New Report by the President’s Working Group on Digital Assets
The President’s Working Group on Digital Asset Markets has unveiled a comprehensive report titled “Strengthening American Leadership in Digital Financial Technology.” Released on July 30, this document stems from January’s Executive Order 14178 and presents an extensive array of recommendations aimed at regulating digital assets and blockchain technology within the United States. This report holds significant implications for businesses, financial institutions, and investors.
Purpose and Key Priorities of the Report
The report serves to fulfill the working group’s directive to propose regulatory and legislative measures that promote the responsible evolution of digital assets and blockchain technologies. While it does not enact immediate changes to existing regulations, influential federal agencies are expected to act on recommendations that do not necessitate legislative action. Key priorities outlined in the report include: safeguarding the rights of individuals and businesses to utilize open blockchain networks and manage their digital assets independently; bolstering the global stature of the U.S. dollar through the endorsement of stablecoins; outright prohibiting the establishment of central bank digital currencies (CBDCs) in the U.S.; clarifying legal aspects concerning digital asset ownership, usage, and self-custody; ensuring equitable and technology-neutral treatment of digital asset enterprises by financial institutions and regulators; and enhancing U.S. leadership in the domains of digital asset innovation, payment systems, and combatting illicit financing.
Proposed Structure for Digital Asset Markets
The report introduces a three-tier classification system for digital assets: security tokens under the jurisdiction of the SEC, commodity tokens overseen by the CFTC, and commercial or consumer tokens, including stablecoins and utility tokens. This classification aims to minimize regulatory conflicts and prevent arbitrage. Additional recommendations include: granting specific exemptions from securities registration for digital asset distributions, including safe harbors for emerging projects that are not fully functional or decentralized; permitting the trading of non-security digital assets linked to investment contracts on non-SEC platforms immediately following issuance; exempting certain decentralized finance (DeFi) service providers from broker-dealer, exchange, and clearing agency registration mandates; modernizing definitions and regulations concerning exchanges, transfer agents, and self-hosted wallet providers; and fostering coordinated rule-making efforts between the SEC and CFTC, which would also involve the establishment of regulatory sandboxes and clear pathways for innovation.
Immediate Recommendations for Market Participants and Regulators
Among the immediate recommendations are: Securities Offerings Relief, which advocates for exemptions from registration for digital asset offerings, including safe harbors for nascent projects and defined rules for airdrops and rewards from decentralized networks; Trading and Registration Relief, allowing the trading of non-security digital assets on non-SEC platforms post-issuance, alongside relief for DeFi service providers from certain registration obligations; Modernized Market Rules, which call for updates to the definition of “exchange facility,” support for tokenized securities and digital assets, revisions to transfer agent regulations, and clarification on when wallet providers need to register as broker-dealers; Custody Rules, which aim to define how investment firms can securely hold digital assets classified as securities, as well as determining if state-chartered trusts can act as qualified custodians or banks; and Commodity Exchange Act Guidance, instructing the CFTC to clarify the classification and trading of digital assets as commodities, including rules concerning leveraged trades, “actual delivery,” and customer identification, while also addressing requirements for commodity pool operators and the application of its regulations to DeFi, smart contracts, and decentralized autonomous organizations (DAOs).
Coordination Between the SEC and CFTC
The report emphasizes the need for collaboration between the SEC and CFTC, urging them to synchronize rule-making and public review processes. It also suggests the establishment of regulatory sandboxes or safe harbors with clear eligibility criteria and exit strategies, along with the potential creation of a special category for qualified participants to engage in trading digital asset derivatives through regulated intermediaries.
Long-Term Recommendations for Digital Asset Market Structure
For the longer term, the report advocates for a unified user interface that allows digital asset firms to provide trading, custody, and brokerage services under one roof, ensuring robust safeguards and transparent disclosures. It also calls for the CFTC to revise its regulations to facilitate blockchain-based derivatives, including clearing, reporting, and margin requirements, even in non-intermediated settings. Furthermore, if congressional action is delayed, the SEC and CFTC are encouraged to leverage existing authority to deliver regulatory clarity and support responsible innovation.
Insights on Market Structure Legislation
The report identifies the Digital Asset Market Clarity Act of 2025 (CLARITY) as a foundational initiative for market structure, proposing a division of oversight between the SEC and CFTC, safeguarding self-custody rights, and promoting efficient trading and DeFi practices. It urges Congress to ensure that federal law supersedes state law for entities registered with the SEC and CFTC, while also providing clear and efficient licensing and reporting regulations for digital asset intermediaries.
Focus on DeFi and Innovation
The report suggests that regulations should be based on the actual control over assets, the ability to modify software, and the level of centralization. It advocates for customized regulations for DeFi that acknowledge its distinct characteristics rather than applying traditional financial regulations indiscriminately. Additionally, it aims to prevent exploitation by ensuring that products cannot be designed solely to circumvent legal obligations.
Accounting Recommendations
The Financial Accounting Standards Board (FASB) has provided guidance on evaluating digital assets at fair value. The report encourages FASB to gather further feedback on issues such as: the appropriate timing for recognizing or removing digital assets from balance sheets; the accounting treatment for tokens created and issued by companies; the classification of stablecoins as cash equivalents; and the handling of tokens that offer utility or access without clear legal rights. It also highlights the necessity for updated accounting and auditing standards as the adoption of digital assets continues to expand.
Recommendations for Banks and Digital Asset Activities
The report urges the establishment of clear guidelines for banks regarding allowable digital asset activities, including custody, the use of third-party services, holding reserves for stablecoins, and involvement in pilot programs. It advocates for equitable treatment across all banks with a technology-neutral approach to supervision. The report also emphasizes the need for transparent and timely processes for acquiring charters, insurance, and Reserve Bank master accounts, proposing automatic approvals when deadlines are not met, barring extraordinary circumstances. Furthermore, it calls for risk-based capital and liquidity requirements for digital asset activities that align with international benchmarks, the removal of outdated restrictions on state-chartered banks, and consistent training for examiners.
Stablecoins and Payment Recommendations
The report endorses the GENIUS Act, which mandates that U.S. dollar-backed stablecoins be fully supported by high-quality, liquid assets and redeemable at a 1:1 ratio for cash. It requires monthly disclosures of reserves and prohibits misleading claims regarding government backing, stipulates that stablecoin issuers must be licensed in the U.S. or comply with equivalent international standards, prioritizes stablecoin holders’ claims in cases of insolvency, and demands custodians to segregate reserves. Additionally, it clarifies that U.S.-licensed payment stablecoins are neither securities nor commodities, imposes stringent anti-money laundering (AML) and counter-terrorism financing (CFT) requirements on issuers, including foreign entities with U.S. customers, and encourages competition and innovation within the payments sector while banning government-issued CBDCs in favor of private sector solutions.
Addressing Illicit Finance
The report advocates for the swift implementation of the AML regulations outlined in the GENIUS Act for stablecoin issuers. It calls for updated guidance from FinCEN on digital assets, including establishing new categories for digital asset financial institutions, clarifying the application of U.S. AML regulations to foreign actors, and ensuring the right of Americans to self-custody their digital assets while clarifying that software providers without full control do not qualify as money transmitters. The report also suggests enhanced information sharing between digital asset and traditional financial institutions, alongside greater engagement in FinCEN’s information sharing initiatives. It proposes new regulations allowing the Treasury to block or impose conditions on specific digital asset transfers tied to illicit activities, even outside the traditional banking framework, as well as updating victim compensation and asset forfeiture laws to encompass digital assets, and expanding anti-tipping off and theft legislation to include digital asset businesses. Lastly, it emphasizes the need for adaptive, principles-based cybersecurity standards and improved sharing of cyber threat intelligence.
Key Tax Recommendations
The report suggests establishing clear guidance on the taxation of digital asset transactions, including for activities like staking, mining, and wrapping. It proposes treating digital assets as a distinct asset class for tax purposes, aligning their treatment with that of stocks or commodities. In addition, it seeks clarification on the tax status of stablecoins, including their classification as debt, and addresses the application of wash sale and anti-bearer bond regulations. The recommendations also include extending wash sale rules to digital assets (excluding stablecoins), updating broker reporting requirements, and allowing loans of actively traded digital assets to be treated similarly to securities loans. Furthermore, it calls for guidance on small digital asset receipts (such as airdrops, staking, and mining), revised rules regarding the timing of income recognition from these activities, the requirement for reporting foreign digital asset accounts, and streamlining reporting processes for the IRS and FinCEN. Finally, it stresses the importance of ensuring that broker and business reporting rules are consistent and not excessively burdensome.
Conclusion
The White House’s roadmap for digital assets signifies a move towards clearer and more favorable regulations for digital assets and blockchain technologies within the United States. Federal entities, including the Treasury, SEC, CFTC, OCC, FDIC, and others, are anticipated to act promptly on the report’s recommendations. Furthermore, Congress may deliberate on new legislation to elucidate the market structure for digital assets, tax implications, and measures against illicit finance. Companies are advised to evaluate their compliance, risk management, and reporting practices in light of these recommendations and to stay vigilant for upcoming regulatory and legislative changes.
