Lowenstein Crypto advises leading digital asset and cryptocurrency projects, exchanges, and trading firms. Our practice covers regulatory advice, transactions and structuring advice, investigations, and adversarial matters including commercial disputes, bankruptcy, and related litigation. As these markets continue their rapid growth and market participants continue to evolve and mature their businesses, we are providing this weekly digest as a resource that highlights and summarizes a selection of key recent legal regulatory developments.

SEC Releases Proposed Rules Titled ‘Regulation Crypto Assets’

On August 18, the Securities and Exchange Commission (SEC) released proposed rules titled “Regulation Crypto Assets,” which, if adopted, would provide a path and framework for issuers of investment contracts involving crypto assets. Under Regulation Crypto Assets, an issuer of covered investment contracts may rely on the startup exemption and raise up to $5 million during a four-year period. A second exemption is the fundraising exemption, which permits an issuer to raise up to $20 million under a Tier 1 offering and up to $75 million under a Tier 2 offering. Regulation Crypto Assets also seeks to codify a conditional safe harbor from the term “investment contract” for when a crypto asset detaches from an investment contract. See Lowenstein Sandler’s client alert here for additional information. The SEC’s press release can be found here and the proposed rule here.

Treasury Proposes GENIUS Act Rules Governing US Stablecoin Issuance and Distribution

On August 17, the U.S. Department of the Treasury (Treasury) issued a notice of proposed rulemaking implementing Section 3 of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). Key provisions include defining critical terms such as “issue” (the first transfer of a payment stablecoin by the issuer) and “located in the United States,” clarifying that payment stablecoin issuers may simultaneously qualify as digital asset service providers and specifying that the rules are intended to have extraterritorial effect where conduct involves offers or sales to U.S. persons. The proposal also addresses prohibitions on offers and sales of stablecoins issued by foreign payment stablecoin issuers unless those issuers can comply with lawful orders and reciprocal arrangements under Section 18 of the GENIUS Act, and it sets out exemptions and safe harbors, including for pending permit applicants, unusual and exigent circumstances, peer-to-peer transfers, and self-custody wallets. Comments are due 60 days after Federal Register publication. See the Treasury’s press release here and the proposed rules here.

CFTC Holds Inaugural Innovation Advisory Committee Meeting

On August 20, the Commodity Futures Trading Commission (CFTC) held the inaugural Innovation Advisory Committee (Committee) meeting. CFTC Chairman Michael Selig in his opening remarks outlined the roadmap for the new frontier of finance and covered three key areas: crypto asset regulation, compute and artificial intelligence markets, and prediction markets. On crypto asset regulation, Selig announced that if the bipartisan CLARITY Act legislation continues to stall, he has directed CFTC staff to begin crafting rules under existing authority to establish a CFTC market structure for crypto assets, potentially allowing crypto asset exchanges to register as a new type of designated contract market and offer leveraged or margined crypto trading under federal oversight. He also revealed that CFTC staff is engaging with decentralized finance protocol developers to create compliant pathways for on-chain finance in the US. Industry and market participants who attended the Committee’s inaugural meeting expressed, among other things, frustrations with the prior administration of the SEC and CFTC but applauded the SEC and CFTC’s approaches in providing clearer regulatory guidance and frameworks. See the CFTC’s press release here and a copy of Selig’s opening remarks here.

OCC Comptroller Discusses Digital Asset Innovation, GENIUS Act, and Next Steps 

On August 19, Comptroller of the Currency Jonathan Gould discussed the Office of the Comptroller of the Currency’s (OCC) work in a fireside chat at the Wyoming Blockchain Symposium. Among other things, Gould discussed de novo chartering for applicants who seek to engage in digital asset activities, which has increased eightfold, and the OCC’s plan to have a final rule by November with respect to GENIUS Act rules. Gould noted that the final rules will take into consideration comments received from market participants on the proposed rules released earlier this year. View the fireside chat here and the related press release from the OCC here.

Senate Democrats Introduce Bill Designed To Target Presidential Banking Ties

On August 15, Senate Banking Committee Ranking Member Elizabeth Warren, D-Mass., and nine other senators released draft text of the Ending Presidential Corruption in Banking Act and announced plans to introduce the measure following the OCC’s preliminary conditional approval of World Liberty Trust Co. The proposal would prohibit the Federal Reserve, OCC, and FDIC from approving specified banking applications, including national bank charters, deposit insurance, and master accounts, where designated federal officials or certain family members own or control the applicant; require the agencies to review covered banking approvals granted after January 20, 2025; and prohibit the President, Vice President, and their spouse or child from owning or controlling a bank. See the press release here and a copy of the draft bill here.

Blockchain Association Sends SEC Comment Letter Supporting Its Proposal To Repeal Certain Regulation NMS Rules

On August 17, the Blockchain Association sent a letter to the SEC supporting the SEC’s proposal to rescind Rule 611 (the trade-through rule) and Rule 610(e) (the locked and crossed markets provisions) of Regulation NMS, arguing that the rules were adopted in 2005 for a fundamentally different market structure and have fueled exchange fragmentation, imposed excessive connectivity and data costs, and spawned unnecessary complexity through hundreds of workaround order types, all while failing to achieve their stated goals of efficient execution and fair competition. The Blockchain Association’s letter places particular emphasis on the emergence of tokenized securities traded on public blockchain rails, noting that the tokenized stock market has grown from roughly $300 million to over $2.4 billion in capitalization in the past year, and contends that Rules 611 and 610(e) are incompatible with on-chain execution mechanisms such as automated market makers, on-chain order books, request for quote protocols, and intent-based systems, which do not rely on the resting displayed quotations these rules presuppose. See a copy of the letter here.