A blueprint for regulating digital assets in a new era of collaboration with the SEC

It’s a new day for crypto in America. In just the past three months: the President has invited crypto leaders to the White House and signed Executive Orders advancing American digital asset leadership; Congress is moving aggressively on a framework of regulation for stablecoins and is expected to soon take action on establishing a clear federal market structure framework; and the SEC has launched a crypto Task Force and begun the process of modernizing the securities markets by allowing for digital asset innovation, and providing clarity to crypto market participants in ways that we’ve been asking for for years. 

More than two and a half years after our initial petition for rulemaking, we commend the agency for making a concerted effort to engage with us and other stakeholders in this space. Coinbase has already had fruitful discussions – as have other industry participants – with the Task Force and agency staff and we look forward to a continued dialogue to address longstanding questions about what role the SEC should play in regulating digital markets.

The SEC’s work will play a vital role in charting a workable and durable path for digital assets and their integration into our existing financial system. We appreciate Commissioner Peirce’s leadership and the industry-wide conversation she initiated through her request for information. A transparent and collaborative process will help the agency and market participants shape regulations that can provide clarity and certainty for developers, clear rules for industry players, and effective protections for investors. 

In order to achieve that important objective, all of us in the industry have an obligation to contribute to that process by sharing our insights and perspectives. That is why we filed our detailed response to Commissioner Peirce’s request for information. Importantly, our response builds on our 2022 petition, where we first set out the key questions that we thought the agency should be asking of stakeholders in a public and transparent rulemaking process. Almost three years later, we are grateful that we can contribute our perspectives to an agency that is committed to public participation.  

A vision for resolving regulatory roadblocks

Our response offers 36 recommendations for the SEC that outline a path forward for digital asset regulation and considerations for an approach to reframing specific parts of existing securities regulation so that it is appropriately tailored for digital assets. Overall, there are four central elements that the Commission must clearly address in order to facilitate a functioning market for digital asset products and services: 

1. Clear taxonomy to define digital commodities vs. securities. The SEC should clarify that digital assets that do not convey any rights in a business enterprise are not securities, but rather digital commodities.    

2. Secondary market sales of digital commodities are not securities transactions. The SEC can provide immediate relief to much of the ambiguity around digital assets by clarifying that, regardless of the manner of their issuance, secondary market transactions in digital commodities are not securities transactions. Establishing in clear and certain terms its authority is a necessary condition to moving the digital asset industry forward.

3. Defer to Congress to establish the market framework and address ambiguities. The work to create a fair regulatory framework does not lie solely with the SEC (Congress has a lot of work to do there as well), the Commission is in a position to help establish a level playing field for all market participants and facilitate market innovation. Where those boundary conditions are unclear, defer to Congress to define the appropriate regulatory treatment for crypto assets and activities. 

4. Focus on enabling markets to unlock the potential of tokenized securities. The Commission should implement targeted relief that recognizes the economic reality of blockchain technology and the opportunity it offers to remove unnecessary market complexity and unlock a new market, led by the US, of the issuance and trading of tokenized securities. Tokenized debt, equity, and investment funds present untapped potential and this is an opportunity for tailored regulation for securities that are offered and traded via digitally native methods. Clarity and targeted relief on broad issues like real-time settlement, self custody, and asset transfers will enable this space to develop safely under the purview of the SEC and establish appropriate guidelines for consumer protection and continued innovation in the US.

Directly addressing these core points will provide clarity that will enable the SEC, other federal agencies, and Congress to efficiently address additional questions vital to our industry’s future in the US. Clear guidance will also rapidly accelerate the adoption of more onchain tools that bring traditional finance into the current age, with the US leading the way. 

The path forward for industry and consumers

We appreciate the opportunity to respond to Commissioner Peirce’s questions and thank the Task Force for leading this initiative. While we couldn’t be more encouraged by the Commission’s willingness to collaborate, this will be an iterative process that incorporates the rest of the blockchain and digital asset industry – including traditional financial players like banks and asset managers who are eager to adopt blockchain technology into their products and services –  and the work currently underway in Congress to establish a clear market structure for crypto. Thankfully, we’re seeing notable progress already. 

And we shouldn’t lose sight that all of this comes in no small part due to the historic grassroots advocacy that led to crypto becoming a kitchen table issue and a driving factor in November’s election and beyond. That experience underscores how important it is for our community to stay with the SEC, other agencies and Congress through this process and others that are underway. The insights of industry players are important, but so are those of the millions of Americans who participate in the crypto markets in different ways. 

Crypto is here to stay. Together, we can modernize the financial system, create a system that creates more opportunities for participation by the public, and secure America’s future as the world leader in digital innovation.