Author: Scott Walker, Chief Compliance Officer of a16zcrypto; Bill Hinman, consulting partner of a16zcrypto and former Director of Corporate Finance Department of the US SEC; Compiler: 0xjs@金财经

With the development of technology, the United States The SEC must evolve with it. This is especially true in the cryptocurrency space. New leadership and the formation of a new cryptocurrency working group provide the agency with an opportunity to take meaningful action and adapt.

The time for action is now: Cryptoasset markets are growing in size and sophistication, so the SEC’s recent approach to harmful enforcement and regulatory abandonment requires an urgent update. As professional investment services begin to operate within this new industry, there is no other way to promote market efficiency, encourage innovation and ensure that investor protection is adopted. The fundamental principles of relevant securities law – disclosure, fraud prevention and market integrity – should remain inviolable. However, applying these principles in a way that reflects the unique characteristics of crypto-assets will require targeted regulatory changes.

This article proposes immediate, easy-to-implement adjustments that the U.S. SEC should take to develop regulations that are fit for purpose without sacrificing innovation or critical investor protections. While legislation is necessary to provide adequate regulatory clarity regarding crypto-asset classification and secondary market oversight, these measures will bring direct benefits to the market.

1. Provide interpretive guidance on "airdrops" and other incentive rewards

The U.S. SEC should provide interpretive guidance on how blockchain projects distribute cryptoassets to participants without being regarded as securities offerings . These distributions are often referred to as "airdrops" or "incentive-based rewards," and blockchain projects often do them for free or with minimal value as a reward for prior use of a specific network or ecosystem. Such distributions are key tools that enable blockchain projects to build communities and gradually become decentralized, as they spread ownership and control of the project to its users.

This decentralization process has multiple benefits. Decentralization protects investors from the risks typically associated with securities and centralized control and facilitates the expansion of the network, thereby increasing its value. If the U.S. SEC provides guidance on distribution, it will stem the tide of issuing airdrops and incentive rewards only to non-Americans—a trend that effectively moves ownership of U.S.-developed blockchain technology overseas and at the expense of Huge profits are created for non-Americans at the expense of American investors and developers.

What to Do:

Establish Eligibility Criteria: Establish baseline standards for cryptoassets eligible to be exempt from securities law investment contract treatment in airdrops and incentive reward distributions. For example, if a crypto-asset derives its market value primarily from (or is reasonably expected to derive primarily from) the programmatic functionality of any distributed ledger or similar technology, or any executable software deployed to a distributed ledger or similar technology, the crypto-asset is not originally securities, shall be eligible for such distribution.

2. ModifyCrowdfunding Exempt Offering Rules

The U.S. SEC should revise crowdfunding regulatory rules to more effectively regulate exempt offerings of crypto assets.

The current restrictions on financing and investor participation in crowdfunding campaigns are not suitable for cryptocurrency startups, as they often need wider distribution of crypto assets in order to develop critical mass and Network effects.

What to do:

Expand offering limits: Increase the maximum amount raised through crowdfunding to a level consistent with the needs of the business (e.g., up to $75 million or a percentage of the entire network, depending depth of disclosure).

Exempt Offerings: Allow crypto projects to rely on exemptions similar to Regulation D while leveraging the accessibility of crowdfunding platforms to reach broader investors beyond accredited investors.

Protect investors: Put in place appropriate protections, such as limits on individual investment amounts (as Reg A+ currently does) and strict disclosure requirements covering important information related to cryptocurrency investments - this are not covered by current regulations. (For example, while offering disclosures typically address matters such as directors, their compensation and shareholding details, disclosures about the underlying blockchain, its governance and consensus mechanisms may be more important to cryptoasset investors.) According to Digital Asset Investing Tailoring these requirements to investors can ensure they are fully informed and protected from fraud.

These changes will allow early-stage crypto projects to reach a broad range of investors, democratizing promising investment opportunities while maintaining transparency.

3. Enabling Broker-Dealers to Deal in Crypto-Assets and Securities

The current regulatory environment limits meaningful participation by traditional broker-dealers in the crypto space – primarily because it requires broker-dealers to obtain separate requires approval to trade crypto assets, and imposes more onerous regulations on broker-dealers wishing to custody crypto assets.

These restrictions create unnecessary barriers to market participation and liquidity. Allowing broker-dealers to facilitate trading in securities and non-security cryptoassets will enhance market functionality, investor access, and investor protection. It would also recognize that on today’s crypto platforms, crypto-assets that are clearly not securities (such as Bitcoin, Ethereum, or fiat-based stablecoins) can be traded seamlessly with crypto-assets that the SEC may deem to be subject to securities laws.

What to do:

Allow registration: Develop a clear path for broker-dealers to register to trade (and custody) cryptoassets (security and non-security), with customized requirements that reflect the nature of these assets .

Strengthen the regulatory framework: Establish a supervisory mechanism to ensure compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations and maintain market integrity.

Working with industry: Working with the Financial Industry Regulatory Authority (FINRA) to issue joint guidance to address operational risks unique to crypto-assets.

This approach will make the market safer and more efficient, making brokerage transactionsE-Shang is able to bring its expertise in best execution, compliance and custody to the cryptocurrency market.

4. Provide custody and settlement guidance

Custody and settlement remain key barriers to institutional adoption of crypto-assets. Ambiguity in regulatory treatments and accounting rules has hindered traditional financial institutions from entering the custody market. This means that many investors are unable to obtain investment income from trust asset management and are instead left to invest their own money and arrange their own custody alternatives.

What to do:

Tailored custody guidance: Provide guidance on custody rules under the Investment Advisers Act to clarify how investment advisers can custody cryptoassets, ensuring adequate safeguards are in place, such as multi-signature wallets and secure off-chain storage. This should also include guidance on staking idle assets and voting on governance decisions for cryptoassets held by investment advisers.

Set Settlement Standards: Develop specific guidance for crypto trade settlements, including timelines, verification processes, and error resolution mechanisms.

Establish a technology-neutral framework: Allow innovative hosting solutions that comply with regulatory standards to proceed flexibly without imposing prescribed technology requirements.

Correct accounting: Repeal SEC Staff Accounting Bulletin 121, allowing accounting for custody digital assets to reflect the nature of the custody arrangement rather than the imputation of liability. The background is that SAB 121 states, among other things, that “as long as [a company] is responsible for protecting the cryptoassets held on its platform… the company should present a liability on its balance sheet to reflect its obligation to protect the cryptoassets held on its platform. Cryptoassets held by platform users” and list the corresponding assets. The overall effect of SAB 121 is to move custodial crypto assets onto the custodian’s balance sheet — a move that goes against the traditional accounting treatment of custodial assets. Therefore, unlike a typical custody arrangement, if the custodian becomes insolvent, this accounting treatment may result in the custodial crypto assets being dragged into the custodian's bankruptcy estate. Perhaps worst of all, SAB 121 lacks legitimacy. The GAO found that this was actually a rule that should have been submitted for congressional review under the Congressional Review Act, and in May 2024, the House and Senate issued a joint resolution vetoing SAB 121, but that resolution was blocked by Biden. The president vetoed it.

This clarity will provide a foundation for institutional confidence, allowing large players to enter the market, while increasing market stability and competition among service providers. Additionally, cryptocurrency investors, whether retail or institutional, will receive the protections associated with professional, regulated asset management services.

5. Reform ETP standards

The U.S. SEC should adopt exchange-traded product (ETP) reform measures that promote financial innovation. The proposals will provide wider market access for investors and trustees accustomed to managing ETP portfolios.

What to do:

Restore market size test: US SEC relies on "Winklevoss test" to formulate market surveillance protocolsproposal, which delayed the approval of Bitcoin and other cryptocurrency-based ETPs. The test requires that, for stock exchanges such as the NYSE or Nasdaq to trade commodity-based ETPs, the listing exchange must enter into a regulatory oversight agreement with a "regulated market of substantial size" in the commodity or its derivatives. protocol. Given that the U.S. SEC does not consider crypto trading platforms to be “regulated markets,” this functionally means that ETPs can only exist in those crypto assets that have futures markets (regulated by the Commodity Futures Trading Commission) that trade on the underlying commodities. Price discovery is significantly highly predictive. This approach ignores the scale and transparency of the current crypto market. More importantly, it creates an arbitrary distinction in the criteria applicable to cryptocurrency-based ETP listing applications and all other commodity-based listing applications. Therefore, we recommend reverting to historical testing for sizable markets: requiring only that commodity futures markets have sufficient liquidity and price integrity to support ETP products. This adjustment will align the approval of crypto ETPs with the standards that apply to ETPs of other assets.

Enable physical settlement: Allow crypto ETPs to be settled directly in the underlying asset. This will lead to better money tracking, lower costs, greater price transparency and less reliance on derivatives.

Enforce custody standards: Implement strict custody standards for physically settled transactions to reduce the risk of theft or loss. In addition, ETP idle asset pledge options are provided.

6. Implement 15c2-11 certification for listing coins on alternative trading systems

In a decentralized environment, the issuer of crypto assets may not play any important ongoing role, so a question arises: who should be responsible Provide accurate disclosures about the asset. Fortunately, traditional securities markets have a useful similar rule, Exchange Act Rule 15c2-11, which allows broker-dealers to trade securities as long as, among other things, up-to-date information about the securities is available to investors.

Extending this principle to the crypto asset market, the U.S. SEC can allow regulated crypto trading platforms (including exchanges and brokers) to trade any asset as long as the platform can provide investors with accurate and up-to-date information. information. As a result, these assets will have greater liquidity in SEC-regulated markets, while ensuring investors can make informed decisions. Two clear benefits of doing so are the ability to trade digital asset pairs (where one asset is a security and the other a non-security asset) on U.S. SEC-regulated markets, and the disincentive for trading platforms to operate overseas.

What to do:

Streamline the certification process: Establish a streamlined 15c2-11 certification process for cryptoassets listed on Alternative Trading System (ATS) platforms and mandate disclosure of the asset’s design, purpose, functionality and risks.

Adopt due diligence standards: require exchanges or ATS operators to conduct due diligence on cryptoassets, including verifying the identity of the issuerand important feature and functionality information.

Clear disclosure requirements: Require regular updates to ensure investors receive timely and accurate information. In addition, it is clear when the issuer no longer needs to report, because due to decentralization, the report is no longer of reference value to potential buyers.

The framework will promote transparency and market integrity while allowing innovation to flourish in a regulated environment.

Conclusion

The U.S. SEC is at a critical moment in determining the future of crypto-asset regulation. The establishment of a new encryption working group indicates that the US SEC intends to change the policy of the previous session. By taking the key steps outlined above, the SEC can begin to move away from its historically contentious enforcement focus and add much-needed regulatory guidance and practical solutions for investors, fiduciaries, and financial intermediaries. This will better balance the relationship between protecting investors and promoting capital formation and innovation.

The proposed changes above – from modernizing crowdfunding rules to setting clear standards for custody and ETPs – will reduce ambiguity and support financial innovation in the space. Through these adjustments, the SEC can reassert its purpose and reposition itself as a forward-looking regulator, ensuring that the U.S. market remains competitive while protecting the public. The long-term future of the U.S. crypto industry will likely require Congress to provide a comprehensive, fit-for-purpose regulatory framework. However, until such a framework is in place, the steps outlined here are only one way to achieve appropriate regulation.