Yesterday, the “President’s Working Group on Digital Asset Markets” – which was established by Executive Order back in January – released a 166-page, multi-agency report that is intended to provide a framework for regulatory oversight and allow more people to access “digital asset markets.”

Page 44 of the report summarizes in a handy bullet-point list all of the actions the SEC and CFTC have already taken this year on crypto issues. In addition to recommending that Congress pass legislation for a crypto regulatory framework, which would build on the legislation that was recently adopted for stablecoins, the working group recommends that the agencies coordinate together and do even more. For example, for the SEC, the report recommends that it consider using its rulemaking & exemptive authority to:

• 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 offerings.

The report also envisions a tailored disclosure regime for digital asset issuers:

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.

The report’s other themes are summarized in this fact sheet, and SEC Chair Paul Atkins issued this statement applauding the recommendations. Buckle up!

– Liz Dunshee