Proposed Rule2026-20888
Regulation Crypto Asset Transactions and Regulation Crypto Asset Markets
Primary source
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Published
October 13, 2026
Issuing agencies
Commodity Futures Trading Commission
Abstract
The Commodity Futures Trading Commission ("Commission" or "CFTC") is issuing an advanced notice of proposed rulemaking regarding section 2(c)(2)(D) of the Commodity Exchange Act ("CEA" or "Act") to provide notice and seek public comment on its intent to develop and establish fit-for-purpose rules implementing section 2(c)(2)(D) of the Act with respect to transactions and markets in crypto assets.
Full Text
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<title>Federal Register, Volume 91 Issue 196 (Tuesday, October 13, 2026)</title>
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[Federal Register Volume 91, Number 196 (Tuesday, October 13, 2026)]
[Proposed Rules]
[Pages 64811-64840]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-20888]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 1, 38, and 39
RIN 3038-AF80
Regulation Crypto Asset Transactions and Regulation Crypto Asset
Markets
AGENCY: Commodity Futures Trading Commission.
ACTION: Advanced notice of proposed rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is issuing an advanced notice of proposed rulemaking
regarding section 2(c)(2)(D) of the Commodity Exchange Act (``CEA'' or
``Act'') to provide notice and seek public comment on its intent to
develop and establish fit-for-purpose rules implementing section
2(c)(2)(D) of the Act with respect to transactions and markets in
crypto assets.
DATES: Comments must be received on or before December 14, 2026.
ADDRESSES: You may submit comments, specifically referencing
``Regulation Crypto Asset Transactions and Regulation Crypto Asset
Markets'' and RIN 3038-AF80, by any of the following methods:
<bullet> <a href="http://Regulations.gov">Regulations.gov</a>: Go to <a href="https://www.regulations.gov">https://www.regulations.gov</a> and
press the ``Search'' button, then proceed as follows:
1. Under Refine Documents Results--check the box to ``Only show
documents open for comment'';
2. Under Agency--select ``See More'' and check the box for
``Commodity Futures Trading Commission,'' then press the ``Apply''
button; and
3. Identify this proposal in the list of CFTC documents open for
comment, press the ``Comment'' button to open the submission form, and
follow the instructions on the form.
Alternatively, if you are viewing this proposal on
<a href="http://www.federalregister.gov">www.federalregister.gov</a>, click the ``Submit A Public Comment'' button
at the top of the page to open the comment form. Follow the
instructions on the form to submit your comment to <a href="http://Regulations.gov">Regulations.gov</a>.
<bullet> Mail: Send to--Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
<bullet> Hand Delivery/Courier: Address to--CFTC Comment
Submission, Attn: Christopher Kirkpatrick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW, Washington, DC 20581.
Please submit your comments using only one of these methods. To
avoid possible delays with mail or in-person deliveries, submissions
through <a href="http://Regulations.gov">Regulations.gov</a> are encouraged.
All comments must be submitted in English or, if not, accompanied
by an English translation. Do not include in your comment text or
attachments any personal identifying information or business
information that you do not want published online. Comments (regardless
of submission method) will be published without review for, and without
removal of, any personal identifying information or information your
business may consider confidential.
If you wish to submit confidential information for the Commission's
[[Page 64812]]
consideration, please contact the CFTC personnel listed in this Notice
under FOR FURTHER INFORMATION CONTACT before making any submission.
Please also carefully review the Commission's procedures in 17 CFR
145.9 for requesting confidential treatment under the Freedom of
Information Act (FOIA) of information submitted to the Commission.
The CFTC reserves the right, but shall have no obligation, to
review, pre-screen, filter, or redact all or any part of your comment
submission. The CFTC also reserves the right, without further
notification, to refuse to publish or to remove from public view all or
any part of your submission to the extent it contains content
inappropriate for publication in a comment file, such as--without
limitation--obscene language, threats of violence, solicitations for
commercial sales or illegal activity, or obvious spam. If a submission
that is refused for or withdrawn from publication because of
inappropriate content also contains comments on the merits of this
proposal, such submission will be retained in the record for the matter
and will be considered as required under the Administrative Procedure
Act and other applicable laws, and may be accessible under the FOIA.
A plain language summary of the proposed rule is available at
<a href="http://Regulations.gov">Regulations.gov</a>.
FOR FURTHER INFORMATION CONTACT: Tyler S. Badgley, General Counsel,
Office of the General Counsel, <a href="/cdn-cgi/l/email-protection#ddafa8b1b8b0bcb6b4b3ba9dbebba9bef3bab2ab"><span class="__cf_email__" data-cfemail="bdcfc8d1d8d0dcd6d4d3dafddedbc9de93dad2cb">[email protected]</span></a>, 202-418-5000; Aaron
Levine, Deputy General Counsel for Regulation, Office of the General
Counsel, <a href="/cdn-cgi/l/email-protection#245651484149454f4d4a4364474250470a434b52"><span class="__cf_email__" data-cfemail="f082859c959d919b999e97b093968493de979f86">[email protected]</span></a>, 202-418-5000; Sean Yoo, Senior Assistant
General Counsel, Office of the General Counsel, <a href="/cdn-cgi/l/email-protection#1664637a737b777d7f7871567570627538717960"><span class="__cf_email__" data-cfemail="740601181119151f1d1a1334171200175a131b02">[email protected]</span></a>,
202-418-5000; Michael J. Passalacqua, Head, Innovation Task Force,
<a href="/cdn-cgi/l/email-protection#a5c8d5c4d6d6c4c9c4c6d4d0c4e5c6c3d1c68bc2cad3"><span class="__cf_email__" data-cfemail="95f8e5f4e6e6f4f9f4f6e4e0f4d5f6f3e1f6bbf2fae3">[email protected]</span></a>, 202-418-5052; or, Hank Balaban, Senior Advisor,
Innovation Task Force, <a href="/cdn-cgi/l/email-protection#bbd3d9dad7dad9dad5fbd8ddcfd895dcd4cd"><span class="__cf_email__" data-cfemail="81e9e3e0ede0e3e0efc1e2e7f5e2afe6eef7">[email protected]</span></a>, 202-418-5422, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street
NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
The Commission is issuing an advanced notice of proposed rulemaking
(``ANPRM'' or ``Notice'') on section 2(c)(2)(D) of the Act with respect
to transactions and markets in crypto assets \1\ to provide notice of
its intent to establish a comprehensive regulatory framework comprised
of fit-for-purpose rules concerning section 2(c)(2)(D), including
defining certain terms therein, with respect to the retail commodity
transactions described in section 2(c)(2)(D)(i) and that involve crypto
assets (such crypto asset transactions referred to herein as, ``Crypto
Asset Transactions'' or ``CTXs''). The proposals set forth herein are
designed to further the purposes and objectives of the Act, including
protecting retail customers from market abuses along with fostering
``responsible innovation'' and ``fair competition'' among Commission-
registered boards of trade, other markets, and market participants.\2\
The Commission is seeking public comment on all aspects of this Notice
and also sets forth specific questions in Sections IV and V, infra.
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\1\ As used herein, the term ``crypto asset'' means any digital
representation of value that is recorded on a cryptographically-
secured distributed ledger. Any crypto asset, other than a ``payment
stablecoin'' issued by a ``permitted payment stablecoin issuer,'' as
such terms are defined in section 2 of the Guiding and Establishing
National Innovation for U.S. Stablecoins Act, Public Law 119-27, 139
Stat. 419 (2025) (``GENIUS Act''), could meet the definition of
``commodity'' under the Act. See CEA 1a(9), 7 U.S.C. 1a(9), as
amended by GENIUS Act section 17(f); 12 U.S.C. 5901(22). Although
not included in the statutory exclusion from the definition of
``commodity'' in section 17 of the GENIUS Act, payment stablecoins
issued by a ``foreign payment stablecoin issuer'' (as the term is
defined in the GENIUS Act) registered with the Office of the
Comptroller of the Currency will generally not meet the definition
of ``commodity'' under the Act. See 12 U.S.C. 5901(12). The term
``distributed ledger'' generally refers to databases that maintain
information across a network of computers in a decentralized or
distributed manner. These networks commonly use cryptographic
protocols to ensure data integrity and consensus mechanisms to
ensure data congruity. Blockchains are one type of distributed
ledger, and they are often used to issue and transfer ownership of
crypto assets. Further, for purposes of this release, ``onchain''
refers to transactions or data that are processed and recorded
directly on a blockchain or similar system and ``offchain'' refers
to transactions or data that are processed and recorded outside of a
blockchain or similar system. See Application of the Federal
Securities Laws to Certain Types of Crypto Assets and Certain
Transactions Involving Crypto Assets, 91 FR 13714, 13715 n. 1 (Mar.
23, 2026) (``Joint Crypto Asset Taxonomy'').
\2\ CEA 3(a)-(b), 7 U.S.C. 5(a)-(b); see also Philip McBride
Johnson, Thomas Lee Hazen, Susan C. Ervin, Charles R. Mills &
Kathryn M. Trkla, Derivatives Regulation Sec. 2.07 (2d Ed.)
(``Johnson et al.'') (``The CEA has a bountiful history--a statute
at the intersection of financial history and public policy, at
ground zero of financial innovation.'').
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A. Introduction
With certain exceptions, Congress has granted the CFTC exclusive
jurisdiction over the transactions subject to the Act.\3\ The markets
that the Commission oversees pursuant to the Act are ``affected with a
national public interest'' because they facilitate risk management and
price discovery ``through trading in liquid, fair and financially
secure trading facilities.'' \4\ The Commission fosters that national
public interest, in part, through sound regulation that protects the
American public from fraudulent schemes and abusive practices in
transactions over which the Act grants it jurisdiction and markets on
which those transactions are executed.\5\ The Act also requires the
Commission to balance those objectives and purposes with the promotion
of ``responsible innovation'' and ``fair competition.'' \6\ To foster
such objectives with respect to the transactions and markets subject to
the Act, Congress demanded,\7\ and the Commission has promulgated, a
uniform national market regulatory framework. In 1973, futures
exchanges recommended that ``federal policy [ ] be uniform throughout
the United States'' and not ``subject to the vagaries'' of different
obligations in ``different jurisdictions.'' \8\ Congress responded with
the creation of the Commission through the Commodity Futures Trading
Commission Act in 1974.\9\ The establishment of a uniform national
system for regulating such
[[Page 64813]]
transactions codified the Supreme Court's conclusion that an exchange
offering transactions in commodity derivatives ``is engaged in a
business affected with a public national interest and is subject to
national regulation'' of the rules governing the exchange's
conduct.\10\
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\3\ CEA 2(a)(1)(A), 7 U.S.C. 2(a)(1)(A).
\4\ CEA 3(a), 7 U.S.C. 5(a).
\5\ CEA 3(a)-(b), 7 U.S.C. 5(a)-(b).
\6\ Id.
\7\ CEA 2(a)(1)(A), 7 U.S.C. 2(a)(1)(A). See also Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 355-356 (1982)
(stating that the Act ``has been aptly characterized as `a
comprehensive regulatory structure''') (quoting H.R. Rep. No. 93-
975, at 1 (1974)).
\8\ Review of Commodity Exchange Act and Discussion of Possible
Changes: Hearings Before the H. Comm. on Agriculture, 93d Cong. 121
(1973).
\9\ The Act ``is one of two primary U.S. federal statutes that
regulate how financial markets operate. The other, administered by
the Securities and Exchange Commission (``SEC''), is the Securities
Exchange Act of 1934 (``Exchange Act'').'' See Johnson et al., Sec.
6.01. The year following the passage of the Commodity Futures
Trading Commission Act in 1974 and its establishment of the CFTC to
oversee a uniform national regulatory framework under the Act, the
94th Congress demonstrated a continued focus on the importance of
uniform national rules that implement federal market regulation by
enacting the 1975 Securities Act Amendments (the ``'75 Amendments'')
to the Securities Act of 1933 (``Securities Act'') and the Exchange
Act. The impetus for the '75 Amendments resembled that which led to
the Commodity Futures Trading Commission Act. Just as the Commodity
Futures Trading Commission Act provided for a comprehensive
regulatory structure to oversee the national public interest in the
commodity derivatives markets, the '75 Amendments ``specifically
endorsed the development of a national market system.'' See
Regulation of Exchanges, 62 FR 30485, 30492 (June 4, 1997) (emphasis
added). Decades later, the SEC relied in part on the Congressional
findings of the '75 Amendments, including that ``[t]he securities
markets are an important national asset which must be preserved and
strengthened,'' as well as the broad discretionary exemptive
authority in Section 36 of the Exchange Act that resembles that of
CEA 4(c), to adopt a regulatory framework for alternative trading
systems. See Regulation of Exchanges and Alternative Trading
Systems, 63 FR 70844, 70845-46 & nn.6-7 (Dec. 22, 1998) (emphasis
added).
\10\ Board of Trade of City of Chicago v. Olsen, 262 U.S. 1, 41
(1923). See also Johnson et al., Sec. 2.03 (``The 1974 legislation
was a major turning point in U.S. derivatives regulation. The
Commodity Futures Trading Commission Act of 1974 greatly expanded
the CEA's reach, strengthened the authority and importance of the
law's administrator by creating the [Commission] as an independent
federal agency, and established a comprehensive framework for
regulating the markets.''). Congress has repeatedly affirmed its
intention to centralize the oversight and regulation of the
transactions subject to the Act. The first federal legislation
designed to create a comprehensive federal regulatory framework for
futures markets was the Future Trading Act of 1921, Public Law 67-
66, 42 Stat. 187 (1921), followed by the Grain Futures Act of 1922,
Public Law 67-331, 42 Stat. 998 (1922). In passing these laws,
Congress recognized the importance of uniform federal regulation of
futures markets, despite concerns by some members of Congress who
objected to the proposed law because it would interfere with state
police powers. H.R. Rep. No. 67-1095, at 5 (1922). When Congress
expanded federal oversight of futures markets by adopting the CEA in
1936, Public Law 74-675, 49 Stat. 1491 (1936), the boundary between
federal and state authority remained unsettled as futures markets
expanded beyond their agricultural origins. Market participants
continued to face the persistent threat of state prosecution through
a patchwork of state laws and regulations. Congress responded to
this uncertainty with the passage of the Commodity Futures Trading
Commission Act in 1974. Public Law 93-463, 88 Stat. 1389 (1974).
Amendments to the CEA between 1978 and 2010 repeatedly reinforced
and clarified the CFTC's exclusive jurisdiction over the operation
of markets involving commodity derivatives. For example, the Futures
Trading Act of 1982, Public Law 97-444, 96 Stat. 2294 (1983),
further clarified the scope of the CEA's preemption of other federal
and state laws and the role of the states in pursuing illegal or
fraudulent off-exchange transactions, while still recognizing ``the
CFTC['s] exclusive jurisdiction to regulate futures trading and
enforce the provisions of the Act, thereby preempting any State
regulatory laws.'' H.R. Rep. No. 97-565, at 44-45 & 102-03 (1982),
reprinted in 1982 U.S.C.C.A.N. 3871, 3893-94 & 3951-52.
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On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (``Dodd-Frank Act'') \11\ amended the CEA to require
that transactions contemplated by section 2(c)(2)(D) be treated ``as
if'' they were futures contracts under certain provisions of the
Act.\12\ The Dodd-Frank Act thereby deemed such transactions as
affected with the same ``national public interest'' \13\ as other
commodity derivatives transactions subject to the Act by mandating
that, unless conducted on or subject to the rules of a designated
contract market (``DCM''),\14\ it is unlawful to offer to enter into,
to execute, to confirm the execution of, to conduct any business for
the purpose of soliciting any order for, or to otherwise deal in
2(c)(2)(D) transactions (the ``on-exchange requirement'').\15\
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\11\ See Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376
(2010).
\12\ CEA 2(c)(2)(D)(iii), 7 U.S.C. 2(c)(2)(D)(iii). A
``2(c)(2)(D) transaction'' is, unless an exception applies, ``any
agreement, contract, or transaction in any commodity that is--(I)
entered into with, or offered to (even if not entered into with), a
person that is not an eligible contract participant or eligible
commercial entity; and (II) entered into, or offered (even if not
entered into), on a leveraged or margined basis, or financed by the
offeror, the counterparty, or a person acting in concert with the
offeror or counterparty on a similar basis.'' CEA 2(c)(2)(D)(i), 7
U.S.C. 2(c)(2)(D)(i).
\13\ CEA 3(a), 7 U.S.C. 5(a).
\14\ CEA 2(c)(2)(D)(iii), 7 U.S.C. 2(c)(2)(D)(iii); see also CEA
4(a), 7 U.S.C. 6(a).
\15\ Id.
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Despite (i) the anti-evasion and customer protection motivations
for section 2(c)(2)(D), which are discussed in Sections II.A and II.B,
infra; (ii) the crypto asset market having ``grown exponentially since
2009 [ ] to an ecosystem supporting trillions of dollars in payments
and trades[;]'' \16\ (iii) the significant customer protection issues
that have emerged in connection with obfuscated offers of leverage in
those markets; \17\ and (iv) ``the context of market regulation [that
gives rise to the need] for uniform legal rules,'' \18\ the Commission
has not yet adopted rules that answer novel and complex questions
regarding how section 2(c)(2)(D) applies to crypto assets, blockchain
technologies, and CTXs.
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\16\ President's Working Group on Digital Asset Markets,
Strengthening American Leadership in Digital Financial Technology,
at 16 (July 30, 2025) (``President's Working Group's Report''),
available at <a href="https://www.whitehouse.gov/crypto/">https://www.whitehouse.gov/crypto/</a>.
\17\ See, e.g., Press Release, U.S. Att'y's Off. for the
S.D.N.Y., Samuel Bankman-Fried Sentenced To 25 Years In Prison (Mar.
28, 2024), available at <a href="https://www.justice.gov/usao-sdny/pr/samuel-bankman-fried-sentenced-25-years-prison">https://www.justice.gov/usao-sdny/pr/samuel-bankman-fried-sentenced-25-years-prison</a> (describing how Samuel
Bankman-Fried ``orchestrated one of the largest financial frauds in
history, stealing over $8 billion of his customers' money [. . .]
The scale of his crimes is measured not just by the amount of money
that was stolen, but by the extraordinary harm caused to victims,
who in some cases had their life savings wiped out overnight.'');
Section II.C.1, infra, for a further discussion around significant
customer protection issues in crypto asset markets; CFTC v. HDR
Glob. Trading Ltd., No. 1:20-cv-08132, ECF No. 1 at 13 (S.D.N.Y.
Oct. 1, 2020) (``BitMEX'') (``BitMEX allows customers to place buy
or sell orders for its various [crypto asset] derivatives with
leverage of up to 100 to 1, meaning a customer with $10,000 in his
or her account may execute a trade with a notional value of
$1,000,000.'').
\18\ American Agric. Movement v. Board of Trade of City of
Chicago, 977 F.2d 1147, 1156 (7th Cir. 1992).
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The resulting uncertainty amongst market participants \19\ as to
how to comply with, among other obligations, the on-exchange
requirement, has stymied Congress's intent to bring retail commodity
transactions, including CTXs, onto DCMs and under the Act's uniform
federal market regulatory regime applicable to futures contracts.
Instead, U.S. retail participants in the crypto asset markets have been
forced to rely primarily on state-level regulatory protections. For
example, most states impose money transmission licensure regimes that
generally apply to businesses offering crypto asset exchanges.\20\
Individual states have also promulgated crypto asset-specific licensure
regimes, such as New York's BitLicense \21\ and California's Digital
Financial Assets license.\22\ Businesses offering crypto asset
exchanges must typically also register with the Financial Crimes
Enforcement Network (``FinCEN'') of the Department of the Treasury as
money services businesses (``MSB'') and comply with various federal
regulations.\23\ Those regulations
[[Page 64814]]
impose obligations pertaining to recordkeeping, reporting, risk
management and ``know-your-customer'' programs, and other
requirements.\24\
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\19\ See, e.g., Letter from Crypto Council for Innovation
(``CCI'') to Christopher J. Kirkpatrick, Sec'y, CFTC (Aug. 18, 2025)
(highlighting ``questions regarding how [CTXs] fit[ ] within key DCM
requirements such as mandatory clearing. [ ] CCI encourages the
Commission to closely examine [ ] how DCMs can begin to offer these
products in a safe and viable manner''); Letter from Coinbase to
Christopher J. Kirkpatrick, Sec'y, CFTC (Aug. 18, 2025) (``Coinbase
Letter'') (emphasizing that ``the CFTC should carefully consider the
proper application of the CEA to crypto asset spot markets listed
and traded on a DCM''); Commissioner Dawn D. Stump, Concurring
Statement Regarding Enforcement Action Against Payward Ventures,
Inc. (d/b/a Kraken) (Sept. 28, 2021), available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/stumpstatement092821b">https://www.cftc.gov/PressRoom/SpeechesTestimony/stumpstatement092821b</a>
(``Stump Payward Statement'') (emphasizing that with respect to the
on-exchange requirement ``it is incumbent upon the Commission to
undertake a rulemaking proceeding to supersede [the Commission's now
withdrawn 2020 interpretive guidance on section 2(c)(2)(D)] by
adopting binding and enforceable rules that will provide certainty
to the marketplace and a shared understanding of the `rules of the
road.' ''). See infra note 87 for a further discussion of the
withdrawn interpretive guidance referenced by Commissioner Stump.
\20\ See Congressional Research Service, Telegraphs, Steamships,
and Virtual Currency: An Analysis of Money Transmitter Regulation,
at 1 (Aug. 20, 2020), available at <a href="https://www.congress.gov/crs_external_products/R/PDF/R46486/R46486.2.pdf">https://www.congress.gov/crs_external_products/R/PDF/R46486/R46486.2.pdf</a> (describing how the
term ``money transmission'' typically refers to three general
functions: (1) receiving and sending money on behalf of consumers;
(2) providing products that receive, store, or send money for
consumers; and (3) providing an exchange for currencies); see also
id. at 16 (quoting testimony of SEC Chairman Jay Clayton that ``many
of the U.S.-based [crypto asset] trading platforms have elected to
be regulated as money-transmission services'' and are
``predominantly state-regulated'').
\21\ 23 NYCRR 200.3.
\22\ Cal. Fin. Code 3201.
\23\ See, e.g., FinCEN, FIN-2016-G001, Guidance on Existing AML
Program Rule Compliance Obligations for MSB Principals with Respect
to Agent Monitoring (Mar. 11, 2016); see also 31 CFR 1022.320
(requiring MSBs to file with the Department of the Treasury a report
of any suspicious transaction relevant to a possible violation of
law or regulation, under the circumstances described therein).
\24\ See, e.g., 31 CFR 1010.311-314 (currency transaction
reporting), 31 CFR 1010.410(e)-(f) (records and information
accompanying transmittal of funds), 31 CFR 1022.210(b), (d) (risk-
based anti-money-laundering programs, including customer
identification verification, reporting, and recordkeeping); see also
FinCEN, FIN-2019-G001, Application of FinCEN's Regulations to
Certain Business Models Involving Convertible Virtual Currencies
(May 9, 2019), available at <a href="https://www.fincen.gov/system/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf">https://www.fincen.gov/system/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf</a>.
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Market participants have noted that these fragmented, multi-
jurisdictional regulatory frameworks may be duplicative, inefficient,
and ultimately incompatible with the commercial realities of
effectively operating national and international crypto asset
exchanges.\25\ Individual state money transmission laws differ in
meaningful and fundamental ways, including with respect to the
definition of a money transmitter, which determines whether a firm must
obtain a particular license to operate in a particular state.\26\
Oftentimes, it may also be unclear to market participants which or how
regulatory requirements of different jurisdictions apply, due to
inconsistencies in state-level regimes.\27\ Companies operating in the
crypto asset markets are thus often subject to significant uncertainty
and differing state-by-state licensing, supervisory, and examination
requirements.\28\
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\25\ Timothy G. Massad, Economic Studies at Brookings, It's Time
to Strengthen the Regulation of Crypto-Assets (Mar. 2019), available
at <a href="https://www.brookings.edu/wp-content/uploads/2019/03/Economis-Studies-Timothy-Massad-Cryptocurrency-Paper.pdf">https://www.brookings.edu/wp-content/uploads/2019/03/Economis-Studies-Timothy-Massad-Cryptocurrency-Paper.pdf</a> (``As a general
matter, state regulation would be a weak foundation for an industry
that strives to be international. When regulatory requirements vary
by state, it is expensive to build compliance systems, and difficult
to create national, let alone international, markets. Our securities
markets would not have become the envy of the world if we had relied
solely on state blue sky laws and never adopted the Securities Act
and [ ] Exchange Act. We should not expect state law to fill the
need for this new [crypto asset] sector either.''); see also
statement submitted by the Chamber of Digital Commerce, in Examining
Regulatory Frameworks for Digital Currency and Blockchain: Testimony
for the Record United States Senate Committee on Banking, Housing,
and Community Affairs Hearing (July 30, 2019), available at <a href="https://www.govinfo.gov/content/pkg/CHRG-116shrg38950/pdf/CHRG-116shrg38950.pdf">https://www.govinfo.gov/content/pkg/CHRG-116shrg38950/pdf/CHRG-116shrg38950.pdf</a> (``This patchwork of state and federal regulations
is expensive[.] For blockchain companies, many of which are growing
start-ups with seasoned industry executives, this antiquated and
inconsistent framework poses a high barrier to entry. The current
framework [. . .] [is] not well-suited for digital companies whose
business and service models are inherently global in nature and may
not fit the traditional descriptions of `money transmitters.' '').
\26\ See Congressional Research Service, supra note 20, at 2, 4
(describing ``49 unique state regulatory frameworks'' and noting
that the absence of a federal framework has caused numerous efforts
to reduce the friction associated with varying regulatory
obligations across jurisdictions).
\27\ Id.
\28\ See generally U.S. Government Accountability Office, GAO-
17-361, Financial Technology: Information on Subsectors and
Regulatory Oversight (Apr. 2017), available at <a href="https://www.gao.gov/assets/gao-17-361.pdf">https://www.gao.gov/assets/gao-17-361.pdf</a> (describing efforts to coordinate multistate
licensing exams to address variations among state money transmitter
requirements).
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Moreover, these state licensing regimes address certain risks
associated with payment transactions that materially differ from those
risks presented by financial markets.\29\ Unlike transactions on a
properly functioning financial market such as trading facilities
subject to the Act, payment transactions involve an identifiable sender
instructing an intermediary to transmit a bespoke value to a recipient
designated by the sender.\30\ Money transmission regulation accordingly
primarily pertains to transaction-level (rather than market-wide)
risks, including those relating to an intermediary's performance of
individualized contractual obligations to each specific customer
thereof, transaction error resolution and refund rules, and the
appropriate disclosure of fees to customers.\31\
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\29\ See Congressional Research Service, supra note 20, at 2, 4.
\30\ See generally Benjamin Geva, The Concept of Payment
Mechanism, 24 Osgoode Hall L.J. 1, 4-5 (1986).
\31\ See, e.g., Conference of State Bank Supervisors, Money
Transmission Modernization Act Sec. Sec. 1.02, 9.01-9.03 (2021, as
amended), available at <a href="https://www.csbs.org/csbs-money-transmission-modernization-act-mtma">https://www.csbs.org/csbs-money-transmission-modernization-act-mtma</a>.
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These state licensure regimes that regulate payments activities
accordingly do not protect retail customers in the same manner as the
federal market structure regulatory framework promulgated under the
Act.\32\ For example, state licensure regimes neither feature robust
rules and regulations designed to ensure orderly and transparent
trading nor to prevent conflicts of interest and market
manipulation.\33\ They also do not address financial market instability
or systemic market risk issues that may affect customers (including
retail customers) in extreme market conditions.\34\ Thus, while these
state payments regimes may have lent themselves to the appropriate
regulation of crypto asset exchanges before other use cases for crypto
assets emerged, besides the ``peer-to-peer electronic payment system''
\35\ introduced by Satoshi Nakamoto in 2008, they no longer adequately
address risks arising in financial markets in crypto assets with
consumptive uses and functionalities that have ``move[d] far beyond
just currency.'' \36\ Those consumptive uses and functionalities may
typically more closely resemble those of traditional commodities than
currency, and customers transacting therein should benefit from a
national market regulatory framework.
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\32\ In addition to the congressional findings discussed supra
note 9, the other primary U.S. federal statute that regulates how
financial markets operate, the Exchange Act, provides that ``[it] is
in the public interest and appropriate for the protection of
investors and the maintenance of fair and orderly markets to assure
[ ] fair competition among brokers and dealers, among exchange
markets, and between exchange markets and markets other than
exchange markets[;] The linking of all markets for qualified
securities through communication and data processing facilities will
foster efficiency, enhance competition, increase the information
available to brokers, dealers, and investors, facilitate the
offsetting of investors' orders, and contribute to best execution of
such orders[.]'' 15 U.S.C. 78k-1 (emphasis added).
\33\ See Financial Stability Oversight Council, Report on
Digital Asset Financial Stability Risks and Regulation, at 5 (Oct.
3, 2022), available at <a href="https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf">https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf</a>.
\34\ Id. at 4.
\35\ See Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic
Cash System (Oct. 31, 2008), available at <a href="https://bitcoin.org/bitcoin.pdf">https://bitcoin.org/bitcoin.pdf</a>. The Commission notes that ``Satoshi Nakamoto'' is a
pseudonym that was used by the person or group of persons that
created the Bitcoin network. See, e.g., LabCFTC, A CFTC Primer on
Virtual Currencies, at 5 (Oct. 17, 2017), available at <a href="https://www.cftc.gov/sites/default/files/idc/groups/public/documents/file/labcftc_primercurrencies100417.pdf">https://www.cftc.gov/sites/default/files/idc/groups/public/documents/file/labcftc_primercurrencies100417.pdf</a>.
\36\ Vitalik Buterin, Ethereum: A Next-Generation Smart Contract
and Decentralized Application Platform, at 34 (2014), available at
<a href="https://ethereum.org/content/whitepaper/whitepaper-pdf/Ethereum_Whitepaper_-_Buterin_2014.pdf">https://ethereum.org/content/whitepaper/whitepaper-pdf/Ethereum_Whitepaper_-_Buterin_2014.pdf</a>. See also Sections I.A.1 and
II.C.2, infra, for a further discussion on how uses of crypto assets
have evolved since the introduction of blockchain networks such as
Ethereum.
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Unlike these state licensure regimes, the Act contemplates, and the
Commission's regulatory regime promulgated thereunder addresses, those
unique customer abuse concerns that are present in national
markets.\37\ They do so in part by imposing the aforementioned
``uniform set of regulations'' that ensures impartial access \38\ to
commodity derivative markets across jurisdictions and the capacity of
the Commission to enforce against violations of the Act across state
lines.\39\ They also do so by encouraging
[[Page 64815]]
competition and efficiencies that benefit market participants,\40\
protecting those market participants against manipulative trading
activity and other abusive trading practices,\41\ mitigating systemic
market risks,\42\ and ensuring market wide integrity, including the
financial integrity of the clearing process.\43\ One illustrative
example of the difference in customer protections afforded under the
Act and money transmission licensure regimes pertains to the
segregation and safeguarding of customer property. On the one hand, the
Act imposes a comprehensive regulatory regime that is designed to
protect, and has effectively protected, retail customers' property
under extreme market conditions.\44\ On the other hand, state money
transmission laws vary widely in how they restrict the investment of
customer funds, with some states allowing licensees ``to invest funds
in potentially risky publicly traded securities or accounts receivable,
and some states imposing no restrictions at all.'' \45\
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\37\ See, e.g., CEA 3(b), 7 U.S.C. 5(b). See also Section
II.C.1, infra, for a further discussion of the effectiveness of the
Act's customer protection regime (describing how the customer assets
held by a Commission-registered FTX entity remained properly
segregated and safeguarded, in contrast to 130 other FTX affiliate
entities that entered bankruptcy).
\38\ See, e.g., 17 CFR 38.151(b).
\39\ See Massad, supra note 25, at 35 (with respect to the
limited jurisdiction of state regulators, providing that ``it is
worth considering whether this licensing requirement can
significantly improve the [crypto asset] market. It is difficult for
[the New York Department of Financial Services], as a state
regulator with limited jurisdiction over these markets, to have much
of an impact. One could even question whether its licensing
requirement has given a false sense of legitimacy to those that have
bothered to register.'') (emphasis added).
\40\ See, e.g., CEA 5(d)(9), 7 U.S.C. 7(d)(9) (mandating the
provision of competitive, open, and efficient market and mechanism
for executing transactions); CEA 5(d)(16), 7 U.S.C. 7(d)(16)
(mandating the minimization of conflicts of interest that could
jeopardize the fair operation of a contract market); 17 CFR part 38,
appendix C, subparagraph (a)(1) (providing guidance as to how to
design contracts that meet the risk management needs of prospective
users and promote price discovery of the underlying commodity).
\41\ See, e.g., CEA 5(d)(3), 7 U.S.C. 7(d)(3) (prohibiting
contracts readily susceptible to manipulation); CEA 5(d)(5), 7
U.S.C. 7(d)(5) (mandating contracts impose position limitations to
the extent necessary and appropriate to reduce the potential threat
of market manipulation or congestion); CEA 5(d)(12), 7 U.S.C.
7(d)(12) (mandating the establishment and enforcement of rules to
protect markets and market participants from abusive practices).
\42\ See, e.g., CEA 3(b), 7 U.S.C. 5(b) (``To foster these
public interests, it is further the purpose of this chapter to deter
and prevent price manipulation or any other disruptions to market
integrity; to ensure the financial integrity of all transactions
subject to this chapter and the avoidance of systemic risk'').
\43\ See, e.g., CEA 5(d)(11), 7 U.S.C. 7(d)(11) (mandating the
establishment and enforcement of rules for ensuring the financial
integrity of transactions entered into on or through the facilities
of the contract market, including the clearance and settlement of
the transactions with a derivatives clearing organization
(``DCO'')). A registered DCO is subject to 18 core principles set
out in section 5b(c)(2) of the Act. The core principles cover areas
ranging from clearing member eligibility standards, risk management,
default procedures, treatment of funds, rule enforcement, and legal
risk. A DCO must comply with the DCO core principles and the
requirements of any rule the CFTC may impose pursuant to its general
rulemaking authority. See Johnson et al., Sec. 6.06; CFTC,
Strategic Plan 2011-2015 (2011), available at <a href="https://www.cftc.gov/sites/default/files/reports/strategicplan/2015/2015strategicplan04.html">https://www.cftc.gov/sites/default/files/reports/strategicplan/2015/2015strategicplan04.html</a>.
\44\ See Section II.C.1, infra, for a further discussion of the
effectiveness of the Act's customer protection regime.
\45\ Consumer Financial Protection Bureau, Analysis of Deposit
Insurance Coverage on Funds Stored Through Payment Apps (June 1,
2023), available at <a href="https://www.consumerfinance.gov/data-research/research-reports/issue-spotlight-analysis-of-deposit-insurance-coverage-on-funds-stored-through-payment-apps/full-report/">https://www.consumerfinance.gov/data-research/research-reports/issue-spotlight-analysis-of-deposit-insurance-coverage-on-funds-stored-through-payment-apps/full-report/</a>
(providing, further, that the Consumer Financial Protection Bureau
``find[s] that stored funds can be at risk of loss in the event of
financial distress or failure of the entity operating the nonbank
payment platform, and often are not placed in an account at a bank
or credit union and lack individual deposit insurance coverage.'');
see also Complaint ] 2, FTC v. Voyager Digital, LLC, No. 1:23-cv-
08960 (S.D.N.Y. Oct. 12, 2023), ECF No. 1 (alleging, among other
matters, Voyager Digital, LLC and its affiliates (``Voyager''),
which held money transmitter licenses in 13 states, deceived
consumers into transferring their fiat and crypto assets to the
Voyager platform by portraying Voyager as a safe alternative to the
traditional financial system); Stipulated Order for Permanent
Injunction, Monetary Judgment, and Other Relief at 7, FTC v. Voyager
Digital, LLC, No. 1:23-cv-08960 (S.D.N.Y. Nov. 24, 2023), ECF No. 35
(entering, and suspending, a $1.65 billion judgment). In re Voyager
Digital LLC, Order No. 22-70-S, at 1 (Alaska Div. of Banking & Sec.
Sept. 3, 2022). Voyager pooled customers' crypto assets in an
omnibus account and lent those crypto assets to institutional
borrowers, including a loan of $350 million (denominated in
stablecoins) and 15,250 BTC to Three Arrows Capital. Id. at 2-4;
Voyager Digital Ltd., Voyager Digital Provides Market Update (PR
Newswire June 27, 2022), available at <a href="https://www.prnewswire.com/news-releases/voyager-digital-provides-market-update-301575492.html">https://www.prnewswire.com/news-releases/voyager-digital-provides-market-update-301575492.html</a>.
Moreover, at least one state in which Voyager was licensed permitted
money transmitters to hold up to half of the investments backing
customer obligations in higher-risk assets such as publicly traded
stocks. See Iowa Code 533C.602(2)(b), (3) (2022); Settlement
Agreement and Consent Order at 1, In re Voyager Digital, LLC (Ariz.,
Ark., Ill., Iowa, & S.D. Dec. 28, 2022). By contrast, the CFTC's
regulatory framework limits investments of customer funds by an FCM
or DCO to an enumerated set of low-risk instruments, subject to
concentration limits, and requires an independent risk management
unit, credit and liquidity risk tolerance limits, and periodic risk
exposure reporting, as well as disclosure that customer funds are
not insured against intermediary insolvency. See CEA 4d(a)(2), 7
U.S.C. 6d(a)(2); 17 CFR 1.11(c), (d), (e)(1)-(2), 1.25(a)(1),
(b)(3), 1.55(a), (b)(2)-(c).
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Further, Commission-registered DCMs are not just ``commercial
enterprises'' subject to the Commission's regulatory framework, but
also self-regulatory organizations ``charged with the public trust''
\46\ in administering aspects of that regulatory framework in the
markets in which they operate. The Act vests in DCMs the authority to,
among other matters, establish and enforce rules \47\ and disciplinary
procedures.\48\ The Act similarly obliges DCMs to surveil the markets
in which they operate for abusive trading activity.\49\ Crypto asset
exchanges operating under state licensure regimes have no similar legal
mechanism, authority, or obligation to self-regulate their markets.
---------------------------------------------------------------------------
\46\ See, e.g., Requirements for Derivatives Clearing
Organizations, Designated Contract Markets, and Swap Execution
Facilities Regarding the Mitigation of Conflicts of Interest, 75 FR
63732, 63736 (Oct. 18, 2010) (``[T]herefore, although each DCM [ ]
is a commercial enterprise, the fact that each entity has self-
regulatory obligations means that each entity is not simply a
corporation, but a corporation charged with the public trust.'').
\47\ See, e.g., CEA 5(d)(2), 7 U.S.C. 7(d)(2) (setting forth
self-regulatory authority and obligations for DCMs).
\48\ See, e.g., CEA 5(d)(13), 7 U.S.C. 7(d)(13) (mandating DCMs
establish and enforce disciplinary procedures that authorize the DCM
to discipline, suspend, or expel members or market participants that
violate the rules of the DCM).
\49\ See, e.g., CEA 5(d)(4), 7 U.S.C. 7(d)(4).
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In short, ``the consumer and investor protections offered by these
state-based jurisdictions vary and are typically fewer and less
extensive than federal laws applicable to securities and derivatives
markets and products.'' \50\ In this regard, market participants and
regulators have noted,\51\ and history has affirmed,\52\ the varied
regulatory
[[Page 64816]]
requirements of these regimes have predictably failed to adequately
protect retail crypto asset customers against the market abuses that
the Act, and section 2(c)(2)(D), were enacted to address.\53\
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\50\ U.S. Department of the Treasury, Crypto-Assets:
Implications for Consumers, Investors, and Businesses, at 9 (Sept.
2022), available at <a href="https://home.treasury.gov/system/files/136/CryptoAsset_EO5.pdf">https://home.treasury.gov/system/files/136/CryptoAsset_EO5.pdf</a>.
\51\ See generally the Honorable Dan Gallagher, Chief Legal,
Compliance, and Corporate Affairs Officer, Robinhood Markets, Inc.,
Testimony Before the U.S. House of Representatives Committee on
Agriculture (June 6, 2023), available at <a href="https://docs.house.gov/meetings/AG/AG00/20230606/116051/HHRG-118-AG00-Wstate-GallagherD-20230606.pdf">https://docs.house.gov/meetings/AG/AG00/20230606/116051/HHRG-118-AG00-Wstate-GallagherD-20230606.pdf</a>; see also Press Release, SEC, BlockFi Agrees to Pay
$100 Million in Penalties and Pursue Registration of its Crypto
Lending Product (Feb. 14, 2022), available at <a href="https://www.sec.gov/newsroom/press-releases/2022-26">https://www.sec.gov/newsroom/press-releases/2022-26</a> (describing (i) that BlockFi Lending
LLC (``BlockFi''), which held 47 licenses across 32 states and
Washington, DC, made a false and misleading statement for more than
two years on its website concerning the level of risk in its loan
portfolio and lending activity, among other matters; and (ii) a
resulting $50 million penalty to the SEC and $50 million in parallel
state settlements); Declaration of Mark A. Renzi in Support of
Debtors' Chapter 11 Petitions and First-Day Motions ] 23, In re
BlockFi Inc., No. 22-19361 (MBK) (Bankr. D.N.J Nov. 28, 2022), ECF.
No. 17; Notice of Automatic Suspension, Notice of Intent To Revoke
Money Transmission License, Notice of Intent To Issue Order To Cease
And Desist, Notice of Intent To Impose Civil Penalty and Notice of
Right To Hearing ]] 7-11, 16, In re BlockFi Trading LLC (Conn. Dep't
of Banking Feb. 14, 2023) (alleging that BlockFi Trading LLC, a
Connecticut-licensed money transmitter, engaged in an unsafe or
unsound practice by suspending all customer withdrawals before
filing for bankruptcy). In the aftermath of the BlockFi collapse,
then-Commissioner Kristin N. Johnson urged crypto asset
intermediaries to adopt the governance, risk management, and
financial reserve safeguards long required of traditional financial
market participants. See Kristin N. Johnson, Lessons Learned from
the Recent Failures in the Crypto Asset Market, Eurofi Magazine
(Apr. 2023), at 88-89, available at <a href="https://www.eurofi.net/wp-content/uploads/2023/06/eurofi_kristin-johnson_lessons-learned-from-the-recent-failures-in-the-crypto-market_stockholm_april-2023.pdf">https://www.eurofi.net/wp-content/uploads/2023/06/eurofi_kristin-johnson_lessons-learned-from-the-recent-failures-in-the-crypto-market_stockholm_april-2023.pdf</a>.
\52\ See supra notes 17, 45, 51 for examples of market abuses
and customer protection failures in the crypto asset markets; see
also Consent Order, In re Bittrex, Inc., Order No. 2023-010 (Tex.
Dep't of Banking Apr. 5, 2023) (finding that Bittrex, Inc., a
licensed money transmitter, failed to maintain the minimum net worth
required of Texas money transmission licensees and requiring it to
cease money transmission in Texas).
\53\ The circumstances that led Congress to pass section
2(c)(2)(D) are discussed further in Sections II.A and B, infra.
Although those circumstances related to fraud in the retail precious
metals markets, and crypto assets were in nascent stages at that
time, the legislative history of section 2(c)(2)(D) specifically
contemplates that the market abuses addressed by section 2(c)(2)(D)
in such precious metals markets would likely emerge in other
commodity classes. Thus, section 2(c)(2)(D)'s extension of
jurisdiction applies to 2(c)(2)(D) transactions in ``any
commodity.'' See CEA 2(c)(2)(D)(i), 7 U.S.C. 2(c)(2)(D)(i); see also
Hearing to Review Implications of the CFTC v. Zelener Case Before
the Subcomm. on General Farm Commodities and Risk Management of the
H. Comm. on Agriculture, 111th Cong. 52-664 (``Zelener Hearing'')
(statement of Rep. Collin C. Peterson, Chairman, H. Comm. on
Agriculture, providing that ``because the scope of the Zelener fix
was limited to foreign exchange contracts, we need to be aware that
similar problems could arise in other product areas like metals,
energy, or any other commodity that can be sold to the public
without effective regulation.'').
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Recognizing these dynamics and that ``[r]etail participants have
been a driving force behind the growth of [crypto] asset markets,''
\54\ the President's Working Group on Digital Asset Markets
(``President's Working Group'') directed the Commission to, among other
matters, ``use [ ] existing rulemaking and exemptive authorities to
enable the trading of [crypto] assets,'' \55\ including with respect to
the listing of CTXs.\56\ To address the President's Working Group's
directive and fulfill its statutory mandates under the Act, the
Commission is now undertaking a reevaluation of its regulatory
frameworks applicable to CTXs. As a component of that reevaluation, the
Commission is issuing this Notice, including proposed Regulation Crypto
Asset Transactions (or, ``Regulation CTX'') in Section III, infra, to
explicitly identify certain transactions involving crypto assets that
it preliminarily understands to be subject to section 2(c)(2)(D). The
Commission is also introducing in this Notice, in Section V, infra,
proposed Regulation Crypto Asset Markets (or, ``Regulation CAM''),
which tailors ``the full array of regulatory requirements applicable to
on-exchange futures under the [Act]'' \57\ to the commercial realities
of, and risks posed by, CTXs.
---------------------------------------------------------------------------
\54\ President's Working Group's Report at 18.
\55\ Id. at 51.
\56\ Id. at 52 (recommending the CFTC ``[p]rovide guidance to
designated contract markets (DCMs) regarding the listing of
leveraged, margined, or financed spot retail commodity transactions
on [crypto] assets pursuant to CEA section 2(c)(2)(D)'').
\57\ 156 Cong. Rec. S5924 (daily ed. July 15, 2010) (statement
of Sen. Lincoln, explaining the rationale for the legislation during
floor debate on the Dodd-Frank Act).
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B. The History of the Commission's Regulation of Crypto Assets and
2(c)(2)(D) Transactions
The Commission has engaged with crypto assets for more than a
decade across enforcement, adjudication, interpretation, guidance, no-
action relief, registration and listing decisions, advisory committee
work, and coordination with the SEC and other federal agencies. This
section provides a brief overview of that history, including how the
Commission's administrative experience in overseeing aspects of crypto
asset markets and information gathering efforts informed this Notice,
with additional reference to its historical and inadequate regulation
by enforcement posture that the Commission is now seeking to remediate.
1. Early Commission Approach to Crypto Asset Markets (2014-2020)
Half a decade after Satoshi Nakamoto launched the Bitcoin network
and mined the very first crypto assets,\58\ former CFTC Chairman
Timothy G. Massad asserted that crypto assets fell within the
Commission's jurisdiction.\59\ This early period was marked by the
Commission's unsure attempts at charting a regulatory path with respect
to a commodity ``unlike any [it had] dealt with in the past.'' \60\
Several months before Chairman Massad's assertion of jurisdiction,
Vitalik Buterin published a whitepaper describing a contemplated
blockchain system ``with a built-in fully fledged Turing-complete
programming language.'' \61\ The principles underpinning that
programming language significantly expanded the possible use cases for
crypto assets and blockchain technologies, and significantly
complicated any regulatory treatment thereof, by allowing anyone to
``create their own arbitrary rules for ownership, transaction formats
and state transition functions'' with respect to crypto assets.\62\
---------------------------------------------------------------------------
\58\ Satoshi Nakamoto, Bitcoin v0.1 released, Cryptography
Mailing List (Jan. 8, 2009), available at <a href="https://www.metzdowd.com/pipermail/cryptography/2009-January/014994.html">https://www.metzdowd.com/pipermail/cryptography/2009-January/014994.html</a> (announcing the
first public release of the Bitcoin software); see also Bitcoin
Block 0 (Genesis Block), hash
000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f
(Jan. 3, 2009), available at <a href="https://mempool.space/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f">https://mempool.space/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f</a>.
\59\ CFTC Chairman Timothy Massad, Testimony Before the U.S.
Senate Committee on Agriculture, Nutrition & Forestry (Dec. 10,
2014), available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/opamassad-6">https://www.cftc.gov/PressRoom/SpeechesTestimony/opamassad-6</a>.
\60\ CFTC, CFTC Statement on Self-Certification of Bitcoin
Products by CME, CFE and Cantor Exchange, Release No. 7654-17 (Dec.
1, 2017) (quoting former Chairman J. Christopher Giancarlo),
available at <a href="https://www.cftc.gov/PressRoom/PressReleases/7654-17">https://www.cftc.gov/PressRoom/PressReleases/7654-17</a>.
\61\ See Buterin, supra note 36, at 1. The term ``Turing-
complete'' refers to a programmable system that can solve any
computational problem. The concept comes from the Turing machine, a
theoretical model of computation devised by English mathematician
and cryptographer Alan Turing. Conversely, a non-Turing-complete
system, such as the Bitcoin network, is limited to performing
particular tasks based on pre-defined instructions; see generally
Gavin Wood, Ethereum: A Secure Decentralised Generalised Transaction
Ledger (Apr. 4, 2022), available at <a href="https://ethereum.org/content/developers/tutorials/yellow-paper-evm/yellow-paper-berlin.pdf">https://ethereum.org/content/developers/tutorials/yellow-paper-evm/yellow-paper-berlin.pdf</a>
(explaining the impact of Turing-completeness for Ethereum); see
also Nick Szabo, Smart Contracts: Building Blocks for Digital
Markets (1996), available at <a href="https://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2.html">https://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2.html</a> (introducing the concept
of smart contracts, which may be designed using a Turing-complete
programming language).
\62\ See Buterin, supra note 36, at 13.
---------------------------------------------------------------------------
Thus, while Bitcoin was originally conceived of as an ``electronic
payment system,'' \63\ market participants experimented with the
Turing-complete functionality of the Ethereum protocol to produce a
``Cambrian explosion'' \64\ of novel use cases for this new ``general
purpose software primitive.'' \65\ For example, crypto assets may be
used as ``gas'' to obtain access to computational effort on a
blockchain system \66\ or function as a necessary input to facilitate
network consensus.\67\ In this
[[Page 64817]]
context, the consumptive use of crypto assets resembles that of
traditional energy commodities.\68\ Beyond gas and consensus,
``[v]irtually any type of security, good, service, right, or interest
can be represented in a digital format as a crypto asset.'' \69\ That
breadth mirrors the scope of the definition of ``commodity'' in the
Act. Recognizing that virtually anything might serve as the underlying
for a derivative contract,\70\ lawmakers defined the term ``commodity''
to include ``all goods and articles, [ ] and services, rights, and
interests'' that may be the subject of a derivative contract,\71\
including intangible commodities in the vein of crypto assets.\72\
---------------------------------------------------------------------------
\63\ See Nakamoto, supra note 35, at 1.
\64\ Fred Ehrsam, Blockchain Governance: Programming Our Future
(Nov. 27, 2017), available at <a href="https://www.fehrsam.xyz/blog/blockchain-governance-programming-our-future">https://www.fehrsam.xyz/blog/blockchain-governance-programming-our-future</a>.
\65\ Chris Dixon, Read, Write, Own: Building the Next Era of the
internet, at 75 (2024).
\66\ See Joint Crypto Asset Taxonomy, supra note 1, 91 FR at
13718 (``a functional crypto system may require users to pay
transaction (or ``gas'') fees in the system's native digital
commodity. These gas fees--in addition to units of the digital
commodity newly generated by the protocol--typically are used as an
incentive mechanism to reward participation in and use of the
associated functional crypto system.''); see also Andreas M.
Antonopoulos & Gavin Wood, Mastering Ethereum: Building Smart
Contracts and DApps, ch. 13 (2018), available at <a href="https://github.com/ethereumbook/ethereumbook/blob/first_edition_first_print/13evm.asciidoc">https://github.com/ethereumbook/ethereumbook/blob/first_edition_first_print/13evm.asciidoc</a> (``While gas has a price, it cannot be `owned' nor
`spent.' Gas exists only inside the [Ethereum Virtual Machine
(``EVM'')], as a count of how much computational work is being
performed. The sender is charged a transaction fee in ether, which
is then converted to gas for EVM accounting and then back to ether
as a transaction fee paid to the miners.'').
\67\ See Proof of Stake Alliance, U.S. Federal Securities and
Commodity Law Analysis of Liquid Staking Receipt Tokens, at 2 (Feb.
21, 2023), available at <a href="https://www.proofofstakealliance.org/22123-posa-liquid-staking-legal-white-paper">https://www.proofofstakealliance.org/22123-posa-liquid-staking-legal-white-paper</a> (``POSA Liquid Staking
Paper'') (explaining that blockchains ``require a distributed group
of users to operate computers, known as `nodes,' which run all or
part of the software necessary for the system to function because it
has no central operator. Each blockchain's underlying code
incorporates a method for validating transactions called a
`consensus algorithm' to incentivize nodes to contribute valuable
resources to the blockchain to provide transaction settlement
assurances to the network's users. The consensus algorithm ensures
that each node will be rewarded with an amount of a digitally native
resource--a crypto asset--in accordance with the rules of the
algorithm, for so long as the node remains online and operates in
accordance with the blockchain's technical requirements.''); see
also Nic Carter, It's the settlement assurances, stupid (July 22,
2019), available at <a href="https://medium.com/@nic__carter/its-the-settlement-assurances-stupid-5dcd1c3f4e41">https://medium.com/@nic__carter/its-the-settlement-assurances-stupid-5dcd1c3f4e41</a>.
\68\ See Ethereum Foundation, Gas and fees (June 24, 2026),
available at <a href="https://ethereum.org/developers/docs/gas/">https://ethereum.org/developers/docs/gas/</a> (``Gas is
essential to the Ethereum network. It is the fuel that allows it to
operate, in the same way that a car needs gasoline to run.'').
Crypto assets may also convey rights to artwork, music, videos,
trading cards, in-game items, see Joint Crypto Asset Taxonomy, supra
note 1, at 13718, perform a practical function, such as a
membership, ticket, credential, title instrument, or identity badge,
id. at 13719, or enable holders to participate in the system's
consensus mechanism by staking (or locking up) the system's native
crypto asset, or to participate in onchain governance systems, id.
at 13718. See also Ehrsam, supra note 64.
\69\ See Joint Crypto Asset Taxonomy, supra note 1, at 13717.
\70\ See CEA 1a(9), 7 U.S.C. 1a(9). ``Even the SEC envied the
CFTC--or soon envied it. Congress buried among the 1974 amendments
to the Commodity Exchange Act an expanded definition of the term
`commodity' to include literally anything, with one exception [for
onions], which was or might in the future be the subject of futures
trading.'' John H. Stassen, The Commodity Exchange Act in
Perspective: A Short and Not-So-Reverent History of Futures Trading
Legislation in the United States, 39 Wash. & Lee L. Rev. 825, 834
(1982). Congress subsequently added a second exclusion in 2010 for
motion picture box office receipts. See CEA 1a(9), 7 U.S.C. 1a(9)
(excluding ``onions . . . and motion picture box office receipts . .
. [.]'').
\71\ See Johnson et al., supra note 2, Sec. 2.03. The breadth
of this definition makes clear that lawmakers chose not to fragment
regulatory authority over commodity derivatives markets based upon
the underlying commodity. They reasoned that ``[t]he nature of the
underlying commodity is not an adequate basis to divide regulatory
authority.'' Report on S. 2391 of the Senate Agriculture, Nutrition,
and Forestry Committee, S. Rep. No. 95-850, at 22-23 (1978). While
``Federal regulation of most derivatives pivots on whether a
`commodity' is involved,'' the CEA excludes certain transactions in
commodities from the CFTC's jurisdiction. See Johnson et al., supra
note 2, Sec. 3.02. For example, although a ``security'' (as defined
in the Federal securities laws, infra note 112) may constitute a
``commodity'' under the Act, CEA 2(c)(2)(D)(ii) excepts from the
Commission's jurisdiction thereunder a contract of sale of ``any
security,'' regardless of whether the transaction otherwise
satisfies the statutory criteria in CEA 2(c)(2)(D)(i). CEA
2(c)(2)(D)(i)-(ii), 7 U.S.C. 2(c)(2)(D)(i)-(ii); Johnson et al.,
supra note 2, Sec. 4.03.
\72\ CEA 1a(19), 7 U.S.C. 1a(19); see also Johnson et al., supra
note 2, Sec. 3.02. The enactment of the Commodity Futures Trading
Commission Act dramatically expanded the definition of
``commodity,'' which, before 1974, only encompassed certain itemized
agricultural commodities. Id. Then, in amendments adopted in 2000,
three additional types of commodities were introduced, including
``excluded commodities,'' which is defined to encompass various
intangible commodities such as ``financial measures, instruments and
risks, such as interest rates, exchange rates, currencies, credit
risks or measures, securities and macroeconomic indices or measures
and the `occurrence, extent of an occurrence[,] or contingency'
subject to various limitations[.]'' Id.; CEA 1a(19), 7 U.S.C.
1a(19); see also CFTC v. McDonnell, 287 F. Supp. 3d 213, 228
(E.D.N.Y. 2018) (``[crypto assets] can be regulated by [the] CFTC as
a commodity. They fall well-within the common definition of
`commodity' as well as the CEA's definition of `commodities' as `all
other goods and articles . . . in which contracts for future
delivery are presently or in the future dealt in.''').
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Uses for blockchain technologies likewise developed in tandem
beyond payment rails to other types of market infrastructure, including
infrastructure used to match, route, clear, and settle secondary market
transactions,\73\ disseminate pricing information to market
participants,\74\ and otherwise facilitate market-based activity, such
as by providing liquidity or extending leverage to market participants
via onchain protocols.\75\
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\73\ Hayden Adams, Noah Zinsmeister & Dan Robinson, Uniswap v2
Core, at 1 (Mar. 2020), available at <a href="https://app.uniswap.org/whitepaper.pdf">https://app.uniswap.org/whitepaper.pdf</a> (``Uniswap v1 is an on[ ]chain system of smart
contracts on the Ethereum blockchain, implementing an automated
liquidity protocol based on a `constant product formula.' Each
Uniswap v1 pair stores pooled reserves of two [crypto] assets, and
provides liquidity for those two [crypto] assets, maintaining the
invariant that the product of the reserves cannot decrease.'').
\74\ Lorenz Breidenbach et al., Chainlink 2.0: Next Steps in the
Evolution of Decentralized Oracle Networks, at 1 (Apr. 15, 2021),
available at <a href="https://research.chain.link/Chainlink-Whitepaper-Next-Steps-in-the-Evolution-of-Decentralized-Oracle-Networks.pdf">https://research.chain.link/Chainlink-Whitepaper-Next-Steps-in-the-Evolution-of-Decentralized-Oracle-Networks.pdf</a> (``We
foresee an increasingly expansive role for oracle networks, one in
which they complement and enhance existing and new blockchains by
providing fast, reliable, and confidentiality-preserving universal
connectivity and [offchain] computation for smart contracts.'').
\75\ Aave, Protocol Whitepaper, at 1 (Jan. 2020), available at
<a href="https://github.com/aave/aave-protocol/blob/master/docs/Aave_Protocol_Whitepaper_v1_0.pdf">https://github.com/aave/aave-protocol/blob/master/docs/Aave_Protocol_Whitepaper_v1_0.pdf</a> (``The birth of the Aave Protocol
marks Aave's shift from a decentralized [peer to peer] lending
strategy [ ] to a pool-based strategy. Lenders provide liquidity by
depositing cryptocurrencies in a pool contract. Simultaneously, in
the same contract, the pooled funds can be borrowed by placing a
collateral. Loans do not need to be individually matched, instead
they rely on the pooled funds, as well as the amounts borrowed and
their collateral.''); see also Rebecca Rettig, Michael Mosier &
Katja Gilman, Genuine DeFi as Critical Infrastructure: A Conceptual
Framework for Combating Illicit Finance Activity in Decentralized
Finance 11 J. Fin. Reg. 215, 227 (2025), available at <a href="https://doi.org/10.1093/jfr/fjaf005">https://doi.org/10.1093/jfr/fjaf005</a> (providing that ``DeFi protocols have
proliferated in the last half decade to include exchanging or
swapping through decentralized exchanges or `DEXs' (e.g., Uniswap)
or DEX aggregators (e.g., Paraswap), liquidity provision and
borrowing (e.g., Compound, Aave), yield generation via liquid
staking (e.g., Lido), investing (e.g., Enzyme Finance); and
insurance (e.g., Nexus Mutual), among others''); see also Fabian
Sch[auml]r, Decentralized Finance: On Blockchain- and Smart
Contract-Based Financial Markets, 103 Fed. Res. Bank of St. Louis
Rev. 153, 153 (2021), available at <a href="https://www.stlouisfed.org/publications/review/2021/02/05/decentralized-finance-on-blockchain-and-smart-contract-based-financial-markets">https://www.stlouisfed.org/publications/review/2021/02/05/decentralized-finance-on-blockchain-and-smart-contract-based-financial-markets</a> (``The term decentralized
finance (DeFi) refers to an alternative financial infrastructure
built on top of the Ethereum blockchain. DeFi uses smart contracts
to create protocols that replicate existing financial services in a
more open, interoperable, and transparent way.'').
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While market participants have noted that the unique technological
properties of blockchain technologies may allow crypto asset markets to
function in a manner that is ``more open, interoperable, and
transparent'' \76\ than traditional financial markets, crypto asset
markets oftentimes continue to rely on intermediation.\77\ For example,
a broad swath of retail customers access crypto asset markets through
centralized crypto asset exchanges, which have developed to perform a
variety of critical market intermediary functions.\78\ These functions
may often closely resemble the traditional activities of financial
market intermediaries, yet have historically been subject to payment
systems' regulatory regimes that are inapplicable to the risks posed by
intermediating financial market activity. The resulting lack of a
comprehensive federal framework has resulted in crypto asset exchanges
typically offering fewer and less robust protections than those
afforded to customers who transact on national exchanges in other U.S.
financial markets.
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\76\ Sch[auml]r, supra note 75, at 153 (describing ``an
immutable and highly interoperable financial system with
unprecedented transparency, equal access rights, and little need for
custodians, central clearing houses, or escrow services, as most of
these roles can be assumed by `smart contracts.'); see also Fabian
Sch[auml]r et al., The Anatomy of Stablecoin Transactions, BIS
Working Paper No. 1359 (June 2026), available at <a href="https://www.bis.org/publ/work1359.pdf">https://www.bis.org/publ/work1359.pdf</a>.
\77\ See Kristin N. Johnson, Decentralized Finance: Regulating
Cryptocurrency Exchanges, 62 Wm. & Mary L. Rev. 1911 (2021).
\78\ See generally Yesha Yadav, The Centralization Paradox in
Cryptocurrency Markets, 100 Wash. U. L. Rev. 1725 (2023).
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[[Page 64818]]
In 2016, then-Commissioner J. Christopher Giancarlo prefaced the
significant challenges the CFTC would face in overseeing crypto asset
markets when he noted that crypto assets and blockchain technologies
``may revolutionize the world of finance'' but that their respective
development was ``at risk of being stymied by disparate and uncertain
regulation.'' \79\ Over the years that followed, the Commission
contributed to that risk by never settling on a cohesive and
transparent regulatory approach. Instead, under former Chairman Massad,
the Commission applied section 2(c)(2)(D) to a crypto asset exchange
for the first time in June 2016 when it charged BFXNA Inc.
(``Bitfinex'') with violations of the on-exchange requirement, among
other matters.\80\
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\79\ CFTC Commissioner J. Christopher Giancarlo, Special Address
Before the Depository Trust & Clearing Corporation 2016 Blockchain
Symposium (Mar. 29, 2016), available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-13">https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-13</a>.
\80\ In re BFXNA Inc. (d/b/a Bitfinex), CFTC Docket No. 16-19,
2016 WL 3137612 (June 2, 2016); see also CFTC, CFTC Orders Bitcoin
Exchange Bitfinex to Pay $75,000 for Offering Illegal Off-Exchange
Financed Retail Commodity Transactions and Failing to Register as a
Futures Commission Merchant, Release No. 7380-16 (June 2, 2016),
available at <a href="https://www.cftc.gov/PressRoom/PressReleases/7380-16">https://www.cftc.gov/PressRoom/PressReleases/7380-16</a>.
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On March 14, 2017, President Donald J. Trump nominated Commissioner
Giancarlo as Chairman of the Commission. Under Chairman Giancarlo's
leadership, the Commission swiftly attempted to operationalize a ``do
no harm'' \81\ regulatory approach, and earnestly undertook various
information gathering initiatives as it sought to understand ``the
technology, mechanics, and markets'' \82\ surrounding crypto assets and
blockchain technologies. Just months after former Chairman Giancarlo
was sworn in, the Commission launched LabCFTC ``to help [ ] bridge the
gap from where we are today to where we need to be: 21st century
regulation for today's digital markets.'' \83\ Chairman Giancarlo also
stewarded the trading of the first regulated U.S.-bitcoin derivatives
products when CME and Cboe self-certified cash-settled bitcoin futures
in December 2017. These listings were the product of ``rigorous
discussions'' with market participants regarding contract design,
settlement, margining, and market surveillance, among other
matters.\84\
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\81\ See Giancarlo, supra note 79.
\82\ Request for Input on Crypto-Asset Mechanics and Markets, 83
FR 64563 (Dec. 17, 2018).
\83\ CFTC, CFTC Launches LabCFTC as Major Fintech Initiative,
Release No. 7558-17 (May 17, 2017), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/7558-17">https://www.cftc.gov/PressRoom/PressReleases/7558-17</a>. Several months later,
LabCFTC published its inaugural explanatory volume on crypto assets,
and, the following year, a follow-on primer on smart contracts; see
A CFTC Primer on Virtual Currencies, supra note 35; LabCFTC, A
Primer on Smart Contracts (Nov. 27, 2018), available at <a href="https://www.cftc.gov/sites/default/files/2018-11/LabCFTC_PrimerSmartContracts112718.pdf">https://www.cftc.gov/sites/default/files/2018-11/LabCFTC_PrimerSmartContracts112718.pdf</a>.
\84\ See CFTC Statement on Self-Certification of Bitcoin
Products, supra note 60.
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However, the period was also marked by increased interest from
retail investors in crypto assets and a significant focus from both the
Commission and other federal regulators on fraud in crypto asset
markets.\85\ These circumstances led the Commission staff to issue an
advisory with respect to crypto asset derivative product listings that
emphasized the uncharted territory in which the Commission found
itself.\86\ Around this same time, the Commission, under the leadership
of Chairman Giancarlo, first proposed interpretive guidance concerning
crypto assets, which addressed questions around the Commission's
jurisdiction under section 2(c)(2)(D).\87\ In 2018, the Commission
attempted to stem a growing tide of fraud and illicit activity in the
crypto asset markets when it charged 1pool Ltd. for violating section
2(c)(2)(D) and failing to implement adequate anti-money laundering
procedures, among other matters.\88\
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\85\ CFTC and SEC, Joint Statement from CFTC and SEC Enforcement
Directors Regarding Virtual Currency Enforcement Actions (Jan. 19,
2018), available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/mcdonaldstatement011918">https://www.cftc.gov/PressRoom/SpeechesTestimony/mcdonaldstatement011918</a>; see also Jay Clayton & J.
Christopher Giancarlo, Regulators Are Looking at Cryptocurrency,
Wall St. J. (Jan. 24, 2018), available at <a href="https://www.wsj.com/articles/regulators-are-looking-at-cryptocurrency-1516836363">https://www.wsj.com/articles/regulators-are-looking-at-cryptocurrency-1516836363</a>.
\86\ CFTC, Advisory with Respect to Virtual Currency Derivative
Product Listings, CFTC Staff Advisory No. 18-14 (May 21, 2018)
(later withdrawn), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/9059-25">https://www.cftc.gov/PressRoom/PressReleases/9059-25</a>.
\87\ See Retail Commodity Transactions Involving Virtual
Currency, 82 FR 60335 (Dec. 20, 2017). Three years later in 2020,
the Commission issued final interpretive guidance on the same
subject. See Retail Commodity Transactions Involving Certain Digital
Assets, 85 FR 37734 (June 24, 2020) (``2020 Actual Delivery
Guidance''). However, the Commission later withdrew the 2020 Actual
Delivery Guidance (i) in order to reevaluate its relevance in light
of the rapid technological evolution of crypto assets and blockchain
technologies; and (ii) in response to the findings and
recommendations for the CFTC contained in the President's Working
Group's Report; see Withdrawal of Interpretive Guidance: Retail
Commodity Transactions Involving Certain Digital Assets, 90 FR 58149
(Dec. 16, 2025); President's Working Group's Report at 141. At the
time of the withdrawal, then-Acting Chairman Pham described the 2020
Actual Delivery Guidance as ``outdated and overly complex guidance
that penalizes the crypto industry and stifles innovation.'' CFTC,
Acting Chairman Pham Announces Withdrawal of Outdated Digital Assets
Guidance, Release No. 9152-25 (Dec. 11, 2025), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/9152-25">https://www.cftc.gov/PressRoom/PressReleases/9152-25</a>.
\88\ CFTC, CFTC Charges Trading Platform with Illegal
Transactions Margined in Bitcoin, Failing to Implement Procedures to
Prevent Money-Laundering, and Failing to Register with the CFTC,
Release No. 7809-18 (Sept. 27, 2018), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/7809-18">https://www.cftc.gov/PressRoom/PressReleases/7809-18</a>.
---------------------------------------------------------------------------
Speaking in 2019, former Chairman Heath Tarbert said, ``[w]e've
been very clear on bitcoin: bitcoin is a commodity. We haven't said
anything about ether--until now. It is my view as [C]hairman of the
CFTC that ether is a commodity.'' \89\ This statement followed a
request for input to better inform the Commission's understanding of
the Ethereum network.\90\ However, despite this declaration and the
Commission's persistent information gathering efforts, Chairman
Giancarlo's prediction from 2016 that ``[r]ules regarding [blockchain
technologies] are currently unwritten and likely years away'' proved
prescient.\91\ By the time that President Joseph R. Biden took office
in 2021, the Commission's educational efforts had not led to the
promulgation of fit-for-purpose rules.
---------------------------------------------------------------------------
\89\ CFTC, Chairman Tarbert Comments on Cryptocurrency
Regulation at Yahoo! Finance All Markets Summit (Oct. 10, 2019),
available at <a href="https://www.cftc.gov/PressRoom/PressReleases/8051-19">https://www.cftc.gov/PressRoom/PressReleases/8051-19</a>.
\90\ See generally Request for Input on Crypto-Asset Mechanics
and Markets, supra note 82.
\91\ CFTC, Keynote Address of CFTC Commissioner J. Christopher
Giancarlo Before the Cato Institute, Cryptocurrency: The Policy
Challenges of a Decentralized Revolution (Apr. 12, 2016), available
at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-14">https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-14</a>.
---------------------------------------------------------------------------
2. Regulation by Enforcement (2021-2024)
The lack of a clear regulatory framework enabled the Commission
under the Biden administration to enforce its interpretation of the
Federal commodity laws without constraint.\92\ In 2021, the Commission
imposed a $1.25 million penalty on Payward Ventures, Inc. (``Kraken'')
for unlawful activities conducted in connection with off-exchange
CTXs.\93\ Former Commissioner Dawn D. Stump identified the issues with
the Commission's approach in a concurring statement: ``Congress added
[s]ection 2(c)(2)(D) to the CEA to make clear that these retail
commodity transactions must be traded on a DCM pursuant to [s]ection
4(a) ``as if'' they are futures contracts. But it did not
comprehensively address how these transactions are to be regulated--
and, in the decade since the Dodd-Frank Act was enacted, nor has the
Commission.'' \94\ The former Commissioner proceeded to call the
[[Page 64819]]
application of the Act under those circumstances ``uncharted
territory'' and further noted that ``it is incumbent upon the
Commission to explain in a transparent manner the relevant legal
requirements.'' \95\
---------------------------------------------------------------------------
\92\ See generally Stump Payward Statement, supra note 19.
\93\ In re Payward Ventures, Inc. (d/b/a Kraken), CFTC No. 21-20
(Sept. 28, 2021).
\94\ See Stump Payward Statement, supra note 19.
\95\ Id.
---------------------------------------------------------------------------
The Commission did not heed Commissioner Stump at that time.
Rather, the Commission continued to pursue enforcement actions against
market participants for alleged violations of the Act rather than
``explain[ing] in a transparent manner'' how section 2(c)(2)(D) applies
to transactions in crypto assets or developing a fit-for-purpose
regulatory framework.\96\ In September 2022, the Commission charged the
Ooki decentralized autonomous organization (``DAO'') in its first
action against a DAO on a novel theory that characterized the holders
of Ooki crypto assets who voted on governance proposals concerning the
operation of the Ooki DAO business as liable members of an
unincorporated association.\97\ The subsequent default judgment entered
by a federal court was widely criticized as epitomizing the pitfalls of
regulation by enforcement.\98\ Indeed, critics have noted that the
precedent-setting decision resulted from an ``un-litigated settlement
order[ ]'' \99\ based on ``no public notice or input whatsoever,''
\100\ and that the default judgment failed to ``provide notice to the
public about the way in which the Commission [was] thinking about''
\101\ the complicated issues under the Act presented by crypto assets
and blockchain technologies.
---------------------------------------------------------------------------
\96\ Id.
\97\ In re bZeroX, LLC, CFTC No. 22-31, 2022 WL 4597664 (Sept.
22, 2022) (administrative case imposing $250,000 penalty); CFTC v.
Ooki DAO, No. 22-cv-05416, 2023 WL 5321527 (N.D. Cal. June 8, 2023)
(entering default judgment).
\98\ See, e.g., Reply Brief of Amicus Curiae DeFi Education Fund
Regarding Plaintiff's Motion for Alternative Service, CFTC v. Ooki
DAO, No. 3:22-cv-05416 (N.D. Cal. Nov. 21, 2022); see also
Commissioner Summer K. Mersinger, Dissenting Statement Regarding
Enforcement Actions Against: (1) bZeroX, LLC, Tom Bean, and Kyle
Kistner; and (2) Ooki DAO (Sept. 22, 2022), available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement092222">https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement092222</a>
(``Mersinger Ooki Statement'') (criticizing the enforcement action
as constituting ``blatant `regulation by enforcement' by setting
policy based on new definitions and standards never before
articulated by the Commission or its staff, nor put out for public
comment.'').
\99\ Letter from Daniel Lasko, on behalf of dYdX, to Christopher
Kirkpatrick, Sec'y, CFTC (Sept. 24, 2025) (``dYdX Letter'').
\100\ See Mersinger Ooki Statement, supra note 98.
\101\ Id.
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In this regard, then-Director of Enforcement, Ian McGinley, stated
in 2023 that although the issues presented by crypto assets and
blockchain technologies ``may be novel, complex, and evolving, [ ] the
Division of Enforcement will continue to [ ] aggressively pursue'' its
interpretation of unlawful activities under the Act in crypto assets
through enforcement actions.\102\ Shortly thereafter, in September
2023, the Commission brought enforcement actions against the developers
of three decentralized finance (``DeFi'') protocols \103\ and then, in
September 2024, against Universal Navigation Inc. (``Uniswap''),\104\
alleging in each case violations of section 2(c)(2)(D) and other
provisions of the Act. These actions were similarly criticized by
members of the Commission at that time \105\ and market participants
more generally.\106\ In fact, then-Commissioner Kristin N. Johnson
echoed former Commissioner Stump's concerns and specifically noted how
the absence of Commission regulations setting forth the manner in which
CTXs may be conducted lawfully had left off-exchange retail customers
vulnerable to the same fraudulent practices that led to Congress
channeling 2(c)(2)(D) transactions onto and through Commission-
registered entities.\107\
---------------------------------------------------------------------------
\102\ CFTC, CFTC Issues Orders Against Operators of Three DeFi
Protocols for Offering Illegal Digital Asset Derivatives Trading,
Release No. 8774-23 (Sept. 7, 2023), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/8774-23">https://www.cftc.gov/PressRoom/PressReleases/8774-23</a>.
\103\ Id.
\104\ CFTC, CFTC Issues Order Against Uniswap Labs for Offering
Illegal Digital Asset Derivatives Trading, Release No. 8961-24
(Sept. 4, 2024), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/8961-24">https://www.cftc.gov/PressRoom/PressReleases/8961-24</a>.
\105\ Commissioner Summer K. Mersinger, Dissenting Statement
Regarding Settlement with Uniswap Labs (Sept. 4, 2024), available at
<a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement090424">https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement090424</a> (``Mersinger Uniswap Statement'')
(``Notice-and-comment rulemaking would provide the DeFi community,
consumer advocates, industry representatives, and the American
public with the opportunity to engage with the Commission and
utilize their expertise and experience to suggest how DeFi could
properly be regulated while remaining true to our obligations under
the CEA. Regulation through enforcement is at best a band-aid.'').
\106\ See generally Chris Brummer, Yesha Yadav, and David
Zaring, Regulation by Enforcement, 96 S. Cal. L. Rev. 1297 (2024).
\107\ See Commissioner Kristin N. Johnson, Statement Regarding
CFTC Resolving Charges Against Three Decentralized Finance
Companies: The Need for Oversight (Sept. 7, 2023), available at
<a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement090723b">https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement090723b</a> (``As I have stated many times, the absence
of regulation directly addressing supervision of the growing
[crypto] asset marketplace leaves vulnerable retail customers
exposed and lacking long-established customer protections available
in other asset classes. [. . .] In a largely unregulated market like
[crypto] assets, information asymmetries may not only be more
pronounced, but coupled with near opacity in certain business
models, there may be a shroud obscuring information regarding the
design and deployment of critical operational infrastructure,
necessary risk management and corporate governance protocols
(including policies governing conflicts of interest such as
conflicts involving affiliated entities), sufficient liquidity
reserves (effective recovery and resilience plans), dedicated
commitment to the segregation of customer funds and separation of
customer property, cyber risk resilience, or general system
safeguards. In the dark, it may be difficult for customers to
appreciate real risks and for regulators to use traditional
surveillance tools to prevent fraud and market manipulation.'').
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3. President Trump's Working Group on Digital Asset Markets (2025)
In early 2025, the Commission's approach to crypto assets began to
shift. On January 23, 2025, President Trump issued an executive order
titled ``Strengthening American Leadership in Digital Financial
Technology'' \108\ that established the President's Working Group. In
July 2025, Congress then passed the GENIUS Act to regulate payment
stablecoins.\109\ Shortly thereafter, the President's Working Group
responded to the directives in E.O. No. 14178 \110\ by recommending the
Commission and the SEC (the ``Commissions'') to ``use their existing
authorities to immediately enable the trading of digital assets at the
federal level.'' \111\ Specifically, the President's Working Group's
Report directed the Commissions to, among other matters, (i) establish
a legal taxonomy for crypto assets that clarifies the application of
the Federal securities laws to crypto assets; \112\ and (ii) enable the
trading of
[[Page 64820]]
crypto assets in secondary markets,\113\ including by facilitating the
listing of CTXs using the Commission's existing statutory
authority.\114\ These directives echoed persistent calls from market
participants to do the same.\115\
---------------------------------------------------------------------------
\108\ E.O. No. 14178, Strengthening American Leadership in
Digital Financial Technology, 90 FR 8647 (Jan. 31, 2025).
\109\ See GENIUS Act, supra note 1.
\110\ E.O. No. 14178, supra note 108, at section 4(c)(i).
\111\ President's Working Group's Report at 6; see also E.O. No.
14178, supra note 108, at section 4(c)(i).
\112\ President's Working Group's Report at 48. The definition
of ``security'' in both the Securities Act and the Exchange Act
enumerates several instrument types, including ``investment
contract.'' See 15 U.S.C. 77b(a)(1); 15 U.S.C. 78c(a)(10). The
definitions are ``virtually identical'' in the Securities Act and
Exchange Act and are treated by the courts as identical in
``decisions dealing with the scope of the term.'' Landreth Timber
Co. v. Landreth, 471 U.S. 681, 686 n.1 (1985). The SEC and federal
courts have historically applied the ``Howey test'' to determine if
a crypto asset or transaction therein constitutes an investment
contract and therefore a security. See SEC v. W.J. Howey Co., 328
U.S. 293 (1946) (``Howey''). The Howey test defines an investment
contract as a contract, transaction, or scheme involving (1) an
investment of money, (2) in a common enterprise, (3) with an
expectation of profits derived from the efforts of others. Id.; see
also Report of Investigation Pursuant to Section 21(a) of the
Securities Exchange Act of 1934: The DAO, SEC Release No. 34-81207
(July 25, 2017); Gladius Network LLC, Release No. 33-10608 (Feb. 20,
2019); Paragon Coin, Inc., SEC Release No. 33 10574 (Nov. 16, 2018);
In re Munchee, Inc., SEC Release No. 33-10445 (Dec. 11, 2017); SEC,
Division of Corporation Finance no-action letter to IMVU, Inc. (Nov.
19, 2020).
\113\ President's Working Group's Report at 51.
\114\ Id. at 52.
\115\ See, e.g., dYdX Letter, supra note 99; Coinbase, Petition
for Rulemaking--Digital Asset Securities Regulation (July 21, 2022),
available at <a href="https://www.sec.gov/rules/petitions/2022/petn4-789.pdf">https://www.sec.gov/rules/petitions/2022/petn4-789.pdf</a>;
Letter from Robinhood Markets, Inc. (Mar. 13, 2025), available at
<a href="https://www.sec.gov/files/ctf-input-robinhood-2025-03-13.pdf">https://www.sec.gov/files/ctf-input-robinhood-2025-03-13.pdf</a>; Letter
from Andreessen Horowitz (Mar. 13, 2025), available at <a href="https://dwt2zme5yrom6.cloudfront.net/uploads/2025/03/a16z-Crypto-SEC-RFI-Questions-1-through-6-March-13-2025.pdf">https://dwt2zme5yrom6.cloudfront.net/uploads/2025/03/a16z-Crypto-SEC-RFI-Questions-1-through-6-March-13-2025.pdf</a>.
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The Commission and the SEC swiftly operationalized the President's
Working Group's directives. Throughout 2025, the SEC's Crypto Task
Force,\116\ under the leadership of Commissioner Hester M. Peirce,
supported the SEC's efforts to respond to the President's Working
Group's directives, including by soliciting input from the public \117\
and coordinating with the SEC's Division of Corporation Finance to
issue a series of staff statements providing the Division's views
regarding the application of the Federal securities laws to various
crypto asset-related matters.\118\
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\116\ See SEC, Crypto Task Force, available at <a href="https://www.sec.gov/about/crypto-task-force">https://www.sec.gov/about/crypto-task-force</a>.
\117\ See, e.g., SEC, Crypto Task Force Roundtables, available
at <a href="https://www.sec.gov/about/crypto-task-force/crypto-task-force-roundtables">https://www.sec.gov/about/crypto-task-force/crypto-task-force-roundtables</a>; see also <a href="https://www.sec.gov/about/crypto-task-force/crypto-task-force-meetings">https://www.sec.gov/about/crypto-task-force/crypto-task-force-meetings</a>; <a href="https://www.sec.gov/about/crypto-task-force/crypto-task-force-written-input">https://www.sec.gov/about/crypto-task-force/crypto-task-force-written-input</a>.
\118\ See, e.g., SEC, Division of Corporation Finance, Staff
Statement on Meme Coins (Feb. 27, 2025), available at <a href="https://www.sec.gov/newsroom/speeches-statements/staff-statement-meme">https://www.sec.gov/newsroom/speeches-statements/staff-statement-meme</a> coins;
see also SEC, Division of Corporation Finance, Statement on Certain
Proof of-Work Mining Activities (Mar. 20, 2025), available at
<a href="https://www.sec.gov/newsroom/speechesstatements/statement-certain-proof-work-mining-activities-032025">https://www.sec.gov/newsroom/speechesstatements/statement-certain-proof-work-mining-activities-032025</a>. The SEC staff statements are
not a rule, regulation, guidance, or statement of the SEC, and the
SEC has neither approved nor disapproved their content. SEC staff
statements have no legal force or effect: they do not alter or amend
applicable law, and they create no new or additional obligations for
any person.
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The CFTC likewise announced a ``Crypto Sprint'' to implement the
President's Working Group's recommendations,\119\ and, directly
relevant to this Notice, requested public input on how DCMs could list
and trade CTXs.\120\ The Commission received 11 comments that offered
varied perspectives on the Commission's legal authority,\121\
contemplated regulatory frameworks,\122\ and operational
considerations,\123\ among other matters. On December 4, 2025, the
Commission announced that CTXs would trade for the first time on a U.S.
regulated exchange.\124\ However, it did not promulgate a fit-for-
purpose regulatory framework at that time.
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\119\ CFTC, Acting Chairman Pham Announces CFTC Crypto Sprint,
Release No. 9104-25 (Aug. 1, 2025), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/9104-25">https://www.cftc.gov/PressRoom/PressReleases/9104-25</a>.
\120\ CFTC, Acting Chairman Pham Launches Listed Spot Crypto
Trading Initiative, Release No. 9105-25 (Aug. 4, 2025), available at
<a href="https://www.cftc.gov/PressRoom/PressReleases/9105-25">https://www.cftc.gov/PressRoom/PressReleases/9105-25</a>.
\121\ See, e.g., Letter from Allison Lurton, General Counsel,
Chief Legal Officer, on behalf of Futures Industry Association, to
Christopher Kirkpatrick, Sec'y, CFTC (Aug. 18, 2025), at 3.
\122\ See, e.g., Letter from Thomas Johnson, Chief Compliance
Officer, on behalf of tastyfx LLC, to Commissioners of the CFTC
(Aug. 19, 2025), at 1.
\123\ See, e.g., Letter from Linda Lacewell, Global Chief Legal
Officer, on behalf of OKX US, to Christopher Kirkpatrick, Sec'y,
CFTC (Aug. 18, 2025), at 4-5 (``OKX Letter'').
\124\ CFTC, Acting Chairman Pham Announces First-Ever Listed
Spot Crypto Trading on U.S. Regulated Exchanges, Release No. 9145-25
(Dec. 4, 2025), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/9145-25">https://www.cftc.gov/PressRoom/PressReleases/9145-25</a>.
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4. Regulatory Clarity for Crypto Asset Markets (2026)
After being sworn in as the 16th Chairman of the CFTC on December
22, 2025, Chairman Selig set forth the priorities of the Commission
with respect to crypto assets in his first public remarks on January
29, 2026. He declared the end of regulation by enforcement and
indicated the Commission would explore rulemaking initiatives with
respect to CTXs.\125\ On that same day, Chairman Selig and SEC Chairman
Atkins announced that ``Project Crypto'' would proceed as a joint
effort between the Commissions to harmonize federal oversight of crypto
asset markets.\126\
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\125\ Chairman Michael S. Selig, The Next Phase of Project
Crypto: Unleashing Innovation for the New Frontier of Finance (Jan.
29, 2026), available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/opaselig1">https://www.cftc.gov/PressRoom/SpeechesTestimony/opaselig1</a> (``Chairman Selig Project Crypto
Remarks''), providing that that ``thanks to the leadership of
President Trump, [ ] regulation by enforcement is dead.''
\126\ Id. (``Today, we are building on that foundation. Rather
than running a parallel initiative with the SEC, I am pleased to
announce that the CFTC is partnering with the SEC on Project
Crypto--bringing coordination, coherence, and a unified approach to
the federal oversight of crypto asset markets. Project Crypto
recognizes that crypto markets span across our agencies' respective
regulatory boundaries.'').
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Shortly thereafter, on March 11, 2026, the Commissions entered into
a memorandum of understanding (``MOU'') \127\ to establish a structured
framework for sustained interagency cooperation. In announcing the MOU,
SEC Chairman Atkins observed that ``[f]or decades, regulatory turf
wars, duplicative agency registrations, and different sets of
regulations between the SEC and CFTC have stifled innovation and pushed
market participants to other jurisdictions,'' and that the MOU ``will
serve as a roadmap for a new era of harmonization between the
agencies.'' \128\
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\127\ CFTC, SEC, CFTC and SEC Announce Historic Memorandum of
Understanding Between Agencies, Release No. 9192-26 (Mar. 11, 2026)
(``MOU Announcement''), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/9192-26">https://www.cftc.gov/PressRoom/PressReleases/9192-26</a>.
\128\ Id. See Section II.C, infra, for a further discussion of
how the Commission's regulatory approach to crypto assets has driven
innovation away from federally regulated venues. Other federal
regulators have highlighted the harmful effects of friction between
the Commissions. See, e.g., Department of the Treasury, Blueprint
for a Modernized Financial Regulatory Structure, at 11 (Mar. 31,
2008), available at <a href="https://home.treasury.gov/system/files/136/archive-documents/Blueprint.pdf">https://home.treasury.gov/system/files/136/archive-documents/Blueprint.pdf</a> (``Product and market participant
convergence, market linkages, and globalization have rendered
regulatory bifurcation of the futures and securities markets
untenable, potentially harmful, and inefficient. To address this
issue, the CFTC and the SEC should be merged to provide unified
oversight and regulation of the futures and securities
industries.'').
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The MOU represented a critical step in addressing how the novel
technological properties of crypto assets and blockchain technologies
had exacerbated the effects of the Commissions' fragmented and
inconsistent federal oversight of the U.S. capital markets. For over a
decade, market participants, regulators,\129\ and federal courts \130\
grappled with the fluid status of crypto assets and secondary
transactions therein under the Federal securities laws \131\ as a
threshold issue to unleashing the ``enormous commercial promise'' \132\
of crypto assets and blockchain technologies. In short, ``[t]he status
of crypto assets under the securities laws is fundamental to
[[Page 64821]]
resolving many other questions,'' \133\ including which of the
Commission's or SEC's regulatory framework applies.\134\ Market
participants have observed that the uncertainty concerning whether a
crypto asset is a security or not can restrict trading in secondary
markets, and that without broad distribution, ownership, and trading
thereof, a crypto asset may be unable to achieve the network effects
necessary for it to function as designed.\135\ Accordingly, during the
course of litigation with the SEC, one market participant aptly
described the scope of the SEC's authority to regulate secondary
transactions in crypto assets as a ``cloud that currently hangs over
the [crypto asset] market.'' \136\
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\129\ See SEC Chairman Paul S. Atkins, The SEC's Approach to
Digital Assets: Inside ``Project Crypto'' (Nov. 12, 2025), available
at <a href="https://www.sec.gov/newsroom/speeches-statements/atkins-111225-secs-approach-digital-assets-inside-project-crypto">https://www.sec.gov/newsroom/speeches-statements/atkins-111225-secs-approach-digital-assets-inside-project-crypto</a> (``Commissioner
Peirce has rightly observed that while a project's [crypto asset]
launch might initially involve an investment contract, those
promises may not remain forever. Networks mature. Code is shipped.
Control disperses. The issuer's role diminishes or disappears.'').
\130\ See, e.g., SEC v. Terraform Labs Pte. Ltd., 684 F. Supp 3d
170, 197 (S.D.N.Y. July 31, 2023) (``It may also be mentioned that
the Court declines to draw a distinction between these [crypto
assets] based on their manner of sale, such that [crypto assets]
sold directly to institutional investors are considered securities
and those sold through secondary market transactions to retail
investors are not. In doing so, the Court rejects the approach
recently adopted by another judge of this District in a similar
case, SEC v. Ripple Labs, Inc. 2023 WL 4507900 (S.D.N.Y. July 13,
2023)'') (emphasis added); SEC v. Coinbase, Inc., 726 F. Supp. 3d
260, 293 (S.D.N.Y. Mar. 27, 2024) (similarly rejecting the Ripple
court's reasoning and instead adopting reasoning akin to the
Terraform court).
\131\ See supra note 112, setting forth the definition of
``security'' under the Federal securities laws.
\132\ Chairman J. Christopher Giancarlo, Remarks at the 4th
Annual DC Blockchain Summit (Mar. 6, 2019), available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo66">https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo66</a> (``Giancarlo
Blockchain Summit Remarks'').
\133\ SEC Commissioner Hester M. Peirce, The Journey Begins
(Feb. 4, 2025), available at <a href="https://www.sec.gov/newsroom/speeches-statements/peirce-journey-begins-020425">https://www.sec.gov/newsroom/speeches-statements/peirce-journey-begins-020425</a>.
\134\ President's Working Group's Report at 45 (``U.S.
regulatory agencies have attempted to classify [crypto] assets under
existing frameworks. For example, the CFTC recognized that bitcoin
and ether are commodities, while the SEC has treated other [crypto]
assets as securities based on their structures, methods of
distribution, and uses. Yet, without a clear and comprehensive
classification system, market participants have had to navigate a
patchwork of interpretations and guidance--a proverbial minefield
for honest actors trying to lead the industry forward.'').
\135\ The Board Of The International Organization Of Securities
Commissions, IOSCO Decentralized Finance Report, at 30, 32 (Mar. 1,
2022), available at <a href="https://www.iosco.org/library/pubdocs/pdf/IOSCOPD699.pdf">https://www.iosco.org/library/pubdocs/pdf/IOSCOPD699.pdf</a> (describing how in order to accrue the network
effects that are ``crucial'' to most protocols, a project's pathway
to decentralization may include a distribution of crypto assets to
``early adopters (sometimes accomplished through ``airdrops''),
protocol users and liquidity providers, engineers that evolve and
improve the code, purchasers of the [crypto asset] in the secondary
market, and third-party service providers (e.g., auditing firms)
that are paid in [crypto assets] for their services''); see also
Section II.C.2, infra, for a further discussion regarding how
restricted or limited secondary markets in crypto assets can hinder
or prevent decentralized market forces from facilitating network
effects that otherwise could harness productive behavior for the
benefit of a blockchain system; Andreessen Horowitz, Comments on the
SEC Crypto Task Force's Questions Concerning the Security Status of
Crypto Assets (Mar. 13, 2025), available at <a href="https://dwt2zme5yrom6.cloudfront.net/uploads/2025/03/a16z-Crypto-SEC-RFI-Questions-1-through-6-March-13-2025.pdf">https://dwt2zme5yrom6.cloudfront.net/uploads/2025/03/a16z-Crypto-SEC-RFI-Questions-1-through-6-March-13-2025.pdf</a> (``a16z Letter'')
(``[d]istribution of [crypto assets] can facilitate decentralization
by enabling the system to function autonomously (eliminating
operational control) as well as by eliminating voting control and
reducing economic control of the system''); Stephen Wink & Shaun
Musuka, Crypto--The Pursuit of Sufficient Decentralization,
Bloomberg L. (Aug. 21, 2019), available at <a href="https://news.bloomberglaw.com/securities-law/insight-crypto-the-pursuit-of-sufficient-decentralization">https://news.bloomberglaw.com/securities-law/insight-crypto-the-pursuit-of-sufficient-decentralization</a> (``[i]t is difficult to imagine a
scenario in which such [crypto asset] networks could achieve the
critical mass of network participants necessary if such network
participants were restricted [by the Federal securities laws] from
exchanging their [crypto assets] in some way with other participants
for other [crypto assets] as a means to continually broaden the
universe of [crypto asset] holders.'').
\136\ Petition for Permission to Appeal Pursuant to 28 U.S.C.
1292(b), SEC v. Coinbase, Inc., No. 25-145, at 1 (2d Cir. Jan. 17,
2025) (``There is no more pressing issue in securities law today
than the scope of the [SEC's] authority to regulate secondary trades
of digital assets'').
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On March 17, 2026, under the leadership of Chairman Selig and SEC
Chairman Atkins, the Commissions took decisive action to resolve these
questions by issuing the Joint Crypto Asset Taxonomy, which clarified
how the SEC would apply the Federal securities laws to the different
categories of crypto assets and transactions therein, with the
Commission providing guidance that it will administer the Act
consistent with the interpretation.\137\ Specifically, the Joint Crypto
Asset Taxonomy classified crypto assets into five categories based on
their characteristics, uses, and functions, providing that digital
securities \138\ are securities, stablecoins \139\ may or may not be
securities depending on their characteristics, and digital
commodities,\140\ digital collectibles,\141\ and digital tools \142\
are not themselves securities.\143\ The Joint Crypto Asset Taxonomy
further addressed how non-security crypto assets may become subject to
an investment contract \144\ and how they may cease to be subject to an
investment contract.\145\
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\137\ CFTC, CFTC Joins SEC to Clarify the Application of Federal
Securities Laws to Crypto Assets, Release No. 9198-26 (Mar. 17,
2026), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/9198-26">https://www.cftc.gov/PressRoom/PressReleases/9198-26</a>; see also Joint Crypto Asset Taxonomy, supra note 1.
\138\ See Joint Crypto Asset Taxonomy, supra note 1, at 13720,
providing that a digital security (commonly known as a ``tokenized''
security) is a financial instrument enumerated in the definition
``security'' that is formatted as or represented by a crypto asset,
where the record of ownership is maintained in whole or in part on
or through one or more crypto networks. See also supra note 71,
describing the jurisdictional boundaries between the CFTC and SEC
with respect to transactions or derivatives referencing, involving,
or relating to a security.
\139\ See Joint Crypto Asset Taxonomy, supra note 1, at 13720,
providing that a stablecoin is a crypto asset that is designed to
maintain a stable value relative to a reference asset like the U.S.
dollar. See also supra note 1 (describing how the GENIUS Act creates
a comprehensive regulatory framework for a specific type of
stablecoin called a ``payment stablecoin'').
\140\ See Joint Crypto Asset Taxonomy, supra note 1, at 13718,
providing that a digital commodity is a crypto asset that is
intrinsically linked to and derives its value from the programmatic
operation of a crypto system that is functional, as well as supply
and demand dynamics, rather than from the expectation of profits
from the essential managerial efforts of others. In the Joint Crypto
Asset Taxonomy, the Commissions provided their views as to examples
of digital commodities, which include, among others, Bitcoin (BTC);
Ether (ETH); Solana (SOL); Stellar (XLM); Tezos (XTZ); and XRP
(XRP).
\141\ See id., at 13718, providing that a digital collectible is
a crypto asset that is designed to be collected and/or used and may
represent or convey rights to artwork, music, videos, trading cards,
in-game items, or digital representations or references to internet
memes, characters, current events, or trends, among other things. A
digital collectible does not have intrinsic economic properties or
rights, such as generating a passive yield or conveying rights to
future income, profits, or assets of a business enterprise or other
entity, promisor, or obligor.
\142\ See id., supra note 1, at 13719, providing that a digital
tool is a crypto asset that performs a practical function, such as a
membership, ticket, credential, title instrument, or identity badge.
Digital tools are commonly issued for use in connection with crypto
systems and are designed to perform practical functions within such
systems. Digital tools often are non-transferrable or ``soul-
bound,'' and their value is derived from their practical
functionality.
\143\ This Notice also refers to each of digital commodities,
digital collectibles, and digital tools as ``non-security crypto
assets.''
\144\ See Joint Crypto Asset Taxonomy, supra note 1, at 13721.
The Joint Crypto Asset Taxonomy provided the Commissions' views that
a non-security crypto asset becomes subject to an investment
contract when an issuer offers it by inducing an investment of money
in a common enterprise with representations or promises to undertake
essential managerial efforts from which a purchaser would reasonably
expect to derive profits. Under such circumstances, secondary market
offers and sales of such a non-security crypto asset would
constitute securities transactions that must be registered under the
Securities Act or conducted pursuant to an available exemption from
registration. The associated investment contract will continue to be
transferred to subsequent purchasers of the non-security crypto
asset in secondary market transactions until the non-security crypto
asset separates from the issuer's representations or promises.
\145\ See Joint Crypto Asset Taxonomy, supra note 1, at 13722-3.
The Joint Crypto Asset Taxonomy set forth the Commissions' view that
a non-security crypto asset would no longer be subject to an
investment contract when: (1) the issuer has fulfilled its
representations or promises to engage in essential managerial
efforts, or (2) the purchaser would not reasonably expect the issuer
to be able to fulfill or to continue to engage in the essential
managerial efforts it represented or promised it would undertake.
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Around that same time, the Commission launched an Innovation Task
Force (``ITF''), led by Michael J. Passalacqua, to deliver regulatory
clarity and foster market integrity and responsible technological
progress across the new frontier of finance, including with respect to
crypto assets and blockchain technologies.\146\ Over the following
months, the ITF, together with Commission staff, delivered on the ITF's
purposes and objectives and the priorities Chairman Selig had set forth
for the Commission.\147\ As part of executing those priorities set
forth by Chairman Selig, the Commission's staff clarified the
application of its
[[Page 64822]]
regulations concerning introducing brokers to crypto asset software
developers,\148\ issued guidance concerning CFTC-registered entity
activities relating to crypto assets and blockchain technologies,\149\
and issued an advisory on 24/7 trading, including in crypto asset
markets.\150\ During this time period, the Commission also approved a
product submission for a ``true'' bitcoin perpetual contract on a CFTC-
registered DCM.\151\
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\146\ CFTC, Chairman Selig Announces Formation of New Innovation
Task Force, Release No. 9201-26 (Mar. 24, 2026), available at
<a href="https://www.cftc.gov/PressRoom/PressReleases/9201-26">https://www.cftc.gov/PressRoom/PressReleases/9201-26</a> (``Innovation
Task Force Release'').
\147\ See Chairman Selig Project Crypto Remarks, supra note 125.
\148\ CFTC, CFTC Staff Issues No-Action Position to Self-
Custodial Crypto Asset Wallet Software Provider, Release No. 9197-26
(Mar. 17, 2026), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/9197-26">https://www.cftc.gov/PressRoom/PressReleases/9197-26</a> (providing that the Commission's Market
Participants Division would not recommend that the Commission take
an enforcement action against the developer of self-custodial crypto
asset wallet software or its relevant personnel for failure to
register as an IB or an associated person (``AP'') of an IB in
relation to the developer's proposed provision and marketing of
software to facilitate trading by its users with registered FCMs,
IBs, and DCMs).
\149\ CFTC, CFTC Staff Issues FAQs Concerning Registrant and
Registered Entity Activities Relating to Crypto Assets and
Blockchain Technologies, Release No. 9200-26 (Mar. 20, 2026),
available at <a href="https://www.cftc.gov/PressRoom/PressReleases/9200-26">https://www.cftc.gov/PressRoom/PressReleases/9200-26</a>.
\150\ CFTC, CFTC Staff Issues Advisory on 24/7 Trading,
Clearing, and Settlement, Release No. 9239-26 (May 29, 2026),
available at <a href="https://www.cftc.gov/PressRoom/PressReleases/9239-26">https://www.cftc.gov/PressRoom/PressReleases/9239-26</a>.
\151\ CFTC, CFTC Approves BTCPERP Contract Submitted by
KalshiEX, LLC, Release No. 9240-26 (May 29, 2026), available at
<a href="https://www.cftc.gov/PressRoom/PressReleases/9240-26">https://www.cftc.gov/PressRoom/PressReleases/9240-26</a>.
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On August 20, 2026, Chairman Selig hosted the inaugural meeting of
the CFTC's Innovation Advisory Committee (``IAC''). At the inaugural
IAC meeting, American innovators, entrepreneurs, academics, and
builders at the center of both the new frontier of finance and
traditional U.S. financial markets provided advice to the Commission
regarding complex issues pertaining to the future of U.S. financial
markets.\152\ The discussion at the inaugural meeting reflected some of
the same priorities of the President's Working Group's Report,
including how to enable the trading of crypto assets, and CTXs, under a
federal regulatory regime.
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\152\ See, e.g., Vladimir Tenev, Chief Executive Officer,
Robinhood Markets, Inc., Statement at the Inaugural CFTC Innovation
Advisory Committee Meeting, at 00:32:38 (Aug. 20, 2026), <a href="https://www.youtube.com/watch?v=9rTCARzj98I">https://www.youtube.com/watch?v=9rTCARzj98I</a> (``It's been a challenge
navigating the patchwork of state-by-state regulations because [ ]
not all of our products are available to all of our customers. [ ]
So I think just a federal framework, aside from providing a
certainty and durability and not, you know, having our customers
worry about rules changing every four or eight years or whether an
asset they're going to hold is going to have to be delisted one way
or another, preventing their access to it, which I think just puts a
cloud of uncertainty over everything, will directly make it so that
we don't have to deal with multi-state access issues where some of
our products are available in certain states. And I think that the
customer, unfortunately, ends up suffering here, you know, more than
the broker or the crypto firm in most cases''); see also Vicky Ge
Huang, DRW's Don Wilson Encourages CFTC to Approve Perpetual
Futures, Wall St. J. (Aug. 20, 2026), available at <a href="https://www.wsj.com/livecoverage/stock-market-today-dow-sp-500-nasdaq-08-20-2026/card/drw-s-don-wilson-encourages-cftc-to-approve-perpetual-futures-WBLJH1WD8D8M0rufCWC9">https://www.wsj.com/livecoverage/stock-market-today-dow-sp-500-nasdaq-08-20-2026/card/drw-s-don-wilson-encourages-cftc-to-approve-perpetual-futures-WBLJH1WD8D8M0rufCWC9</a>; Caitlin Ostroff & Vicky Ge Huang, CFTC
Committee Discussion on Prediction Markets Gets Heated, Wall St. J.
(Aug. 20, 2026), available at <a href="https://www.wsj.com/livecoverage/stock-market-today-dow-sp-500-nasdaq-08-20-2026/card/cftc-committee-discussion-on-prediction-markets-gets-heated-yQwCEYhWu7zrrUU7vg67">https://www.wsj.com/livecoverage/stock-market-today-dow-sp-500-nasdaq-08-20-2026/card/cftc-committee-discussion-on-prediction-markets-gets-heated-yQwCEYhWu7zrrUU7vg67</a>.
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In relation to enabling the trading of crypto assets, on August 18,
2026, the SEC proposed new rules that would create a clear and fit-for-
purpose regulatory framework for certain investment contracts involving
crypto assets.\153\ The proposed Regulation Crypto Assets included a
conditional safe harbor that would codify the circumstances set forth
in the Joint Crypto Asset Taxonomy pursuant to which a non-security
crypto asset may cease to be subject to an investment contract, and
therefore freely tradable in secondary markets outside the purview of
the SEC and the Federal securities laws.\154\
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\153\ SEC, Regulation Crypto Assets, 91 FR 54510 (proposed Aug.
21, 2026) (``Regulation Crypto Assets'').
\154\ Id. at 54553. The proposed Regulation Crypto Assets
further contemplates codifying two exemptions from the registration
requirements of the Securities Act that would facilitate capital
formation and innovation within the crypto asset markets. Id. at
54529-53.
---------------------------------------------------------------------------
This Notice thus seeks to advance the recommendations included in
the President's Working Group's Report for the Commission to explore
how to enable secondary market trading in crypto assets, including
CTXs, and to provide a complementary federal regulatory framework for
crypto assets subject to the safe harbor proposed in Regulation Crypto
Assets and thus freely tradable in secondary markets.\155\
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\155\ President's Working Group's Report at 51.
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II. The History, Application, and Scope of Section 2(c)(2)(D)
A. Sections 2(c)(2)(D)(i)-(ii) and Their Anti-Evasion Origins
<SUP>156</SUP>
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\156\ See proposed Regulation CTX in Section III, infra, which
explicitly identifies certain circumstances that the Commission
preliminarily understands would result in transactions in crypto
assets being subject to section 2(c)(2)(D).
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For decades, the Commission maintained that certain retail
commodity transactions offered with leverage were futures contracts
subject to the Act.\157\ The Seventh Circuit called that view into
question when it held in CFTC v. Zelener that the Commission's
jurisdiction did not extend to retail foreign-currency contracts that
rolled over indefinitely, rarely settled by delivery, and were
formalistically documented as cash market transactions.\158\ The
court's holding ``created the distinct possibility that, through clever
draftsmanship, completely unregulated firms and individuals could sell
retail customers [ ]contracts that looked like futures, acted like
futures, and were sold like futures and could do so outside the
[Commission's] jurisdiction.'' \159\
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\157\ The Ninth Circuit endorsed that approach in CFTC v. Co
Petro Marketing Group, Inc., 680 F.2d 573, 576 (9th Cir. 1982)
(holding that leveraged retail commodity contracts ``sold merely for
speculative purposes and which are not predicated upon the
expectation that delivery of the actual commodity by the seller to
the original contracting buyer will occur in the future'' must be
traded ``through a member of a board of trade which has been
designated by the [Commission] as a contract market.'').
\158\ CFTC v. Zelener, 373 F.3d at 868-69 (7th Cir. 2004).
\159\ Zelener Hearing, supra note 53, at 10 (statement of Daniel
Roth, President and Chief Executive Officer of the National Futures
Association).
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In 2010, Congress addressed concerns about this perceived loophole
by extending comprehensive Commission jurisdiction to all retail
commodity transactions under the circumstances described in section
2(c)(2)(D)(i).\160\ The enacting legislative record is explicit about
the anti-evasion impetus for granting the Commission additional
statutory authority.\161\ The floor manager for Title VII of the Dodd-
Frank Act characterized section 2(c)(2)(D) as a ``Zelener fraud fix''
that addressed ``instances of fraudsters using [Zelener-style rolling
spot contracts] to evade the CFTC's jurisdiction over futures
contracts.'' \162\ Another Congressman similarly stated the governing
principle directly: ``[i]f in substance it is a futures contract, it is
going to be regulated. It doesn't matter how clever your draftsmanship
is.'' \163\ Congress underscored its intention to equip the Commission
with expansive jurisdiction
[[Page 64823]]
to protect retail market participants by explicitly delegating the
Commission discretionary authority \164\ to further define each term in
section 2(c)(2)(D).\165\ In short, with respect to retail commodity
contracts that function like futures contracts but, prior to section
2(c)(2)(D)'s enactment, fell outside of the Commission's jurisdiction
as a result of the Zelener holding, the Commission noted in 2016 that
``in enacting the statute Congress expressed its intent that [s]ection
2(c)(2)(D) should be applicable to a broad range of agreements,
contracts, and transactions.'' \166\
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\160\ See section 742 of the Dodd-Frank Act; see also CEA
2(c)(2)(D), 7 U.S.C. 2(c)(2)(D).
\161\ 156 Cong. Rec. S5924 (daily ed. July 15, 2010) (statement
of Sen. Lincoln, explaining the rationale for the legislation during
floor debate on the Dodd-Frank Act); see also Dodd-Frank Act,
section 742(a), 124 Stat. 1376, 1732-33 (2010).
\162\ Id.
\163\ Zelener Hearing, supra note 53, at 22 (statement of Rep.
Marshall, Member, H. Comm. on Agriculture). Section 2(c)(2)(D)'s
legislative history thereby frames the subparagraph's additional
grant of statutory authority as an extension of the Commission's
settled regulatory function to a new avenue of evasion, echoing the
Congressional concerns that led to the passage of the Act in 1974.
See, e.g., H.R. Rep. No. 93-975, at 44 (1974) (enacting Member of
the CEA noting there had been 5.7 million unregulated commodity
derivative contracts traded in the prior fiscal year, including new
contract types that could not be regulated under the then current
federal law).
\164\ See Loper Bright Enterprises v. Raimondo, 603 U.S. 369,
371 (2024) (``when the best reading of a statute is that it
delegates discretionary authority to an agency, the role of the
reviewing court under the [Administrative Procedure Act] is, as
always, to independently interpret the statute and effectuate the
will of Congress subject to constitutional limits. The court
fulfills that role by recognizing constitutional delegations, fixing
the boundaries of the delegated authority, and ensuring the agency
has engaged in `reasoned decisionmaking' [ ] within those
boundaries.'').
\165\ 15 U.S.C. 8321(a), providing that the ``Commission may
adopt a rule to define [ ] (1) the term `commercial risk'; and (2)
any other term included in an amendment to the [CEA] made by [the
Dodd-Frank Act].''
\166\ See Bitfinex, supra note 80, at 5.
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This broad jurisdiction extends to various transaction structures
with the economic substance of an open futures contract, which
therefore implicate the risks to retail customers that are addressed by
section 2(c)(2)(D). In extending the Commission's jurisdiction,
Congress explicitly specified that the mere offer of a transaction on a
leveraged, margined, or financed basis to a retail customer, even if
the offer of leverage, margin, or financing is declined,\167\ subjects
the resulting fully paid and open 2(c)(2)(D) transaction to the
Commission's jurisdiction, unless a statutory exception applies (a
``fully paid, open 2(c)(2)(D) transaction'').\168\
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\167\ CEA 2(c)(2)(D)(i), 7 U.S.C. 2(c)(2)(D)(i) (including
within the scope of section 2(c)(2)(D) any transaction that is
``offered (even if not entered into), on a leveraged or margined
basis . . .''). Courts have interpreted the provision in the same
manner. See, e.g., CFTC v. Laino Group Limited d/b/a PaxForex, 2021
WL 4059385 (S.D.T. June 30, 2021) (``Accordingly, Defendant by
offering to enter into, or entering into transactions in gold,
silver, bitcoin, ether, and litecoin with non-ECP U.S. customers on
a leveraged or margined basis engaged in retail commodity
transactions subject to 7 U.S.C. 2(c)(2)(D)(i)'') (emphasis added).
\168\ CEA 2(c)(2)(D)(i)-(ii), 7 U.S.C. 2(c)(2)(D)(i)-(ii). This
Notice further discusses fully paid, open (2)(c)(2)(D) transactions
in Section III.C, infra.
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Consistent with Congress's intent to prevent the evasion of the
Commission's jurisdiction over futures contracts (or agreements,
contracts, and transactions that are, in substance, futures contracts),
but not to ``interfere with the legitimate spot market,'' \169\ section
2(c)(2)(D)(ii) excepts certain classes of contracts of sale that
demonstrate typical cash market activity rather than mimicking the
economic substance of an open futures contract, including a contract of
sale that ``results in actual delivery within 28 days or such other
longer period as the Commission may determine by rule or regulation
based upon the typical commercial practice in cash or spot markets for
the commodity involved'' (the ``actual delivery exception'').\170\
However, the exceptions enumerated in section 2(c)(2)(D)(ii) prove the
breadth of Commission jurisdiction insofar as they represent the sole
off-ramps from the on-exchange requirement. In other words, unless
actual delivery occurs or another statutory exception applies, the
execution of a fully paid, open 2(c)(2)(D) transaction following a
retail customer's rejection of an offer of leverage, margin, or
financing does not alone result in the Commission's jurisdiction
falling away. Instead, the fully paid, open 2(c)(2)(D) transaction
remains subject to the Act, including the on-exchange requirement,
unless or until a statutory exception applies. Congress mandated this
result when it provided that section 2(c)(2)(D) will apply to the
transactions described in section 2(c)(2)(D)(i), ``except as provided
in clause (ii) [of section 2(c)(2)(D)].'' \171\ As discussed further in
Section III.C, infra, this statutory construction reflects that a fully
paid, open 2(c)(2)(D) transaction continues to exhibit the
characteristics of an open futures contract until ``actual delivery''
occurs (assuming no other statutory exceptions apply).\172\
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\169\ Zelener Hearing, supra note 53, at 9 (statement of Daniel
Roth, President of the National Futures Association).
\170\ CEA 2(c)(2)(D)(ii)(III)(aa), 7 U.S.C.
2(c)(2)(D)(ii)(III)(aa) (providing that ``[t]his subparagraph shall
not apply to [ ] (III) a contract of sale that--(aa) results in
actual delivery within 28 days or such other longer period as the
Commission may determine by rule or regulation based upon the
typical commercial practice in cash or spot markets for the
commodity involved[.]'').
\171\ CEA 2(c)(2)(D)(i), 7 U.S.C. 2(c)(2)(D)(i).
\172\ The Commission notes that ``a contract of sale that
creates an enforceable obligation to deliver between a seller and a
buyer that have the ability to deliver and accept delivery,
respectively, in connection with the line of business of the seller
and buyer'' is similarly excepted from the Commission's
jurisdiction, regardless of whether it satisfies the statutory
criteria contained in CEA 2(c)(2)(D)(i). CEA
2(c)(2)(D)(ii)(III)(bb), 7 U.S.C. 2(c)(2)(D)(ii)(III)(bb). The
presence of the ``enforceable obligation'' described therein mirrors
the act of ``actual delivery'' in that each distinguishes genuine
cash market transactions from those that function as open futures
contracts by merely serving as a vehicle for price exposure.
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The controlling actual delivery exception case law dates back to
2019, when the Ninth Circuit in CFTC v. Monex Credit Co.\173\ held that
the actual delivery exception required giving ``real and immediate
possession [of the underlying commodity] to the buyer or buyer's
agent.'' \174\ The court found that the plain meaning of the statutory
text required more than a constructive delivery such as where the
commodities remain ``in the broker's chosen depository, never exchange
hands, and are subject to the broker's exclusive control.'' \175\ Those
circumstances demonstrated the entire Monex transaction was ``merely a
book-entry'' that only resulted in a ``sham delivery,'' \176\ and not
actual delivery.
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\173\ CFTC v. Monex Credit Co., 931 F.3d 966, 974 (9th Cir.
2019) (``Monex''). In addition to case law pertaining to the actual
delivery exception and the withdrawn 2020 Actual Delivery Guidance,
discussed supra note 87, the Commission issued in 2011 a proposed
interpretation of the term ``actual delivery'' in the context of
section 2(c)(2)(D) on an asset-class-agnostic basis, accompanied by
a request for comment. Retail Commodity Transactions Under Commodity
Exchange Act, 76 FR 77670 (Dec. 14, 2011). After reviewing public
comments, the Commission issued a final interpretation in 2013.
Retail Commodity Transactions Under Commodity Exchange Act, 78 FR
52426 (Aug. 23, 2013).
\174\ Monex 931 F.3d at 974; see also CFTC v. Hunter Wise
Commodities, LLC, 749 F.3d 967, 979 (11th Cir. 2014) (`` `[a]ctual'
is that which `exist[s] in fact' and is `real,' rather than
constructive.'') (quoting Black's Law Dictionary 494 (9th ed.
2009)).
\175\ Monex 931 F.3d at 975.
\176\ Id.
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B. The Comprehensive Regulatory Framework Mandated by Section
2(c)(2)(D)(iii) <SUP>177</SUP>
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\177\ See proposed Regulation CAM in Section V, infra, which
contemplates the implementation of a fit-for-purpose regulatory
framework that addresses the on-exchange requirement in the context
of the commercial realities of, and risks posed by, CTXs.
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Section 2(c)(2)(D) grants the Commission broad authority to
regulate 2(c)(2)(D) transactions. The Act provides that, unless an
exception applies (including the actual delivery exception, of which
the Commission provides its preliminary interpretation in Sections
III.B and C, infra), any agreement, contract, or transaction in any
commodity that is (i) entered into with, or offered to (even if not
entered into with), a person that is not an eligible contract
participant or eligible commercial entity (``retail'') and (ii) entered
into, or offered (even if not entered into), on a leveraged or margined
basis, or financed by the offeror, the counterparty, or a person acting
in concert with the offeror or counterparty on a similar basis,
constitutes a 2(c)(2)(D) transaction.\178\
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\178\ CEA 2(c)(2)(D)(i), 7 U.S.C. 2(c)(2)(D)(i).
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Specifically, section 2(c)(2)(D)(iii) provides that 2(c)(2)(D)
transactions are
[[Page 64824]]
subject to sections 4(a),\179\ 4(b),\180\ and 4b \181\ of the Act as if
they were futures contracts. Section 4(a) implements the on-exchange
requirement described above,\182\ and thereby subjects 2(c)(2)(D)
transactions to the same ``comprehensive regulatory structure'' \183\
applicable to futures contracts by requiring the listing DCM to
continuously comply with a comprehensive set of regulations \184\ that
reaches virtually every aspect of trading in 2(c)(2)(D) transactions,
including with respect to listing standards,\185\ prevention of market
disruptions,\186\ exercises of emergency authority,\187\ publication of
information,\188\ execution of transactions,\189\ the financial
integrity of transactions,\190\ protection against abusive
practices,\191\ conflicts of interests,\192\ and recordkeeping
practices,\193\ among other areas.
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\179\ CEA 4(a), 7 U.S.C. 6(a) (prohibiting the off-exchange
trading of futures transactions unless the transaction is conducted
on or subject to the rules of a DCM, subject to certain exceptions).
\180\ CEA 4(b), 7 U.S.C. 6(b) (permitting foreign boards of
trade registered with the Commission with the ability to provide
direct access to U.S. persons).
\181\ CEA 4b, 7 U.S.C. 6b (prohibiting fraudulent conduct in
connection with any contract of sale of any commodity in interstate
commerce, among other things).
\182\ CEA 4(a), 7 U.S.C. 6(a).
\183\ Curran, 456 U.S., at 356 (1982). Commenters concur. For
example, one commenter, Bitnomial Exchange, LLC (``Bitnomial''),
explained that the provision ``requires that any leveraged retail
commodity transaction involving actual delivery after 28 days be
regulated as a futures contract and occur on a DCM.'' Letter from
James Walsh, Chief Regulatory Officer, on behalf of Bitnomial
Exchange, LLC, to Commissioners of the CFTC (Aug. 19, 2025) at 1
(``Bitnomial Letter'').
\184\ See CEA 5(d), 7 U.S.C. 7(d); see also 17 CFR part 38.
\185\ CEA 5(d)(3), 7 U.S.C. 7(d)(3).
\186\ CEA 5(d)(4), 7 U.S.C. 7(d)(4).
\187\ CEA 5(d)(6), 7 U.S.C. 7(d)(6).
\188\ CEA 5(d)(7), (8), 7 U.S.C. 7(d)(7), (8).
\189\ CEA 5(d)(9), 7 U.S.C. 7(d)(9).
\190\ CEA 5(d)(11), 7 U.S.C. 7(d)(11).
\191\ CEA 5(d)(12), 7 U.S.C. 7(d)(12).
\192\ CEA 5(d)(16), 7 U.S.C. 7(d)(16).
\193\ CEA 5(d)(18), 7 U.S.C. 7(d)(18).
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The Act also provides for the comprehensive regulation of
intermediaries other than the exchange that lists a 2(c)(2)(D)
transaction. A person that solicits or accepts orders for a 2(c)(2)(D)
transaction and holds related customer assets under the circumstances
described in section 1a(28)(A) \194\ of the Act constitutes an FCM
subject to the Act's customer protection requirements, including
disclosures,\195\ capital requirements,\196\ and customer property
segregation,\197\ among other areas. The Act further comprehensively
regulates the clearance and settlement of 2(c)(2)(D) transactions by a
DCO.\198\
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\194\ CEA 1a(28)(A), 7 U.S.C. 1a(28)(A) (providing that the term
``futures commission merchant'' means an individual, association,
partnership, corporation, or trust (i) that--(I) is--(aa) engaged in
soliciting or in accepting orders for-- [. . .] (DD) any agreement,
contract, or transaction described in [. . .] section 2(c)(2)(D)(i)
of this title; and (II) in or in connection with the activities
described in items (aa) or (bb) of subclause (I), accepts any money,
securities, or property (or extends credit in lieu thereof) to
margin, guarantee, or secure any trades or contracts that result or
may result therefrom[.]'').
\195\ 17 CFR 1.55.
\196\ CEA 4f(b), 7 U.S.C. 6f(b).
\197\ CEA 4d(a)(2), 7 U.S.C. 6d(a)(2).
\198\ A registered DCO is subject to 18 core principles set out
in section 5b(c)(2) of the Act. See Johnson et al., supra note 2,
Sec. 6.06. (``The core principles cover areas ranging from clearing
member eligibility standards, risk management, default procedures,
treatment of funds, rule enforcement, and legal risk. A DCO must
comply with the DCO core principles and the requirements of any rule
the CFTC may impose pursuant to its general rulemaking authority [.
. .] The Commission's primary rules governing DCOs are set in [17
CFR 39].'').
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The Commission preliminarily believes that in subjecting 2(c)(2)(D)
transactions, and thus CTXs, to such comprehensive regulation, Congress
made clear that varying state laws did not apply to the operation of
trading facilities that offer CTXs.\199\ As noted, CTXs are subject to
the on-exchange requirement and, in turn, must be treated ``as if''
they were futures contracts. Indeed, ``[a]s Congress recognized in
enacting the [Commodity Futures Trading Commission Act of 1974], a
contract market could not operate efficiently, and perhaps not at all,
if varying and potentially contradictory legal standards governed its
duties to [market participants].'' \200\ Concurrent regulation by the
states of ``the actual operation'' of such contract markets would lead
to ``total chaos.'' \201\ In fact, the members of section 2(c)(2)(D)'s
enacting Congress echoed those concerns of appropriately addressing the
``public interest of regulation of market forces and market practices''
\202\ by questioning the adequacy of varying state laws as a bona fide
``substitute for the Federal scheme'' of the Act.\203\ Accordingly,
state money transmission laws generally defer to federal market
regulatory structures \204\ and the Federal MSB regulatory framework
similarly does not apply to ``a person registered with, and
functionally regulated or examined by, the [CFTC].'' \205\
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\199\ See Johnson et al., supra note 2, Sec. 4.05 (``Where the
CEA is found by a court to preempt state law, it is predicated on
the doctrine of conflict preemption, under a case-by-case analysis.
Courts have found that a state law conflicts with and is thus
preempted by the CEA `[w]hen application of state law would directly
affect trading on or operation of a futures market, it would stand
``as an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress,'' and is hence preempted.' '')
(quoting American Agric. Movement, 977 F.2d at 1156.
\200\ American Agric. Movement, 977 F.2d at 1156. In contrast to
the operation of a DCM, the Commission recognizes that ``there is no
need for uniformity when it comes to the rules that govern'' certain
other aspects of the commodity derivatives markets, including, for
example, the ``principal-agent relationships between brokers and
investors. [. . .] [T]he possibility that different states would
impose dissimilar fiduciary duties upon brokers might affect those
private relationships, but would not appreciably hamper the
efficient operation'' of the markets and transactions subject to
Commission jurisdiction. Id.
\201\ Id.; Commodity Futures Trading Act of 1974: Hearings
Before the S. Comm. on Agric. & Forestry on S. 2485, S. 2578, S.
2837, H.R. 13113, 93d Cong., 2d Sess. 685 (1974) (statement of Sen.
Clark).
\202\ H.R. Rep. No. 93-975, at 28 (1974).
\203\ Zelener Hearing, supra note 53, at 25 (statement of Rep.
Marshall); cf. Zelener Hearing, supra note 53, at 11 (statement of
Philip A. Feigin, on behalf of Monex Deposit Company). One witness
arguing on behalf of the Monex Deposit Company that state-by-state
regulation of leveraged commodity transactions represented a better
way to protect retail consumers than the contemplated federal
regime. In 2019, the Monex Deposit Company was a codefendant in
Monex, a Commission action prosecuting the fraudulent deception of
retail customers in offering leveraged commodity transactions while
evading the on-exchange requirement of section 2(c)(2)(D). See
generally Monex, 931 F.3d.
\204\ See, e.g., Money Transmission Modernization Act
(``MTMA''), supra note 31, Sec. 3.01(i), (j) (providing that the
MTMA does not apply to a board of trade designated as a contract
market under the Act or ``a registered [FCM] under the [F]ederal
commodities laws to the extent of its operation as such a
merchant''). 31 states have enacted the MTMA in whole or in part.
Conference of State Bank Supervisors, CSBS Money Transmission
Modernization Act (MTMA) (Feb. 26, 2026), available at <a href="https://www.csbs.org/csbs-money-transmission-modernization-act-mtma">https://www.csbs.org/csbs-money-transmission-modernization-act-mtma</a>.
\205\ See Application of FinCEN's Regulations to Certain
Business Models Involving Convertible Virtual Currencies, supra note
24.
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C. The Failure of the Commission's Historical Approach to 2(c)(2)(D)
Transactions
1. Regulation by Enforcement Drove CTXs Outside of the Commission's
Federal Regulatory Framework
As discussed above, Congress required the application of a
comprehensive federal regulatory regime to 2(c)(2)(D) transactions by
channeling dealings in them onto \206\ and through \207\ Commission-
registered entities. Section 2(c)(2)(D) thereby authorizes the
Commission to supervise and regulate firms pursuant to ``the full array
of regulatory requirements applicable to on-exchange futures under the
[Act],'' \208\ separate and apart from the Commission's post-hoc
enforcement authority.\209\ However, the
[[Page 64825]]
Commission's historical approach to CTXs has frustrated Congress'
intent to bring these transactions onto Commission-registered exchanges
and under the Commission's supervision.\210\ Regulation by enforcement
has inadequately addressed the fundamental commercial and operational
differences between CTXs and other commodity derivatives contracts and
thereby failed to provide market participants a durable and fit-for-
purpose pathway to list CTXs in compliance with the on-exchange
requirement.\211\
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\206\ See CEA 2(c)(2)(D)(iii), 7 U.S.C. 2(c)(2)(D)(iii); CEA
4(a), 7 U.S.C. 6(a).
\207\ See CEA 1a(28)(A), 7 U.S.C. 1a(28)(A).
\208\ See supra note 57 (statement of Sen. Lincoln, explaining
the rationale for the legislation during floor debate on the Dodd-
Frank Act).
\209\ See Johnson et al., supra note 2, Sec. 4.02 (``The
Commission's principal regulatory tool is the promulgation of
regulations governing the conduct of those over whom it has
jurisdiction. Although enforcement actions [ ] contribute to the
development of standards for derivatives and related activity, the
most pervasive manifestation of the Commission's influence is the
exercise of its general and specialized rulemaking powers under the
Act. From its inception in 1975, the CFTC has had broad rulemaking
authority. Pursuant to that authority, it has adopted a variety of
rules to implement the provisions of the CEA applicable to the
futures industry and markets.'').
\210\ See, e.g., Mersinger Ooki Statement, supra note 98.
\211\ See Coinbase Letter, supra note 19, at 2 (stating that
``crypto asset markets have several key differences from futures
markets''); see also Letter from Kraken to Christopher J.
Kirkpatrick, Sec'y, CFTC, at 3 (Aug. 18, 2025) (``[A]s the
Commission considers the applicability of its existing authority and
potential rulemakings and guidance to industry, Kraken encourages
the staff to work with industry stakeholders.'').
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On November 11, 2022, an $8 billion dollar fraud perpetrated by FTX
Trading Ltd. d/b/a <a href="http://FTX.com">FTX.com</a> (``FTX Trading'') and affiliates thereof
\212\ reverberated through the global crypto asset markets, including
those markets overseen by the Commission. The circumstances that led to
and enabled the FTX scheme demonstrate how the Commission's regulation
by enforcement posture has failed to effectuate the purposes and
objectives of the Act and section 2(c)(2)(D), including protecting
market participants from fraudulent or other abusive sales practices
and misuses of customer assets.\213\
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\212\ Samuel Bankman-Fried co-founded Alameda Research LLC
(``Alameda''), a crypto asset trading and investment firm, in 2017.
In May 2019, he and others launched FTX Trading and various
subsidiaries, affiliates, and related entities, collectively doing
business as ``<a href="http://FTX.com">FTX.com</a>'' or simply ``FTX,'' a centralized digital
asset exchange. See Declaration of John J. Ray III In Support of
Chapter 11 Petitions and First Day Pleadings, Case No. 22-11068
(JTD) (Bankr. D. Del Nov. 17, 2022). Bankman-Fried also operated
LedgerX LLC (d/b/a FTX US Derivatives) (``LedgerX'') to offer
futures, options, and swaps contracts pursuant to its registration
with the CFTC as a DCM and DCO. See Chairman Rostin Behnam,
Testimony Before the U.S. Senate Committee on Agriculture,
Nutrition, and Forestry: Why Congress Needs to Act: Lessons Learned
from the FTX Collapse (Dec. 1, 2022), available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam29">https://www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam29</a> (``Behnam 2022
FTX Senate Testimony''). This Notice collectively refers to Alameda,
FTX Trading, <a href="http://FTX.com">FTX.com</a>, FTX US, and each of their affiliates, as
``FTX''.
\213\ CEA 3(a), 7 U.S.C. 5(a); see also supra notes 17, 45, 51
(examples of breakdowns in customer protection in crypto asset
markets).
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While the scale of FTX's and Samuel Bankman-Fried's fraud was
unforeseeable, Congress and regulators alike predicted that market
abuses would result from inapposite regulatory requirements hindering,
or in some cases, precluding, market participants from offering CTXs on
DCMs. The legislative history of section 2(c)(2)(D) highlights that the
on-exchange requirement was designed to prophylactically ``prevent
fraud, not just prosecute it,'' \214\ because off-exchange abusive
practices would migrate from one area under the enforcement focus of
regulatory authorities to the next less scrutinized area.\215\ That is,
a regulation by enforcement posture cannot effectively combat abusive
off-exchange market practices at scale.\216\
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\214\ Zelener Hearing, supra note 53, at 9, 18 (statements of
Rep. Leonard L. Boswell, Chairman, and Daniel Roth, President of the
National Futures Association).
\215\ See, e.g., Zelener Hearing, supra note 53, at 18
(statement of Daniel Roth, President of the National Futures
Association, providing that ``[w]e have seen the migration of
abusive practices away from the foreign currency trade to the
unregulated, right now it is precious metals, tomorrow it might be
something else. But we have seen these [websites], 30 of them, that
have this unregulated; futures market even though they call it
something else. So the point that I made earlier was that anti-fraud
authority is not enough. The whole point of the [Act] is that retail
customers need regulatory protection when they are trading futures
contracts, and that goes beyond anti-fraud authority. We are trying
to prevent the fraud, not just prosecute it.'').
\216\ See supra note 107 (former Commissioner Johnson describing
how the Commission's approach has left vulnerable retail customers
exposed and lacking long-established customer protections available
in other asset classes).
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Those very concerns played out in the FTX scheme, with the
defendants able to take advantage of the Commission's inability to
police on an ad-hoc basis every corner of a market with monthly trading
volumes exceeding trillions of dollars.\217\ Notably, however, the
customers of an FTX entity that was subject to the Commission's
comprehensive supervision and regulation emerged from FTX's collapse
largely unscathed,\218\ demonstrating the effectiveness of the
prophylactic nature of the on-exchange requirement. As former Chairman
Behnam noted in Congressional testimony following the collapse of FTX's
scheme, ``to understand why comprehensive regulation of trading
platforms is critically important to protect the largely retail
customer base of these speculative [crypto asset] markets, one need
look no further than where the CFTC's regime intersected with FTX.''
\219\ He further noted that in contrast with the ``[m]any public
reports [that] indicate that segregation and customer security failures
at the bankrupt FTX entities resulted in huge amounts of FTX customer
funds being misappropriated[,]'' the customer property held by CFTC-
registered FTX entities ``remained exactly where it should be,
segregated and secure. This is regulation working.'' \220\
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\217\ See Chairman Rostin Behnam, Testimony Before the U.S.
Senate Committee on Agriculture, Nutrition, and Forestry (Feb. 9,
2022), available at <a href="https://www.agriculture.senate.gov/imo/media/doc/Testimony_Behnam_020920225.pdf">https://www.agriculture.senate.gov/imo/media/doc/Testimony_Behnam_020920225.pdf</a> (``According to public data,
every month in 2021 except one saw over $1 trillion in monthly
trading volume in the digital asset cash market, with a high of
$2.23 trillion in trading volume in May 2021.'').
\218\ Behnam 2022 FTX Senate Testimony, supra note 212.
\219\ Id.
\220\ Id.
---------------------------------------------------------------------------
In 2024, Chairman Behnam again testified in front of the U.S.
Senate Committee on Agriculture, Nutrition, and Forestry.\221\ In the
intervening two year period, the Commission had continued to use the
full scope of its enforcement authority to pursue customer abuses in
the crypto asset markets.\222\ The Commission preliminarily agrees with
Chairman Behnam's assessment at that time that the regulation by
enforcement approach is ``unsustainable[,]'' and reiterates his
concerns that ``rampant fraud and manipulation in the crypto [asset]
market'' will likely continue to hurt American customers absent a
change in course by the Commission.\223\ Thus, the
[[Page 64826]]
proposed rules in this Notice intend to address such fraud and
manipulation through a comprehensive regulatory scheme that properly
effectuates the on-exchange requirement with respect to CTXs.
---------------------------------------------------------------------------
\221\ See Chairman Rostin Behnam, Testimony Before the
Subcommittee on Financial Services and General Government, Committee
on Appropriations, U.S. Senate (June 13, 2024), available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam47">https://www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam47</a> (``Behnam 2024
Appropriations Testimony'').
\222\ See generally Section I.B.2, supra (providing a history of
the Commission's enforcement actions in the crypto asset markets
during this period); see also CFTC, CFTC Charges Binance and Its
Founder, Changpeng Zhao, with Willful Evasion of Federal Law and
Operating an Illegal Digital Asset Derivatives Exchange, Release No.
8680-23 (Mar. 27, 2023), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/8680-23">https://www.cftc.gov/PressRoom/PressReleases/8680-23</a> (Former CFTC's Enforcement Division
Principal Deputy Director and Chief Counsel providing that the
enforcement action ``reflects that the CFTC and its Enforcement
Division will pursue those [crypto] asset platforms and individuals
who flout and actively attempt to circumvent CFTC regulatory
requirements[;]'' CFTC, CFTC Charges Alexander Mashinsky and Celsius
Network, LLC with Fraud and Material Misrepresentations in Massive
Commodity Pool Scheme Involving Digital Asset Commodities, Release
No. 8749-23 (July 13, 2023), available at <a href="https://www.cftc.gov/PressRoom/PressReleases/8749-23">https://www.cftc.gov/PressRoom/PressReleases/8749-23</a> (Commission enforcement action
alleging that defendants falsely touted high profits and security to
induce customers to deposit their digital asset commodities on the
platform).
\223\ See Behnam 2024 Appropriations Testimony, supra note 221;
see also Mersinger Uniswap Statement, supra note 105
(``Additionally, if we continue with this enforcement-first
approach, one or several DeFi protocols we target may choose to
litigate rather than settle out of court. Facing litigation in these
cases will not only come at the cost of expending substantial
government (and private sector) resources, but also risks a morass
of court cases yielding mixed results and conflicting
conclusions.'').
---------------------------------------------------------------------------
2. Legacy Regulatory Frameworks Have Impeded Innovation
The effects of a fragmented regulatory framework for crypto asset
exchanges extend beyond a failure to protect retail customers from
market abuses. The Commission's approach, and the resulting lack of
liquid, fair, and financially secure trading facilities in crypto
assets,\224\ has also frustrated broader promises of permissionless
\225\ innovation. Soon after the introduction of the Bitcoin network in
2008,\226\ market participants and regulators alike began to
contemplate innovative applications of crypto assets and blockchain
technologies. In short, ``the excitement surrounding the infinite
possibilities created by these technologies is palpable.'' \227\
However, as Chairman Selig remarked, ``fragmented oversight imposes
real economic costs--raising barriers to entry, reducing competition,
increasing compliance expenses, and encouraging regulatory arbitrage
rather than productive investment.'' \228\ The Commission preliminarily
believes that the economic costs imposed by its historical approach to
crypto asset regulation has jeopardized the contemplated promises of
crypto assets and blockchain technologies, and with them, the United
States's position as the ``crypto capital'' of the world.\229\
---------------------------------------------------------------------------
\224\ See CEA 3(a), 7 U.S.C. 5(a) (finding that the management
and assumption of price risks, discovery of prices, and
disseminating pricing information through trading in liquid, fair
and financially secure trading facilities as affected with a
national public interest).
\225\ See, e.g., Peter Van Valkenburgh, Testimony to the
Committee on Energy and Commerce, U.S. House of Representatives
(June 6, 2017) (``The most exciting aspect of open blockchain
networks is that they are entirely open for experimentation. They
are permissionless. There is no patent or copyright to license, no
university or corporation from which to seek a job, no exclusive
membership fee to pay. Anyone with a computer and an internet
connection can develop and share her own currency, her own financial
contracts and strategies, her own vision of the future.''); Rebecca
Lewis, John McPartland, and Rajeev Ranjan, Fed. Res. Bank of
Chicago, Blockchain and Financial Market Innovation (June 2017)
(``The chief advantage of a permissionless network is that it does
not require a central authority to confirm or deny specific
transactions; individuals who do not trust one another or any single
central authority can transact on the permissionless network,
trusting the consensus mechanism, which we discuss below, to ensure
the ledger's accuracy.'').
\226\ See Nakamoto, supra note 35.
\227\ Chairman Michael S. Selig, CFTC, America's Financial
Markets are Ready for a Golden Age (Jan. 20, 2026), available at
<a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/seligstatement012026">https://www.cftc.gov/PressRoom/SpeechesTestimony/seligstatement012026</a>.
\228\ Chairman Selig Project Crypto Remarks, supra note 125.
\229\ Donald J. Trump, Keynote Address at the Bitcoin 2024
Conference, Nashville, Tenn. (July 27, 2024).
---------------------------------------------------------------------------
With respect to U.S. financial market infrastructure, former
Chairman Giancarlo forecasted in 2019 that the unique technological
characteristics of crypto assets and blockchain technologies were
``likely to have a broad and lasting impact in payments, banking,
securities settlement, title recording, cyber security and trade
reporting and analysis.'' \230\ He discussed the difference that a
``real-time distributed ledger'' may have made in the U.S. regulatory
response to the 2008 financial crisis, noting that ``[a]t a minimum, it
would certainly have allowed for far prompter, better-informed, and
more calibrated regulatory intervention instead of the disorganized
response that unfortunately ensued.'' \231\ While those broad and
lasting impacts have been materially impeded by an outdated regulatory
framework designed for legacy financial technologies, the Commission
preliminarily believes that the fit-for-purpose regulatory framework
proposed under Regulation CAM in Section V, infra,\232\ would help
fulfill ``the original promise of blockchain technologies: more open,
transparent, and efficient market infrastructure.'' \233\
---------------------------------------------------------------------------
\230\ Giancarlo Blockchain Summit Remarks, supra note 132.
\231\ Id.
\232\ The proposed Regulation CAM is discussed in Section V,
infra, and contemplates the implementation of a fit-for-purpose
regulatory framework that addresses the on-exchange requirement in
the context of the commercial realities of, and risks posed by,
CTXs.
\233\ Chairman Selig Project Crypto Remarks, supra note 125
(discussing how onchain tools could be used to facilitate the
programmatic monitoring of risks in real time and thereby ``fulfill
the original promise of blockchain technologies: a more open,
transparent, and efficient market infrastructure.'').
---------------------------------------------------------------------------
Beyond U.S. financial market infrastructure, technologists
predicted that distributed control over networks and platforms enabled
by crypto assets and blockchain technologies would lead to a more
efficient, inclusive, and innovative internet economy.\234\ The
Commission preliminarily believes that the effects of its historical
approach have similarly stifled that vision of a more open internet.
For example, a crypto asset may confer certain rights and entitlements
that enable network effects to facilitate the programmatic and
permissionless operation of a related blockchain system.\235\ Those
network effects may derive from incentive structures codified in the
source code underlying a blockchain system that harnesses market forces
into productive activity.\236\ However, harnessing market forces
requires efficient markets in the first instance. That is, the
predicted flywheel dynamic generally requires price discovery that is
derived from liquid, fair, and financially secure trading facilities,
which facilities have been hampered by a lack of clear rules of the
road.\237\
---------------------------------------------------------------------------
\234\ See Chris Dixon, I wrote a book: Read Write Own (June 22,
2023), available at <a href="https://cdixon.org/2023/06/22/read-write-own/">https://cdixon.org/2023/06/22/read-write-own/</a>
(stating that ``blockchains and the software movement around them [.
. .] provide the only plausible path to sustaining the original
vision of the internet as an open platform that incentivizes
creativity and entrepreneurship.''); see also Miles Jennings,
Decentralization is why we fight for crypto (Dec. 17, 2024),
available at <a href="https://a16zcrypto.com/posts/article/decentralization-fight-for-crypto/">https://a16zcrypto.com/posts/article/decentralization-fight-for-crypto/</a>.
\235\ See Miles Jennings, Defining decentralization: It comes
down to control, a16z crypto (Feb. 13, 2025), <a href="https://a16zcrypto.com/posts/article/defining-decentralization-control/">https://a16zcrypto.com/posts/article/defining-decentralization-control/</a>
(``This amelioration of trust dependencies with respect to a
blockchain network and its crypto asset [ ] is made possible by the
fact that such systems are capable of decentralization--operation
absent human intervention and control.'').
\236\ See Aztec Foundation, Token Regulatory Characterisation
Report (Nov. 13, 2025), available at <a href="https://aztec.network/token-regulatory-report">https://aztec.network/token-regulatory-report</a> (describing how the AZTEC crypto asset (``AZTEC'')
is a ``necessary component'' of the programmatic and permissionless
operation of the blockchain system to which AZTEC relates because of
the right AZTEC confers on its holders to ``fully control the
governance and operation'' of that blockchain system.).
\237\ CEA 3(a), 7 U.S.C. 5(a).
---------------------------------------------------------------------------
Despite those regulatory headwinds, developers of crypto asset
projects that have withstood the hostile regulatory environment in the
U.S. have leveraged the unique technological properties of crypto
assets and blockchain technologies to build novel networks that, for
example, empower consumers to lower their electricity-related
costs,\238\ incentivize the construction of clean energy
infrastructure,\239\ enhance
[[Page 64827]]
the financial resilience of vulnerable populations,\240\ and allow
persons who are connected only through the governance rights of a
crypto asset to deploy shared resources to make donations for
charitable causes,\241\ purchase historical artifacts,\242\ and build
communities around jointly-owned infrastructure.\243\ The Commission
preliminarily believes that a fit-for-purpose regulatory framework for
CTXs would facilitate the next generation of similar American
innovations and ensure those innovations ``take root on American soil,
under American law, and in service of American investors, customers,
and businesses.'' \244\
---------------------------------------------------------------------------
\238\ See SEC, Fuse Crypto Limited, No-Action Letter (Nov. 24,
2025), available at <a href="https://www.sec.gov/rules-regulations/no-action-interpretive-exemptive-letters/division-corporation-finance-no-action/fuse-crypto-limited-112425">https://www.sec.gov/rules-regulations/no-action-interpretive-exemptive-letters/division-corporation-finance-no-action/fuse-crypto-limited-112425</a> (``Fuse is a vertically integrated
energy technology group focused on accelerating the decentralization
of electricity grids, optimizing energy delivery, and empowering
consumers to lower their electricity related costs. Through its
operations in the United States[ ], Fuse endeavors to deliver tools
that enable households and businesses to actively participate in the
energy system--improving grid resilience, reducing congestion, and
unlocking new forms of distributed value for consumers[ ].'').
\239\ See Union Square Ventures, Our Investment in Glow
Protocol: DePIN at the Edge of Energy Markets (Oct. 31, 2024),
available at <a href="https://blog.usv.com/our-investment-in-glow-protocol-depin-at-the-edge-of-energy-markets">https://blog.usv.com/our-investment-in-glow-protocol-depin-at-the-edge-of-energy-markets</a> (``Glow's approach is radically
different from existing subsidy systems for green energy, drawing
inspiration from Bitcoin's open and highly competitive incentive
model.'').
\240\ See Circle, A new paradigm for blockchain & international
aid, available at <a href="https://www.circle.com/circle-impact">https://www.circle.com/circle-impact</a> (``Rumee
Singh founded Rahat in 2020 to address the financial inclusion gap
in her native Nepal and to channel humanitarian aid to people around
the world. Rahat uses blockchain technology with smart contracts for
fast, accurate aid payouts directly to beneficiaries' phones. Their
use of parametric data automatically triggers early warning messages
and targeted disbursements before disasters strike, even in low-tech
environments.'').
\241\ See Center for a Digital Future, Nouns DAO: Problem
Addressed and Project Description (Apr. 2024), available at <a href="https://www.centerforadigitalfuture.org/blog/60kqfdgb4f8kljqy1j4ujvaqr1bx5y-364pg-bskhw-4zy2x">https://www.centerforadigitalfuture.org/blog/60kqfdgb4f8kljqy1j4ujvaqr1bx5y-364pg-bskhw-4zy2x</a> (``Nouns DAO members who hold Nouns NFTs create
and vote on proposals which guide the direction of the organization
and allocate the funds in the [DAO] treasury. Funded initiatives
include charitable donations to organizations like Coral Restoration
Foundation, Freedom of the Press Foundation, and the Rainforest
Foundation.'').
\242\ See ConstitutionDAO, A Historic Attempt to Buy the U.S.
Constitution Together, available at <a href="https://constitutiondao.org/">https://constitutiondao.org/</a>
(``ConstitutionDAO was a groundbreaking decentralized initiative
that united thousands of [crypto asset] enthusiasts to bid on an
original copy of the U.S. Constitution. Powered by community
collaboration and blockchain transparency, it showcased the
potential of decentralized governance and collective action in the
Web3 era.'').
\243\ See LinksDAO, Building the Golf Club for the Modern Era,
available at <a href="https://www.linksdao.io/">https://www.linksdao.io/</a> (``We are a global community
of passionate golfers reimagining what it means to be a golf club.
LinksDAO owns two golf courses on two continents that are being
transformed into world-class venues.'').
\244\ See Chairman Selig Project Crypto Remarks, supra note 125.
---------------------------------------------------------------------------
3. The Commission's Statutory Authority To Implement Regulation CTX and
Regulation CAM
In summary, the Commission preliminarily believes that achieving
the liquid, fair, and financially secure trading facilities in CTXs
that the Act's purposes and objectives contemplate may require a
tailored regulatory approach.\245\ The Commission has longstanding
experience in facilitating the development of robust markets in novel
commodities, having done so consistently over the decades since the
Act's passage.\246\ It has done so, in part, through the extensive
authority granted by Congress to address the risks posed by, and
commercial realities of, transactions in emergent asset classes.\247\
Specifically, (i) section 4(c) allows the Commission to promote
responsible economic or financial innovation and fair competition by
exempting by rule any class of transactions subject to section 4(a)
from any requirement of the Act, subject to certain limitations; \248\
(ii) Congress granted the Commission explicit rulemaking authority to
define any term in section 2(c)(2)(D); \249\ and (iii) the Commission
has general rulemaking authority to promulgate such rules and
regulations reasonably necessary to effectuate any of the provisions of
the Act, including the core principles applicable to DCMs contained in
section 5(d) (``DCM Core Principles'').\250\
---------------------------------------------------------------------------
\245\ CEA 3(a)-(b), 7 U.S.C. 5(a)-(b).
\246\ Indeed, Chairman Selig recently acknowledged this dynamic
when he noted that ``[a]ccess to computing power is at the center of
the growing artificial intelligence economy and critical to America
winning the AI race. The CFTC will continue to act to ensure access
to this critical commodity by improving the financial market for
compute.'' CFTC, CFTC Requests Comment on the Listing of Compute
Derivatives Contracts, Release No. 9286-26 (Aug. 19, 2026),
available at <a href="https://www.cftc.gov/PressRoom/PressReleases/9286-26">https://www.cftc.gov/PressRoom/PressReleases/9286-26</a>;
see also Proposal To Exempt Certain Transactions Involving Not-for-
Profit Electric Utilities, 77 FR 164 (Aug. 23, 2012) (the Commission
proposing bespoke regulatory treatment of certain derivatives
referencing electric energy based on the unique physical properties
of the underlying commodity); Giancarlo Blockchain Summit Remarks,
supra note 132 (Chairman Giancarlo describing how ``[w]ith respect
to the bitcoin products, because they were novel and based on a
unique crypto-asset, the exchanges did engage in substantial prior
discussions with CFTC staff before launch; this allowed for
incorporation of risk mitigating elements, including around higher
margin requirements and contract sizes.'').
\247\ See, e.g., House Conf. Report No. 102-978, 1992
U.S.C.C.A.N. 3179, 3213 (Congress noting that the Commission's
exemptive authority under the section 4(c) of the Act is intended
``to give the Commission a means of providing certainty and
stability to existing and emerging markets so that financial
innovation and market development can proceed in an effective and
competitive manner.'').
\248\ See CEA 4(c)(1), 7 U.S.C. 6(c)(1).
\249\ See 15 U.S.C. 8321(a).
\250\ See CEA 5(d)(5), 7 U.S.C. 7(d)(5).
---------------------------------------------------------------------------
The Commission preliminarily believes that it can further the Act's
purposes and objectives by using such statutory authorities to address
through rulemaking the risks posed by, and commercial realities of,
CTXs. As discussed above, Commissioners and market participants alike
have called for the Commission to do so specifically in the context of
section 2(c)(2)(D), which this Notice intends to address.\251\ The
Commission has reviewed those calls to inform this Notice and has found
they fall into four overlapping categories.
---------------------------------------------------------------------------
\251\ See, e.g., Section I.B.2, supra; Commissioner Summer K.
Mersinger, Dissenting Statement Regarding Enforcement Actions
Against: (1) Opyn, Inc.; (2) Deridex, Inc.; and (3) ZeroEx, Inc.
(Sept. 7, 2023), available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement090723">https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement090723</a>.
---------------------------------------------------------------------------
First, the Commission's existing rules are not fit-for-purpose with
respect to the novel properties of crypto assets and blockchain
technologies, and accordingly do not provide a fit-for-purpose path to
offer CTXs in compliance with the on-exchange requirement.\252\ When
Congress rendered 2(c)(2)(D) transactions subject to section 4(a) ``as
if'' they were futures contracts, it affected those transactions with
the same national interest that has justified uniform federal
regulation since Board of Trade of Chicago v. Olsen.\253\ While the on-
exchange requirement places such CTXs in the unique ``context of market
regulation that [gives rise to the need] for uniform legal rules,''
\254\ the Commission has failed to provide those rules for such
transactions.
---------------------------------------------------------------------------
\252\ See Mersinger Ooki Statement, supra note 98 (describing
how the Commission has failed its statutory mandate to promote the
responsible innovation and fair competition made possible by a
``world of [crypto] assets, blockchain technology, and decentralized
autonomous organizations (DAOs)--technology that did not exist when
the [Act] was enacted in 1974, and that has just started to develop
since Congress last amended the statute as part of the Dodd-Frank
Act in 2010.'').
\253\ Board of Trade of Chicago v. Olsen 262 US, at 41 (1923)
(``The Chicago Board of Trade is engaged in a business affected with
a public national interest and is subject to national regulation as
such.'').
\254\ American Agric. Movement, 977 F.2d at 1156 (``Only in the
context of market regulation does the need arise for uniform legal
rules. As Congress recognized in enacting the 1974 Act, a contract
market could not operate efficiently, and perhaps not at all, if
varying and potentially contradictory legal standards governed its
duties to investors[.]'').
---------------------------------------------------------------------------
Second, enforcement actions further failed to even provide
``transparency with respect to who [the Commission] will hold
accountable and for what,'' \255\ which has stifled the ability of
market participants to avoid running afoul of the on-exchange
requirement in the first instance and thereby forced them offshore in
the face of Commission enforcement actions.
---------------------------------------------------------------------------
\255\ Mersinger Ooki Statement, supra note 98.
---------------------------------------------------------------------------
Third, while the use of flexible and efficient regulatory tools
such as the Commission's enforcement authority may have been in
attempted furtherance of the mandate from Congress to protect market
participants from fraud, abusive sales practices, and other violations
of
[[Page 64828]]
the Act,\256\ regulating trillions of dollars in crypto asset
transactions requires an approach that scales with transaction
volume.\257\ Regulation by enforcement has misallocated Commission
resources that would be better spent on building a fit-for-purpose
regulatory regime.
---------------------------------------------------------------------------
\256\ SEC v. Chenery Corp., 332 U.S. 194, 202-03 (1947) (``In
other words, problems may arise in a case which the administrative
agency could not reasonably foresee, problems which must be solved
despite the absence of a relevant general rule. Or the agency may
not have had sufficient experience with a particular problem to
warrant rigidifying its tentative judgment into a hard and fast
rule. [. . .] In those situations, the agency must retain power to
deal with the problems on a case-to-case basis if the administrative
process is to be effective.'').
\257\ See Behnam 2024 Appropriations Testimony, supra note 221
(``Nowhere have we been more active than in the [crypto asset]
space. [. . .] With many agency resources which are not considered
in our budget appropriation being allocated to an unregulated
market, I fear the current trajectory is unsustainable. Namely, we
will continue to see rampant fraud and manipulation in the [crypto
asset] market that will hurt American customers, and possibly infect
the traditional financial markets.''); see also Mersinger Uniswap
Statement, supra note 105 (``Additionally, if we continue with this
enforcement-first approach, one or several DeFi protocols we target
may choose to litigate rather than settle out of court. Facing
litigation in these cases will not only come at the cost of
expending substantial government (and private sector) resources, but
also risks a morass of court cases yielding mixed results and
conflicting conclusions.'').
---------------------------------------------------------------------------
Fourth, unlike a slew of enforcement actions, a notice-and-comment
rulemaking process would allow the Commission to benefit from
``information, views, and public input from interested parties.'' \258\
The Commission would be better served if it were to ``communicate to,
and engage with, the public in a transparent manner and seek out the
input of those with expertise to share.'' \259\
---------------------------------------------------------------------------
\258\ Mersinger Ooki Statement, supra note 98.
\259\ Id.
---------------------------------------------------------------------------
4. Unleashing Innovation for the New Frontier of Finance \260\
---------------------------------------------------------------------------
\260\ Chairman Selig Project Crypto Remarks, supra note 125.
---------------------------------------------------------------------------
The Commission is therefore undertaking a reevaluation of its
regulatory framework pursuant to these calls, consistent with its
understanding of congressional intent and its statutory authority to
make and promulgate rules that are reasonably necessary to effectuate
any provisions or to accomplish any purposes of the Act, including the
on-exchange requirement, among other matters, with respect to CTXs.
Thus, the Commission preliminarily believes that its statutory mandates
require it to consider:
1. clarifying how market participants may elect to conduct business
in crypto asset markets under a uniform set of regulations that
provides a national regime for CTXs, while preserving access to ``other
markets[;]'' \261\
---------------------------------------------------------------------------
\261\ Id; see also CEA 5(b), 7 U.S.C. 5(b) (stating that the
purposes of the CEA include the promotion of fair competition among
boards of trade, other markets and market participants) (emphasis
added).
---------------------------------------------------------------------------
2. providing market participants with crypto asset-specific
contextual information regarding certain requirements and practices
that are commonly accepted in the industry and have been found, based
on the Commission's experience in overseeing aspects of crypto asset
markets since 2014, to represent the best-practice means of complying
with the regulatory requirements that attach to CTXs; and
3. codifying through rulemaking a subcategory of DCM registration
that is purpose-built for CTXs.\262\
---------------------------------------------------------------------------
\262\ See, e.g., Mersinger Ooki Statement, supra note 98.
---------------------------------------------------------------------------
III. Regulation CTX: The Commission's Preliminary Interpretation of
Certain Terms in Section 2(c)(2)(D)
A. Covered Offers Under Section 2(c)(2)(D)(i)
As discussed above, the offer of a transaction on a leveraged,
margined, or financed basis, ``even if not entered into'' on one of
those bases, subjects a transaction to section 2(c)(2)(D).\263\ Despite
calls from market participants to do so and Congress's delegation of
the authority to further define the terms in section 2(c)(2)(D),
including the term ``offer,'' \264\ the Commission has not clarified
the circumstances pursuant to which such an offer renders an agreement,
contract, or transaction subject to section 2(c)(2)(D) (a ``covered
offer''). The Commission preliminarily believes it would be prudent to
clarify those circumstances in the context of crypto assets and
blockchain technologies through rulemaking and sets forth its
preliminary understanding below.
---------------------------------------------------------------------------
\263\ See CEA 2(c)(2)(D)(i), 7 U.S.C. 2(c)(2)(D)(i) (``Except as
provided in clause (ii), this subparagraph shall apply to any
agreement, contract, or transaction in any commodity that is [. . .]
entered into, or offered (even if not entered into), on a leveraged
or margined basis, or financed by the offeror, the counterparty, or
a person acting in concert with the offeror or counterparty on a
similar basis.'').
\264\ See 15 U.S.C. 8321(a), providing that the ``Commission may
adopt a rule to define [ ] (1) the term `commercial risk'; and (2)
any other term included in an amendment to the [CEA] made by [the
Dodd-Frank Act].''
---------------------------------------------------------------------------
Section 2(c)(2)(D)(i) provides that ``[e]xcept as provided in
clause (ii),'' (which statutory exceptions are preliminarily
interpreted by the Commission in Sections III.B and C, infra), ``this
subparagraph shall apply to any agreement, contract, or transaction in
any commodity that is [. . .] entered into, or offered (even if not
entered into)'' on the leveraged, margined or financed bases described
in section 2(c)(2)(D)(i). The plain meaning of this statutory
construction extends the subparagraph to agreements, contracts, and
transactions where a covered offer is declined and the agreement,
contract, or transaction is subsequently executed on a fully paid
basis, provided all other statutory criteria are met (or in other
words, the transaction constitutes a fully paid, open 2(c)(2)(D)
transaction). Accordingly, the Commission preliminarily believes that a
covered offer attaches to all agreements, contracts, or transactions to
which it is applicable. That is, all agreements, contracts, or
transactions pursuant to which a retail customer may accept a covered
offer to transact on a leveraged, margined, or financed basis,
regardless of whether any individual transaction is entered into on one
of those bases.
The Commission further preliminarily believes that a covered offer
may be established by the provision of documentation that sets forth
the terms pursuant to which a customer may execute a CTX. An offeror or
counterparty to a CTX could provide such a covered offer, for example,
in standard customer documentation such as customer onboarding
documents (including those required by law or regulation), exchange
terms and conditions, or credit and margin documentation. While a
covered offer may be made with respect to a specific transaction or
transactions, the Commission preliminarily believes that section
2(c)(2)(D) contemplates that a covered offer could also be made with
respect to all transactions available on an exchange, all transactions
available through a customer account, all transactions in a product
class, or another class of transactions.
Under certain circumstances, section 2(c)(2)(D)(i) provides that a
``person acting in concert with the offeror or counterparty or on a
similar basis'' may extend a covered offer of financing.\265\ The
Commission preliminarily understands that the term ``acting in concert
or a similar basis'' may capture financing arrangements facilitated,
arranged, or otherwise endorsed by the offeror or counterparty,
including where the financing arrangement or terms thereof are set or
influenced by the offeror or counterparty, introduced by the offeror or
counterparty through marketing or advertising, subject to revenue-
sharing agreements with the offeror or counterparty, accessed through a
financing platform operated
[[Page 64829]]
by the offeror or counterparty, or otherwise involve the material
assistance of the offeror or counterparty.
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\265\ CEA 2(c)(2)(D)(i), 7 U.S.C. 2(c)(2)(D)(i).
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B. Scope and Meaning of ``Actual Delivery''
As described above, a contract of sale resulting in ``actual
delivery'' \266\ is one way that an agreement, contract, or transaction
that otherwise would be captured by section 2(c)(2)(D)(i) may be
excepted from the Commission's jurisdiction. The current law on the
actual delivery exception is primarily derived from court cases
interpreting the term.\267\ The Commission preliminarily believes it
could be prudent to provide further clarity, through rulemaking, on the
meaning of actual delivery in the context of 2(c)(2)(D) transactions in
crypto assets and blockchain technologies.
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\266\ CEA 2(c)(2)(D)(ii)(III)(aa), 7 U.S.C.
2(c)(2)(D)(ii)(III)(aa).
\267\ See Section III.B, supra; see also Monex, 931 F.3d 966.
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For example, the Commission takes note of the holding in Monex that
actual delivery requires the transfer of some meaningful degree of
possession or control.\268\ The Commission further notes that the
unique characteristics of crypto assets and blockchain technologies may
be relevant to an analysis of whether that possession or control
standard has been met. In this regard, the Commission preliminarily
believes that possession and control of a crypto asset may require
possession of the credentials (e.g., private key(s)) to the digital
wallet address or account associated with such crypto asset.\269\
Further, a demonstration of the possession and control required to
satisfy the actual delivery standard may depend on the specific
characteristics of the crypto asset at issue. For example, where a
crypto asset conveys certain governance rights or the right to
participate in a blockchain system's operation that provides network
rewards for doing so (i.e., to participate in staking),\270\ possession
and control thereof may require unfettered access to those rights or
entitlements. As illustrative examples, actual delivery may require the
capacity to participate in governance directly and on a
disintermediated basis; or, in the case of staking, the capacity to do
so without being subject to fees charged by an intermediary.
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\268\ See Monex 931 F.3d, at 974.
\269\ See, e.g., SEC v. Coinbase, 726 F. Supp. 3d 260, 271
(S.D.N.Y. Mar. 27, 2024) (explaining that ``[c]ritically important
to a [crypto asset] owner's exercise of control over her [crypto
assets] are the `public key' and `private key' associated with a
crypto asset, which keys permit the user to effectuate transactions
on the associated blockchain. Owners typically store these keys on a
piece of hardware or software known as a `crypto wallet.' The
wallets, in turn, use both a public key and a private key. The
public key is colloquially known as the user's blockchain `address'
and can be freely shared with others. The private key is analogous
to a password and confers the ability to transfer a [crypto
asset].'').
\270\ See generally POSA Liquid Staking Paper, supra note 67;
see also U.S. Securities and Exchange Commission, Statement on
Certain Protocol Staking Activities (May 29, 2025), available at
<a href="https://www.sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925">https://www.sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925</a>.
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Further, the Commission preliminarily believes that the text of the
actual delivery exception demonstrates Congress' intent for the act of,
and means to achieve, actual delivery itself to be subject to the
Commission's jurisdiction. Whereas section 2(c)(2)(D)(ii)(III)(bb)
considers the contractual terms of contracts of sale by examining if
they ``create[ ] an enforceable obligation[,]'' \271\ the actual
delivery exception applies based on if the contract of sale ``results
in actual delivery.'' \272\ That is, Congress granted the Commission
the authority to regulate the mechanics, or ``result[,]'' of actual
delivery. Moreover, because a constructive delivery does not satisfy
the actual delivery exception, section 2(c)(2)(D) tasks the Commission
with regulating the act of giving real and immediate possession to the
buyer or the buyer's agent. In the case of a CTX, this act involves the
transfer of crypto assets from the crypto asset exchange to the digital
wallet address or account associated with such crypto asset.
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\271\ CEA 2(c)(2)(D)(ii)(III)(bb), 7 U.S.C.
2(c)(2)(D)(ii)(III)(bb).
\272\ CEA 2(c)(2)(D)(ii)(III)(aa), 7 U.S.C.
2(c)(2)(D)(ii)(III)(aa).
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C. Actual Delivery of Fully Paid, Open CTXs
As discussed above, the Commission preliminarily believes that a
fully paid, open 2(c)(2)(D) transaction remains subject to the Act
unless an exception in section 2(c)(2)(D)(ii) applies.\273\
Accordingly, the Commission preliminarily believes that a fully paid,
open CTX is subject to the Act as described in section 2(c)(2)(D)(iii)
and the comprehensive regulatory framework applicable to futures
contracts during the period such fully paid, open CTX is only recorded
on an internal book-entry of the exchange, prior to actual
delivery.\274\ The statutory construction of section 2(c)(2)(D)
mandates this result by providing that the subparagraph applies to the
agreements, contracts, and transactions described in section
2(c)(2)(D)(i), ``[e]xcept as provided in clause (ii)'' of section
2(c)(2)(D).\275\
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\273\ See CEA 2(c)(2)(D)(i), 7 U.S.C. 2(c)(2)(D)(i) (``Except as
provided in clause (ii), this subparagraph shall apply to any
agreement, contract, or transaction in any commodity that is . .
.'') (emphasis added).
\274\ This Notice provides the Commission's preliminary
interpretation of the term ``actual delivery'' solely as it is used
in CEA 2(c)(2)(D) and in the context of CTXs. It does not address,
and the Commission does not express any view regarding, (i) the
means by which delivery may be effected within the context of the
Federal securities laws, including with respect to book-entry
arrangements involving securities held through SEC-registered
intermediaries such as broker-dealers and clearing agencies, or (ii)
the meaning of the term ``delivery'' as it is used within the
Federal securities laws, including with respect to the ``clearing
agency'' definition set forth in 15 U.S.C. 78c(a)(23) (providing
that the term ``clearing agency'' means ``any person who [ ] (i)
acts as a custodian of securities in connection with a system for
the central handling of securities whereby all securities of a
particular class or series of any issuer deposited within the system
are treated as fungible and may be transferred, loaned, or pledged
by bookkeeping entry without physical delivery of securities
certificates, or (ii) otherwise permits or facilitates the
settlement of securities transactions or the hypothecation or
lending of securities without physical delivery of securities
certificates[.]'') (emphasis added).
\275\ CEA 2(c)(2)(D)(i)-(ii), 7 U.S.C. 2(c)(2)(D)(i)-(ii).
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The Monex court summarized the point succinctly: the ``Dodd-Frank
[Act] expanded the CEA to close the so-called Zelener loophole [. . .]
because these transactions mimic conventional futures trades long
regulated by the CFTC. On the other hand, sales where customers obtain
meaningful control or possession of commodities, i.e., when actual
delivery occurs, do not mimic futures trading and are therefore exempt
from registration and related CEA requirements.'' \276\ Said another
way, the actual delivery exception identifies those transactions that
cease to exhibit the characteristics of the rolling spot contracts at
issue in Zelener.\277\ Because of the statutory construction of section
2(c)(2)(D)(i) and the fact that the proceeds of the fully paid, open
CTX are constructively, but not actually, delivered through an internal
book-entry, and thus would continue to exhibit the characteristics of
the rolling spot contracts at issue in Zelener, the Commission
preliminarily believes that Congress intended the retail purchaser of
that fully paid, open CTX to continue benefitting from the full array
of regulatory requirements applicable to on-exchange futures, unless
actual delivery (or another exception) occurs.\278\
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\276\ Monex, at 14 (emphasis added).
\277\ See Zelener, 373 F.3d at 868-69.
\278\ Id.
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The Commission seeks comment on this preliminary
interpretation.\279\
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\279\ The Commission notes that following the actual delivery of
a crypto asset purchased pursuant to a CTX, the transaction is
excepted from section 2(c)(2)(D)(i), and the Commission no longer
has jurisdiction with respect to such asset, aside from its anti-
fraud and anti-manipulation authority.
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[[Page 64830]]
IV. Questions and Request for Comment on Regulation CTX
A. General Request for Comment
The Commission sets forth specific questions regarding the proposed
Regulation CTX below, and encourages responses from all interested
parties, including state-regulated crypto asset exchanges, DCMs, FCMs,
DCOs, financial institutions, technology firms, trade associations,
retail and institutional investors, and other market participants with
experience in or knowledge of crypto asset markets. The Commission also
solicits any relevant comments not specifically responsive to the
questions herein. Comments received in response to this Notice will
inform the Commission's consideration of whether and how to proceed
with rulemaking concerning 2(c)(2)(D) transactions and CTXs
specifically.
B. Scope and Meaning of ``Offer'' Within Section 2(c)(2)(D)(i)
i. The Commission solicits comment on all aspects of its
preliminary interpretation set forth in Section III.A, supra, of the
term ``offer'' in section 2(c)(2)(D)(i). Would the Commission's
preliminary interpretation of ``offer'' provide market participants who
elect to offer or otherwise conduct business in CTXs the opportunity to
do so in a manner subject to Commission regulation?
ii. Would the Commission's preliminary interpretation of ``offer''
provide a commercially viable avenue for an exchange to elect to not
offer CTXs and thereby continue to operate under the state-level
regulatory framework described in Section I.A, supra?
iii. What novel mechanisms of offering leverage, margin, or
financing that may exist in crypto asset markets should the Commission
consider with respect to this Notice? \280\ For example, could a
covered offer include the facilitation of access to onchain ``vaults''
via the same exchange interface in which retail customers may purchase
crypto assets?
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\280\ See SEC Commissioner Hester M. Peirce, Headstands and
Summervaults: A Statement on Crypto Vaults and Lending Strategies
(July 22, 2026), available at <a href="https://www.sec.gov/newsroom/speeches-statements/peirce-statement-crypto-vaults-lending-strategies-072226">https://www.sec.gov/newsroom/speeches-statements/peirce-statement-crypto-vaults-lending-strategies-072226</a>.
Vaults facilitate asset deployment by using smart contracts to
allocate user assets to various yield-generating activities,
including staking and lending. Vaults have attracted recent
attention as a tool for facilitating disintermediated credit and
leverage arrangements.
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C. Scope and Meaning of ``Actual Delivery''
i. The Commission
[…truncated; see source link]Indexed from Federal Register on October 13, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.