New Report Signals Regulatory Framework for Digital Assets
The President’s Working Group on Digital Asset Markets published a report on July 30 titled “Strengthening American Leadership in Digital Financial Technology.” This document, which stems from Executive Order 14178 issued in January, lays out a comprehensive set of recommendations aimed at regulating digital assets and blockchain technology within the United States. This article explores the report’s potential impacts on businesses, financial institutions, and investors.
Purpose and Key Focus Areas of the Report
The report addresses the working group’s directive to propose regulatory and legislative measures that promote the responsible development of digital assets and blockchain technologies. Although it does not immediately alter existing regulations, it is anticipated that key federal agencies will implement recommendations that do not necessitate legislative changes. The primary focuses include: safeguarding the rights of individuals and businesses to utilize open blockchain networks and manage their own digital assets, enhancing the U.S. dollar’s global standing through support for stablecoins, prohibiting the establishment of central bank digital currencies (CBDCs) in the U.S., clarifying legal ownership and usage of digital assets, ensuring fair treatment of digital asset businesses by banks and regulators, and fostering U.S. leadership in digital asset innovation and anti-illicit finance measures.
Proposed Structure for Digital Asset Markets
The report suggests a classification system for digital assets that categorizes them into three types: security tokens governed by the SEC, commodity tokens overseen by the CFTC, and commercial or consumer-use tokens, including stablecoins and utility tokens. This classification aims to minimize regulatory overlaps and arbitrage opportunities. Additionally, the report advises: granting specific exemptions from securities registration for the distribution of digital assets, facilitating the trading of non-security digital assets on non-SEC platforms shortly after issuance, offering relief to certain decentralized finance (DeFi) service providers from registration requirements, modernizing definitions and regulations for exchanges, transfer agents, and self-hosted wallets, and promoting collaboration between the SEC and CFTC in rulemaking.
Immediate Recommendations for Market Participants and Regulators
Among the immediate suggestions are: creating exemptions from registration for digital asset offerings, including safe harbors for nascent projects and established guidelines for airdrops and decentralized network rewards; allowing the trading of non-security digital assets on non-SEC platforms after issuance and providing certain DeFi service providers relief from some registration mandates; modernizing market regulations by updating definitions of “exchange facility,” supporting tokenized securities, and clarifying registration requirements for wallet providers; detailing how investment firms can safely hold digital assets classified as securities; and offering guidance from the CFTC on classifying and trading digital assets as commodities.
Enhancing Coordination Between SEC and CFTC
The report encourages the SEC and CFTC to work together on rulemaking and public comments, establish regulatory sandboxes with clear criteria, and consider creating a specific category for qualified participants to trade digital asset derivatives via regulated intermediaries.
Long-Term Recommendations for Market Structure
In terms of long-term strategies, the report suggests a unified user interface for digital asset firms to provide trading, custody, and brokerage services under one roof with robust safeguards and clear disclosures. It also recommends updating CFTC regulations to facilitate blockchain-based derivatives and emphasizes that if Congress remains inactive, the SEC and CFTC should utilize their existing authority to clarify regulations and encourage responsible innovation.
Insights on Market Structure Legislation
The report identifies the Digital Asset Market Clarity Act of 2025 (CLARITY) as a foundational framework for structuring the market, proposing a division of oversight responsibilities between the SEC and CFTC, reinforcing self-custody rights, and promoting efficient trading and DeFi practices. It urges Congress to ensure that federal law supersedes state law for registered firms and to establish clear licensing and reporting guidelines for intermediaries in the digital asset space.
Approach to DeFi and Innovation
The recommendations include a regulatory approach based on actual control over assets, the capacity to modify software, and the level of centralization. The report advocates for rules specifically tailored to DeFi that acknowledge its distinct characteristics, rather than applying conventional financial regulations indiscriminately.
Key Accounting Recommendations
The Financial Accounting Standards Board (FASB) has issued guidelines for measuring digital assets at fair value. The report urges FASB to gather additional input on when to recognize or remove digital assets from balance sheets, how to account for tokens issued by companies, and whether stablecoins should be classified as cash equivalents, among other accounting considerations.
Recommended Changes for Banks and Digital Asset Activities
The report calls for clear guidelines regarding banks’ involvement in digital asset activities, including custody services, use of third-party providers, maintaining stablecoin reserves, and participating in pilot programs. It advocates for equitable treatment across all banks, transparent processes for obtaining charters and accounts, risk-based capital requirements, and the removal of outdated restrictions affecting state-chartered banks.
Stablecoins and Payments Framework
The report endorses the GENIUS Act, which stipulates that U.S. dollar-backed stablecoins must be fully supported by high-quality, liquid assets and redeemable at face value. It also mandates monthly disclosures of reserves and prohibits misleading claims about government support. The act requires stablecoin issuers to be licensed in the U.S. or to meet equivalent foreign standards, prioritizes stablecoin holders’ claims in insolvency, and imposes rigorous AML/CFT requirements on issuers.
Addressing Illicit Finance
The report emphasizes the importance of swiftly implementing the GENIUS Act’s AML regulations for stablecoin issuers and updating FinCEN guidance on digital assets. It suggests legislation to clarify how U.S. AML rules apply to foreign entities, ensuring that Americans retain the right to self-custody their digital assets, and improving information sharing between digital asset and traditional financial sectors.
Key Tax Recommendations
The report outlines recommendations for taxation of digital asset transactions, including staking, mining, and wrapping, advocating for the treatment of digital assets as a distinct asset class. It calls for clarification on the tax implications of stablecoins, the application of wash sale rules, and the reporting of foreign digital asset accounts to the IRS and FinCEN.
Summary of Key Points
The White House’s digital asset roadmap indicates a move towards clearer and more favorable regulations for digital assets and blockchain technology in the United States. Various federal agencies are expected to swiftly act on the report’s recommendations, and Congress may consider new legislation to clarify market structures, tax treatments, and measures against illicit finance. Companies are advised to assess their compliance and risk management strategies in light of these developments and stay alert for further regulatory changes.
