The Securities and Exchange Commission (SEC) is set to launch a new, comprehensive undertaking known as “Project Crypto.” This initiative aims to modernize the regulations governing blockchain-based activities in the securities sector, facilitating the transition of US markets to an “on-chain” environment.
Chairman Paul Atkins, in a speech delivered on July 31 at the America First Policy Institute, revealed that Project Crypto will implement the recommendations outlined in the President’s Working Group (PWG) report, which was recently published. Furthermore, it will build upon the established federal structure for payment stablecoins defined in the GENIUS Act.
He clarified that his remarks were his own and did not necessarily reflect the views of the SEC or its other Commissioners.
Clear Token Definitions
Atkins explained that personnel from all policy divisions will collaborate with a Crypto Task Force, spearheaded by Commissioner Hester Peirce, to develop proposals “expeditiously.” This will involve utilizing temporary measures like interpretive guidelines, waivers, and other forms of relief.
He emphasized that a primary focus will be clarifying the status of digital tokens. The project will seek to provide guidance for classifying crypto assets and establishing when a distribution qualifies as an “investment contract.”
Atkins asserted that “most crypto assets are not securities” and instructed staff to devise tailored disclosures, exemptions, and safe harbors for initial coin offerings (ICOs), airdrops, and network rewards.
The goal is to attract token distributions back to the United States, which previously migrated offshore due to regulatory ambiguity.
Guidelines for Tokenization
Given the increasing interest in tokenizing stocks, bonds, and other assets, Atkins instructed staff to engage with issuers of tokenized securities within the US. The aim is to provide suitable relief so that American investors are not excluded from these opportunities.
Furthermore, he described self-custody as “a fundamental American principle.” The SEC Chair stated that the agency will revise custody regulations for broker-dealers and investment advisors to accommodate cryptocurrencies. This includes re-evaluating limitations stemming from prior policies like SAB 121 and the design of special-purpose broker-dealers.
Project Crypto also envisions SEC-regulated platforms offering, under a single license, trading in both non-security crypto assets alongside crypto asset securities and conventional securities. Services such as staking and lending could also be included, streamlining the current system of multiple state and federal licenses.
SEC personnel will also develop a framework for simultaneous trading of non-securities and securities. Consideration will be given to permitting certain non-security digital assets, subject to investment-contract arrangements, to be traded on venues not registered with the SEC, potentially opening doors for CFTC-regulated platforms to list assets with margin.
DeFi and Market Plumbing
Atkins assured that the initiative will protect “pure publishers” of code, clarify the distinction between intermediated and disintermediated activity, and establish functional rules for operators of on-chain systems.
Accommodating tokenized security trading may necessitate updates to the Regulation National Market System to promote fairer competition.
The SEC is also contemplating a principles-based “innovation exemption” to allow for the testing of novel models without immediately requiring compliance with incompatible existing regulations.
Atkins mentioned conditions such as regular reporting, allowlisting/verified-pool controls, and compliance-enabled token standards like ERC-3643. He presented the agenda as a means of repatriating crypto businesses, incorporating on-chain finance into US markets, and prioritizing commercial viability while upholding investor protection.