross-border Bitcoin, Ether and stablecoin flows, BIS Working Paper No. 1265 (May 2025), 

https://www.bis.org/publ/work1265.pdf. 

https://www.reuters.com/markets/europe/deutsche-boerses-clearstream-deals-with-residual-impact-ecb-outage-2025-02-28
https://www.reuters.com/markets/europe/deutsche-boerses-clearstream-deals-with-residual-impact-ecb-outage-2025-02-28
https://www.bis.org/publ/work1265.pdf


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Stablecoins and Payments Stablecoins and Payments  •  Promoting the Competitiveness of the U.S. Dollar Through Digital Asset Payments and Capital Markets

Without strong U.S. leadership, the development of alternative payment arrangements may weaken the role 
of U.S. financial institutions, the dollar, and the effectiveness of U.S. national security tools. While many private 
sector projects are being led by or involve U.S. financial institutions, many have based their innovation outside 
the United States to take advantage of more favorable regulatory environments for deploying digital assets and 
tokenization. This reduces the United States’ ability to establish, influence, and benefit from new standards and 
best practices for innovative cross-border FMIs. Additionally, adversarial nations have been active in efforts to 
establish new cross-border payment arrangements with the explicit goal of reducing reliance on U.S. dollar-based 
infrastructures. The negative effects of these efforts could build as more arrangements are created from which 
the U.S. dollar and the United States are absent. Advances in international projects to develop FMIs using novel 
payment technology may define new de facto standards. If the United States does not lead, these standards may 
be of poor quality, conflict with U.S. values or national security priorities, or intentionally erode U.S. interests. 

The United States must seize the opportunity to exert leadership over the emergence and evolution of new 
financial market technologies and champion the U.S. private sector to lead these innovations. U.S. participation in 
the development of alternative payment arrangements—either directly or indirectly through the oversight of U.S. 
private sector initiatives—will help preserve the dollar’s role and increase the ability of the United States to preserve 
or improve the efficacy of its national security tools. For example, a U.S. regime for well-regulated stablecoins that 
can flow across borders via reciprocity arrangements, as is envisioned by GENIUS, can support the emergence of a 
new U.S.-based system for real-time cross-border dollar payments. By virtue of the dollar’s availability, other U.S.-led 
arrangements that may rely on innovations such as tokenization would be relatively more attractive than competing 
non-dollar models. The involvement of U.S. financial institutions would also reinforce U.S. AML/CFT and sanctions 
frameworks, incentivize foreign financial institutions to maintain strong AML/CFT programs, and incentivize non-
U.S. persons to abide by U.S. sanctions if they seek to access to the U.S. financial system. 

RecommendationsRecommendations
•	 Relevant U.S. agencies, including Treasury, should promote U.S. private sector leadership in the responsible 

development of innovative cross-border payments and financial markets technologies. Toward this end, 
Treasury should consider using its convening authority to encourage and provide clarity to U.S. financial 
institutions in leading these efforts. 

•	 Treasury and other relevant agencies should 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. Standards, including international standards, should be calibrated to accurately reflect 
the risk of innovative digital products and services.

•	 Domestically and internationally, U.S. authorities should encourage payment solutions that: (i) protect 
the two-tier banking system and promote the private sector’s role in financial intermediation, payments, 
and capital formation; (ii) preserve individual rights and limit government control of personal financial 
information; and (iii) incorporate robust and effective AML/CFT and sanctions controls. 

•	 Treasury, in coordination with other relevant agencies, should engage with international counterparts and 
institutions by leading initiatives to upgrade domestic payment systems, FMIs, and cross-border payment 
systems, to help protect the primacy of the dollar-based international monetary system.



VI   Countering Illicit FinanceVI   Countering Illicit Finance

CHAPTER VI

 Countering Illicit Finance Countering Illicit Finance

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 



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Countering Illicit FinanceCountering Illicit Finance
“The developers expect that this will result in a stable-with-respect-to-energy currency outside 
the reach of any government.” – I am definitely not making an [sic] such taunt or assertion.

 BitcoinTalk Forum Post Re: “Slashdot Submission for 1.0” 
Satoshi Nakamoto, July 2010365

Digital assets, like traditional assets, are subject to abuse by bad actors—terrorists, drug traffickers, state-
sponsored hackers, human traffickers, fraudsters, sanctions evaders, and others. But unlike traditional assets, the 
technology underlying digital assets enables ways to mitigate the risk of illicit transactions.366 The U.S. financial 
system’s strength, size, and reliability make it a notable target, and misuse by these actors affects matters 
of national security. To unleash the full potential of digital assets in the United States, preserve the rights of 
innovators to build technologies that advance individual privacy and liberty, and stop financial crime that targets 
Americans, the Working Group encourages the adoption of certain measures to deter and combat illicit finance. 

These measures, tools, and authorities must be properly scoped to encourage innovation, respect the liberties 
and privacy of lawful digital asset users, and protect the financial system from abuse. Treasury’s policy, 
enforcement, intelligence, and regulatory tools under the Bank Secrecy Act (BSA)367 and sanctions authorities 
are critical to protecting the U.S. financial system. Effective and clear regulation coupled with law enforcement 
actions against malicious actors can build confidence among U.S. users and firms seeking to grow domestically. 
Transparency regarding developers’ obligations under the law will encourage the onshoring of blockchain 
development and support the efforts of American innovators to lead the digital assets industry forward.

The Financial Crimes Enforcement Network (FinCEN), a Treasury bureau tasked with safeguarding the 
financial system from illicit activity, has shown leadership on this front. As part of an ongoing effort to establish 
clarity for the digital asset industry and the Trump Administration’s broader efforts to ensure regulations are fit-
for-purpose, FinCEN is withdrawing two notices of proposed rulemaking related to digital assets, including one 
rulemaking colloquially referred to as the “unhosted wallet rule”368 and a second that proposed amendments to 
the travel and recordkeeping rules.369

The U.S. Department of Justice (DOJ) has also committed to ending the Biden Administration’s strategy of 
regulation by prosecution in the digital assets space.370 The DOJ will no longer pursue litigation or enforcement 
actions that have the effect of superimposing regulatory frameworks on digital assets.371 This decision stems 
from the fact that financial regulators (including the SEC, and the CFTC) have regulatory subject matter 
expertise and are better suited for such regulatory activities.372 Going forward, the DOJ’s investigations and 
prosecutions involving digital assets shall focus on prosecuting individuals who victimize digital asset investors or 

365     � satoshi, supra note 16.
366     �Supra note 349
367      �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). 

368     �See Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets, 85 Fed. Reg. 83840 (Dec. 23, 2020).
369     �See Threshold for the Requirement To Collect, Retain, and Transmit Information on Funds Transfers and Transmittals of Funds That Begin or End Outside 

the United States, and Clarification of the Requirement To Collect, Retain, and Transmit Information on Transactions Involving Convertible Virtual 
Currencies and Digital Assets With Legal Tender Status, 85 Fed. Reg. 68005 (Oct. 27, 2020).

370     � U.S. Department of Justice (DOJ), Memorandum from the Deputy Attorney General: Ending Regulation by Prosecution 1 (Apr. 7, 2025), https://www.justice.
gov/dag/media/1395781/dl?inline. 

371     �  Id.
372     � Id. at 1, 3.

https://www.justice.gov/dag/media/1395781/dl?inline
https://www.justice.gov/dag/media/1395781/dl?inline


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use digital assets in furtherance of criminal offenses.373 The DOJ has also disbanded its National Cryptocurrency 
Enforcement Team and refocused its Market Integrity and Major Frauds Unit on other priorities.374

The Working Group applauds these actions and encourages all relevant agencies to follow the examples set by 
FinCEN and the DOJ in evaluating and better tailoring regulation and enforcement.

Illicit Finance RisksIllicit Finance Risks
U.S. digital asset participants use digital assets for a variety of legitimate purposes, including investments, 
remittances, and payment for goods and services. However, like any medium of exchange, digital assets may 
be used by illicit actors to facilitate and profit from crime. The ability to transfer assets quickly across borders 
and perceptions of anonymity, which appeal to many digital asset users, also make digital assets attractive to 
illicit actors. 

Despite increasing over the last decade, the prevalence of money laundering and terrorist financing via 
digital assets remains well below that of the same activities utilizing fiat currency, bank and traditional money 
services fund transfers, and other methods that do not involve digital assets.375 The Federal government’s 
approach to addressing illicit finance in the digital asset ecosystem is informed by an understanding of how 
threat actors misuse digital assets and the features of the underlying technology. Moreover, certain industry 
estimates indicate that the vast majority of digital asset activity is legitimate, with a relatively small amount 
of illicit activity. For example, two blockchain analytics companies assessed that between 0.61% and 0.86% of 
all onchain digital asset volumes in 2023 were illicit, accounting for between $46.1 billion and $58.7 billion. As 
indicated below, these companies have also conducted assessments for 2024 but anticipate adjustments to 
illicit volume over time with delayed reporting, further analysis, and improved attribution techniques to identify 
illicit activity.376 These assessments help provide a baseline for illicit activity in the digital asset ecosystem given 
certain limitations with using blockchain information for ecosystem-wide trends.377 

373     �Id. at 1.
374     �Id. at 4.
375     �See Treasury, 2024 National Terrorist Financing Risk Assessment, supra note 336; Treasury, 2024 National Money Laundering Risk Assessment, supra note 336.
376     �Chainalysis, The 2025 Crypto Crime Report 5 (Feb. 2025), https://www.chainalysis.com/wp-content/uploads/2025/03/the-2025-crypto-crime-report-

release.pdf; TRM Labs, 2025 Crypto Crime Report 4 (2025), https://cdn.prod.website-files.com/6082dc5b670562507b3587b4/6823baf9045160ea474b3f7a_
TRM_2025%20Crypto%20Crime%20Report.pdf.

377     �The limitations include the adjustments described above, variations in how analytic companies attribute illicit activity to wallets, differences in the 
networks and assets included in the assessment, and the fact that assessments only include transactions involving wallet addresses that have been 
identified as illicit. Attribution for these purposes can be particularly challenging for transactions involving proceeds of crimes initially conducted in fiat 
currency and subsequently converted into digital assets.

https://www.chainalysis.com/wp-content/uploads/2025/03/the-2025-crypto-crime-report-release.pdf
https://www.chainalysis.com/wp-content/uploads/2025/03/the-2025-crypto-crime-report-release.pdf
https://cdn.prod.website-files.com/6082dc5b670562507b3587b4/6823baf9045160ea474b3f7a_TRM_2025 Crypto Crime Report.pdf
https://cdn.prod.website-files.com/6082dc5b670562507b3587b4/6823baf9045160ea474b3f7a_TRM_2025 Crypto Crime Report.pdf


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Share of Digital Asset Transaction Volume Associated with Illicit Activity, 2021-2024378

Notably, in addition to volume of illicit activity, the harmful impact of illicit conduct must also be considered 
in assessing illicit finance risks in the digital asset ecosystem. For example, while the Democratic People’s 
Republic of Korea’s (DPRK) revenue generation through digital assets is a small amount compared to the 
market capitalization of digital assets, DPRK is reliant on digital assets to fund the regime’s weapons of mass 
destruction and ballistic missiles program.379

DPRK and ransomware cybercriminals have generated significant revenue in digital assets through theft and 
extortion payments for several years. In February 2025, DPRK cybercriminals stole digital assets valued at $1.5 
billion from a digital asset service provider, the largest theft in digital asset history.380 In 2024, reported losses 
from digital assets fraud exceeded $9 billion, a 66% increase from 2023, according to complaints received 
by the Federal Bureau of Investigation’s (FBI’s) Internet Crime Complaint Center.381 Losses to digital asset 
investment schemes accounted for nearly $6 billion of this total amount.382 

Illicit actors can exploit several vulnerabilities in the digital asset ecosystem, including jurisdictional arbitrage, 
digital asset service providers that fail to comply with applicable AML/CFT and sanctions obligations, and 
anonymity-enhancing technologies. Often, illicit actors use foreign digital asset service providers with weak AML/
CFT and sanctions requirements to launder illicit proceeds. Some of these service providers tout their weak AML/
CFT and sanctions controls to attract customers. The lack of standardization across AML/CFT frameworks across 
jurisdictions allows some digital asset service providers to operate in countries with deficient or non-existent 
AML/CFT requirements. A Financial Action Task Force (FATF) survey identified that as of mid-2025, nearly 30 
countries had not determined their approach to digital asset service providers for AML/CFT, and many countries 

378      Chainalysis, supra note 376; TRM Labs, supra note 376.
379     �See Office of the Director of National Intelligence, Annual Threat Assessment of the U.S. Intelligence Community (Mar. 2025), https://www.dni.gov/files/

ODNI/documents/assessments/ATA-2025-Unclassified-Report.pdf. 
380     �Federal Bureau of Investigation (FBI), I-022625-PSA, North Korea Responsible for $1.5 Billion ByBit Hack (Feb. 26, 2025), https://www.ic3.gov/psa/2025/

psa250226. 
381     �FBI, Federal Bureau of Investigation Internet Crime Report 2024 35 (2024), https://www.ic3.gov/AnnualReport/Reports/2024_IC3Report.pdf. 
382     �Id. at 36.

https://www.dni.gov/files/ODNI/documents/assessments/ATA-2025-Unclassified-Report.pdf
https://www.dni.gov/files/ODNI/documents/assessments/ATA-2025-Unclassified-Report.pdf
https://www.ic3.gov/psa/2025/psa250226
https://www.ic3.gov/psa/2025/psa250226
https://www.ic3.gov/AnnualReport/Reports/2024_IC3Report.pdf


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with AML/CFT frameworks for digital asset service providers have not yet operationalized them.383 These 
international gaps may allow non-compliant digital asset service providers outside the United States to solicit U.S. 
customers away from more compliant U.S.-based digital asset service providers.

Even in the United States, where digital asset service providers are subject to AML/CFT and sanctions 
obligations, some digital asset service providers fail to comply with applicable obligations. Such compliance 
failures can result in an uneven playing field, placing firms that faithfully discharge their responsibilities to help 
safeguard the U.S. financial system at a competitive disadvantage.

Illicit actors use certain tools and methods—such as mixers, anonymity-enhanced cryptocurrencies (AECs), 
and chain-hopping—to obfuscate transactional information that may be otherwise viewable on public 
blockchains.384 These tools and methods can hinder law enforcement investigations, including tracing criminal 
proceeds for seizure and forfeiture, which can allow victim compensation. While these methods and tools may 
also be used for legitimate digital assets activities, including by users who want increased privacy for digital 
asset transactions (see Chapter VI, Advancing Privacy through Digital Identity and Related Tools), they can 
heighten illicit finance risks if they do not simultaneously allow for or promote risk mitigation measures.

Illicit actors may also use DeFi services, along with self-custody, to facilitate peer-to-peer transactions in the 
laundering process. While there are licit reasons to self-custody digital assets (see Chapter II), illicit actors can 
use the pseudonymity of self-custody and peer-to-peer payments to conceal or to quickly move proceeds.

Improving the AML/CFT and Sanctions FrameworksImproving the AML/CFT and Sanctions Frameworks
The U.S. AML/CFT and sanctions frameworks are designed to protect the integrity of the U.S. financial 
system on which U.S. persons and the global economy rely for trade, investments, remittances, and everyday 
transactions. The BSA, administered by FinCEN, places obligations on financial institutions to monitor, report, 
and take steps to mitigate money laundering, the financing of terrorism, and other illicit finance activity. These 
requirements both mitigate the risk of illicit actors accessing the financial system and provide actionable 
information for law enforcement and national security agencies to identify and disrupt criminal activity. U.S. 
economic and trade sanctions, administered by Treasury’s Office of Foreign Assets Control (OFAC), prohibit 
certain adversaries from accessing the U.S. financial system and deter or disrupt behavior that undermines U.S. 
national security or foreign policy through the imposition of material costs. 

To implement the Trump Administration’s policy of encouraging innovation and responsible use of digital 
assets, the United States must protect the digital asset ecosystem and its users by mitigating and combatting 
the risks posed by illicit use. Meeting this objective requires AML/CFT and sanctions regimes that impose clear 
obligations, tailored to the risk and structure of the industry. In the view of the Working Group, this moment 
serves as a valuable opportunity to comprehensively review the AML/CFT regime to ensure it protects the 
financial system from abuse without impeding on the rights of law-abiding Americans. Such regulatory 
frameworks should respect the lawful use of digital assets by individuals and digital asset firms in the United 
States and acknowledge Americans’ privacy rights. Updates to the AML/CFT and sanctions regimes to better 
account for digital asset actors will create a more transparent, resilient, and safe digital asset sector and give 
the United States a comparative advantage globally. 

383     �Financial Action Task Force, Targeted Update on Implementation of the FATF Standards for Virtual Assets and Virtual Asset Service Providers 11 (Jun. 
2025), https://www.fatf-gafi.org/content/dam/fatf-gafi/recommendations/2025-Targeted-Upate-VA-VASPs.pdf.coredownload.pdf. 

384     �“Chain-hopping” refers to the practice of converting one digital asset into a different digital asset at least once before moving the funds to another 
service or platform.

https://www.fatf-gafi.org/content/dam/fatf-gafi/recommendations/2025-Targeted-Upate-VA-VASPs.pdf.coredownload.pdf


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Prescribing BSA Obligations

BSA Background

The BSA authorizes the Secretary of the Treasury to impose various obligations on financial institutions 
to detect and combat money laundering, the financing of terrorism and other illicit finance activity, and to 
otherwise safeguard the national security of the United States. 

Among other things, the BSA and its implementing regulations require financial institutions to establish written 
programs to combat money laundering and the financing of terrorism and to keep records385 and file reports 
that “are highly useful in . . . criminal, tax, or regulatory investigations, risk assessments, or proceedings” or 
“intelligence or counterintelligence activities, including analysis, to protect against terrorism.”386 The Secretary 
of the Treasury may also “establish appropriate frameworks for information sharing among financial institutions 
and service providers, their regulatory authorities, associations of financial institutions, the Treasury, and law 
enforcement authorities to identify, stop, and apprehend money launderers and those who finance terrorists.”387 

In 2021, Congress enacted the Anti-Money Laundering Act of 2020 (AML Act) as a part of the William M. 
(Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021.388 A key objective of the AML Act 
was to strengthen and modernize the AML/CFT regulatory framework. The AML Act also amended the BSA 
to further solidify the inclusion of digital assets into the U.S. AML/CFT framework, expanding key definitions to 
account for “value that substitutes for currency.”389 The Secretary of the Treasury has delegated the authority 
to implement, administer, and enforce the BSA and its implementing regulations to the Director of the FinCEN.

An entity generally has BSA obligations if it qualifies as a “financial institution” under the BSA, which is based 
on the entity’s activities, regardless of whether the activity is in fiat, digital assets, or both. Participants in the 
digital asset ecosystem may meet the definition of one or more financial institution types under the BSA (e.g., 
MSBs, insured banks, trust companies, futures commissions merchants, broker-dealers), but are predominantly 
treated as MSBs.390 Key components of regulations implementing the BSA pre-date the creation of digital 
assets, smart contracts, and other industry innovations. Accordingly, the current U.S. AML/CFT framework 
does not clearly account for all aspects of the digital asset ecosystem. 

Statutory Changes for Digital Asset Financial Institutions

The U.S. AML/CFT framework should consider how obligations can be better tailored and clarified for digital 
asset actors. To achieve this, the Working Group recommends that Congress—as it considers germane 
legislation—consider providing statutory changes to the BSA that define with greater certainty the actors in the 

385     �See 31 U.S.C. § 5318(h). The program rules are located at 31 C.F.R. §§ 1020.210 (banks), 1021.210 (casinos and card clubs), 1022.210 (money services 
businesses), 1023.210 (brokers or dealers in securities, or broker-dealers), 1024.210 (mutual funds), 1025.210 (insurance companies), 1026.210 (futures 
commission merchants and introducing brokers in commodities), 1027.210 (dealers in precious metals, precious stones, or jewels), 1028.210 (operators of 
credit card systems), 1029.210 (loan or finance companies), and 1030.210 (housing government sponsored enterprises) (2024). Additionally, under Title 12 of 
the U.S. Code, the federal banking agencies and the NCUA maintain regulations requiring insured depository institutions and credit unions to “establish and 
maintain procedures reasonably designed to assure and monitor” their compliance with the requirements of the BSA. See, e.g., 12 U.S.C. §§ 1818(s), 1786(q); 
see also 12 C.F.R. §§ 208.63(b), 211.5(m), 211.24(j) (FRB); 12 C.F.R. § 326.8(b) (FDIC); 12 C.F.R. § 748.2 (NCUA); 12 C.F.R. § 21.21(c) (OCC) (2025).

386     �31 U.S.C. §§ 5311(1), 5318(g) (2024). 
387     �31 U.S.C. §§ 5311(5) (2024); see also 31 U.S.C. § 310(d) (2024).
388     �Pub. L. No. Law 116-283 (2021). The AML Act was enacted as Division F, §§ 6001-6511, of the Pub. L. No. 116-283 (2021).
389     �See AML Act § 6102(d). Note that regulatory definitions pre-dating the AML Act recognized that BSA obligations could apply to activity involving “value 

that substitutes for currency.” See Financial Crimes Enforcement Network; Amendments to the Bank Secrecy Act Regulations-Definitions and Other 
Regulations Relating to Money Services Businesses, 74 Fed. Reg. 22129, 22137 (May 12, 2009) (discussing current definition of “money transmitter” and 
proposed inclusion of “value that substitutes for currency,” among other changes”); Bank Secrecy Act Regulations – Definitions and Other Regulations 
Relating to Money Services Businesses, 76 Fed. Reg. 43585 (July 21, 2011) (adopting definition); FinCEN, FIN-2019-G001, Application of FinCEN’s 
Regulations to Certain Business Models Involving Convertible Virtual Currencies 4 (May 9, 2019), https://www.fincen.gov/sites/default/files/2019-05/
FinCEN%20Guidance%20CVC%20FINAL%20508.pdf; FinCEN, FIN-2013-G001, supra note 338, at 3. 

390     �See, e.g., 31 C.F.R. §§ 1010.100(h) (defining broker or dealer in securities), 1010.100(bb) (defining introducing broker-commodities), 1010.100(ff) (defining 
money services business) (2024); Tarbert, Blanco & Clayton, supra note 111.

https://www.fincen.gov/sites/default/files/2019-05/FinCEN Guidance CVC FINAL 508.pdf
https://www.fincen.gov/sites/default/files/2019-05/FinCEN Guidance CVC FINAL 508.pdf


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digital asset ecosystem that are subject to BSA obligations. Such legislation could consider creating a bespoke 
digital asset-specific financial institution types or sub-types, which could enable Treasury to more carefully 
tailor AML/CFT obligations to different participants in the digital asset industry, such as exchanges, stablecoin 
issuers, and firms engaged in digital commodity transactions. 

While stablecoin issuers typically transact with institutional rather than retail customers, illicit actors may use 
stablecoins to generate and launder their proceeds of crime. As a good practice, some issuers have capabilities 
to mitigate risks related to secondary market transactions in the stablecoin that they issue. This can include 
the ability to freeze funds or block transactions involving their stablecoin. Many issuers also use blockchain 
analytics to identify risks in the stablecoin ecosystem and can use that information to freeze tokens when 
warranted. Additionally, Treasury should work to develop tailored AML/CFT obligations for payment stablecoin 
issuers, including ensuring that U.S. law enforcement receives highly useful reports involving stablecoins. 
Treasury should also explore how stablecoin issuers’ risk-based AML programs should address higher-risk 
activities in the secondary stablecoin ecosystem without placing undue burden on the issuer, as well as 
program requirements relating to freezing and seizing stablecoins. Chapter V discusses additional information 
on stablecoins and related regulatory recommendations that are relevant for understanding the operational 
context in which stablecoins are used. 

Further, as discussed in Chapter III, certainty regarding the regulatory market structure for digital assets is critical 
to market growth. As Congress considers updating federal agencies’ authorities related to digital assets, it should 
ensure that necessary changes are also codified in the BSA such that digital asset firms supervised by the CFTC 
and SEC, including any newly created types of financial institutions, are subject to BSA obligations as appropriate. 

BSA Obligations and Considerations for DeFi

FinCEN has taken steps to promote certainty and foster innovation in the digital markets. Guidance from 
FinCEN has been useful in assisting industry with understanding obligations as money transmitters. In 2013, 
FinCEN issued guidance, which explained how FinCEN characterized certain activities involving digital assets 
under the BSA and implementing regulations.391 The guidance clarified that an administrator or exchanger that 
“(1) accepts and transmits a virtual currency or (2) buys or sells convertible virtual currency for any reason” is a 
money transmitter392 under FinCEN regulations and, therefore, subject to the regulations of a money services 
business (MSB) under the BSA.393 The 2013 guidance also stated that a user who “obtains virtual currency and 
uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations.”394 

In 2019, FinCEN issued additional guidance on the application of regulations on certain business models 
involving convertible virtual currencies (CVCs).395 The guidance highlighted key facts and circumstances 
FinCEN used to set forth how various models could be treated under the BSA. For example, the guidance 
further clarified how FinCEN regulations may apply to peer-to-peer activity, explaining that “Peer-to-Peer 
(P2P) exchangers are (typically) natural persons engaged in the business of buying and selling CVCs,” and 

391     �FinCEN, FIN-2013-G001, supra note 338.
392     �Id. at 3. FinCEN’s regulations define “money transmitter” as a person that provides money transmission services, or any other person engaged in the 

transfer of funds. 31 C.F.R. § 1010.100(ff)(5)(i)(A) (2024). The term “money transmission services” means “the acceptance of currency, funds, or other 
value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another 
location or person by any means.” Id.

393     �FinCEN, FIN-2013-G001, supra note 338, at 3. The guidance also defines “virtual currency” as “a medium of exchange that operates like a currency 
in some environments, but does not have all the attributes of real currency” and notes that “virtual currency does not have legal tender status in any 
jurisdiction.” Id. at 1. The guidance defines convertible virtual currency (CVC) as “a type of virtual currency [that] either has an equivalent value in real 
currency, or acts as a substitute for real currency.” Id. Later guidance from FinCEN refers to “digital asset,” “cryptocurrency,” and “cryptoasset” as labels 
applied to particular types of CVCs. See FinCEN, FIN-2019-G001, supra note 389, at 7.

394     �FinCEN, FIN-2013-G001, supra note 338, at 2. 
395     �FinCEN, FIN-2019-G001, supra note 389.



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that a “natural person operating as a P2P exchanger that engages in money transmission services involving 
real currency or CVCs must comply with BSA regulations as a money transmitter acting as a principal.”396 In 
contrast, “a natural person engaging in such activity on an infrequent basis and not for profit or gain would be 
exempt from the scope of money transmission.”397 

FinCEN’s 2019 guidance also provided insight on how an entity’s control over access to value could impact 
whether an entity is an MSB. The guidance set forth four criteria to be considered an intermediary under the 
BSA, including “whether the person acting as intermediary has total independent control over the value.”398 
Hosted wallet providers are generally subject to BSA requirements since they control the user’s value.399 In 
contrast, in unhosted, single-signature wallets, the owner has “total independent control over the value,” and, 
according to the guidance, a natural person who engages in peer-to-peer transactions for their own purposes 
is not a money transmitter.400

Finally, the guidance suggests that determining whether certain participants in the DeFi ecosystem provide 
money transmission services depends on the facts and circumstances of the model, which would presumably also 
include a consideration of whether the service exerts “total independent control.”401 FinCEN further stated in an 
administrative ruling that “production and distribution of software, in and of itself, does not constitute acceptance 
and transmission of value, even if the purpose of the software is to facilitate the sale of virtual currency.”402

While this guidance is instructive, the current U.S. AML/CFT regime does not sufficiently consider truly 
decentralized protocols, where the governance/decision-making is distributed across communities of users, and 
the protocols may be immutable or otherwise technologically incapable of collecting customer information or 
reporting suspicious activities. The uniqueness of the DeFi ecosystem has propelled a protracted conversation 
in policy circles across the globe regarding the appropriateness and logistics of requiring decentralized 
protocols and other participants in the DeFi ecosystem to adhere to same AML/CFT obligations as centralized 
intermediaries, whether unique obligations tailored to the technology should be developed, and how to 
effectively mitigate illicit finance risks in the DeFi ecosystem, among other core considerations.

This challenge calls for creative solutions to enable clarity for those engaged with the technology. 
Decentralized protocols generally have no administrator, retain no control over any funds or digital assets being 
transacted, are unable to collect customer information, and cannot file Suspicious Activity Reports (SARs). 
Moreover, decentralized protocols are unable to complete simple MSB registration functions, like completing 
the registration process with FinCEN—Form 107—that necessitates importing identity validating information 
(i.e., SSN/EIN, phone numbers, physical address, etc.), or conducting entity-level MSB anti-money laundering 
obligations, such as adopting a written anti-money laundering program.403

To provide clarity to industry and allow tailored solutions to mitigate illicit finance risks, Congress should 
consider a principled approach to defining various actors in the DeFi ecosystem as discussed in Chapter III. 
Congress could provide a clear definition of what constitutes “true” decentralized protocols and clarify, or 
provide direction to the appropriate regulator to clarify, how obligations apply to entities that utilize smart 
contracts or have some characteristics of DeFi but do not meet all elements of a decentralized protocol. As 
part of this effort, Congress should consider codifying language expressing which portions, if any, of the DeFi 

396    Id. at 14, 15.
397     �Id. at 15 (emphasis omitted).
398    Id.
399    See id. at 15-16.
400   See id. 
401     �See id. at 14, 15, 18.
402    �FinCEN, FIN-2014-R002, Application of FinCEN’s Regulations to Virtual Currency Software Development and Certain Investment Activity (Jan. 30, 2014), 

https://www.fincen.gov/sites/default/files/administrative_ruling/FIN-2014-R002.pdf. 
403    31 C.F.R. § 1022.210 (2024).

https://www.fincen.gov/sites/default/files/administrative_ruling/FIN-2014-R002.pdf


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ecosystem should have AML/CFT obligations and the kinds of obligations actors should have by constructing 
the parameters of an AML/CFT framework appropriate to the class of activity. 

Depending on the definition, this could include services that custody assets or have centralized governance, 
including through instances in which governance tokens are held by one or a small group of persons that can 
effectively assert control. In considering statutory changes, Congress should recognize the good practices that 
some participants in the DeFi ecosystem are implementing and focus on which entities are best positioned to 
mitigate illicit finance risk. Parts of the ecosystem, such as certain application layer participants, relayers, and 
remote procedure call (RPC) nodes, are currently implementing risk mitigation measures, including risk-rating 
wallets and rejecting transactions above a certain risk score. Subject to Congress’s direction, Treasury could apply 
specified obligations to actors in the DeFi ecosystem based on the role that they play and the attendant risks. 

Further Improvements to the AML/CFT Regime

In October 2023, FinCEN issued a notice of proposed rulemaking that proposed requiring financial institutions 
and financial agencies to implement certain recordkeeping and reporting requirements relating to transactions 
involving convertible virtual currency (CVC) mixing.404 FinCEN received over 2,200 comments in response 
to the proposal. Concerns remain about how illicit actors, such as DPRK and ransomware actors, continue to 
use mixers to obfuscate and launder funds. Nevertheless, lawful users of digital assets may leverage mixers 
to enable financial privacy when transacting through public blockchains. To maintain the balance of those 
critical objectives, Treasury should consider the need to mitigate illicit finance risks, protect privacy, and reduce 
burden to the financial sector to evaluate appropriate next steps.

The United States has observed digital asset service providers and other actors attempting to avoid BSA 
obligations by domiciling in jurisdictions with weaker or non-existent regulatory frameworks or enforcement 
capacity, while still providing services that reach U.S. customers and even substantially impacting the U.S. 
digital asset ecosystem. This places U.S.-based industry actors at a disadvantage. 

RecommendationsRecommendations
•	 Treasury should faithfully and expeditiously implement the Guiding and Establishing National Innovation 

for U.S. Stablecoins Act (GENIUS), which, among other things, requires Treasury to adopt rules to treat 
permitted payment stablecoin issuers as financial institutions under the BSA and to seek public comment 
and conduct research to identify innovative or novel methods, techniques, or strategies that regulated 
financial institutions use to detect illicit activity involving digital assets.405

•	 Digital asset market structure legislation should consider creating digital asset specific financial institution 
types or sub-types within the BSA. Now that GENIUS has been enacted into law, and pending additional 
market structure legislation being considered by Congress, 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.

•	 Legislation should consider specifying actors within the decentralized finance ecosystem that should have 
AML/CFT obligations, taking into consideration those actors’ roles in the ecosystem and attendant risks.

•	 Treasury should consider next steps regarding its proposed rulemaking concerning CVC mixing.

404     �See Proposal of Special Measure Regarding Convertible Virtual Currency Mixing, as a Class of Transactions of Primary Money Laundering Concern, 88 
Fed. Reg. 72701 (Oct. 23, 2023).

405     �S. 1582, 119th Cong. (2025) §§ 9(a)-(c) (enacted).



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•	 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.

•	 Congress should evaluate the self-custody language that is included in CLARITY406 and codify the following 
principles through legislation that reinforce the importance of self-custody:407

	◆ Principle 1: The importance of U.S. individuals maintaining the capability to lawfully hold, or custody, 
their own digital assets without a financial intermediary.

	◆ Principle 2: The importance of enabling U.S. individuals to engage in lawful, direct digital asset transfers 
that do not involve a financial intermediary with another individual that lawfully self-custodies digital 
assets. 

•	 Congress should codify principles regarding how control over an asset impacts BSA obligations, particularly 
for money transmitters, through legislation such as the Blockchain Regulatory Certainty Act,408 which has 
been incorporated into CLARITY. 

	◆ Specifically, such legislation could codify that a software provider that does not maintain total 
independent control over value is not engaged in money transmission for purposes of the BSA.409

Enhancing Effective Supervision

As the United States further develops a regulatory framework for digital assets and the number of supervised 
financial institutions in the digital asset ecosystem increases, it will be critical for relevant regulatory 
supervisors to enhance capabilities and expertise to supervise digital asset firms, as well as traditional financial 
institutions engaged with digital asset or digital asset actors. 

Banks, credit unions, and other financial institutions interested in providing services to the digital asset 
industry or digital asset services to their customers may have questions about BSA obligations as they extend 
new services or develop new relationships.410 Accordingly, supervisors administering and examining for BSA 
obligations should consider where additional guidance would enhance institutions’ abilities to interact with 
digital assets and digital asset actors. 

At present, experience with and resources devoted to supervision of digital assets firms varies across 
supervisory agencies. Ensuring effective and more consistent supervision and examination of digital asset 
service providers for AML/CFT requirements may require: (i) training; (ii) evaluating examination cycles and 
priorities based on risk; (iii) increasing the number of supervisors focusing on digital asset firms; and (iv) 
updating examination manuals to cover digital assets. Moreover, communication and information sharing on 
risks, best practices, and challenges across supervisors could support more effective supervision. Emphasis 
on effective, risk-based supervision should be central to these efforts, in contrast to a technical, one-size-fits 
all approach that does not make distinctions in risk profiles across supervised financial institutions. Effective 
supervision can reduce burdens for both supervisors and for financial institutions under their jurisdiction, 
allowing each to allocate resources in a manner consistent with risk. Moreover, this approach avoids placing 
unwarranted burden on lower-risk sectors, entities, and activities. Such efforts also present an opportunity to 
allow for more risk-based and effective supervision of financial institutions, including digital assets firms, in line 
with broader efforts to strengthen the U.S. AML/CFT framework. 

406     �H.R. 3633, 119th Cong. (2025)
407     �Protecting these capabilities should not inhibit the ability or authority to carry out enforcement actions or special measures authorized under applicable law. 
408     �H.R. 3533, 119th Cong. (2025); see Emmer’s Securities Clarity Act and Blockchain Regulatory Certainty Act, supra note 196.
409     �See FinCEN, FIN-2019-G001, supra note 389, at 15, 18.
410     �See Chapter IV.



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Recommendations Recommendations 
•	 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. 

•	 Supervisors should evaluate whether additional compliance tools, training, and internal resources are 
needed to ensure examiners can effectively and efficiently evaluate institutions’ digital asset-related 
policies, procedures, and programs.

Adapting BSA Reporting to Better Account for Digital Assets

A critical component of the BSA regime is the mandatory reporting intended to provide highly useful 
information for criminal, tax,411 and regulatory investigations, risk assessments, or proceedings, as well 
as intelligence or counterintelligence activities to protect against terrorism.412 These reports enable law 
enforcement and national security agencies to identify criminal activity, find otherwise opaque connections 
between related criminal actors, and locate assets derived from criminal activity that can be seized and, at 
times, returned to crime victims. While these reports are useful to law enforcement and national security 
agencies, creating and filing these reports imposes a burden on filers. As reporting obligations are considered, 
the burdens and benefits of reporting, as well as privacy concerns, must be carefully weighed.

Suspicious Activity Reports

Under the BSA and its implementing regulations, covered financial institutions are obligated to file Suspicious 
Activity Reports (SARs) when the institution knows, suspects, or has reason to suspect that a transaction 
conducted or attempted by, at, or through the financial institution (i) involves funds derived from illegal 
activity or is intended or conducted to disguise funds derived from illegal activity; (ii) is designed to evade any 
requirement of FinCEN’s regulations or any other regulation promulgated under the BSA; (iii) lacks a business 
or apparent lawful purpose, or is not the sort in which the particular customer would normally engage and 
the financial institution knows of no reasonable explanation for the transaction; or, for some institutions, (iv) 
involves the use of a financial institution to facilitate criminal activity.413

Certain financial institutions, including digital asset service providers, have expressed that the SAR reporting 
regime could be more effective, both at providing key intelligence for law enforcement and national security 
agencies and ensuring financial institutions are directing their resources towards generating the most 
significant and impactful SARs.

As part of its efforts to implement the AML Act, Treasury is in the process of comprehensively reviewing its 
SAR regulations, guidance, and the SAR form itself, to maximize the value and efficiency of the reporting, while 
protecting individual privacy. As part of this process, Treasury should consider how best to update the form to 
facilitate inclusion of digital asset-specific information, which could increase the utility of these reports to law 
enforcement conducting digital assets-related investigations. Treasury should also consider how to streamline 
reporting for less complex reports and—as part of this review—consider how to enhance financial institutions’ 
use of technology, including artificial intelligence and machine learning.

411     �In addition to BSA reporting, the IRS uses reporting provided for Federal tax purposes to prevent tax evasion. For further discussion of current and 
proposed tax reporting regimes, see Chapter VII.

412     31 U.S.C. § 5311.
413    See 31 U.S.C. § 5218(g); see also 31 C.F.R. §§ 1020.320, 1021.320, 1022.320, 1023.320, 1024.320, 1025.320, 1026.320, 1029.320, 1030.320 (2024).



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RecommendationRecommendation
•	 Treasury should continue to evaluate modernizing Suspicious Activity Report (SAR) reporting, including the 

SAR form itself, to ensure it captures highly useful information. 

Other BSA Forms

In addition to reporting by financial institutions, the BSA and its implementing regulations require other entities 
to file certain reports that provide highly useful information. For example, the BSA directs Treasury to require 
citizens of the United States, among others, to “keep records and file reports” when they maintain a relationship 
“with a foreign financial agency.” Pursuant to this direction, Treasury requires each U.S. person having a financial 
interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country 
to file a Report of Foreign Bank and Financial Accounts (FBAR).414 Although the FBAR does not currently require 
reporting related to digital assets, reporting required by FBAR regulations in some circumstances overlaps 
with reporting required by the Foreign Account Tax Compliance Act. Chapter VII contains more discussion and 
recommendations related to this reporting. 

Additionally, the BSA, the Internal Revenue Code, and their respective implementing regulations require 
any person engaged in a trade or business who, in the course of such trade or business, receives more than 
$10,000 in coins or currency in one transaction or two or more related transactions to file a Form 8300 with 
FinCEN or the IRS.415 In 2021, Congress amended the Internal Revenue Code to incorporate digital assets into 
the Form 8300;416 however, digital asset transactions are not yet required to be reported as implementing 
regulations have not yet been made.417 Chapter VII discusses how any IRS regulations implementing these rules 
would account for stakeholder concerns.

Although Congress amended the Internal Revenue Code, it did not amend the corresponding authority in 
the BSA. Once digital asset transactions are required to be reported on Form 8300, this discrepancy may 
create substantial industry confusion as trades and businesses may be required to follow one procedure if a 
reportable transaction involves digital assets and another if the reported transaction involves fiat currency. 

RecommendationRecommendation
•	 Congress should, through appropriate legislation, ensure that the information required by statute to be reported 

to FinCEN for BSA purposes under 31 U.S.C. § 5331 conforms with the information required to be reported by 
statute to the IRS for federal income tax purposes under 26 U.S.C. § 6050I, as was the case prior to 2021.

Improving Sanctions Compliance Regarding Digital Assets

OFAC sanctions regulations apply to all U.S. persons, including digital asset exchanges, technology companies, 
software developers, or other digital asset industry participants, that are subject to U.S. jurisdiction.418 

414     �31 C.F.R. § 1010.350 (2024).
415     �31 U.S.C. § 5331; 26 U.S.C. § 6050I; 31 C.F.R. § 1010.330(a)(1)(ii) (2024). The $10,000 threshold for reporting transactions was established in 1984 (IRS) and 

2001 (FinCEN) and has never been adjusted for inflation.
416     �Note that the constitutionality of this amendment is currently being litigated. See Carman v. Yellen, No. 5:22-cv-00149 (E.D. Ky.).
417     �Internal Revenue Service, IR-2024-12, Treasury and IRS Announce That Businesses Do Not Have to Report Certain Transactions Involving Digital Assets 

Until Regulations Are Issued (Jan. 16, 2024), https://www.irs.gov/newsroom/treasury-and-irs-announce-that-businesses-do-not-have-to-report-certain-
transactions-involving-digital-assets-until-regulations-are-issued. 

418     �The key terms of each sanctions program are defined in the implementing regulations or Executive Orders, as appropriate. The term “U.S. persons” is 
defined in many implementing regulations to include “any United States citizen, permanent resident alien, entity organized under the laws of the United 
States or any jurisdiction within the United States (including foreign branches), or any person in the United States.” Additionally, non-U.S. persons are 
also subject to certain OFAC prohibitions. For example, non-U.S. persons are prohibited from causing or conspiring to cause U.S. persons to wittingly or 
unwittingly violate U.S. sanctions, as well as engaging in conduct that evades U.S. sanctions.

https://www.irs.gov/newsroom/treasury-and-irs-announce-that-businesses-do-not-have-to-report-certain-transactions-involving-digital-assets-until-regulations-are-issued
https://www.irs.gov/newsroom/treasury-and-irs-announce-that-businesses-do-not-have-to-report-certain-transactions-involving-digital-assets-until-regulations-are-issued


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Although OFAC may impose civil penalties for sanctions violations based on strict liability,419 OFAC’s sanctions 
compliance program expectations for digital assets industry participants are risk-based, not rigid or 
prescriptive.420 Additionally, to promote clarity, innovation, and compliance with sanctions obligations, Treasury 
prioritizes engagement with the digital asset industry to educate participants on sanctions obligations, 
including through informal engagements and discussions as well as formal outreach at industry-focused 
conferences. OFAC uses these engagements to share existing industry guidance and public resources, such 
as OFAC’s Compliance Hotline, which industry participants and the broader public can use to contact OFAC 
for guidance around sanctions regulations. These resources are key to ensuring that industry participants, 
including companies developing new offerings that may not understand how sanctions obligations apply, have 
access to OFAC guidance which they can rely on as they innovate in the digital assets sector.

Still, some digital asset firms have expressed a desire for additional resources explaining sanctions obligations 
related to various business models. Given that sanctions obligations apply to all U.S. persons and not just financial 
institutions or businesses, this is particularly relevant for developers who are creating software in the DeFi 
space. Developers and technologists should have clear resources available to them so that they understand 
how sanctions obligations apply. Based on feedback from the private sector, OFAC could consider publication of 
additional resources to further promote digital asset industry compliance with sanctions obligations. 

Recommendations Recommendations 
•	 Treasury should issue a Request for Information (RFI) to directly solicit sanctions compliance information, 

input, and recommendations from industry participants to understand ongoing developments and 
innovations and gaps in existing OFAC guidance as well as to identify opportunities for enhanced private 
sector collaboration.

•	 Treasury should consider revising and updating OFAC’s existing Sanctions Compliance Guidance for the 
Virtual Currency Industry brochure, which highlights existing compliance tools such as traditional sanctions 
screening and blockchain analytics to help improve sanctions compliance by all industry participants, in 
accordance with insight gleaned from the RFI process.

Advancing Privacy Through Digital Identity and Related ToolsAdvancing Privacy Through Digital Identity and Related Tools
The public nature of many blockchains provides insight into financial activities in digital assets, which 
can be used to support AML/CFT and sanctions compliance. While public blockchains provide 
certain transparency, some digital asset users may want to preserve their privacy when conducting 
transactions. The Working Group supports civil liberties protections surrounding privacy and the ability 
of individuals to privately transact on public blockchains. Enabling privacy is also critical to enabling 
the increased use of digital assets for payments as individuals may not want to publicly disclose every 
purchase of goods or services or allow salary payments or other private transactions to be tracked. 

At the same time, regulated intermediaries need to be able to identify customers, report suspicious 
activities, and freeze or block certain transactions in line with their BSA and sanctions obligations. 
Several entities in the digital asset industry are developing tools designed to support various elements 

419     �Note that OFAC takes a number of factors into consideration when determining whether to assess a civil monetary penalty, and, if so, what penalty would 
be appropriate (e.g., willfulness, reckless, and knowledge of the conduct at issue, as set forth in OFAC’s Economic Sanctions Enforcement Guidelines, 
31 C.F.R. pt. 501, Appendix A (2024)).

420    �OFAC has issued guidance specific to the digital asset to promote understanding of, and compliance with, sanctions requirements and due diligence 
best practices. See generally OFAC, Sanctions Compliance Guidance for the Virtual Currency Industry (Oct. 2021), https://ofac.treasury.gov/media/913571/
download?inline. 

https://ofac.treasury.gov/media/913571/download?inline
https://ofac.treasury.gov/media/913571/download?inline


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of AML/CFT and sanctions compliance while maximizing user privacy. For example, digital identity  
technologies, identity proofing solutions, and other credentialing approaches can support regulated 
digital asset intermediaries in verifying identities of customers while preserving user privacy. Digital 
asset intermediaries could also use these tools as a safeguard against malicious actors attempting to 
gain unauthorized access to user accounts. While the applicability of these tools varies by operational 
models, governance, trustworthiness, and convenience, they offer a potential pathway to support 
intermediaries’ risk mitigation in the digital asset ecosystem.

Some private sector digital identity tools combine online and offline components. For example, some 
digital credentials are issued based on physical attributes, such as requiring a credential recipient to 
appear in person or requiring physical documents for verification prior to issuance of a credential. 
Additionally, some tools may use unique capabilities within the digital asset space, with some tools 
tokenizing credentials and others tying the credential to a digital asset wallet address and preventing 
transfers to other addresses. These tools could potentially be used by regulated digital asset 
intermediaries to support onboarding or by a DeFi services’ smart contracts to automatically check 
for a credential before executing a user’s transaction. These tools could also potentially incorporate 
a user’s transaction history on the public blockchain into their identity profile, providing additional 
information to digital asset intermediaries and other counterparties on a user’s behavior and exposure 
to illicit finance risks.

To maximize privacy, some tools use Zero Knowledge Proofs,421 which can enable users to confirm that 
their identity has been verified or subject to screening by a third party without revealing underlying 
personal information. Depending on the design of the tool, access to underlying personal information 
could be allowed at the user’s request or with their permission. Additionally, some technologies allow 
selective disclosure of attributes, in which a user can decide which personal information to share 
with the recipient. These technologies can potentially support a path to enabling greater privacy 
preservation in customer identification models. 

Further evolution of these tools, however, may require additional exploration on how private sector 
tools can adequately verify customers and protect their data. Regulatory bodies should provide 
additional clarity to financial institutions on how these tools can be used to identify and verify 
customers and to comply with other AML/CFT and sanctions obligations. 

Moreover, digital identity solutions offer innovative capabilities to protect sensitive information 
and to reduce compliance burdens associated with verifying identifies. For example, the ability to 
pass a credential with only the necessary identifying information for a particular task both ensures 
that information is not unnecessarily exposed should an institution’s systems be compromised and 
streamlines the verification process. As these solutions continue to mature, regulators should consider 
how to encourage the use of privacy-preserving technologies and ensure financial institutions can take 
advantage of their benefits, including by, where appropriate and consistent with risk, being able to rely 
on another financial institution’s performance of customer identification. 

421     �A “zero-knowledge proof” is a “cryptographic scheme where a prover is able to convince a verifier that a statement is true, without providing any more 
information than that single bit (that is, that the statement is true rather than false).” Glossary: Zero-Knowledge Proof, National Institute of Standards and 
Technology, https://csrc.nist.gov/glossary/term/zero_knowledge_proof (last visited July 13, 2025).

https://csrc.nist.gov/glossary/term/zero_knowledge_proof


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RecommendationsRecommendations
	■ Treasury should consider coordinating with the National Institute of Standards and Technology 
(NIST), and other federal agency partners as appropriate, to:

	◆ Identify emerging approaches to implement customer identification in digital asset scenarios, 
including possible applications of the Fourth Revision of the NIST Digital Identity Guidelines (SP 
800-63-4) to these scenarios. 

	◆ Evaluate lessons learned in the project “Accelerate Adoption of Digital Identities on Mobile 
Devices” being executed in the National Cybersecurity Center of Excellence for applicability to 
customer identification programs in digital asset scenarios. 

	◆ Evaluate the digital asset ecosystem, including existing identity credentialing tools and 
technical aspects of digital asset services, to determine potential approaches for defining, 
mandating, and enforcing customer identification programs and evaluate the potential efficacy 
of such schemes in detecting, deterring, and investigating fraudulent transactions. 

	■ As is required by GENIUS, Treasury should issue an RFI to gather information on innovative tools to 
detect illicit activity, including with respect to digital identity verification.422 

	■ Utilizing the information gathered from such RFI, additional research, and industry engagement, 
Treasury should, in consultation with the federal functional regulators,423 consider issuing guidance 
to financial institutions on how they can utilize digital identity solutions within their existing 
customer identification programs.424 Treasury should ensure that future guidance balances secure 
identity verifications with protection of personally identifiable information.

Equipping Digital Asset Actors to Mitigate RiskEquipping Digital Asset Actors to Mitigate Risk
Protecting the digital asset ecosystem from misuse requires strong partnership between the public and private 
sectors. The government relies on financial institutions to comply with AML/CFT and sanctions obligations 
designed to identify, report, and mitigate illicit finance risks. As such, it is critical that the private sector is 
equipped with the appropriate authorities and a strong understanding of risk to combat misuse. 

Enabling Private Sector Investigations 

Some characteristics of digital assets, including the ability to rapidly transfer digital assets across borders, can 
present challenges in identifying and disrupting illicit activity involving these assets. Moreover, digital asset 
transfers are typically irreversible, further reducing the likelihood that funds, even if quickly reported, can be 
recovered. To mitigate this risk, some digital asset institutions, including exchanges and stablecoin issuers, 
may in some circumstances wish to temporarily hold assets when they identify suspected illicit activity. During 
the time those assets are held, institutions can investigate and determine whether, for example, the asset 
is stolen or linked to fraud or other criminal activity. Enabling institutions to identify and temporarily hold 
property involved in suspected illegal activity will equip these institutions with ability to control risk and protect 
digital asset users. 

At times, however, institutions may feel constrained in their ability to temporarily hold assets to investigate 
suspected illegal activity. In other contexts, some states have enacted digital asset specific-“hold laws” that 

422     �S. 1582, 119th Cong. (2025) § 9(a) (enacted).
423     �“Federal functional regulators” means the SEC, CFTC, FDIC, OCC, FRB, and NCUA. 31 U.S.C. § 5318.
424     �See S. 1582, 119th Cong. (2025) § 9(d) (enacted).



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offer safe harbors to institutions that temporarily hold property involved in suspected illegal activity during the 
pendency of a short duration investigation.425 The ability to temporary hold property as authorized by such laws 
enable institutions to, for example, contact a user to ascertain whether they are a scam victim or whether an 
asset has been stolen. 

RecommendationRecommendation
•	 Congress should consider enacting a digital asset-specific “hold law” that offers a safe harbor to institutions 

that temporarily and voluntarily hold property involved in suspected illegal activity during a short duration 
investigation. Such a law should consider transparency when an asset is frozen and consumer protection 
measures. 

Increasing Public-Private Cooperation

Public-private partnerships play a critical role in sharing trend and operational information to support actions 
to deter and disrupt illicit activity. For example, the private sector has insight into emerging risks, challenges 
in complying with AML/CFT and sanctions obligations, and innovative measures to mitigate these risks. The 
Working Group supports efforts across the Federal government to solicit private sector input when evaluating 
potential policy directions or developing guidance and regulations.

Treasury, to highlight one example of these efforts, held private sector roundtables in May 2025 to discuss 
DeFi, stablecoins, and cybersecurity. During the roundtables, more than thirty industry participants shared 
good practices, challenges, and recommendations for how the Federal government can promote responsible 
innovation in the digital asset ecosystem. Building on the May roundtables, in July 2025 FinCEN held a FinCEN 
Exchange426 to convene traditional financial institutions, digital asset service providers, compliance tool 
providers, industry associations, and law enforcement to discuss responsible innovation, industry challenges, 
new compliance tools, compliance best practices, and fraud and scam typologies. Treasury will continue 
engaging with the private sector through similar forums and bilateral meetings to both share information 
and to learn from industry about developments in the digital asset ecosystem. This can include further 
engagements to discuss innovative compliance tools and good practices employed by DeFi participants, such 
as application layer participants (front ends), relayers, and RPC nodes, to mitigate illicit finance risks. Moreover, 
the Federal government shares trends on illicit finance risks in digital assets through products like FinCEN 
alerts or advisories, FBI’s Public Service Announcements, and public-private partnership efforts, including 
FinCEN Exchange as well as direct engagement.

The Federal government also enables sharing actionable information, including through FinCEN’s 314(a) and 
314(b)427 programs and the Illicit Virtual Asset Notification (IVAN) public-private partnership. Through the 
314(a) program, law enforcement authorities can submit identifiers to financial institutions about individuals, 
entities, and organizations engaged in or reasonably suspected, based on credible evidence, of engaging 
in terrorist acts or money laundering activities. Upon receiving the identifier, a financial institution confirms 
whether it has additional information on the entity.428 The complementary 314(b) program provides financial 
institutions with the ability to share information with one another, under a safe harbor that offers protections 

425     �See generally American Bankers Association Foundation, State “Hold” Laws and Elder Financial Exploitation Prevention: A Survey Report (2025), https://
www.aba.com/-/media/documents/reference-and-guides/2025-sbfs-elder-law-survey-report.pdf?rev=a5327479843f4d4c9b1366c7ef43ddfa.

426     �FinCEN Exchange is a voluntary public-private information sharing partnership among FinCEN, law enforcement agencies, national security agencies, 
financial institutions, and other private sector entities to enhance coordination, communication, and feedback in the fight against financial crimes. 
Launched in 2017, FinCEN Exchange was designed to enable financial institutions to better identify and report information on the highest priority illicit 
finance risks to the U.S. financial system and national security. Congress statutorily established FinCEN Exchange through Section 6103 of the Anti-
Money Laundering Act of 2020, codified at 31 U.S.C. § 310(d). 

427     �References to “314” are derived from the programs’ statutory authority, Section 314 of the USA PATRIOT Act. Regulations implementing Section 314 are 
codified at 31 C.F.R. § 1010.520 (implementing Section 314(a)) and § 1010.540 (implementing Section 314(b)) (2024). 

428     �See 31 C.F.R. § 1010.520(b) (2024).

https://www.aba.com/-/media/documents/reference-and-guides/2025-sbfs-elder-law-survey-report.pdf?rev=a5327479843f4d4c9b1366c7ef43ddfa
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from liability, in order to better identify and report activities that may involve money laundering or terrorist 
activities.429 IVAN is a public-private partnership platform through which partners can share information 
associated with the utilization of digital assets in support of illicit activity, along with identification and 
mitigation of said threats. IVAN enables participants to root out nefarious actors hoping to hide behind virtual 
assets and the underlying blockchain technology. 

Given the characteristics of digital assets noted above, it is critical that the public and private sectors can 
quickly share information about illicit finance risks. The Working Group supports this information sharing—
provided it is used for the purpose prescribed in the law to target illicit finance and terrorist activity—to more 
effectively target bad actors operating in the digital asset ecosystem. It is imperative that this information 
sharing not be used to infringe on the civil liberties of law-abiding citizens and such digital assets users. Wide 
and meaningful participation in IVAN and the 314(a) and 314(b) programs could increase both the amount of 
information shared as well as the firms that are able to act upon the information, potentially making the digital 
asset ecosystem safer and protecting U.S. users. 

RecommendationsRecommendations
•	 Treasury should undertake efforts to encourage greater information sharing, including through FinCEN’s 

314(a) and 314(b) programs. Such efforts should include encouraging domestic and cross-border 
information sharing, greater participation in sharing programs by digital asset financial institutions and 
improved information sharing between digital asset and traditional financial institutions. 

•	 Public and private sector participation in real-time information sharing through IVAN should be encouraged 
to the extent consistent with legal obligations. 

Disrupting and Mitigating Systemic Illicit Finance RisksDisrupting and Mitigating Systemic Illicit Finance Risks
The Federal government takes a whole of government approach to disrupting and exposing illicit activity in 
the digital asset ecosystem. This approach and use of authorities prevents bad actors from using digital assets 
to facilitate money laundering and illicit activity, deprives bad actors of their proceeds, and, when possible, 
compensates victims. These efforts make the digital asset ecosystem safer for U.S. digital asset users and 
service providers while also promoting U.S. national security. 

The Federal government uses OFAC sanctions and FinCEN authorities to counter foreign actors, like DPRK 
or ransomware cybercriminals, and their facilitators, including foreign digital asset service providers that 
enable illicit activity and are not subject to the clear requirements under OFAC and FinCEN regulations in the 
United States. Additionally, when necessary, the Federal government uses civil enforcement actions to impose 
consequences on firms operating without taking appropriate steps to mitigate illicit finance risks in violation 
of applicable laws and regulations. Both FinCEN and OFAC have taken several civil enforcement actions for 
violations of their applicable laws and regulations that have exposed illicit actors, addressed the abuse of digital 
assets, and driven compliance with regulatory obligations.

Law enforcement also plays a critical role in this effort through seizures, takedowns, and criminal prosecution 
to support these objectives. In particular, law enforcement seizure and forfeiture capabilities are critical to 
support the compensation of victims for losses in digital assets and for losses converted by criminals into 
digital assets. 

However, as described below, there are some limitations on how the Federal government can effectively use 
these tools to support these objectives. For example, Treasury’s authorities are not always clearly applicable 

429     �See 31 C.F.R. § 1010.540(b) (2024); see also FinCEN, Section 314(b) Fact Sheet (Dec. 2020), https://www.fincen.gov/sites/default/files/shared/314bfactsheet.pdf. 

https://www.fincen.gov/sites/default/files/shared/314bfactsheet.pdf


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in the digital asset space, and law enforcement’s authorities should be updated to better address abuse in the 
digital assets ecosystem and better compensate victims. 

Applying Treasury Authorities to Digital Asset Ecosystem

As noted above, FinCEN and OFAC use authorities to disrupt and expose foreign illicit activity in the digital 
asset ecosystem, focusing on key means used by malicious actors to profit from their crimes. However, some 
existing tools and authorities are not always applicable to or as effective in the digital asset ecosystem. As 
explained below, certain FinCEN authorities restrict or prohibit U.S. financial institutions from establishing 
or maintaining correspondent or payable-through accounts for foreign financial institutions facilitating illicit 
financial activity, but those authorities are less impactful when digital asset exchanges are not reliant on 
correspondent relationships.

Tailoring Section 311 Authorities for Digital Assets

Section 311 of the USA PATRIOT Act authorizes the Secretary of the Treasury to identify a foreign jurisdiction, 
foreign financial institution, class of transactions, or type of account as being a “primary money laundering 
concern,” and to require domestic financial institutions and domestic financial agencies to take one or more 
of five “special measures.”430 The five special measures are prophylactic safeguards that defend the U.S. 
financial system from money laundering and terrorist financing. The Secretary of the Treasury has delegated 
authority to administer the BSA, including but not limited to Section 311, to the Director of FinCEN.431 FinCEN 
may therefore impose one or more of these special measures to protect the U.S. financial system from these 
threats. Special measures one through four impose additional recordkeeping, information collection, and 
reporting requirements on covered U.S. financial institutions.432 The fifth special measure allows FinCEN 
to prohibit, or impose conditions on, the opening or maintaining in the United States of correspondent or 
payable-through account for or on behalf of the identified primary money laundering concern.433 These special 
measures under Section 311 frequently require notice and comment rulemaking.434

FinCEN has encountered limitations when applying its Section 311 authority to digital assets. Specifically, the 
fifth special measure is limited to correspondent or payable-through accounts, which do not translate to the 
digital asset industry.

Congress has given FinCEN newer authorities, similar to Section 311, in Section 2313a of the Fentanyl 
Sanctions Act435 and Section 9714 of the Combating Russian Money Laundering Act436 to address primary 
money laundering concerns in connection to illicit opioid trafficking and Russian illicit finance, respectively. 
The new authorities are limited to specific areas of money laundering concern but allow FinCEN to prohibit, 
or impose conditions upon, certain transmittals of funds, as defined by the Secretary of the Treasury, by any 
domestic financial institution or domestic financial agency. By using “certain transmittals of funds” instead of 
“correspondent or payable-through accounts,” the new authorities can be applied to both traditional finance 
and digital assets. 

430    � Section 311 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act 
of 2001 (codified at 31 U.S.C. § 5318A).

431     � �U.S. Department of the Treasury, Treasury Order 180-01 (Jan. 14, 2020), https://home.treasury.gov/about/general-information/orders-and-directives/treasury-
order-180-01. 

432     �See 31 U.S.C. § 5318A (b)(1) - (b)(4).
433     �31 U.S.C. § 5318A(b)(5).
434     �31 U.S.C. § 5318A(a)(3).
435     �See 21 U.S.C. § 2313a. 
436     �Section 9714 (as amended) can be found in a note to 31 U.S.C. § 5318A.

https://home.treasury.gov/about/general-information/orders-and-directives/treasury-order-180-01
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RecommendationRecommendation
•	 Congress should, consistent with how it has approached Fentanyl and Russian illicit finance, add a 

sixth special measure to Section 311 authorizing FinCEN to prohibit, or impose conditions upon, certain 
“transmittals of funds” that are not tied to a correspondent banking relationship. This would enable 
Treasury to target foreign digital asset exchanges or digital asset transactions involving criminal or state 
actors—without regard to the nature of their illicit activity.

Leveraging OFAC Authorities to Disrupt Malicious Foreign Digital Asset Actors 

OFAC continues to use its sanctions authorities to target the illicit use of digital assets, especially instances in 
which digital assets are used in conjunction with (i) crimes targeting Americans, (ii) laundering proceeds of 
illicit drug and narcotics sales, and (iii) terrorist organizations or the Iranian regime. Since January 2025, OFAC 
has added dozens of digital asset wallet addresses and other identifiers to the sanctions list across multiple 
sanctions programs in support of U.S. national security priorities to constrain foreign criminal and state actor 
abilities to generate and move illicit funds. OFAC is also exploring how calibrated uses of its authorities could 
strengthen its ability to force foreign digital asset firms and users to choose between accessing the U.S. market, 
or providing financial support to sanctioned drug traffickers, weapons proliferators, and terrorist financiers. 

RecommendationRecommendation
•	 Treasury should continue to use OFAC’s sanctions authorities, which range from applying full blocking 

sanctions to more calibrated restrictions, to target malicious actors seeking to harm Americans and to limit 
the access of foreign digital asset actors engaged in illicit activity to U.S. markets, in support of the Trump 
Administration’s priorities. 

Tailoring Law Enforcement Capabilities and Authorities 

Criminal actors who victimize Americans and exploit the legitimate financial sector harm the U.S. economy 
and interfere with the responsible use and growth of digital assets. Holding these criminal actors accountable 
supports the Trump Administration’s policies, including by targeting the financial networks that enable 
transnational criminal organizations to profit, protecting victims, and promoting U.S. leadership in digital 
assets. Enhancing the authorities of the DOJ and U.S. federal law enforcement agencies will strengthen the 
United States’ ability to achieve these goals. 

Improving Crime Victim Compensation Regulations 

The Asset Forfeiture Program is essential to the fight against transnational criminal organizations, including 
cartels, that perpetuate violence, drug trafficking, human trafficking, and drive the opioid crisis. Prosecutors 
have used asset forfeiture robustly to recover digital assets involved in fraud or theft, sometimes involving 
assets worth significant amounts. The asset forfeiture statutes, in addition to providing powerful tools to deny 
criminals the proceeds of crime and disrupt criminal organizations, provide discretion to use forfeited assets 
to compensate victims. Accordingly, the DOJ uses its authorities to provide discretionary victim compensation 
through the Department’s Asset Forfeiture Program, but the regulations governing the remission and 
mitigation of forfeitures have not been amended since 2012. Since that time, the Asset Forfeiture Program 
has grown significantly, and forfeiture has also become an essential tool to fight fraud and other financial 
crime, including digital asset‑related thefts and scams. As a result, certain aspects of the remission regulation 
need revision to enhance victims’ recoveries. Current regulations governing the use of forfeited funds to 
compensate victims, 28 C.F.R. Part 9, can be updated to increase compensation and simplify procedures 
for victims of crime, including digital asset‑related fraud and theft, and to increase government efficiency. 



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Revisions to these regulations would allow greater victim compensation, more like that available through 
criminal restitution, and simplify procedures for compensating victims and returning property to innocent 
owners. 

Enhancing Criminal Laws to Protect Investigations and Penalize Bad Actors Targeting Digital Assets

Protecting the digital asset ecosystem requires that prosecutors have the necessary authorities to counter 
bad actors who seek to exploit it. Statutes authorizing criminal charges and sentencing guidelines could be 
amended to ensure that bad actors who misuse digital assets or victimize digital asset owners or investors are 
appropriately charged and sufficiently penalized, and to ensure that prosecutors can appropriately recover 
those assets. 

Address Gaps in Criminalizing False Statements to Financial Institutions

Transnational criminal organizations, cartels, terrorists, and other criminals need access to the U.S. financial 
system to move the money and digital assets that fuel their crimes. These criminals often make fraudulent or 
false statements to financial institutions to obtain or maintain access to financial accounts and services so they 
can quickly move their ill-gotten gains. Existing law criminalizes certain fraud and false statements made to 
some kinds of financial institutions, as defined in Title 18 of the U.S. Code.437 But because the law criminalizes 
only certain false statements to certain financial institutions, gaps exist—and criminal actors are actively 
exploiting them. First, the definition of “financial institution” in Title 18 of the U.S. Code is narrower than the 
definition in Title 31 of the U.S. Code, and thus omits virtual asset service providers.438 In addition, the law does 
not apply to all false statements in connection with opening and maintaining access to services from financial 
institutions. Addressing these gaps would enable prosecution of more of the criminal misuse of digital assets 
by (i) making clear that lying to financial institutions to open or maintain accounts, including accounts used to 
launder digital assets and convert them into fiat currency, is a crime; and (ii) protecting all financial institutions, 
including those offering digital asset services, that are the target of criminal schemes. 

Facilitate Criminal Investigations and Prosecutions for Digital Asset Theft

As digital assets continue to become more commonly held and stolen forms of property, it is important to use 
all appropriate charges to prosecute those who steal and transfer illicitly obtained digital assets. The National 
Stolen Property Act (NSPA) has served as an effective tool to prosecute those involved in the theft and 
subsequent interstate movement or transfer of traditional forms of property, including money and securities. 
But the statute does not explicitly include digital assets. Clarifying that digital assets are covered property for 
purposes of the NSPA would allow law enforcement to use this provision in appropriate criminal investigations 
and prosecutions.

Protecting Investigations and Enhancing Civil Remedies

Protect Investigations through Anti-Tip-Off Amendments 

Tracing illicit proceeds through financial institutions is a complex and sensitive operation, made even more 
complicated when proceeds are converted to digital assets and moved across the ecosystem. If suspects are 
tipped off during the process, they can quickly move their assets and flee the United States. The anti‑tip‑off 
statute, 18 U.S.C. § 1510, prevents employees of financial institutions from tipping off their customers to 
ongoing investigations of certain violations. Without these protections, financial institutions may be subject to 
contractual or other requirements that could result in notification of sensitive ongoing investigations, impeding 
law enforcement. Some virtual asset service providers have argued that they are not financial institutions for 

437     �18 U.S.C. § 1014.
438     �Compare 18 U.S.C. § 20 with 31 U.S.C. §§ 5312(a)(2) and (c).



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the purpose of this statute. This can result in investigators limiting their efforts to pursue and recover illicit 
financial schemes involving digital assets or risk exposure of the investigation. To close this gap, the anti-tip off 
statute can be amended to cover all Title 31-defined financial institutions along with the current, more limited 
Title 18-defined financial institutions. Additionally, expanding the statute’s list of covered offenses would close 
another gap in the law. Specifically, including serious underlying offenses, such as drug and human trafficking 
offenses, as covered offenses would prohibit agents of financial institutions from tipping off suspects about 
investigations targeting that conduct alongside other prohibited offenses.

Extending the Modified Tracing Requirement for Civil Forfeiture to Digital Assets

18 U.S.C. § 984 allows the Federal government to initiate civil forfeiture proceedings against certain property, 
including funds deposited in an account in a financial institution and cash “found in the same place or account” in 
the same amount that the government can trace to the illegal activity during the year before filing a civil complaint. 
This means that the government is not required to trace particular dollars by unique serial numbers to the illegal 
activity. This provision is particularly useful in cases where criminal proceeds are commingled with other funds. For 
example, if the government demonstrates that $50,000 in cash drug proceeds was deposited into an account that 
also contains other deposited funds, the statute authorizes the government to forfeit $50,000 from the account 
without showing that the forfeited funds are the exact same $50,000 in drug proceeds. The statute does not, 
however, apply to digital assets. Therefore, in a drug case in which a bad actor accepts payment in bitcoin and holds 
the bitcoin in a wallet that also contains other bitcoin, under current law, the government cannot forfeit the drug 
proceeds unless it can specifically trace particular bitcoin to the drug transaction. 

Amending Section 984 to make certain digital assets subject to the same modified traceability requirement as 
exists for cash would allow the government to seize and forfeit digital assets found in the same wallet used to 
hold crime-linked digital assets, without requiring the government to prove the forfeited assets were the exact 
same digital assets derived from or used to commit a criminal offense. 

RecommendationsRecommendations
•	 Congress should evaluate victim compensation regulations and propose amendments to address concerns 

regarding victim compensation and improve asset-forfeiture efforts in the digital assets space.439

•	 Congress should tailor 18 U.S.C. § 1014 to protect all financial institutions (defined under Title 31 of the U.S. 
Code), including those offering digital asset services. In addition, Congress should clarify  that the law 
applies to all false statements in connection with obtaining or maintaining access to services from financial 
institutions. Relatedly, U.S.S.G. Section 2B1.1 should be updated to include a sentencing enhancement for 
making false statements to financial institutions where the scheme involves significant volume of criminal 
funds but no loss to the institution.

•	 Congress should amend the NSPA to clarify that digital assets are property subject to this act. 

•	 Congress should amend the anti-tip-off provision in 18 U.S.C. § 1510 to update the definition of “financial 
institution” from the narrower definition found in 18 U.S.C. § 20 to the broader definition found in the BSA, 31 U.S.C. 
§§ 5312(a)(2) and (c), to cover, among other additions, certain digital asset firms that operate as money services 
businesses (MSBs). Congress should also amend the same anti-tip-off provision to include additional serious 
underlying offenses as covered offenses to prohibit agents of financial institutions from tipping off suspects.

•	 Congress should amend 18 U.S.C. § 984 to make certain digital assets subject to the same modified 
traceability requirement as exists for cash to allow the government to seize and forfeit digital assets found 
in the same wallet used to hold crime-linked digital assets, without requiring the government to prove the 
forfeited assets were the exact same digital assets derived from or used to commit a criminal offense.

439     �See DOJ, Memorandum from the Deputy Attorney General, supra note 370, at 3. The DOJ has already begun these efforts.



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Protecting the Digital Asset Industry from Malicious Cyber ActorsProtecting the Digital Asset Industry from Malicious Cyber Actors
Strong cybersecurity practices are needed to safeguard digital assets from theft, fraud, and 
cyberattacks. The documented efforts of nation-state cyber groups and other illicit actors to steal or 
fraudulently acquire digital assets present a national security concern. DPRK has been particularly 
adept at stealing digital assets from market participants, illustrated by the theft of $1.5 billion from a 
digital asset firm in February 2025. DPRK uses complex social engineering schemes to compromise 
networks, posing a persistent threat to organizations with access to large quantities of digital assets 
or products. Critically, the Federal government assesses that DPRK uses digital assets to fund its 
weapons of mass destruction and ballistic missile programs. These hacks and the risks to U.S. digital 
asset users and national security demonstrate the need to improve cybersecurity measures within the 
digital asset industry. 

This section discusses some of the cybersecurity challenges that the digital asset ecosystem faces 
and identifies measures that can be implemented to bolster cybersecurity. Malicious cyber actors 
exploit vulnerabilities in software, hardware protocols, or even human processes to penetrate a victim’s 
security controls to maliciously alter code or conduct unauthorized transactions. To discover and 
exploit these vulnerabilities, malicious cyber actors conduct network scanning and reconnaissance. 
The availability of vulnerabilities may be exacerbated by the lack of cybersecurity requirements or 
audits in the digital asset space. Additionally, while there are several efforts to share threat information 
within industry and between the public and private sectors, information sharing could be further 
improved to strengthen industry’s ability to defend against threats. Treasury, through its Office of 
Cybersecurity and Critical Infrastructure Protection (OCCIP), is currently exploring how to expand 
existing mechanisms to share cybersecurity-related information with the digital asset industry. The 
below explores some risks present in three segments of the digital asset industry designed to illustrate 
how malicious cyber actors exploit digital asset participants: custody services, smart contracts, and 
blockchain network validation processes. This is not, however, an exhaustive list.

OCCIP works to strengthen the security and resilience of financial services sector critical infrastructure 
and reduce operational risk. The office works closely with financial sector companies, industry 
groups, and government partners to share information about cybersecurity and physical threats 
and vulnerabilities. OCCIP’s information sharing is primarily centered around traditional financial 
institutions but is exploring how to expand its efforts to digital asset firms. One example of its 
information sharing initiatives is Treasury’s Automated Threat Information Feed (ATIF), which provides 
participants with access to a tailored cyber threat feed. The ATIF aggregates indicators from Treasury, 
open-source data feeds, Federal government partners, international partners, and participating 
members. The feed is available through Cloudflare to their existing customers, or through the Malware 
Information Sharing Platform, an open-source threat intelligence platform.

Additionally, Treasury chairs the Financial and Banking Information Infrastructure Committee (FBIIC), 
which is chartered under the President’s Working Group on Financial Markets and is charged with 
coordinating efforts to improve the reliability and security of financial information infrastructure. 
OCCIP, as the delegated chair and the Secretariat of FBIIC, utilizes FBIIC for improving coordination 
and communication among financial regulators, enhancing the resiliency of the financial sector, and 
promoting public-private partnership. 



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RecommendationsRecommendations
	■ As noted in Chapter III, the Working Group recommends that relevant agencies develop principles-
based requirements and standards, as appropriate, for digital asset firms. Such principles-based 
requirements and standards should take into account the various activities and related risks of 
various industry participants to strengthen industry’s protection from malicious cyber actors. 

	■ The Working Group recommends that relevant agencies consider measures to increase 
information sharing on potential threats across the private sector and between the public and 
private sectors. 

	■ Treasury’s OCCIP could work with industry to identify opportunities to increase information sharing 
on cybersecurity risks, including by providing U.S. regulated digital asset firms access to the ATIF.

	■ Treasury’s OCCIP—through the existing public-private partnership structure—could explore 
identifying gaps in addressing operational resiliency of digital asset firms to enable broader adoption.

Custody: Digital asset firms that custody digital assets for retail or institutional customers can be 
attractive to illicit actors because of the large amount of funds that they hold. Attackers use a variety 
of techniques—phishing, often leveraging emailing and short message service (SMS); key logging; 
or social engineering—to illicitly gain access to a digital asset firm’s custody infrastructure, either 
controlled by the firm or managed by a third-party provider. In some instances, this can include 
malicious cyber actors gaining access to the private keys to the firm’s wallet addresses or exploiting 
other security gaps. Attackers can use access to steal funds from digital asset firms, potentially 
resulting in substantial losses. While digital asset firms that take custody of user assets are frequent 
targets, other digital asset participants that aggregate funds, including cross-chain bridges and 
unhosted wallet addresses with a large amount of digital assets, may also be attractive targets for 
malicious cyber actors. 

Example Mitigation Measures

Digital asset firms custodying assets could: 

	■ Implement policies and procedures designed to protect the confidentiality, integrity, and 
availability of information systems. These should be informed by a risk assessment and cover, 
among other topics, asset inventory and device management, data controls and identity 
management, and systems and network monitoring. 

	■ Implement policies and procedures to define and limit user access privileges for digital asset 
operations and transaction processes. This should include policies for secure key management 
practices, specifically for signing keys, and ensuring that third party service providers, if applicable, 
have a solid track record of secure key management practices before using their services.

	■ Use tools to simulate and validate transactions prior to signing to confirm the intent of the 
transaction matches the outcome. 

	■ Use digital identity tools to protect private keys and digital assets accounts.

	■ Enforce credential requirements and multifactor authentication (MFA). North Korean malicious 
cyber actors continuously target user credentials, email, social media, and private business 
accounts. Organizations should be aware of MFA interception techniques for some MFA 
implementations and monitor for anomalous logins and require users to change passwords 
regularly to reduce the impact of password spraying and other brute force techniques. The 



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Working Group recommends organizations implement and enforce MFA to reduce the risk of 
credential theft. 

Smart Contracts: Smart contracts are programs on blockchain networks that automatically execute 
the terms of an agreement when specific conditions are met. Malicious actors can exploit unpatched 
vulnerabilities in smart contracts to their advantage. Not every bug will result in a catastrophic failure 
or allow for exploitation, and bugs often go unnoticed for years. While the ability to view open-source 
code for DeFi services’ smart contracts may enable security engineers to review code for potential 
exploits, no software is immune to defects in code, regardless of whether it is open- or closed-source 
or used by one person or millions of entities worldwide. Coding flaws can be exploited by malicious 
cyber actors to remove funds from DeFi services without authorization, so it is essential to prioritize the 
security and quality of code on an ongoing basis. These risks may be exacerbated for smart contracts 
that lack a mechanism for alterations if a critical vulnerability is discovered or exploited.

Example Mitigation Measures 

	■ Adhere to secure development practices, conduct quality assurance and control of smart contracts 
prior to deployment, and employ third-party auditing to reduce risk of software defects.

	■ Leverage trusted code libraries.

	■ Monitor for new vulnerabilities. 

	■ Consider emergency stops and circuit breakers for unexpected smart contract issues.



VII.   TaxationVII.   Taxation

CHAPTER VII

TaxationTaxation

STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY 



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TaxationTaxation  •

TaxationTaxation
The nature of Bitcoin is such that once version 0.1 was released, the core design was set in 
stone for the rest of its lifetime. Because of that, I wanted to design it to support every possible 
transaction type I could think of . . . . The design supports a tremendous variety of possible 
transaction types that I designed years ago. Escrow transactions, bonded contracts, third 
party arbitration, multi-party signature, etc. If Bitcoin catches on in a big way, these are things 
we’ll want to explore in the future, but they all had to be designed at the beginning to make 
sure they would be possible later.

BitcoinTalk Forum Post Re: “Transaction and Scripts” 
Satoshi Nakamoto, June 2010440

The advent and growth of digital assets has raised numerous questions about the application of federal 
income tax laws. The “tremendous variety of possible transaction types” Satoshi Nakamoto identified for 
digital assets—some of which have no analog in traditional assets—can make applying current provisions to 
digital asset transactions challenging. As such, providing guidance or enacting legislation that addresses the 
special characteristics of these digital assets and transactions will help taxpayers understand their federal tax 
obligations, and in turn promote the growth and use of digital assets in the United States.

Addressing aspects of federal tax law contrary to the goals of the Executive Order has been a priority since 
the first days of the Trump Administration. H.J. Res. 25, a joint resolution sponsored by Senator Ted Cruz and 
Representative Mike Carey, was signed into law by President Trump in April 2025.441 This resolution overturned 
a Biden Administration effort to define certain DeFi developers as “brokers” for tax purposes, even though 
neither those developers nor their software ever held custody of their users’ digital assets.442 The Working 
Group applauds this action as an example of the pro-innovation approach to tax law the Federal government 
should embrace. 

As background, federal tax law consists of the Internal Revenue Code (Code),443 regulations implementing the 
Code, related statutes, tax treaties, and an extensive body of case law and associated common law doctrines 
that provide a foundation for statutory law and remain essential to interpreting it. The IRS also publishes 
Revenue Rulings and Notices providing its interpretation of the law to particular facts, which are not binding for 
taxpayers but generally relied upon.444 

Crucial questions of federal tax law with respect to income derived from digital assets include evaluating 
timing, source, and character (i.e., capital income or ordinary income) and the appropriate application of 
statutory provisions. The guidance issued to date by Treasury and the IRS is described below.

440     �satoshi, Comment to Re: Transactions and Scripts: DUP HASH160 . . . EQUALVERIFY CHECKSIG, BitcoinTalk (June 17, 2010 at 6:46 PM), https://bitcointalk.
org/index.php?topic=195.msg1611#msg1611.

441     � Pub. L. No. 119-5, 139 Stat. 48 (2025). 
442     �Press Release, Sen. Cruz Applauds Signing of Cryptocurrency Resolution into Law (Apr. 11, 2025), https://www.cruz.senate.gov/newsroom/press-releases/sen-

cruz-applauds-signing-of-cryptocurrency-resolution-into-law; see Gross Proceeds Reporting by Brokers That Regularly Provide Services Effectuating Digital 
Asset Sale, 89 Fed. Reg. 106928 (Dec. 30, 2024) (no longer of force or effect). 

443     �Unless otherwise specified, all “Section” or “§” references in this tax chapter are to sections of the Code or the regulations issued thereunder.
444     �A Revenue Ruling is an official interpretation by the Internal Revenue Service (IRS) of the Code, related statutes, tax treaties and regulations on how the 

law is applied to a specific set of facts and is published in the Internal Revenue Bulletin. A Notice is a public pronouncement that may contain guidance 
that involves substantive interpretations of the Code or other provisions of the law and is also published in the Internal Revenue Bulletin. Treas. Reg. § 
601.601(d)(2)(i)(a) (2024); Understanding IRS Guidance: A Brief Primer, IRS, https://www.irs.gov/newsroom/understanding-irs-guidance-a-brief-primer (last 
visited July 13, 2025). 

https://bitcointalk.org/index.php?topic=195.msg1611#msg1611
https://bitcointalk.org/index.php?topic=195.msg1611#msg1611
https://www.cruz.senate.gov/newsroom/press-releases/sen-cruz-applauds-signing-of-cryptocurrency-resolution-into-law
https://www.cruz.senate.gov/newsroom/press-releases/sen-cruz-applauds-signing-of-cryptocurrency-resolution-into-law
https://www.irs.gov/newsroom/understanding-irs-guidance-a-brief-primer


STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  125125   •   

Taxation Taxation  •  Current Tax Guidance on Digital Assets 

Current Tax Guidance on Digital Assets Current Tax Guidance on Digital Assets 
Treasury and the IRS have issued regulations and related guidance addressing how digital assets are 
taxed (“substantive guidance”) and relating to reporting on digital asset transactions by brokers and other 
intermediaries (“third-party information reporting”). 

Notice 2014-21 provides core guidance for digital asset transactions.445 It provides that digital assets are treated 
as property, as opposed to currency, for federal income tax purposes, and that general federal income tax 
principles apply to digital asset transactions.446 The Notice also provides FAQs addressing several specific 
issues as well. Other substantive guidance consists in part of published sub-regulatory guidance addressing 
hard forks,447 staking,448 and non-fungible tokens (NFTs).449 

Treasury has proposed regulations relating to the corporate alternative minimum tax (CAMT) that do 
not reference digital assets but would affect how they are taxed. CAMT was signed into law by the Biden 
Administration as part of the Inflation Reduction Act of 2022.450 A prior version of the CAMT was repealed, 
by President Trump, by the Tax Cuts and Jobs Act of 2017.451The impetus—at the time—to implement CAMT 
was to address differences between book income and taxable income, and CAMT sought to do so by creating 
a minimum tax on book income.452 This policy is problematic for a multitude of reasons; most acutely, it 
attempts to combine two separate policy matters (financial accounting treatment versus tax treatment). 
Moreover, implementing a minimum tax on book income has the potential net effect of burdening investment. 
In fact, the Treasury Inspector General for Tax Administration, during the Biden Administration, found that 
“CAMT is a complex tax law” and that “IRS employees … have spent approximately 21,237 hours on the first 
six CAMT notice publication projects.”453 Further, given the complexities of the law, the “IRS waived failure to 
pay estimated tax penalties with respect to CAMT obligations in Tax Year 2023.”454 Needless to say, although 
CAMT does not specifically target the digital asset sector, it creates a potential punitive effect on the sector’s 
growth, much like it could have an adverse impact on other sectors like oil and gas extraction. CAMT therefore 
contradicts the policy goals of Executive Order No. 14219, which directs agencies to identify and remove certain 
regulations and other guidance that among other things, impede private enterprise and entrepreneurship.455 

Treasury and the IRS have published final regulations with respect to third-party information reporting 
implementing legislation that requires centralized brokers and other persons who take possession of customer 

445     �2014-16 I.R.B. 938 (Apr. 14, 2014). The Infrastructure and Investment Jobs Act, Pub. L. No. 117-58, 135 Stat. 429 (2021) amended the Code to define a 
digital asset, for purposes of information reporting by brokers, as any digital representation of value which is recorded on a cryptographically secured 
distributed ledger or any similar technology as specified by the Secretary. Notice 2014-21 referred to “convertible virtual currency.” The term “digital 
asset” includes property that Treasury and the IRS have previously referred to as convertible virtual currency.

446     �IRS, Notice 2014-21, supra note 445. Note that Notice 2023-34, 2023-19 I.R.B. 837 (May 8, 2023) modifies Notice 2014-21 but does not change its conclusions.
447     �IRS, Revenue Ruling 2019-24, 2019-44 I.R.B. 1004 (Oct. 28, 2019).
448     �IRS, Revenue Ruling 2023-14, 2023-33 I.R.B. 484 (Aug. 14, 2023).
449     �IRS, Notice 2023-27, 2023-15 I.R.B. 634 (Apr. 10, 2023).
450     �Pub. L. No. 117-169, 136 Stat. 1818 (2022).
451     � Pub. L. No. 115-97, 131 Stat. 2054 (2017).
452     �Book income refers to the amount of income corporations report on their financial statements based on applicable financial accounting standards, 

with material differences as compared to taxable income. This includes different treatment of losses, timing differences for when or whether income is 
recognized, and different treatment of costs and expenses (e.g., capitalization or deduction).

453     �Treasury Inspector General for Tax Administration, Review of the Corporate Alternative Minimum Tax Implementation Identified Weaknesses in the Pre-
Rulemaking Process (Sept. 9, 2024), https://www.tigta.gov/sites/default/files/reports/2024-09/2024308036fr.pdf.

454     �Id at 4. The IRS has subsequently waived failure to pay estimated tax penalties with respect to CAMT obligations for tax years 2024 and 2025. See IRS, 
Notice 2024-33, 2024-18 I.R.B. 959 (Apr. 29, 2024); IRS, Notice 2024-47, 2024-27 I.R.B. 1 (July 1, 2024); IRS, Notice 2024-66, 2024-40 I.R.B. 682 (Sept. 30, 
2024); IRS, Notice 2025-27, 2025-26 I.R.B. 1611 (June 23, 2025).

455     �Exec. Order No. 14219, Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative, 
90 Fed. Reg. 10583 (Feb. 19, 2025).

https://www.tigta.gov/sites/default/files/reports/2024-09/2024308036fr.pdf


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Taxation Taxation  •  Substantive Tax Issues

digital assets to report information to the IRS and customers on the customers’ sales of digital assets.456 In 
addition to the broker reporting rules, the regulations provide substantive guidance for taxpayers to determine 
their basis, gain, and loss from digital asset sales. Treasury and the IRS have also published sub-regulatory 
guidance providing transition relief with respect to the information reporting regulations.457 The IRS has issued 
a form and instructions on which brokers must report the information to the IRS and taxpayers. 

Most recently, Treasury and the IRS have provided transition relief to U.S. digital asset exchanges and others 
implementing the digital asset broker regulations458 and have withdrawn regulations that would have required 
certain DeFi participants to provide broker reporting in line with the passage of H.J. Res. 25.459

The section below covers the Working Group’s priority items for the publication of guidance, along with priority 
legislative recommendations. The following sections discuss substantive tax issues, taxpayer reporting issues, 
and third-party information reporting.460

Substantive Tax IssuesSubstantive Tax Issues

Priority Guidance

CAMT

CAMT imposes a minimum tax generally equal to the excess, if any, of 15% of “adjusted financial statement 
income” (AFSI) less regular tax paid.461 The calculation of AFSI generally starts with a corporation’s net income 
as reported on its financial statement, subject to certain adjustments. CAMT applies generally to corporations 
with average AFSI over a three-year period of more than $1 billion and provides statutory adjustments to AFSI 
for financial statement income and losses resulting from stock and partnership investments. Regulations 
proposed in 2024 provide for additional adjustments for transactions where there are mismatches in financial 
statement or taxable income that distort true economic income (e.g., a hedging transaction in which only one 
side of the transaction is marked to market).462

Stakeholders have requested that Treasury and the IRS issue guidance to the effect that AFSI does not include 
financial accounting unrealized gains and losses on cryptocurrency, or on investments generally. 

Priority GuidancePriority Guidance

Treasury and the IRS should publish guidance addressing the determination of AFSI with respect to 
financial accounting unrealized gains and losses on investment assets other than stock and partnership 
interests. Toward this end, the IRS issued Notice 2025-27463 stating that Treasury and the IRS anticipate 
interim guidance under CAMT to address how unrealized gains and losses on certain investment assets 
reported for financial statement purposes are considered for purposes of determining AFSI.464 

456     �Gross Proceeds and Basis Reporting by Brokers and Determination of Amount Realized and Basis for Digital Asset Transactions, 89 Fed. Reg. 56480 (July 
9, 2024). A second regulation that was adopted in December 2024 addresses certain decentralized finance participants but no longer has force or effect. 
See supra notes 441, 442.

457     �IRS, Notice 2024-56, 2024-29 I.R.B. 64 (July 15, 2024); IRS, Notice 2024-57, 2024-29 I.R.B. 67 (July 15, 2024); IRS, Rev. Proc. 2024-28, 2024-31 I.R.B. 326 (July 
29, 2024); IRS, Notice 2025-7, 2025-5 I.R.B. 524 (Jan. 27, 2025). 

458     �IRS, Notice 2025-33, 2025-27 I.R.B. 4 (June 30, 2025).
459     �Gross Proceeds Reporting by Brokers That Regularly Provide Services Effectuating Digital Asset Sales, 90 Fed. Reg. 30825 (July 11, 2025) (effectuating a 

change to the Code of Federal Regulations to reflect that 89 Fed. Reg. 106928 (Dec. 30, 2024) no longer has force or effect); see supra notes 441, 442.
460     �Descriptions of market practices and the use of terminology used by digital asset participants in the following sections of this chapter are not intended 

as characterizations of those transactions for federal income tax purposes.
461     �Section 10101 of Pub. L. No. 117-169, 136 Stat. 1818, 1818-1828 (2022) imposes the CAMT for taxable years beginning after December 31, 2022.
462     �Corporate Alternative Minimum Tax Applicable After 2022, 89 Fed. Reg. 75062 (Sept. 13, 2024). 
463     �2025-26 I.R.B. 1611 (June 23, 2025).
464     �IRS, Notice 2025-27, supra note 454.



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Taxation Taxation  •  Substantive Tax Issues

Staking – Grantor Trust Classification

U.S. investment funds holding digital assets that qualify as exchange-traded products (ETPs) (pursuant to 
securities laws) are often organized as trusts. Typically, such funds take the position that they are classified for 
U.S. federal income tax purposes as investment trusts treated as grantor trusts. An investment trust is a type 
of legal-form trust that satisfies strict restrictions on its permitted activities and is consequently eligible to 
provide simplified tax reporting to its investors. A legal-form trust is classified as an investment trust rather than 
a business entity only if it is not engaged in a profit-making business. In addition, there may not be a power to 
vary the investments of the trust, and the trust may have only one class of ownership interests with a very limited 
exception.465 Investors in an investment trust that is a grantor trust are treated as if they were the direct owners 
of their pro rata interests in trust assets for federal income tax purposes. They receive tax reporting from the 
trust or their brokers on IRS Forms 1099 (e.g., an IRS Form 1099-B, Proceeds from Broker and Barter Exchange 
Transactions, reporting gross proceeds and basis if the trust sells an asset). A legal-form trust that is intended to 
be structured as an investment trust treated as a grantor trust, but fails to satisfy the requirements for investment 
trust status, typically is classified as a partnership for federal income tax purposes. In this case, investors would 
receive tax reporting on Schedule K-1 of IRS Form 1065, U.S. Return of Partnership Income.

Stakeholders have requested guidance addressing whether a trust holding digital assets that stakes those 
assets and receives staking rewards can qualify as an investment trust treated as a grantor trust.466 

Priority GuidancePriority Guidance

Treasury and the IRS should publish guidance addressing whether a trust that otherwise qualifies as an investment 
trust treated as a grantor trust fails to qualify as such if the trust stakes digital assets owned by the trust.

Wrapping

Wrapping is a technique used to convert a digital asset native to one blockchain (“original digital asset”) into a 
digital asset native to a different blockchain (“wrapped digital asset”). Wrapping may also be used to convert 
a digital asset that cannot be used in certain smart contracts into a wrapped digital asset that can be used in 
those smart contracts. The wrapped digital asset is backed one-for-one by the original digital asset, which 
is immobilized by a custodian or through smart contracts. The original digital asset may not be used in any 
transactions while it is wrapped. The wrapped digital asset can be unwrapped or be converted back to the 
original digital asset, at any time. 

Wrapping is commonly used to transact with the value of the original digital asset on a different blockchain. An 
example is wrapped bitcoin, which can be used in DeFi operations, while bitcoin itself generally cannot. Stakeholders 
have asked for guidance addressing whether wrapping and unwrapping transactions are taxable transactions.

Priority GuidancePriority Guidance

Treasury and the IRS should publish guidance addressing whether wrapping and unwrapping transactions 
are taxable transactions. 

IRS FAQs

As described in the Current Tax Guidance on Digital Assets section above, the IRS issued FAQs on several issues 
involving digital assets starting in 2014. New FAQs have been added from time to time, but the FAQs have not 
been comprehensively revised to consider published guidance and regulations relating to digital assets.

465     �See Treas. Reg. § 301.7701-4 (tax classification of trusts).
466     �Stakeholders also have requested guidance on other issues relating to staking. See Chapter VII, Substantive Tax Issues: Priority Guidance – Other Issues. 

For a description of staking, see Chapter II, Mining and Staking.



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Taxation Taxation  •  Substantive Tax Issues

Priority GuidancePriority Guidance

Treasury and the IRS should update the IRS FAQs on digital assets. These updates will provide industry and 
taxpayers with regulatory certainty by reflecting guidance that was published after the issuance of the FAQs. 

Other Issues

Stakeholders have requested guidance on several issues beyond those described above. The Working Group 
believes many of these issues might warrant future guidance in line with the goals of the Executive Order.

	■ Mining and Staking. Stakeholders have asked: 

	◆ for clarification, modification, or reversal of IRS guidance on the timing of income from staking and 
mining rewards;467 

	◆ whether staking activity constitutes a trade or business for federal income tax purposes and related 
questions including:  

•	 whether staking gives rise to income effectively connected with the conduct of a trade or business in 
the United States; 

•	 whether staking gives rise to unrelated business taxable income under Section 512; 

•	 whether staking gives rise to income from commercial activity for purposes of Section 892; and

•	 whether income from staking is treated as fixed, determinable, annual or periodic income to foreign 
taxpayers;

	◆ the source of income from staking rewards;

	◆ whether the receipt of airdrops and hard forks invalidates investment trust status; and

	◆ whether staking benefits from the securities or commodities “trading safe harbors” of Section 864. 

	■ Valuation. Guidance on how to value digital assets that are traded on multiple exchanges or thinly traded, 
for purposes of determining amount realized and basis.

	■ NFTs. Guidance on non-fungible tokens, including whether they are treated as collectibles for purposes of 
Sections 408(m) and 1(h)(5). 

	■ Losses on digital assets. Guidance relating to losses on digital assets, including the standards and 
acceptable proof for worthlessness and abandonment and when losses may be deducted if they are held 
by a taxpayer that becomes bankrupt. Guidance relating to thefts of digital assets.

	■ Charitable deductions. Legislation removing the requirement for a qualified appraisal for charitable 
donations of digital assets worth more than $5,000.

In addition, many substantive issues that could be addressed either through future guidance or legislation 
include:

	■ Whether tokenization of an asset gives rise to a new asset for federal income tax purposes, and if so under 
what circumstances.

	■ The application of the investment company rules of Sections 351 and 721 to digital assets.

	■ Distributions of digital assets in partnership liquidations (the “marketable securities” rules). 

	■ The application of the hot asset rules to sales of partnerships holding digital assets.

467     �For further discussion of these issues, see Chapter VII, Taxpayer Reporting: Priority Guidance – De Minimis Digital Asset Receipts and Chapter VII, 
Taxpayer Reporting: Legislative Proposals for Other Issues – Timing of Income from Mining and Staking.



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Taxation Taxation  •  Substantive Tax Issues

	■ Expanding the classes of assets that may be held by regulated investment companies to include digital assets.

	■ The treatment of digital assets for purposes of the subpart F, GILTI, and PFIC rules.

	■ The tax treatment of blockchain splits and blockchain mergers.

	■ The rules applicable to digital assets with respect to retirement accounts.

	■ The tax consequences of repatriation by an offshore foundation 

Regarding offshore foundations, the Working Group encourages non-profit organizations supporting the 
development of blockchain technologies to domicile in the United States. Toward this end, the Working Group 
will engage with Treasury and the IRS to study ways to incentivize their repatriation and domestication. 

Priority Legislative Recommendations

Characterization as Securities or Commodities

As described in the Current Tax Guidance on Digital Assets Section above, IRS Notices characterize virtual 
currency for federal income tax purposes as property, not currency. However, IRS guidance does not address 
whether a digital asset is considered a security or commodity for federal income tax purposes. The Code and 
case law define the term “security” in different ways for different tax purposes, and those definitions are not 
the same as the securities law meaning of the term “security.” Code provisions also do not define the term 
“commodity” or define it in a circular manner, and do not cross-reference the commodities law meaning of the 
term. The characterization of an asset as a security or commodity for federal income tax purposes affects the 
application of multiple provisions of the Code. For example, Code provisions applicable to commodities include 
Section 475(e) and (f) (elections for dealers or traders in commodities to mark commodities to market), Section 
864(b)(2)(B) (trading in commodities safe harbor), and Section 7704(d)(1)(G) (passive income exception 
applicable to commodities partnership). 

Congress is considering legislation that would dictate when a digital asset is subject to regulation by the SEC or 
the CFTC, such as the Digital Asset Market Clarity Act of 2025 (CLARITY).468 This legislation does not address 
the tax classification of digital assets. Adding digital assets, or in some cases actively traded fungible assets 
(the type of digital assets most similar to securities and commodities), as a new category of asset subject to 
Code provisions would permit legislation to consider characteristics of digital assets that are different from 
those of traditional securities or commodities. An alternative approach could be for a digital asset, or one 
or more types of digital assets, to be defined as a security or a commodity by reference to securities and 
commodities laws. Because the tax rules for securities and commodities differ in significant respects, it would 
be important that an asset have a single tax classification throughout its existence. 

RecommendationRecommendation

Legislation should be enacted that 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. Code provisions 
that should be expanded to apply to actively traded fungible digital assets include Sections 475 (mark-
to-market election), 864(b) (trading safe harbors), 1058 (securities loans), and 7704 (publicly traded 
partnership rules).469 In addition, Sections 1091 (wash sale rules) and 1259 (constructive sales) also should 
apply to digital assets. Alternatively, legislation could instead clarify when a digital asset commodity or 
other digital asset is treated as a security or a commodity for federal income tax purposes.

468     �H.R. 3633, 119th Cong. (2025).
469     �A 2023 report by the Joint Committee on Taxation discusses the current state of the law and possible legislation with respect to most of these 

provisions. Joint Committee on Taxation (JCT), Selected Issues Regarding the Taxation of Digital Assets (June 2023), https://www.finance.senate.gov/imo/
media/doc/jct_report_on_digital_assets.pdf.

https://www.finance.senate.gov/imo/media/doc/jct_report_on_digital_assets.pdf
https://www.finance.senate.gov/imo/media/doc/jct_report_on_digital_assets.pdf


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Taxation Taxation  •  Substantive Tax Issues

Stablecoins

As described in Chapter V, a stablecoin is a digital asset that intends to maintain a stable value relative to a 
reference asset, usually a currency. Most stablecoins are pegged to the U.S. dollar.470 Stablecoins are widely 
used in digital asset transactions in a manner similar to a cash-equivalent, like shares in a money market fund. 
For example, a taxpayer may sell bitcoin for a stablecoin and later use the stablecoin to buy another digital 
asset. The Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS), which was signed 
into law on July 18, 2025, regulates the issuance of payment stablecoins in the United States.471 

The tax characterization of stablecoins themselves under current law is uncertain. Characterization as debt, 
for example, is not certain—stablecoins typically do not have an unqualified obligation to pay a fixed amount, 
but they are held out as redeemable for cash. Under GENIUS, U.S.-licensed issuers of payment stablecoins 
are obligated to convert, redeem, or repurchase such stablecoins for a fixed amount of monetary value.472 The 
payment stablecoins must also be collateralized with high quality liquid assets.473 

The determination of a financial instrument’s status as debt for federal income tax purposes is made under 
factors established by case law. A common requirement is for the instrument to have an unconditional promise 
to pay on demand, or on a specified date, a sum certain in money.474 The instrument must also be evaluated 
based on other criteria established by case law, typically including whether the instrument pays interest, 
whether the issuer is adequately capitalized, whether the instrument is issued to a related party, and the 
seniority of the payment obligation. Payment stablecoins would satisfy the unconditional promise requirement 
and several of the other typical characteristics of debt. They also would have the economic characteristics of 
highly rated collateralized debt.

The expected use of payment stablecoins as financial assets that function in a manner similar to cash-
equivalents raises the question of whether they could be considered as either money or currency for federal 
income tax purposes. Those terms are not defined by statute or case law, but Section 985(b)(1)(B) defines 
functional currency for certain purposes as the currency of the economic environment in which a significant 
part of a business unit’s activities is conducted and which is used by such unit in keeping its books and records. 
The functional currency of a U.S. individual is always the dollar. Relatedly, a recent IRS Notice described “real” 
currency as (i) the coin and paper money of the United States or of any other country that is (ii) designated as 
legal tender, (iii) circulates, and (iv) customarily used and accepted as a medium of exchange in the country of 
issuance.475 At present, stablecoins do not appear to satisfy these requirements. Stablecoins also are not issued 
by or guaranteed by any government. 

Treatment of payment stablecoins as money or currency for federal income tax purposes does not seem 
likely under current law. Moreover, even if payment stablecoins were treated as currency, they could be 
nonfunctional currency for federal income tax purposes, in which case gain or loss on stablecoins would 
continue to need to be reported on tax returns. Treating payment stablecoins as money (and functional 
currency) would affect the application of many provisions of the Code in ways that may not be desirable. For 
example, the Code does not contemplate the possibility of gain or loss on money,476 so no rules exist to deal 
with the possibility of gains or losses on payment stablecoins treated as money. In addition, treatment 

470     �Supra note 333.
471     � See supra note 97 (defining “payment stablecoin”).
472     �S. 1582, 119th Cong. (2025) § 2(22)(A)(ii)(I) (enacted).
473     �See S. 1582, 119th Cong. (2025) § 4(a)(i)(A) (enacted).
474     �See 26 U.S.C. § 385(b)(1). 
475     �IRS, Notice 2014-21, supra note 445.
476     �The Code has rules for gains or losses on functional currency transactions that are part of the ordinary business operations of a qualified business unit 

such as a branch, but those rules generally would not apply to the use of stablecoins by U.S. persons in the United States.



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Taxation Taxation  •  Substantive Tax Issues

of payment stablecoins as money, as opposed to property, may affect basis and recognition of gain or loss 
to corporations, partnerships, and their owners in the context of distributions and contributions of payment 
stablecoins.477

If payment stablecoins were treated as debt for federal income tax purposes, they would be subject to multiple 
provisions of the Code that apply to debt. They may also be subject to provisions applicable to securities as 
defined for federal income tax purposes (which is independent of the securities law definition of that term), 
depending on which tax definition of security is applicable. Treatment of a payment stablecoin as a security is a 
separate and additional inquiry from characterization as debt. 

Among the Code provisions that could apply to payment stablecoins treated as debt are (i) the wash sale 
loss disallowance rules of Section 1091, and (ii) the anti-bearer bond rules applicable to registration-required 
obligations that are not in registered form.478 As discussed in Chapter V, while stablecoins today are primarily 
used to facilitate trading in other digital assets, they could be more widely adopted as forms of payment in the 
future. Stablecoins can diverge from their pegs and can therefore give rise to loss on disposition when used to 
make payments. This would implicate the wash sale rules. 

To the extent that stablecoins are used as forms of payment, applying the wash sale rules would be difficult 
to administer and yield very little tax unless the taxpayer were transacting in large amounts. There may also 
be limited utility in applying the wash sale rules to dispositions of small amounts of stablecoins in trading 
activities.479 Application of the anti-bearer bond rules would make stablecoins impractical for several reasons, 
including that U.S. issuers would be subject to an excise tax. That said, stablecoins function somewhat like 
bearer bonds since they are readily tradable and held in a way that does not identify the owner. 

RecommendationRecommendation

 Legislation should be enacted that would characterize payment stablecoins for federal income tax purposes, 
as such matters are not addressed by GENIUS. Characterization as debt seems most appropriate given the 
ways in which payment stablecoins are structured and the potential for gain or loss on disposition. If payment 
stablecoins are treated as debt, the legislation should also consider the applicability of existing federal 
income tax rules that could impede the widespread use of payment stablecoins as financial assets that 
function in a similar manner to cash-equivalents. In particular, legislation should address the wash sale and 
anti-bearer bond rules. To address the wash sale rules, possible options include:

•	 Providing that the wash sale rules do not apply to payment stablecoins;

•	 Providing that the wash sale rules do not apply to de minimis losses from payment stablecoins, possibly up 
to an aggregate threshold;480 or

•	 Providing that gains and losses on payment stablecoins are not considered for federal income tax purposes.

477     �As discussed in Third-Party Information Reporting: Other Issues – Digital Assets Received in a Trade or Business, below, the treatment of digital assets as 
cash for purposes of Section 6050I has raised a number of concerns by taxpayers.

478     �The anti-bearer bond rules are in Sections 149(a), 163(f), 165(j), 312(m), 871(h), 881(c), 1287, and 4701.
479     �The digital asset reporting rules that apply to U.S. digital asset exchanges and other brokers do not require brokers to report dispositions of stablecoins 

to buy other digital assets, and do not require reporting of dispositions of stablecoins for cash unless aggregate dispositions of stablecoins during a 
calendar year exceed $10,000. These rules apply only for broker reporting purposes, not for purposes of taxpayer determinations of gain or loss on 
stablecoin transactions. 

480    Stakeholders have urged that either Congress or the IRS adopt a broader de minimis rule. See infra note 488 for a discussion of possible legislation on this topic.



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Taxation Taxation  •  Substantive Tax Issues

If no such legislation is enacted, Treasury and the IRS should consider issuing guidance that would clarify 
the tax classification of payment stablecoins, and address the potential application of the wash sale481 and 
anti-bearer bond rules.482

Wash Sales

Because wash sale rules apply to securities, they would not apply to digital assets that are not securities. 
Taxpayers with loss positions in digital assets are engaging in transactions that would be subject to the wash 
sale rules if the digital assets were subject to Section 1091. For example, a taxpayer may sell a digital asset at 
a loss on one day and repurchase the same digital asset the next day, claiming the loss for tax purposes while 
being in a substantially similar position economically.

RecommendationRecommendation

The wash sale rules should be amended to add digital assets to the list of assets subject to the wash sale 
rules.483 If legislation of this kind is enacted, the broker reporting regulations should be amended to reflect 
these changes to the wash sale rules. As previously discussed, the wash sale rules should not apply to 
payment stablecoins. 

Crypto Lending

Pursuant to Section 1058, loans of securities ordinarily are treated as an exchange of the security for an 
obligation to return the security on which no gain or loss is recognized. This is contingent upon the transfer of 
the security being pursuant to an agreement that meets certain requirements. Gain or loss is not recognized on 
the return of that security in exchange for rights under the agreement. The agreement must (i) provide for the 
return to the transferor of securities identical to the securities transferred; (ii) require that payments be made 
to the transferor of amounts equal to all interest, dividends and distributions on the security during the term 
of the securities loan; (iii) not reduce the risk of loss or opportunity for gain of the transferor in the transferred 
securities; and (iv) meet such other requirements as the Secretary of the Treasury may prescribe. These rules 
are intended to ensure that the taxpayer making the loan of securities remains in an economic and tax position 
similar to the position it would have been in absent the loan.

In a transaction commonly referred to as a crypto loan, a taxpayer (the original digital asset owner) transfers a 
digital asset to a third party transferee either directly or indirectly (such as through a centralized platform, or 
through the use of an automatically executing smart contract), subject to an obligation (or the provisions of the 
automatically executing smart contract) for the transferee to deliver the same type of digital asset back to the 
original digital asset owner in the future. At a later date, the transferee delivers the same type of digital asset to the 
original digital asset owner. The transferee may also deliver or credit additional digital assets or other consideration 
to the original digital asset owner as compensation for the use of the digital asset during the transaction.484 

481     �IRS, Rev. Proc. 2014-45, 2014-34 I.R.B. 388 (Aug. 18, 2014) and IRS, Rev. Proc. 2023-35, 2023-42 I.R.B. 1079 (Oct. 16, 2023) provide that the IRS will not 
treat a redemption of shares in a money market fund as part of a wash sale. Revenue Procedure 2014-45 states that a money market fund is often used 
as an account into which, or from which, cash is automatically deposited or withdrawn, under a sweep arrangement. The Revenue Procedures relieve tax 
administration burdens attributable to changes in SEC rules that made it more likely that money market fund shares would be redeemed at a loss. If no 
legislation addressing the tax treatment of payment stablecoins is enacted, Treasury and the IRS could consider issuing similar guidance with respect to 
payment stablecoins under a similar tax administration rationale.

482     �If legislation is not enacted, Treasury and the IRS could consider whether it is possible to issue guidance concluding that payment stablecoins are not 
registration-required. Obligations are registration-required unless one of three exceptions applies. Section 163(f)(2).

483     �Proposed wash sale legislation expanding the scope of the wash sale rules to cover digital assets has previously been considered, and was scored as 
raising $26 billion over 10 years, although that version of the legislation also included non-digital asset provisions. Office of Management and Budget, 
Budget of the U.S. Government: Fiscal Year 2025 163 (Mar. 11 2024), https://www.whitehouse.gov/wp-content/uploads/2024/03/budget_fy2025.pdf. 

484     �See Chapter II, Market Activities: Lending, Borrowing, and Collateral (discussing cryptocurrency lending).

https://www.whitehouse.gov/wp-content/uploads/2024/03/budget_fy2025.pdf


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Taxation Taxation  •  Substantive Tax Issues

Taxpayers may engage in crypto borrowing and lending transactions for reasons similar to those for securities lending, 
or in transactions that may be conceptually similar to borrowing cash on a collateralized basis. That said, crypto lending 
transactions may differ in a number of regards from securities loans. For example, the loan may be effected purely 
through smart contracts, with automatically executing software replacing a traditional legal agreement. Further, 
amounts received (typically, airdrops) on the loaned asset are not necessarily passed back to the lender.

Section 1058 does not apply to loans of digital assets, unless the asset constitutes a security for federal income 
tax purposes. Stakeholders have requested guidance to the effect that crypto loans are treated as transactions 
in which no gain or loss is recognized under circumstances similar to those provided by Section 1058. 

Loans of digital assets that satisfy requirements similar to the Section 1058 conditions described above should 
be accorded similar treatment. While the Working Group understands that some market participants take 
the position that loans of digital assets that meet similar conditions are non-taxable, no authority directly 
addresses those transactions. As such, there is uncertainty for taxpayers on this crucial question.485 Moreover, 
crypto lending transactions may not be carried out in a way that fully complies with the requirements of Section 
1058, as described above, and the enactment of Section 1058 may have limited the extent to which prior non-
statutory law applies to loans of securities or other assets. 

RecommendationRecommendation

Legislation should be enacted to amend Section 1058 to provide that it applies to loans of actively traded 
fungible digital assets, provided that the loan has terms similar to those currently required for loans of 
securities. The Secretary of the Treasury should be granted authority to determine when a digital asset is 
actively traded, and to address differences between the standard terms of securities loans and crypto loans. 

Mark-to-Market Rules

Traders in securities, and dealers and traders in commodities, may elect to mark their securities or commodities to 
market for federal income tax purposes. No guidance addresses the extent to which these rules apply to digital assets.

RecommendationRecommendation

See the Characterization as Securities or Commodities discussion above, which recommends amending 
Section 475 to include actively traded fungible digital assets.

Trading in Securities or Commodities Safe Harbors
Non-U.S. traders in securities or commodities may trade through an independent U.S. agent, or trade for 
their own account with U.S.-based personnel, without being treated as engaged in the conduct of a trade or 
business in the United States. This precludes them from the obligation to file U.S. income tax returns due to 
those trading activities, provided that certain conditions are met. These safe harbors do not apply to digital 
assets unless they qualify for federal income tax purposes as securities or commodities and those conditions 
are met. While the Working Group acknowledges that some market participants take the position that certain 
digital assets are treated as commodities for federal income tax purposes, no authority directly addresses 
whether trading in those assets satisfies the commodities trading safe harbor.486 

RecommendationRecommendation

See the Characterization as Securities or Commodities discussion above, which recommends amending 
Section 864(b)(2) to include actively traded fungible digital assets.

485     �See generally JCT, supra note 469.
486     �Id.



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Taxation Taxation  •  Taxpayer Reporting

Taxpayer ReportingTaxpayer Reporting
Priority Guidance

De Minimis Digital Asset Receipts

It is common for taxpayers holding digital assets to receive or have the opportunity to receive new digital assets 
that may have minimal or speculative value. For example, taxpayers who delegate their rights to stake to others 
who validate transactions may receive frequent small rewards. A taxpayer may also receive unsolicited airdrops 
of, or claims to, a newly created digital asset as a marketing promotion by the creators of the new digital asset. 
These assets may be illiquid and therefore hard to value. In practice, it appears that they frequently lose value 
shortly after the drop. When a hard fork of a digital asset takes place, the new digital asset’s value is often 
uncertain for a period of time and may rapidly decline. 

Under applicable law and current IRS guidance,487 taxpayers must include the fair market value of these assets in 
income when they have dominion and control over the asset. Digital asset exchanges have different practices as 
to when they make a new asset available to customers. As such, a customer of multiple exchanges may acquire 
dominion and control over a new asset at different times as a result of the exchanges’ varied practices.

These fact patterns give rise to administrative burdens to taxpayers to track and record each event. At times, 
these burdens may exceed the value of the transactions. These burdens arise from one or more of: (i) high 
volume but low value assets, (ii) valuations that change rapidly, typically with a loss of value, and (iii) questions 
about the precise moment a taxpayer has dominion and control over a new asset given differences in how 
digital asset exchanges operate. Moreover, in the fact patterns described above, taxpayers often have a limited 
ability to influence when a new asset or the right to obtain a new asset appears.

Priority GuidancePriority Guidance
Treasury and the IRS should issue administrative guidance that addresses de minimis receipts of digital 
assets.488 The guidance could apply to airdrops, staking, hard forks, and mining rewards for taxpayers who 
do not operate a node or carry out digital asset mining. 

Legislative Proposals for Other Issues

Timing of Income from Mining and Staking
The receipt of cash or property for services generally is taxable as ordinary income at the time of receipt. For 
property received for services, the taxpayer generally includes the fair market value of the property on the date 
received in gross income. The basis of property in the hands of the taxpayer is the amount included in gross income. 

487     �When a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. IRS, 
Notice 2014-21, supra note 445. The IRS has stated that if a cash method taxpayer stakes cryptocurrency native to a proof-of-stake blockchain and receives 
additional units of cryptocurrency as rewards when validation occurs, the fair market value of the validation rewards is included in the taxpayer’s gross 
income in the taxable year in which the taxpayer gains dominion and control over the validation rewards. IRS, Revenue Ruling 2023-14, supra note 448.

488     �Stakeholders have urged that taxpayers should not be required to include in income de minimis gains from digital assets, or digital assets used for personal 
transactions, by analogy to the rules for personal foreign currency transactions by individuals under Section 988(e). Some bills previously introduced in Congress 
have provided for a de minimis inclusion rule. Because digital assets are used for investment or speculation as well as payment, the rationale for the current 
exclusion under Section 988(e) is not equally applicable to digital assets. There are better arguments to exclude de minimis gains or losses for digital assets used 
primarily for payments (see the stablecoins discussion above). However, any de minimis rule for including gains and losses from digital assets in income would pose 
complications that are not relevant in the most common fact patterns where individuals dispose of foreign currency. Unless an individual lives outside the United 
States, the likely fact pattern for disposing of foreign currency is when a taxpayer is on vacation for a limited period of time, in which case it is easy to determine 
that the transaction is a personal one and it is likely often to be the case that gain from the disposition is under the statutory threshold as a practical matter. By 
contrast, digital assets are also used in investment or trading transactions and the same type of digital asset may be used by the same taxpayer for both investment 
and payment purposes. If a legislative de minimis rule were modeled on Section 988(e), questions would include: how taxpayers would distinguish personal from 
investment/ trading transactions and what records would be considered adequate in that regard; whether an aggregation rule should apply so that taxpayers 
cannot split a large transaction into multiple small ones; whether there would be any constraints on taxpayers’ ability to treat gain transactions as non-taxable 
personal transactions but loss transactions as investment or business transactions; and how brokers should report transactions if they do not know whether the 
transaction is personal or not. This list is not exclusive and would change if a legislative de minimis rule were drafted in a way that differs from Section 988(e).



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Taxation Taxation  •  Taxpayer Reporting

In contrast, income with respect to certain self-created property such as manufactured goods, farmed crops, and 
certain self-created intellectual property generally is not realized until the property is sold or otherwise disposed of. 
Treasury and the IRS have issued guidance stating that when a taxpayer successfully “mines” virtual currency, the 
fair market value of the virtual currency as of the date of receipt is includible in gross income.489 In addition, Treasury 
and the IRS have issued guidance holding that if a cash method taxpayer stakes cryptocurrency native to a proof-of-
stake blockchain and receives additional units of cryptocurrency as rewards when validation occurs, the fair market 
value of the validation rewards is included in the taxpayer’s gross income in the taxable year in which the taxpayer 
gains dominion and control over the validation rewards.490 Stakeholders have asked for clarification, modification, or 
reversal of this IRS guidance on the timing of income from mining and staking rewards. 

Possible GuidancePossible Guidance

In light of these stakeholder requests and given the significant growth and maturation of digital assets 
and surrounding infrastructure since the issuance of guidance in 2014, 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, taking into account any recent intervening developments since 
the issuance of such guidance. 

Possible LegislationPossible Legislation

Several bills have been introduced in Congress to change the timing of income from mining and staking 
rewards and several other bills have been proposed. For example, H.R. 8149 (2024) proposed to defer the 
inclusion of validation rewards until the year of the sale or other disposition of the rewards. By contrast, 
other bills, such as the Responsible Financial Innovation Act, S. 2281 (2023) proposed only to defer the 
inclusion of de minimis amounts of income relating to mining or staking until the year of the sale or other 
disposition of the digital assets. 

If Congress decides to pass legislation regarding the timing of the inclusion of income relating to mining 
or staking, Congress should consider whether similar rules should apply to rewards from other digital 
asset validation methods, what the character of income upon disposition should be and if ordinary, what 
rules should apply to determine the order of dispositions of ordinary versus capital units, and potential 
differences between the fair market value of rewards at the time of receipt compared with the fair market 
value of rewards at the time of sale or other disposition.

Section 6038D Digital Asset Reporting
Section 6038D requires an individual that holds an interest in one or more specified foreign financial assets with 
an aggregate value of at least $50,000 during a taxable year to attach a statement with required information to 
the individual’s tax return. A specified foreign financial asset means a financial account maintained by a foreign 
financial institution and certain specified foreign assets not held in a financial account maintained by such a 
financial institution. Penalties apply to taxpayers who fail to provide the required information, and the time for 
IRS assessment of tax and the statute of limitations for assessment are extended beyond the deadlines that 
otherwise apply. These rules allow the IRS to cross-check the information that it receives from U.S. taxpayers 
against the information that it receives from foreign financial institutions about U.S. customer accounts pursuant 
to the Foreign Account Tax Compliance Act (FATCA) of the Hiring Incentives to Restore Employment Act of 2010, 
Pub. L. No. 111-147, 124 Stat. 71 (2010). Section 6038D does not explicitly refer to digital asset accounts.

489     �IRS, Notice 2014-21, supra note 445; see also Statement on Certain Proof-of-Work Mining Activities, SEC Division of Corporation Finance (Mar. 20, 2025), 
https://www.sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025.

490     �IRS, Revenue Ruling 2023-14 (July 31, 2023), https://www.irs.gov/pub/irs-drop/rr-23-14.pdf; see also Statement on Certain Protocol Staking Activities, SEC 
Division of Corporation Finance (May 29, 2025), https://www.sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925.

https://www.sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025
https://www.irs.gov/pub/irs-drop/rr-23-14.pdf
https://www.sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925


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Taxation Taxation  •  Taxpayer Reporting

U.S. taxpayers can transact with offshore digital asset exchanges and wallet providers without leaving the 
United States. The global nature of the digital asset market offers opportunities for U.S. taxpayers to conceal 
assets and taxable income by using offshore digital asset exchanges and wallet providers. As a result, taxpayers 
who wish to hide their assets from the IRS in an offshore account may have an incentive to hold digital assets 
rather than traditional financial assets, which could distort financial markets and undermine the effectiveness 
of the reporting required by Section 6038D.

As described in the section below titled “Crypto-Asset Reporting Framework Implementation,” pursuant to a 
recently adopted international tax reporting standard, many foreign countries are in the process of adopting 
rules that will require that crypto-asset service providers report certain transactions by foreign customers to 
the tax administration or agency of the service provider’s jurisdiction, which would then exchange appropriate 
information with other similar jurisdictions. This could include the United States. 

Possible LegislationPossible Legislation

Legislation could be enacted that would require taxpayers to report foreign digital asset accounts. A 
foreign digital asset account would be a custodial account that holds digital assets that is maintained 
by a foreign digital asset exchange or other foreign digital asset service provider. If the United States 
implements the Crypto-Asset Reporting Framework (CARF), taxpayers could be required to report 
accounts with foreign crypto-asset service providers that are required to report information on U.S. 
customers to a non-U.S. tax authority. This would allow the IRS to cross-check the information that it 
receives from U.S. taxpayers with the information it would receive from foreign digital asset exchanges 
about U.S. customer accounts. Providing the Secretary with authority to coordinate this provision with 
other rules could mitigate duplication or minimize burden with respect to other types of reporting rules.

Section 6038D and FBAR Reporting

The information required to be reported under Section 6038D on IRS Form 8938, Statement of Specified 
Foreign Financial Assets, is similar to information that many taxpayers are required to report under 31 U.S.C. 
§ 5314 and the regulations published thereunder on a form known as a Report of Foreign Bank and Financial 
Accounts, or an FBAR, resulting in some duplicative reporting. The Form 8938 is filed with the IRS. The FBAR is 
filed with the Treasury Financial Crimes Enforcement Network (FinCEN). If reporting under Section 6038D and 
on the FBAR are expanded to require reporting of digital asset holdings, more taxpayers would be subject to 
these duplicative reporting obligations. 

Possible LegislationPossible Legislation

Legislation could be enacted that would streamline the reporting required under Section 6038D and on the 
FBAR. Legislation could permit a taxpayer that is subject to both reporting obligations to submit a single form 
that would be available both to the IRS and to FinCEN. This could be accomplished by amending 31 U.S.C. 
§ 5314 and 26 U.S.C. § 6038D so that the reporting requirements under both titles match, similar to how 31 
U.S.C. § 5331 and 26 U.S.C. § 6050I both require reporting on certain large cash payments on FinCEN/IRS 
Form 8300. If the form is submitted as an attachment to a federal income tax return, for tax administration 
reasons this option should be available only to taxpayers that use a calendar taxable year and file tax returns 
electronically. Consideration could be given to conforming the information required to be reported and the 
different reporting thresholds and penalties that currently apply with respect to Section 6038D reporting and 
FBARs, and, if necessary, to further amending the Code to allow the IRS to provide the reported information 
to FinCEN. To the extent that single-filing legislation is enacted, resources should be provided to the IRS 
sufficient to carry out the reprogramming of its systems necessary to implement the legislation.STR EN GT H EN IN G A M ER ICA N  LEADERSHIP IN DIGITAL FINANCIAL TECHNOLO GY   •  137137   •   

Taxation Taxation  •  Third-Party Information Reporting

Third-Party Information ReportingThird-Party Information Reporting
Priority Guidance

Electronic Furnishing of Digital Asset Payee Statements (Form 1099-DA)

Third parties that report information to the IRS are also generally required to provide or furnish a copy of 
that information to the relevant taxpayer. These documents are referred to as payee statements. The default 
rule for furnishing payee statements to taxpayers is in paper format. Payee statements can be furnished to 
taxpayers in electronic format only with taxpayer consent, which must be provided by the taxpayer in the 
manner required by the IRS. Current rules provide that the taxpayer must have affirmatively consented to 
receive the copy in electronic format.491 The consent requirement is intended to ensure that taxpayers have the 
capacity and willingness to receive payee statement electronically. 

Unlike traditional financial institutions, digital asset exchanges communicate with their customers exclusively 
electronically. Customers have therefore demonstrated that they are able to obtain the information they need from 
digital asset exchanges electronically. Requiring digital asset exchanges to send customers a copy of IRS Form 
1099-DA, Digital Asset Proceeds From Broker Transactions, in paper form unless a customer affirmatively consents 
to electronic delivery imposes unnecessary and burdensome costs on brokers serving the digital asset space.

Priority GuidancePriority Guidance

Treasury and the IRS should propose regulations that provide brokers that facilitate sales or exchanges of 
digital assets through electronic means with a less burdensome method of obtaining consent from their 
customers to furnish Form 1099-DA payee statements in an electronic format.

Crypto-Asset Reporting Framework Implementation

When a U.S. taxpayer sells securities, its U.S. broker provides reporting about the sale on IRS Form 1099-B. 
The reporting goes to the IRS with a copy to the selling taxpayer. Historically, taxpayers wishing to avoid IRS 
scrutiny did so by holding their cash and securities investments with offshore banks that actively solicited 
U.S. customers and had no obligations to report information to the IRS. To address this problem, the IRS has 
received information since 2015 from certain foreign jurisdictions on financial accounts that U.S. taxpayers 
maintain at foreign financial institutions. In exchange, the IRS provides information to many of those foreign 
jurisdictions on financial accounts held by residents of those jurisdictions at U.S. financial institutions, provided 
the recipient jurisdiction satisfies certain data confidentiality and security conditions. 

As with securities, jurisdictional arbitrage presents a key tax evasion risk for digital assets. The ease of cross-
border transfer and access to offshore exchanges enables U.S. taxpayers seeking to evade their tax obligations 
an offramp to do so. As the ecosystem matures in the United States, leaving these pathways untouched would 
create a structural disadvantage for brokers and exchanges domiciled in the United States. 

Other countries have similar concerns about the potential for their taxpayers to carry out digital asset 
transactions in a way that avoids domestic tax scrutiny by moving their assets offshore. The Crypto-Asset 
Reporting Framework (CARF) is an international tax transparency standard that seeks to improve tax 

491     �Section 401 of the Job Creation and Worker Assistance Act of 2002, Pub. L. No. 107-147, 116 Stat. 21 (2002) provides that any person required to furnish 
a payee statement under certain information reporting provisions of the Code (including Section 6045) may electronically furnish such statement 
to any recipient who has consented to the electronic provision of the statement in a manner similar to the one permitted under regulations issued 
under Section 6051 of the Code or in such other manner as provided by the Secretary. The rules that currently apply to furnishing payee statements 
electronically under Section 6045 are based on the Section 6051 regulations, which apply to furnishing employee statements on Forms W-2. See IRS, 
Pub. No. 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain Other Information Returns (July 22, 2024), 
https://www.irs.gov/pub/irs-pdf/p1179.pdf. 

https://www.irs.gov/pub/irs-pdf/p1179.pdf


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Taxation Taxation  •  Third-Party Information Reporting

compliance for transactions involving digital assets by requiring that digital asset service providers report 
certain transactions to the tax administration or agency of the provider’s jurisdiction, which would then 
exchange appropriate information with other jurisdictions participating in CARF. As of May 2025, more than 65 
jurisdictions have committed to implementing CARF. U.S. implementation of CARF pursuant to Section 6045 
would allow the IRS to obtain information on digital asset transactions of U.S. taxpayers in foreign jurisdictions 
by collecting and exchanging information on U.S. transactions of residents of those jurisdictions. 

U.S. regulations implementing CARF would discourage U.S. taxpayers from moving their digital assets to 
offshore digital asset exchanges. Implementing CARF would promote the growth and use of digital assets in 
the United States and alleviate concerns that the lack of a reporting program could disadvantage the United 
States or U.S. digital asset exchanges.

However, U.S. digital asset exchanges are currently implementing regulations under Section 6045 that will 
require those exchanges to start reporting information on 2025 sales and exchanges of digital assets by U.S. 
customers in 2026, with additional stages of reporting and backup withholding coming into effect after 2025. 
In order to minimize burdens on U.S. digital asset exchanges, any new reporting obligations on U.S. digital asset 
exchanges should take into account both the timing of the rollout of reporting and withholding obligations 
under the existing regulations and also coordination with the operative rules of the existing regulations, for 
example the identification of entities subject to reporting, the types of assets and transactions required to be 
reported, and the procedures for customer due diligence that must be carried out.

Priority GuidancePriority Guidance

Treasury and the IRS should consider proposing regulations to implement CARF that take stakeholder concerns 
into account and minimize burdens on brokers to the extent consistent with CARF rules. The proposed 
regulations should not impose any new reporting requirements on DeFi transactions and should be used as a 
forum to gather further feedback, including a reasonable timetable for implementation.

Other Issues

Basis Reporting on Transferred Digital Assets

Digital asset exchanges that are brokers for federal tax information reporting purposes are required to report 
information to the IRS and to taxpayers on the gross proceeds from sales of digital assets, for transactions on or 
after January 1, 2025, and the basis of certain digital assets sold, for transactions on or after January 1, 2026.492 
The combination of gross proceeds and basis information is necessary for taxpayers and the IRS to determine 
the taxpayers’ gain or loss from the digital asset sale. Without basis information, broker reporting to customers 
would provide an incomplete picture, because it would identify transactions carried out by customers and 
gross proceeds received but not gain or loss. Reporting of that kind is likely to be confusing to customers, who 
would not receive the full information they need to properly report transactions on their income tax returns. 
Because the IRS would not receive basis information, this could result in IRS audits of tax-compliant taxpayers 
who correctly took basis into account on their tax returns. Accurate basis reporting is thus essential to 
preventing and identifying tax evasion and tax avoidance and prioritizing enforcement resources.

Under the final regulations, digital asset exchanges are required to report basis only if they have reliable basis 
information—namely where the taxpayer acquired, held and sold the digital asset at that exchange. However, 
taxpayers frequently transfer digital assets in and out of accounts at exchanges, so it is common for a taxpayer 
to acquire an asset with one exchange but then sell or exchange it through a second exchange. In recognition 

492     �At the request of industry, brokers are provided with an additional year to develop basis tracking systems, which are more difficult to build than the gross 
proceeds reporting systems.



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Taxation Taxation  •  Third-Party Information Reporting

of this common practice, the 2021 Infrastructure Investment and Jobs Act (IIJA) amended Section 6045A 
to require reporting of basis information when digital assets are transferred to digital asset exchanges that 
are brokers. These requirements are already in place when securities are transferred to or from securities 
brokers. When a taxpayer buys a security at one broker and later transfers the security to a second broker, the 
first broker must provide basis and other information to the second broker, but not to the IRS, on a transfer 
statement. As a result, if the taxpayer later sells the security through the second broker, the second broker can 
report to the taxpayer and the IRS both the gross proceeds of the sale and the basis of the security sold.

Transfers between centralized digital asset exchanges are similar in kind to the transfers of securities described 
above. The IIJA amendment to Section 6045A provides for transfer statements when digital assets are 
transferred to a digital asset exchange that is a broker. Implementing this legislation would improve the quality 
of the tax information taxpayers will receive from digital asset exchanges when they sell digital assets, by 
providing reliable basis information to those exchanges with respect to digital assets transferred to one digital 
asset exchange from another digital asset exchange.

Possible RegulationsPossible Regulations

Treasury and the IRS should consider proposing regulations requiring basis information to be reported 
when digital assets are transferred between centralized digital asset exchanges. 

Digital Assets Received in a Trade or Business

If a trade or business receives more than $10,000 of cash in a transaction for, among other things, goods or 
services, the business generally must report that information to the IRS and to FinCEN. These coordinating 
rules are intended to detect and prevent tax evasion and financial crimes. Existing rules permit taxpayers to use 
the same form to report information to either the IRS or FinCEN, instead of to both agencies, which reduces the 
burden on filers. 

The IIJA expanded the scope of reporting to the IRS by requiring reporting if a taxpayer uses digital assets to 
make payment. The implicit premise of this expansion is that using digital assets to pay for real-world goods 
and services normally purchased with money has the same effect as converting the digital assets to cash 
(which is required to be reported to the IRS) and using the cash to pay for the goods and services (which is also 
required to be reported to the IRS). The IIJA did not expand FinCEN’s corresponding rule requiring the filing of 
reports that are highly useful to law enforcement.493 This discrepancy causes disparate treatment of the use of 
digital assets to pay for goods and services. 

Stakeholders have raised privacy and other concerns about the IIJA amendment. One concern is that reporting 
by, for example, certain service providers may reveal personal information to the IRS that it otherwise would 
not have. Another concern expressed by stakeholders is that the amendment could apply not only to the use 
of digital assets for traditional goods and services, but also to crypto-native transactions such as the swapping 
of one digital asset for another. A third concern that stakeholders have raised is that the amendment could 
provide a disincentive for taxpayers to use digital assets in the ordinary course of commerce, considering the 
current statutory dollar threshold. 

Possible RegulationsPossible Regulations

Treasury and the IRS should consider proposing regulations implementing reporting of digital assets paid 
to a trade or business in a manner that takes the stakeholder concerns described above into account.

493     �Additional information on FinCEN’s reporting rules under the BSA are included in Chapter VI.



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Taxation Taxation  •  Third-Party Information Reporting

Possible LegislationPossible Legislation

Consideration should be given to legislation to conform the information required to be reported to FinCEN, 
for BSA purposes, and the IRS, for federal income tax purposes. The legislation could also reexamine the 
reporting dollar thresholds and the breadth of uses of digital assets to which this provision would apply. 
Additional proposals related to the Form 8300 are included in Chapter VI.

Legislative Proposal for Other Issue

Implementation of CARF

A well-known technique used to avoid tax reporting by a financial institution or broker is to invest through a 
shell company. CARF provides that digital asset exchanges should identify and report on the controlling person 
of certain passive entities. The IRS does not have authority to require digital asset exchanges to report on 
controlling persons of many shell companies and therefore cannot provide that information to other countries.

A number of major trading partners of the United States are unwilling to provide information on U.S. persons 
who control shell companies carrying out digital asset transactions on foreign exchanges if those trading 
partners do not receive similar information from the IRS. Enactment of legislation that would permit the IRS 
to require U.S. digital asset exchanges to report information on foreign controlling persons of shell companies 
would ensure that the IRS could obtain similar information on U.S. taxpayers that control shell companies.

Possible LegislationPossible Legislation

Legislation could require digital asset brokers to report information on foreign controlling persons of 
certain passive entities.



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Table of Recommendations Table of Recommendations  •  Third-Party Information Reporting

Table of RecommendationsTable of Recommendations
Digital Asset Market Structure

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Enabling the Trading of Digital Assets at the Federal Level 

Immediate Actions 

The SEC should consider using its rulemaking and exemptive authority under the 
Securities Act to advance the following initiatives: SEC

•	 Establish a fit-for-purpose exemption from registration under Section 5 of the Securities Act for securities 
distributions involving digital assets. 

•	 Establish a time-limited safe harbor or exemption from certain securities law requirements for transactions 
involving digital assets that may be subject to an investment contract because they are not yet fully functional or 
associated with a sufficiently decentralized network to allow for progressive functionality or decentralization. 

•	 Establish a safe harbor for certain airdrops from characterization as “sales” under Section 2(a)(3) of the 
Securities Act or an exemption from the corresponding registration requirements under Section 5 of the 
Securities Act. Consider also an exemption for distributions of digital assets by decentralized physical 
infrastructure (DePIN) providers in securities transactions for purposes of rewarding participation in DePIN 
networks, as well as distributions of certain NFT offerings.

The SEC should consider using its rulemaking and exemptive authority under the 
Exchange Act to advance the following initiatives: SEC

•	 Enable non-security digital assets that are tied to an investment contract to be traded on non-SEC registered 
trading platforms immediately following the primary distribution of the digital asset.

•	 Provide relief for certain DeFi service providers from the broker-dealer (Section 15), exchange (Sections 5 and 
6), and clearing agency (Section 17A) registration provisions of the Exchange Act.

•	 Amend Regulation ATS to (or create a framework similar to Regulation ATS that would) better accommodate 
trading of non-security digital assets alongside securities under a regulatory framework that is fit-for-purpose for 
digital asset trading. 

•	 Create a conditional “innovation exemption” under the Exchange Act to allow SEC registrants to engage in 
innovative new business models.

•	 Address the definition of “facility” under Section 3(a)(2) of the Exchange Act to consider business models 
used in digital asset trading.

•	 Consider amendments to Regulation NMS (or to applicable national market system plans) to better 
accommodate tokenization of NMS securities, or trading of non-security digital assets alongside NMS 
securities, including requirements applicable to transaction reporting and mechanisms for collecting bids, 
offers, quotation sizes, and other national market system information. This may include consideration of how 
amendments could facilitate the use of oracles, aggregators, and other DeFi constructs in the trading of NMS 
securities and/or non-security digital assets.

•	 Modernize transfer agent rules to clearly permit the use of blockchain technology by transfer agents. 
•	 Provide clarity regarding whether and when self-hosted wallet providers would be acting as broker-dealers 

subject to SEC registration.



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Table of RecommendationsTable of Recommendations  •

Digital Asset Market Structure

RecommendationRecommendation
Policy Responsibility

Congress Regulator

The SEC should consider using its rulemaking and exemptive authority under the 
Investment Advisers Act, the Investment Company Act, and other applicable laws to 
advance the following initiatives:

SEC

•	 Provide clarity on the custody of digital assets that are securities for Registered Investment Companies and 
Registered Investment Advisers by updating the rules under Section 17(f) of the Investment Company Act and 
Rule 206(4)-2 of the Investment Advisers Act.

•	 Evaluate whether certain state-chartered trusts should be deemed “qualified custodians,” as defined within 
Advisers Act Rule 206(4)-2(a)(6) or a “bank” under the Investment Company Act.

The CFTC should consider using its rulemaking, interpretative, and exemptive authority 
under the Commodity Exchange Act (CEA) to advance the following initiatives: CFTC

•	 Provide guidance to designated contract markets (DCMs) regarding the listing of leveraged, margined, or 
financed spot retail commodity transactions on digital assets pursuant to CEA section 2(c)(2)(D).

•	 Provide guidance as to how digital assets may be considered commodities under Section 1a(9) of the CEA. For 
example, the agency can consider expanding upon prior guidance on “actual delivery” of virtual assets.

•	 To the extent that digital asset investment vehicles or their managers may be considered “Commodity Pools” 
or prompt registration of “Commodity Pool Operators,” the CFTC will consider updating rules and guidance as 
appropriate.

•	 Collaborate with FinCEN to provide guidance regarding customer identification programs (CIPs) utilizing 
new technologies for eligible intermediaries and other market participants who carry customer accounts 
holding digital assets on behalf of customers. This collaboration can explore intermediaries’ and other market 
participants’ reliance on other financial institutions’ identification and verification functions.

•	 Enable firms to provide bundled trading and custody services.
•	 Provide clarity on the applicability of various CFTC registration requirements to DeFi activities, smart contract 

protocols, or decentralized autonomous organizations (DAOs) consistent with technology-neutral principles.
•	 Provide guidance to FCMs in calculating and administering segregation obligations when digital assets are 

held on behalf of customers, including separate account treatment under Regulation 1.44.
•	 Provide clarity on haircuts on digital assets held by registered intermediaries (including FCMs, swap dealers, 

and DCOs) for purposes of calculating and reporting margin, financial resources/capital, segregation, and 
settlement obligations, including working with the SEC around the non-marketable securities haircut 
framework and its applicability to non-security digital assets.

•	 Review the application of eligible depository rules to accounts holding digital assets as collateral under CFTC 
Regulation 1.49.

•	 Provide guidance for DCO acceptance of digital asset collateral (including payment stablecoins) including 
DCO financial resource requirements, valuation of assets and haircuts for margin purposes, settlement 
finality, treatment of digital asset custodians and self-custody, systems safeguards requirements, end-of-
day reporting for assets that trade 24/7, and legal risk considerations in such areas as netting and interests in 
collateral under CFTC Regulations 39.11, 39.13, 39.14, 39.15, 39.18, 39.19, and 39.27.

•	 Provide guidance on the adoption of tokenized non-cash collateral as regulatory margin to implement the 
CFTC’s GMAC DAMS recommendation.

•	 Provide guidance on the classification of swaps on digital assets to address application of margin, reporting, 
and other requirements under CFTC Regulations 1.3, 23.154, 43.2, and 45.1.

•	 Consider allowing the use of blockchain technology to satisfy recordkeeping obligations under CFTC 
Regulation 1.31.



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Table of RecommendationsTable of Recommendations  •

Digital Asset Market Structure

RecommendationRecommendation
Policy Responsibility

Congress Regulator

The SEC and the CFTC should coordinate to ensure efficient rulemaking processes. The 
SEC and CFTC should coordinate on seeking comments from the public on suggestions 
for rulemaking.

SEC, 
CFTC

If the SEC and CFTC establish a regulatory sandbox or safe harbor, it should have clear 
criteria to determine which types of digital assets and market participants are eligible 
for the sandbox or safe harbor. Moreover, there should be a clear pathway for entities to 
graduate from the sandbox or safe harbor.

SEC, 
CFTC

In coordination with the SEC, the CFTC should consider using its authority within CEA 
section 1a(18) to establish a category of eligible contract participants (ECPs) with the 
ability to engage in certain types of derivatives, including perpetual contracts, through 
additional regulated intermediaries (e.g., persons that are counterparties to a specified 
transaction conducted on or pursuant to the rules of an alternative trading system).

CFTC, 
SEC

Longer-Term Considerations

The SEC and CFTC should explore offering flexibility to allow registrants to offer 
multiple services within a single user interface.

SEC, 
CFTC

•	 The Working Group encourages regulatory exploration of more vertically integrated business models in the 
digital asset space. These business models should include appropriate structural safeguards, governance 
mechanisms, and disclosures to mitigate conflicts of interest.

•	 While addressing conflicts and ensuring existing registrants are not disadvantaged, regulators may consider 
adopting regulatory regimes that allow registrants to integrate multiple financial services in one business 
model, which could further reduce frictions and enhance user experience. 

	◆ Combining exchange services with custody of trading assets allows for real-time settlement. The 
custodian holds the assets, and the exchange matches orders to buy and sell those assets. Additionally, 
the digital assets custodied by an exchange should be cryptographically verifiable. 

	◆ Combining exchange and broker services allows for economies of scale and reduces operational 
complexity by permitting straight-through processing of customer orders with the same technology 
stack. 

	◆ Exchanges and intermediaries must segregate customer property away from proprietary funds, subject to 
reasonable exceptions.

The CFTC should consider how existing rules could be amended to enable the use of 
blockchain-based derivatives. CFTC

•	 Such considerations should include evaluating the benefits of blockchain-based derivative transactions or 
systems with respect to the regulatory requirements of central clearing, and frameworks around reporting 
obligations, margin levels, and contract listings in a non-intermediated environment.

Absent congressional action, the SEC and CFTC should use their existing authorities to 
provide fulsome regulatory clarity that best keeps blockchain-based innovation within 
the United States. 

SEC, 
CFTC

•	 The Working Group strongly recommends that Congress expeditiously advance market structure legislation 
to the President’s desk. 

•	 However, as market structure deliberations continue in Congress, the Working Group similarly recognizes that 
the market regulators can work to provide appropriate accommodation for digital asset trading and innovation 
in their rules to ensure responsible innovation occurs in the United States.



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Table of RecommendationsTable of Recommendations  •

Digital Asset Market Structure

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Creating a Lasting Framework for Digital Asset Market Structure 

Jurisdiction of Market Regulators 

The CFTC should have clear authority to regulate spot markets in non-security digital 
assets. SEC and CFTC registrants should be permitted to engage in multiple business 
lines under the most efficient licensing structure possible, ensuring a clear and simple 
regulatory framework for digital asset market activities.

Congress
SEC, 

CFTC

•	 Regulation should be crafted to avoid regulatory arbitrage between the SEC and CFTC digital asset regulatory 
regimes, understanding that the regulation of digital asset securities is necessarily different than that applied 
to non-security digital assets.

	◆ Interagency coordination could guide these efforts.

•	 Registrant platforms should have the flexibility to offer a broad range of digital asset and other regulated 
products within a single user interface, subject to clearly defined regulatory oversight of the registrant.

•	 SEC registrants should be able to offer the trading of digital asset securities and be able to engage in non-
security digital asset transactions pursuant to the licensing structure defined by Congress. 

•	 CFTC registrants should be able to offer the trading of digital commodity derivatives, retail digital commodity 
transactions, and other CFTC-jurisdictional products alongside non-security digital assets, as specified by 
Congress.

•	 To the extent Congress permits activity in non-security digital assets outside CFTC registrants, Congress 
should direct the market regulator leading the rulemaking process to set rules for market conduct and 
activities for non-security digital assets in consultation with the SEC or CFTC, as appropriate. 

•	 Rules for digital assets should include portfolio margining standards, as suggested by CLARITY.
•	 The SEC and CFTC should adopt rules ensuring customer asset segregation for digital assets.
•	 Trading venues for non-security digital assets should be required to report market data, subject to reporting 

obligations established by the CFTC. If a trading venue is engaged solely in the provisioning of non-security 
digital assets, there should only be reporting obligations to the CFTC.

	◆ Prior to the enactment of any reporting obligations, the CFTC should consult with the SEC on the data to 
be reported and the format in which it is reported to minimize industry burden. 

Congress should provide that federal law preempts state law with respect to securities 
and commodities laws applicable to SEC- and CFTC-registered intermediaries, including 
in the areas of state virtual currency business, “blue sky,” and commodity broker laws.

Congress

Guidelines for Market Intermediaries

Digital asset trading platforms, brokers, dealers, custodians and other registrants should 
be subject to a tailored registration regime that is fit-for-purpose under the SEC or 
CFTC, as appropriate and based upon the intermediary’s activities.

•	 Consistent with the existing financial markets regulatory framework, the regime 
should include principles-based requirements that are no more onerous than those 
safeguards applied to existing registrants.

Congress
SEC, 

CFTC

Intermediaries should be allowed to lend against, net, and hedge securities against non-
securities, as risk characteristics permit.

•	 Coordinated regulatory treatment can ensure appropriate market oversight, while 
recognizing economic equivalence across different asset types. 

•	 The SEC and CFTC should have appropriate flexibility in setting applicable rules for 
their registrants.

Congress
SEC, 

CFTC



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Digital Asset Market Structure

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Issuers of digital asset securities, and of securities involving digital assets, should 
be subject to disclosure requirements that are appropriately tailored to address the 
novel characteristics of digital assets and blockchain technology. Digital asset trading 
platforms, brokers, dealers, and other CFTC-registered intermediaries that make 
available non-security digital assets should be required to disclose any such information 
that the CFTC determines to be appropriate for non-security digital assets.

Congress CFTC

•	 Further, these parties should not be subject to ongoing disclosure requirements other than those required by 
Congress in future legislation or by the relevant market regulator. Furthermore, any such ongoing disclosures 
should be fit-for-purpose and guided by publicly available information, such as open-source code, whenever 
possible.

•	 Digital asset trading platforms, and other intermediaries as appropriate, should publish the criteria that govern 
the listing of digital assets that are traded.

	◆ In addition, digital asset trading platforms, and other intermediaries as appropriate, should consider 
prominently disclosing features that may be unique to digital assets, such as token economics (i.e., 
allocation percentages and rationales) and source code, if applicable.  

For institutional over-the-counter block trades of digital assets that occur offchain 
through regulated intermediaries, there should be similar reporting and disclosure 
requirements to those that apply to similar activities in traditional markets.

Congress

•	 These reporting and disclosure requirements need not be instantaneous, but it is critical to ensure there are 
not loopholes or “blind spots” associated with digital asset trading activity that occurs offchain.

Digital asset trading platforms, brokers, dealers, and other SEC and CFTC registrants 
should disclose the capacity in which they are acting on behalf of the customer, client, or 
counterparty (i.e., dealer, broker, counterparty, routing to an order book, etc.).

Congress

•	 Digital asset firms may serve in a variety of capacities when offering digital asset trading. Congress should 
consider disclosure requirements or standards depending on the nature of the relationship between the firm 
and the market participant (e.g., retail, institutional, customer, client, counterparty, etc.).

Trading platforms should be permitted to custody customer digital assets with appropriate 
controls. Congress

•	 Safeguards may include requirements for asset segregation, disclosures, principles-based cybersecurity 
standards, bankruptcy remoteness, separation of legal entities, separation from margin and rehypothecation 
entity, capital requirements, liquidity and redemption requirements, and regulatory supervision.

•	 Trading platforms should also enable users engaging in self-custody to transact, and should be prohibited 
from discriminating against third-party custodians who offer products that compete with those provided by 
the trading platform or an affiliate.

Market intermediaries should be subject to principles-based rules regarding the margin 
and leverage they can extend to retail participants, based on the functions of margin 
and leverage in their respective activities. Congress should clearly define the rules and 
responsibilities between the SEC and CFTC regarding margin and leverage, but allow 
the regulators appropriate flexibility in setting such rules.

Congress

•	 Financing rates offered to retail customers should be publicly disclosed by the party offering leverage.

Congress should consider extending Exchange Act Section 31 fee structures to all SEC-
registered products offered on SEC-regulated platforms.  Congress

•	 Intermediaries offering digital asset services should pay fees equivalent to those that traditional finance 
intermediaries pay in the equity markets. 



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Digital Asset Market Structure

RecommendationRecommendation
Policy Responsibility

Congress Regulator

SEC and CFTC registrants should be required to adopt best practices for cybersecurity 
standards. Congress

•	 These standards may be adopted as part of a principles-based regulatory framework or proposed as industry best 
practices.  

Regulatory Treatment of DeFi

As contemplated in provisions of CLARITY, Congress should consider the following 
factors when determining the regulatory treatment of DeFi: Congress

•	 The extent to which a given software application exercises “control” over user assets.

	◆ Without the ability to exercise control over user assets or funds, a software application may not transmit 
money or exchange currency, and therefore might not be subject to the BSA as an MSB. Importantly, 
without control, software applications generally lack the ability to misappropriate user assets.

•	 The extent to which a given software application, once built or deployed, is technologically capable of being 
modified.

	◆ Software applications in DeFi use smart contracts. In many cases, smart contracts cannot be modified 
or withdrawn once deployed. Implementing changes in those cases requires the creation of entirely new 
smart contracts. 

	◆ The operations of a software application, including the smart contracts or the economics of the service 
more broadly, may be administered by a single actor or a group of actors working together. 

	◆ As such, Congress should consider the degree to which a single actor, or group of actors working together, 
has the unilateral ability to upgrade a software application’s smart contracts or change its economics in a 
manner not previously disclosed in the software or protocol rules. 

•	 The extent to which a software application is controlled by, or operates with, a centralized structure or 
management. 

	◆ If a product or service is operated, managed, or otherwise controlled by a business and facilitates access 
to a DeFi system engaged in otherwise regulated activity, that product or service should be subject to 
regulation accounting for underlying regulated activity and pursuant to the principles of fair competition, 
customer protection, conflicts of interest, integrity of code, cybersecurity standards, and other principles 
as appropriate. 

•	 The extent to which a given software application is technologically or logistically capable of complying with 
current regulatory obligations.

	◆ Many DeFi protocols and non-controlling blockchains do not have the functional ability to register as 
MSBs or otherwise comply with MSB obligations under the BSA, while businesses (as described above) 
could register. Nevertheless, Congress could consider how obligations can be fit-for-purpose to the 
technology and embrace the unique characteristics of DeFi, rather than placing the current financial 
regulatory regime on top of DeFi services.

	◆ Care should be taken to ensure that actors are not permitted to structure products to subvert legal 
responsibilities.



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Digital Asset Market Structure

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Accounting Recommendations

The Working Group observed that many questions on the accounting for digital asset 
transactions relate to the following key concepts that FASB should consider for further 
consultation through public engagement: 

FASB

•	 Recognition and derecognition. Whether an entity should recognize or derecognize digital asset tokens when 
entering into certain transactions. For example, should a lender of digital assets derecognize such assets, and 
should there be symmetry in accounting between a lender and borrower? Similar questions may arise related 
to wrapping tokens or transacting with decentralized lending or exchange protocols.

•	 Issuer accounting. How an entity should account for digital asset tokens it creates and issues. The accounting 
by the token issuer will depend on the issuer’s facts and circumstances, and the enforceable rights and 
obligations of the parties involved. To the extent a token conveys rights or obligations that align with 
traditional assets or instruments (e.g., ownership of tangible commodities, debt, or equity), then established 
accounting guidance already exists. Additionally, FASB should consider whether to treat payment stablecoins 
as cash equivalents under GAAP. Further clarification is required in cases where tokens provide utility or 
access without clearly enforceable rights – particularly when tied to the future development of a platform. 
There is no explicit guidance to address the accounting for those types of token issuances. 

 



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Banking and Digital Assets

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Current Regulatory Framework  

Relaunch agency crypto innovation efforts—as appropriate—to address outstanding 
bank activities.

FRB, FDIC, 
OCC

•	 These efforts should prioritize providing clarity on the activities that banks are most interested in conducting 
with a clear process for considering other or new activities. The objectives would be to:

	◆ Clarify or expand the recognized, permissible digital asset activities in which banks may engage, 
consistent with applicable law;

	◆ To the extent possible, and consistent with applicable law, ensure parity in permissibility between bank 
charter types; and 

	◆ Clarify supervisory expectations on safe and sound conduct that protects consumers and is compliant 
with applicable laws and regulations in bank engagement with digital assets, private and permissionless 
blockchains, tokenized deposits, and where to conduct principal bank activities (e.g., in the insured 
depository institution or the holding company). 

•	 The initial activities and topics to consider include: 

	◆ Custody of Digital Assets. While the Banking Agencies have clarified permissibility and certain risk 
management considerations,  it could be beneficial to provide additional guidance on technical best practices.

	◆ Third Parties. While the Banking Agencies have clarified the permissibility of using third parties as sub-
custodians, it may be beneficial to ensure any additional guidance on permissibility or risk management 
for other digital asset activities reiterates the ability to use third parties as infrastructure providers or for 
other digital asset services.

	◆ Holding Stablecoin Reserves as Deposits. While the OCC has clarified permissibility, it could be beneficial 
to offer additional guidance now that GENIUS has been enacted.

	◆ Principal Activities. Provide clarity on the permissibility for depository institutions to hold digital assets on 
their balance sheet and any associated safety and soundness concerns.

	◆ Pilots. Clarity is needed on the ability for depository institutions to participate in pilots and experiments 
related to digital assets.

	◆ Tokenization. Provide clear risk-based guidelines that consider underlying risk and asset features to 
determine the permissibility of bank tokenization activities, including tokenization of deposits.

	◆ Permissionless Blockchains. Provide clarity regarding the use of permissionless blockchains that ensures 
a technology-neutral approach focusing on underlying risks of the activity or technology versus using 
technology alone as a proxy for risk.

Encourage innovation in banking technologies and products by state-chartered banks. FRB

•	 The FRB should rescind the 2023 Section 9(13) Policy Guidance and 12 C.F.R. § 208.112 (which effectively 
codifies the Policy Guidance into Regulation H), to ensure that state member banks are permitted to explore 
innovative banking technologies and products.



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Table of RecommendationsTable of Recommendations  •

Banking and Digital Assets

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Develop guidance and best practices to support banks and supervisors that is 
technically sound and principles-based. 

FRB, FDIC, 
OCC, 

Commerce

•	 Risk management principles and best practices described in existing agency issuances generally 
provide flexible guidance for banking organizations’ considerations that can apply to the safe and sound 
implementation of innovative technologies and products, including those related to digital assets and DLT. 
Nonetheless, it is important that agency examination teams and banks are properly equipped to adopt current 
risk management principles to digital asset technologies.

•	 This could involve engagement with NIST and others to identify applicable standards or best practices that 
could be used in guidance for some digital asset activities such as providing digital asset custody services, 
ensuring compliance with applicable AML/CFT obligations (see Chapter VI, which discusses the AML-specific 
regulatory duties for digital assets for more details), or managing cyber risks particular to digital assets.

•	 This could also include best practices or standards applicable to banks’ use of third parties in the provision of 
digital asset services.

•	 Finally, the Banking Agencies and state regulators should ensure that their examination teams are adequately 
educated on issues related to digital assets and the consistent application of best practices and standards across  

Clarify the role of supervisors and banks in offering banking services to potential 
customers.

FRB, FDIC, 
OCC

•	 The Banking Agencies should ensure that existing and new best practices or guidance on risk management 
and bank engagement are technology-neutral and that expectations regarding offering banking services 
do not discriminate against lawful businesses solely due to their industry. For example, OCC Bulletin 2014-
58: Banking Money Services Businesses: Statement on Risk Management, which makes clear that the OCC 
expects OCC-regulated banks to assess the risks posed by an MSB customer on a case-by-case basis rather 
than to consider all MSBs high risk, could be extended, and the FRB and FDIC could issue similar guidance.

•	 Notably, much work has already been done in in this area as the Banking Agencies withdrew previous 
guidance on bank engagement with digital assets that did not fully adhere to that principle.

•	 Additionally, the removal of reputation risk as a basis for supervisory criticism by the Banking Agencies is also 
underway and should be finalized as soon as possible.  

Access to Providing Banking Services

Provide clarity and transparency regarding the process for eligible institutions to obtain 
a bank charter or a Reserve Bank master account.

FRB, FDIC, 
OCC

•	 The relevant Banking Agencies should clarify and define in regulation the expected timelines for decision-
making on completed applications for charter licensing (including federal deposit insurance where applicable) 
and requesting a Reserve Bank master account. 

•	 If regulatory timelines are not met for a given application, the application should be deemed approved absent 
extraordinary circumstances.

•	 The Banking Agencies should also confirm that otherwise eligible entities are not prohibited from obtaining 
bank charters, obtaining federal deposit insurance, or receiving Reserve Bank master accounts or services 
solely because they engage in digital asset-related activities.

•	 Finally, the Banking Agencies should provide additional transparency, as appropriate, on the number of, and 
average time to review, complete applications, including new charter applications, federal deposit insurance 
applications, and Reserve Bank master account applications, on both an aggregated and annual basis.  



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Banking and Digital Assets

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Capital and Other Applicable Regulatory Treatment 

The Banking Agencies should clarify the circumstances, using risk-based guidelines, 
under which tokenized assets and tokenized asset collateral would be subject to the 
same capital and liquidity treatment as the underlying asset or collateral.

FRB, 
FDIC, 
OCC

The United States should adopt capital requirements for bank digital asset activities that 
accurately reflect the risk of the asset or activity. Additionally, the United States should 
advocate that the BCBS revisit the cryptoasset standards to ensure similar treatment to 
U.S. capital requirements.

FRB, 
FDIC, 
OCC

Simplification of the cryptoasset grouping.
FRB, FDIC, 

OCC

•	 BCBS’s four groups of cryptoassets should be simplified. Applying a separate classification to traditional 
assets due to the use a specific technology does not adhere to the principle of technology-neutrality. 
Furthermore, the treatment of tokenized traditional assets as cryptoassets is misleading and may create 
unintended negative consequences. Additionally, the BCBS distinction between Group 2a and Group 2b 
cryptoassets does not create a clear enough distinction between cryptoassets widely used for payment and 
investment purposes and other cryptoassets, such as memecoins.

•	 The U.S. prudential cryptoasset framework should: (i) clarify when tokenized traditional assets are equivalent 
to traditional assets and are subject to the same capital and liquidity requirements as traditional assets; (ii) 
work to align the BCBS definition of stablecoins eligible for Group 1b treatment with requirements set forth in 
GENIUS; and (iii) simplify the classification of Group 2 cryptoassets and address the treatment of cryptoassets 
outside of Group 2.

Use of permissionless blockchain for all groups of cryptoassets.
FRB, FDIC, 

OCC

•	 Under the BCBS standards, cryptoassets relying on permissionless blockchains pose risks that may prevent 
them from being included in Group 1. However, experimentation and testing with permissionless blockchains 
by regulated financial institutions suggests that technical solutions to mitigate the risks identified by the 
BCBS are being actively developed and implemented. The BCBS also raises concerns with the probabilistic 
settlement of permissionless blockchains. However, over the last several years, market participants have been 
developing industry standards for determining when a settlement has completed on probabilistic blockchains.

•	 The United States should consider incorporating those standards to inform the prudential treatment of those 
characteristics of distributed ledger technology.

Review the calibration of capital requirements for credit risk, market risk, operational 
risk, and liquidity risk to incorporate empirical evidence of recent changes in cryptoasset 
performance and risk.

FRB, FDIC, 
OCC

•	 Changes in the grouping of cryptoassets may not fully modernize the BCBS cryptoasset prudential standards. 
The United States should also revisit the calibration of the prudential standards to consider incorporating recent 
innovations and changes in the cryptoasset market since the BCBS standards were first published in 2022.

•	 The Banking Agencies should undertake a comprehensive data analysis on the performance and risk of 
cryptoassets informed by issuing a request for information from the public, inclusive of representatives from 
cryptoasset data vendors, distributed ledger infrastructure providers, banking organizations of all sizes, 
and industry associations. The analysis would assist the Banking Agencies in determining the appropriate 
calibration for cryptoasset capital and liquidity standards. 



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Insurance

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Engage with the appropriate regulatory agencies to establish or amend legal definitions 
of securities, property, or currency so that insurance policies explicitly cover digital 
assets. Treasury could also work with the insurance sector to create standardized terms, 
conditions, and policy language for digital assets.

Treasury

Engage with the NAIC and state insurance regulators on potential revisions to state 
regulations relating to digital assets, including allowing insurers to invest in digital 
assets, as appropriate.

Treasury

Prioritize engagement between the public and private sector to help develop a robust 
insurance market for digital assets. Treasury

Stablecoins and Payments

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Innovation in Payments 

Faithfully and expeditiously implement GENIUS. Primary Responsibility: 
Treasury, FRB, FDIC,  

OCC, NCUA 
Secondary Responsibility:  

SEC, CFTC

Central Bank Digital Currencies (CBDCs)

Discourage, oppose, and prohibit the ability of any agency from 
undertaking any action to establish, issue, or promote any CBDCs in 
the United States or abroad.

Primary Responsibility: 
FRB, Treasury 

Secondary Responsibility: 
FDIC, OCC, NCUA

Support legislation prohibiting the adoption of any CBDCs in the 
United States, including, for example, the Anti-CBDC Surveillance 
State Act, which was passed by the House of Representatives on 
July 17, 2025.

Congress

Support U.S. technological leadership and competitiveness in capital 
markets and work to upgrade domestic payment systems, FMIs, and 
cross-border payments; urge other countries to adopt policies that 
promote the role of the private sector within a technology-neutral 
regulatory regime.

Treasury, FRB, FDIC, OCC, 
NCUA

Examine the extent to which U.S. federal agencies (including the 
Banking Agencies) and relevant international financial institutions 
have engaged in CBDC research or pilot programs contrary to the 
policies set forth in Executive Order No. 14178. 

Primary Responsibility:  
FRB, Treasury

Secondary Responsibility:  
FDIC, OCC, NCUA



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Stablecoins and Payments

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Promoting the Competitiveness of the U.S. Dollar

Relevant U.S. agencies, including Treasury, should promote 
U.S. private sector leadership in the responsible development 
of innovative cross-border payments and financial markets 
technologies. Toward this end, Treasury should consider using 
its convening authority to encourage and provide clarity to U.S. 
financial institutions in leading these efforts. 

Treasury, FRB, FDIC,  
OCC, NCUA

Treasury and other relevant agencies should 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. Standards, including international 
standards, should be calibrated to accurately reflect the risk of 
innovative digital products and services.

Primary Responsibility:  
Treasury, FRB 

Secondary Responsibility:  
FDIC, OCC, NCUA

Domestically and internationally, U.S. authorities should encourage 
payment solutions that: (i) protect the two-tier banking system 
and promote the private sector’s role in financial intermediation, 
payments, and capital formation; (ii) preserve individual rights and 
limit government control of personal financial information; and (iii) 
incorporate robust and effective AML/CFT and sanctions controls.

Primary Responsibility:  
Treasury, FRB, OCC

Secondary Responsibility: 
FDIC, NCUA

Treasury, in coordination with other relevant agencies, should 
engage with international counterparts and institutions by leading 
initiatives to upgrade domestic payment systems, FMIs, and cross-
border payment systems, to help protect the primacy of the dollar-
based international monetary system.

Primary Responsibility:  
Treasury, FRB 

Secondary Responsibility:  
FDIC, OCC, NCUA

 
Countering Illicit Finance

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Improving the AML/CFT and Sanctions Frameworks

Prescribing BSA Obligations

Treasury should faithfully and expeditiously implement the Guiding and Establishing 
National Innovation for U.S. Stablecoins Act (GENIUS), which, among other things, 
requires Treasury to adopt rules to treat permitted payment stablecoin issuers as 
financial institutions under the BSA and to seek public comment and conduct research 
to identify innovative or novel methods, techniques, or strategies that regulated 
financial institutions use to detect illicit activity involving digital assets.

Treasury



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Countering Illicit Finance

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Digital asset market structure legislation should consider creating digital asset specific 
financial institution types or sub-types within the BSA. Now that GENIUS has been 
enacted into law, and pending additional market structure legislation being considered 
by Congress, 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. 

Treasury

•	 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.

Legislation should consider specifying actors within the decentralized finance 
ecosystem that should have AML/CFT obligations, taking into consideration those 
actors’ roles in the ecosystem and attendant risks.

Congress

Treasury should consider next steps regarding its proposed rulemaking concerning CVC 
mixing. Treasury

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.

Congress

Congress should evaluate the self-custody language that is included in CLARITY and 
codify the following principles through legislation that reinforce the importance of self-
custody:

Congress

•	 Principle 1: The importance of U.S. individuals maintaining the capability to lawfully hold, or custody, their own 
digital assets without a financial intermediary.

•	 Principle 2: The importance of enabling U.S. individuals to engage in lawful, direct digital asset transfers that 
do not involve a financial intermediary with another individual that lawfully self-custodies digital assets. 

Congress should codify principles regarding how control over an asset impacts BSA 
obligations, particularly for money transmitters, through legislation such as the 
Blockchain Regulatory Certainty Act, which has been incorporated into CLARITY. 

Congress

•	 Specifically, such legislation could codify that a software provider that does not maintain total independent 
control over value is not engaged in money transmission for purposes of the BSA.

Enhancing Effective Supervision

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. 

Treasury, 
FRB, FDIC, 

OCC, 
NCUA, SEC, 
CFTC, FHFA

Supervisors should evaluate whether additional compliance tools, training, and internal 
resources are needed to ensure examiners can effectively and efficiently evaluate 
institutions’ digital asset-related policies, procedures, and programs.

Treasury, 
FRB, FDIC, 

OCC, 
NCUA, SEC, 
CFTC, FHFA



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Countering Illicit Finance

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Adapting BSA Reporting to Better Account for Digital Assets

Treasury should continue to evaluate modernizing Suspicious Activity Report (SAR) 
reporting, including the SAR form itself, to ensure it captures highly useful information. Treasury

Congress should, through appropriate legislation, ensure that the information required 
by statute to be reported to FinCEN for BSA purposes under 31 U.S.C. § 5331 conforms 
with the information required to be reported by statute to the IRS for federal income tax 
purposes under 26 U.S.C. § 6050I, as was the case prior to 2021.

Congress

Improving Sanctions Compliance with Regard to Digital Assets

Treasury should issue a Request for Information (RFI) to directly solicit sanctions 
compliance information, input, and recommendations from industry participants 
to understand ongoing developments and innovations and gaps in existing OFAC 
guidance as well as to identify opportunities for enhanced private sector collaboration.

Treasury

Treasury should consider revising and updating OFAC’s existing Sanctions Compliance 
Guidance for the Virtual Currency Industry brochure, which highlights existing 
compliance tools such as traditional sanctions screening and blockchain analytics to 
help improve sanctions compliance by all industry participants, in accordance with 
insight gleaned from the RFI process.

Treasury

Equipping Digital Asset Actors to Mitigate Risk

Enabling Private Sector Investigations

Congress should consider enacting a digital asset-specific “hold law” that offers a 
safe harbor to institutions that temporarily and voluntarily hold property involved 
in suspected illegal activity during a short duration investigation. Such a law should 
consider transparency when an asset is frozen and consumer protection measures. 

Congress

Increasing Public-Private Cooperation

Treasury should undertake efforts to encourage greater information sharing, including 
through FinCEN’s 314(a) and 314(b) programs. Such efforts should include encouraging 
domestic and cross-border information sharing, greater participation in sharing 
programs by digital asset financial institutions and improved information sharing 
between digital asset and traditional financial institutions. 

Treasury

Public and private sector participation in real-time information sharing through IVAN 
should be encouraged to the extent consistent with legal obligations. 

Treasury, 
DOJ, SEC, 

CFTC, FRB, 
FDIC, OCC



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Countering Illicit Finance

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Disrupting and Mitigating Systemic Illicit Finance Risks

Applying Treasury Authorities to Digital Asset Ecosystem

Congress should, consistent with how it has approached Fentanyl and Russian illicit 
finance, add a sixth special measure to Section 311 authorizing FinCEN to prohibit, 
or impose conditions upon, certain “transmittals of funds” that are not tied to a 
correspondent banking relationship. This would enable Treasury to target foreign digital 
asset exchanges or digital asset transactions involving criminal or state actors—without 
regard to the nature of their illicit activity.

Congress

Treasury should continue to use OFAC’s sanctions authorities, which range from 
applying full blocking sanctions to more calibrated restrictions, to target malicious 
actors seeking to harm Americans and to limit the access of foreign digital asset actors 
engaged in illicit activity to U.S. markets, in support of the Trump Administration’s 
priorities.

Treasury

Tailoring Law Enforcement Capabilities and Authorities

Congress should evaluate victim compensation regulations and propose amendments 
to address concerns regarding victim compensation and improve asset-forfeiture 
efforts in the digital assets space.

Congress

Congress should tailor 18 U.S.C. § 1014 to protect all financial institutions (defined under 
Title 31 of the U.S. Code), including those offering digital asset services. In addition, 
Congress should clarify that the law applies to all false statements in connection with 
obtaining or maintaining access to services from financial institutions. Relatedly, U.S.S.G. 
Section 2B1.1 should be updated to include a sentencing enhancement for making false 
statements to financial institutions where the scheme involves significant volume of 
criminal funds but no loss to the institution.

Congress

Congress should amend the NSPA to clarify that digital assets are property subject to 
this act. Congress

Congress should amend the anti-tip-off provision in 18 U.S.C. § 1510 to update the definition 
of “financial institution” from the narrower definition found in 18 U.S.C. § 20 to the broader 
definition found in the BSA, 31 U.S.C. §§ 5312(a)(2) and (c), to cover, among other additions, 
certain digital asset firms that operate as money services businesses (MSBs). Congress should 
also amend the same anti-tip-off provision to include additional serious underlying offenses 
as covered offenses to prohibit agents of financial institutions from tipping off suspects.

Congress

Congress should amend 18 U.S.C. § 984 to make certain digital assets subject to the 
same modified traceability requirement as exists for cash to allow the government to 
seize and forfeit digital assets found in the same wallet used to hold crime-linked digital 
assets, without requiring the government to prove the forfeited assets were the exact 
same digital assets derived from or used to commit a criminal offense.

Congress



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Countering Illicit Finance

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Advancing Privacy through Digital Identity and Related Tools

Treasury should consider coordinating with the National Institute of Standards and 
Technology (NIST), and other federal agency partners as appropriate, to:

Treasury, 
Commerce

•	 Identify emerging approaches to implement customer identification in digital asset scenarios, including 
possible applications of the Fourth Revision of the NIST Digital Identity Guidelines (SP 800-63-4) to these 
scenarios. 

•	 Evaluate lessons learned in the project “Accelerate Adoption of Digital Identities on Mobile Devices” being 
executed in the National Cybersecurity Center of Excellence for applicability to customer identification 
programs in digital asset scenarios. 

•	 Evaluate the digital asset ecosystem, including existing identity credentialing tools and technical aspects of 
digital asset services, to determine potential approaches for defining, mandating, and enforcing customer 
identification programs and evaluate the potential efficacy of such schemes in detecting, deterring, and 
investigating fraudulent transactions. 

As is required by GENIUS, Treasury should issue an RFI to gather information on 
innovative tools to detect illicit activity, including with respect to digital identity 
verification.

Treasury

Treasury should, in consultation with the federal functional regulators, consider issuing 
guidance to financial institutions on how they can utilize digital identity solutions within 
their existing customer identification programs. Treasury should ensure that future 
guidance balances secure identity verifications with protection of personally identifiable 
information.

Treasury, 
SEC, CFTC, 
FDIC, OCC, 
FRB, NCUA

Taxation

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Substantive Tax Issues

Treasury and the IRS should publish guidance addressing the determination of “adjusted 
financial statement income” (AFSI) with respect to financial accounting unrealized gains 
and losses on investment assets other than stock and partnership interests. Toward 
this end, the IRS issued Notice 2025-27 stating that Treasury and the IRS anticipate 
interim guidance under CAMT to address how unrealized gains and losses on certain 
investment assets reported for financial statement purposes are considered for 
purposes of determining AFSI.

Treasury, 
IRS

Treasury and the IRS should publish guidance addressing whether a trust that otherwise 
qualifies as an investment trust treated as a grantor trust fails to qualify as such if the 
trust stakes digital assets owned by the trust.

Treasury, 
IRS

Treasury and the IRS should publish guidance addressing whether wrapping and 
unwrapping transactions are taxable transactions.

Treasury, 
IRS

Treasury and the IRS should update the IRS FAQs on digital assets.
Treasury, 

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Taxation

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Legislation should be enacted that 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. Code provisions that should be expanded to apply to actively 
traded fungible digital assets include Sections 475 (mark-to-market election), 864(b) 
(trading safe harbors), 1058 (securities loans), and 7704 (publicly traded partnership 
rules). In addition, Sections 1091 (wash sale rules) and 1259 (constructive sales) also 
should apply to digital assets. Alternatively, legislation could instead clarify when a 
digital asset commodity or other digital asset is treated as a security or a commodity for 
federal income tax purposes.

Congress

Legislation should be enacted that would characterize payment stablecoins for federal 
income tax purposes, as such matters are not addressed by GENIUS. If payment 
stablecoins are treated as debt, legislation should consider the applicability of existing 
federal income tax rules that could impede the widespread use of payment stablecoins 
as financial assets that function in a similar manner to cash-equivalents. In particular, 
legislation should address the wash sale and anti-bearer bond rules. To address the 
wash sale rules, possible options include:

Congress
Treasury, 

IRS

•	 Providing that the wash sale rules do not apply to payment stablecoins;
•	 Providing that the wash sale rules do not apply to de minimis losses from payment stablecoins, possibly up to 

an aggregate threshold; or
•	 Providing that gains and losses on payment stablecoins are not considered for federal income tax purposes.

If no such legislation is enacted, Treasury and the IRS should consider issuing guidance that would clarify the tax 
classification of payment stablecoins, and address the potential application of the wash sale and anti-bearer bond rules.

The wash sale rules should be amended to add digital assets to the list of assets 
subject to the wash sale rules. If legislation of this kind is enacted, the broker reporting 
regulations should be amended to reflect these changes to the wash sale rules. Further, 
the wash sale rules should not apply to payment stablecoins.

Congress

Legislation should be enacted to amend Section 1058 to provide that it applies to loans 
of actively traded fungible digital assets, provided that the loan has terms similar to 
those currently required for loans of securities. The Secretary of the Treasury should be 
granted authority to determine when a digital asset is actively traded, and to address 
differences between the standard terms of securities loans and crypto loans.

Congress Treasury

Taxpayer Reporting

Treasury and the IRS should issue administrative guidance that addresses de minimis 
receipts of digital assets. The guidance could apply to airdrops, staking, hard forks, and 
mining rewards for taxpayers who do not operate a node or carry out digital asset mining.

Treasury, 
IRS

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, taking into account any recent intervening developments since the issuance 
of such guidance.

Treasury, 
IRS

If Congress decides to pass legislation regarding the timing of the inclusion of income 
relating to mining or staking, Congress should consider whether similar rules should 
apply to rewards from other digital asset validation methods, what the character of 
income upon disposition should be and if ordinary, what rules should apply to determine 
the order of dispositions of ordinary versus capital units, and potential differences 
between the fair market value of rewards at the time of receipt compared with the fair 
market value of rewards at the time of sale or other disposition.

Congress



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Taxation

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Legislation could be enacted that would require taxpayers to report foreign digital asset 
accounts. A foreign digital asset account would be a custodial account that holds digital 
assets that is maintained by a foreign digital asset exchange or other foreign digital asset 
service provider. If the United States implements the Crypto-Asset Reporting Framework 
(CARF), taxpayers could be required to report accounts with foreign crypto-asset service 
providers that are required to report information on U.S. customers to a non-U.S. tax authority.

Congress

Legislation could be enacted that would streamline the reporting required under 
Section 6038D and on the FBAR. Legislation could permit a taxpayer that is subject to 
both reporting obligations to submit a single form that would be available both to the 
IRS and to FinCEN.

Congress

Third-Party Information Reporting 

Treasury and the IRS should propose regulations that provide brokers that facilitate 
sales or exchanges of digital assets through electronic means with a less burdensome 
method of obtaining consent from their customers to furnish Form 1099-DA payee 
statements in an electronic format.

Treasury, 
IRS

Treasury should consider proposing regulations to implement CARF that take 
stakeholder concerns into account and minimize burdens on brokers to the extent 
consistent with CARF rules. The proposed regulations should not impose any new 
reporting requirements on DeFi transactions and should be used as a forum to gather 
further feedback, including a reasonable timetable for CARF implementation.

Treasury, 
IRS

Treasury and the IRS should consider proposing regulations requiring basis information 
to be reported when digital assets are transferred between centralized digital asset 
exchanges.

Treasury, 
IRS

Treasury and the IRS should consider proposing regulations implementing reporting of 
digital assets paid to a trade or business in a manner that takes stakeholder concerns 
into account.

Treasury, 
IRS

Consideration should be given to legislation to conform the information required to be 
reported to FinCEN, for BSA purposes, and the IRS, for federal income tax purposes. The 
legislation could also reexamine the reporting dollar thresholds and the breadth of uses 
of digital assets to which this provision would apply.

Congress



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Miscellaneous Recommendations

RecommendationRecommendation
Policy Responsibility

Congress Regulator

Cybersecurity

The Working Group recommends that relevant agencies develop principles-
based requirements and standards, as appropriate, for digital asset firms. 
Such principles-based requirements and standards should take into account 
the various activities and related risks of various industry participants to 
strengthen industry’s protection from malicious cyber actors. 

Treasury, SEC, 
CFTC, FRB, FDIC, 

OCC, NCUA 

The Working Group recommends that relevant agencies consider measures 
to increase information sharing on potential threats across the private sector 
and between the public and private sectors. 

Treasury, SEC, 
CFTC, FRB, FDIC, 

OCC, NCUA

Treasury’s OCCIP could work with industry to identify opportunities to 
increase information sharing on cybersecurity risks, including by providing 
U.S. regulated digital asset firms access to the ATIF.

Treasury

Treasury’s OCCIP—through the existing public-private partnership 
structure—could explore identifying gaps in addressing operational resiliency 
of digital asset firms to enable broader adoption.

Treasury

Repatriation and Domestication of Offshore Foundations

The Working Group encourages non-profit organizations supporting the 
development of blockchain technologies to domicile in the United States. 
Toward this end, the Working Group will engage with Treasury and the IRS to 
study ways to incentivize their repatriation and domestication.

Congress
Working Group, 

Treasury, IRS



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Cementing U.S. Leadership through the Bitcoin Strategic Reserve  Cementing U.S. Leadership through the Bitcoin Strategic Reserve  
and U.S. Digital Asset Stockpileand U.S. Digital Asset Stockpile

Under President Trump’s Executive Order No. 14178, the Working Group shall “evaluate the potential 
creation and maintenance of a national digital asset stockpile and propose criteria for establishing such 
a stockpile, potentially derived from cryptocurrencies lawfully seized by the U.S. Government through 
its law enforcement efforts.”494 On March 6, 2025, the President issued Executive Order No. 14233, 
which clarified and expanded on this directive and provided that it is the policy of the United States to 
establish a Strategic Bitcoin Reserve (the “Reserve”) and a United States Digital Asset Stockpile (the 
“Stockpile”).495

Consistent with the framework established by these executive orders:

	■ The Reserve and the Stockpile will be administered by Treasury, which will establish an office to 
administer and maintain control of the associated custodial accounts

	■ The Reserve and the Stockpile will be capitalized by forfeited digital assets—in other words, digital 
assets owned by the U.S. government.

	■ However, forfeited digital assets needed to satisfy statutory objectives will continue to be used for 
those objectives, including to compensate identifiable and verifiable victims of crimes, to support 
law enforcement operations, to be equitably shared with state and local law enforcement partners, 
and to fulfill other statutory forfeiture program requirements.

	■ The bitcoin in the Reserve will generally not be sold and will be maintained as reserve assets of the 
United States utilized to meet governmental objectives in accordance with applicable law.

	◆ Treasury and Commerce will develop strategies that could be used to acquire additional 
bitcoin496 for the Reserve in ways that are budget neutral and do not impose incremental costs 
on United States taxpayers.

	■ Custody will be studied by Treasury and Commerce in order to safeguard the assets of the United 
States.

Pursuant to Section 3(e) of Executive Order No. 14233, Treasury delivered considerations to the White 
House regarding the establishment and management of the Reserve and the Stockpile. Treasury will 
continue to coordinate with the White House and other members of the Working Group to move 
forward with appropriate next steps to operationalize the Reserve and the Stockpile for the benefit of 
the United States government and taxpayers.497

494     �Exec. Order No. 14178, supra note 2, at § 4(c)(2).
495     �Exec. Order No. 14233, Establishment of the Strategic Bitcoin Reserve and United States Digital Asset Stockpile, 90 Fed. Reg. 11789 (Mar. 6, 2025).
496     �Bitcoin enthusiasts use the phrase “stacking sats” to describe acquiring incremental amounts of bitcoin. “Sat” is short for “Satoshi,” the smallest possible 

unit of bitcoin the network can accommodate (0.00000001 bitcoin). See Stack the Sats Meaning, Ledger Academy (Mar. 2024), https://www.ledger.com/
academy/glossary/stack-the-sats. 

497     �See Exec. Order No. 14233, supra note 495, at § 3(e). See Exec. Order No. 14233, supra note 495, at § 3(e).

https://www.ledger.com/academy/glossary/stack-the-sats
https://www.ledger.com/academy/glossary/stack-the-sats