How should regulatory frameworks adapt to the rapid evolution of digital assets? The Securities and Exchange Commission (SEC) under Chair Gary Gensler’s successor, SEC Chair Atkins, has begun a comprehensive initiative known as “Project Crypto” to address this question by modernizing regulations to better suit the complexities of 21st-century finance. This initiative responds to recommendations from the President’s Working Group on Digital Assets and aims to provide greater regulatory clarity by recognizing that most cryptocurrencies do not qualify as securities, marking a notable shift from prior agency positions. By proposing streamlined licensing rules, Project Crypto seeks to enable brokerages to offer multiple asset classes under a single license, thereby simplifying regulatory burdens and fostering innovation within a clearer market structure that distinguishes between commodities and securities. Additionally, the initiative was launched by SEC Chair Paul Atkins to modernize securities regulations and prevent outdated rules from hindering innovation. This strategic move aligns with Atkins’ goal of positioning the U.S. as the “crypto capital of the world.”
Central to these reforms is the development of interpretative and exemptive tools designed to prevent outdated regulations from stifling technological advancement. The SEC envisions granting exemptions or grace periods for early-stage crypto projects, initial coin offerings (ICOs), and decentralized software, therefore allowing innovation to proceed without the immediate threat of litigation. Staff within the agency are tasked with clarifying the criteria for when a cryptocurrency qualifies as a security or investment contract, further contributing to legal certainty. Additionally, plans to explore specific exemptions and safe harbors for certain crypto securities transactions aim to balance investor protection with market development. Avalanche’s consensus mechanism, with its leaderless structure, exemplifies the type of innovative blockchain technology that could benefit from such updated regulatory clarity.
The SEC aims to modernize crypto rules with exemptions and clarity, fostering innovation while protecting investors.
Custody regulations are also a focal point of Project Crypto, with efforts to modernize rules to accommodate the unique nature of crypto asset custody while protecting the right to self-custody. The SEC intends to reduce concentration in the custody market by encouraging competition and security through possible exemptive reliefs that expand custody options beyond traditional providers. This approach seeks to safeguard assets without imposing undue constraints on service providers or users.
Moreover, Project Crypto supports the emergence of “super apps” capable of offering multiple financial services—such as trading, staking, and lending—under a single regulatory license, which could reduce complexity and enhance market competition. The initiative also proposes clearer jurisdictional boundaries between the SEC and the Commodity Futures Trading Commission (CFTC), advocating that non-security cryptos and certain investment contracts fall under CFTC oversight. This distinction aligns with recent bipartisan legislative efforts and aims to foster market clarity by distributing regulatory responsibilities according to asset classification. While these reforms promise to advance innovation and market efficiency, they also underscore the need for cautious implementation to mitigate risks inherent in rapidly evolving digital finance environments.
