Overview of the President’s Working Group Report
The President’s Working Group on Digital Asset Markets released a comprehensive document titled “Strengthening American Leadership in Digital Financial Technology” on July 30. This report, developed in response to January’s Executive Order 14178, presents an extensive array of recommendations aimed at regulating digital assets and blockchain technology within the United States. Below, we explore the significant implications of this report for businesses, financial institutions, and investors.
Purpose and Priorities of the Report
The primary objective of the report is to fulfill the working group’s mandate to propose regulatory and legislative measures that encourage the responsible advancement of digital assets and blockchain technologies. While it does not create immediate regulatory changes, it is anticipated that key federal agencies will act on the recommendations that do not necessitate new legislation. The report emphasizes several priorities, including: safeguarding individuals’ and businesses’ rights to utilize open blockchain networks and maintain self-custody of digital assets; enhancing the global importance of the U.S. dollar through the endorsement of stablecoins; banning the development or acceptance of central bank digital currencies (CBDCs) in the U.S.; clarifying legal ownership and self-custody of digital assets; ensuring equitable treatment of digital asset businesses by banks and regulators; and bolstering U.S. leadership in digital asset innovation, payment systems, and anti-money laundering efforts.
Proposed Structure for Digital Asset Markets
The report introduces a three-category classification for digital assets: security tokens under the jurisdiction of the SEC, commodity tokens regulated by the CFTC, and commercial/consumer use tokens such as stablecoins and utility tokens. This classification aims to minimize regulatory overlap and prevent regulatory arbitrage. Additionally, it suggests special exemptions for certain digital asset distributions from securities registration, safe harbors for nascent projects that are not yet fully operational or decentralized, and relief for some decentralized finance (DeFi) service providers from various registration mandates. Modernization of definitions and regulations for exchanges, transfer agents, and self-hosted wallet providers is also recommended, alongside coordinated rulemaking efforts between the SEC and CFTC, including the establishment of regulatory sandboxes.
Immediate Recommendations for Market Participants and Regulators
Among the immediate recommendations are provisions for securities offerings that create exemptions from registration for digital asset offerings, including safe harbors for early-stage initiatives and clear guidelines for airdrops and rewards from decentralized networks. The report advocates for allowing trading of non-security digital assets on non-SEC platforms following issuance and easing registration requirements for DeFi service providers. It also calls for the modernization of market rules, which involves updating the definition of “exchange facility,” supporting tokenized securities, and clarifying when wallet providers need to register as broker-dealers. Furthermore, it emphasizes the need for clear guidance on how investment firms and advisors can securely hold digital assets classified as securities, and the CFTC should clarify how digital assets are categorized and traded as commodities.
Coordination Between the SEC and CFTC
The report stresses the importance of collaboration between the SEC and CFTC, advocating for unified rulemaking processes and public comment procedures. It also suggests the creation of regulatory sandboxes or safe harbors with explicit eligibility criteria and pathways for exit. Additionally, the report proposes a specialized category for qualified participants to trade digital asset derivatives through regulated intermediaries.
Long-Term Recommendations for Market Structure
For long-term market structure, the report suggests implementing a single user interface that allows digital asset companies to offer trading, custody, and brokerage services under one roof, while ensuring robust safeguards and transparency. It calls for updates to CFTC rules to facilitate blockchain-based derivatives, including requirements for clearing and reporting, even in non-intermediated settings. Moreover, if Congressional action remains stagnant, both the SEC and CFTC should leverage their existing authority to provide regulatory clarity and support responsible innovation.
Market Structure Legislation Insights
The report identifies the Digital Asset Market Clarity Act of 2025 (CLARITY) as a cornerstone for establishing market structure, dividing oversight responsibilities between the SEC and CFTC, protecting self-custody rights, and enabling efficient trading and DeFi operations. It encourages Congress to ensure that federal laws supersede state laws for firms registered with the SEC and CFTC while providing explicit, efficient licensing and reporting frameworks for digital asset intermediaries.
Regulation of DeFi and Innovation
The report outlines recommendations for regulation based on actual control over assets, software modification capabilities, and the level of centralization. It emphasizes the need for tailored regulations that reflect the unique characteristics of DeFi, rather than applying conventional financial regulations indiscriminately. Furthermore, it stresses the importance of preventing misuse by ensuring that products cannot be designed solely to evade legal obligations.
Accounting Recommendations
The Financial Accounting Standards Board (FASB) has provided guidance on measuring digital assets at fair value. The report urges FASB to seek additional input regarding the timing for recognizing or removing digital assets from balance sheets, the accounting for tokens issued by companies, whether stablecoins qualify as cash equivalents, and the treatment of tokens providing utility or access without clearly defined legal rights. It highlights the necessity for updated accounting and auditing standards as the utilization of digital assets expands.
Banking and Digital Asset Activities
The report advocates for clear directives concerning permissible digital asset activities for banks, which include custody services, utilizing third-party providers, maintaining stablecoin reserves, and engaging in pilot programs. It calls for equitable treatment across all types of banks, ensuring technology-neutral supervision, and establishing transparent processes for obtaining charters, insurance, and master accounts with the Reserve Bank—mandating automatic approvals if deadlines are not met unless extraordinary circumstances arise. Additionally, it recommends risk-based capital and liquidity standards for digital asset operations that align with international benchmarks while eliminating outdated restrictions on state-chartered banks and ensuring consistent training for examiners.
Stablecoins and Payment Systems
The report endorses the GENIUS Act, which mandates that U.S. dollar-pegged stablecoins be entirely backed by high-quality, liquid assets and redeemable at a 1:1 ratio for cash. It calls for monthly disclosures of reserves, prohibits misleading claims regarding government backing, requires stablecoin issuers to be licensed in the U.S. or meet equivalent foreign standards, prioritizes claims of stablecoin holders in insolvency, and mandates custodians to segregate reserves. The report clarifies that U.S.-licensed payment stablecoins are not classified as securities or commodities, imposes stringent anti-money laundering and counter-terrorism financing requirements on issuers—even those foreign entities serving U.S. customers—and encourages competition and innovation in payment systems while banning government-issued CBDCs.
Addressing Illicit Finance
The report calls for the swift enactment of the GENIUS Act’s anti-money laundering regulations for stablecoin issuers. It suggests updating FinCEN’s guidance for digital assets to introduce new categories for digital asset financial institutions and establishing legislation to clarify when U.S. AML rules are applicable to foreign entities. It emphasizes the importance of securing Americans’ right to self-custody of digital assets and clarifying that software providers lacking complete control do not qualify as money transmitters. Improved information sharing between digital asset and traditional financial institutions is also highlighted, along with enhanced participation in FinCEN’s information-sharing initiatives. New rules are proposed that would empower the Treasury to block or condition specific digital asset transfers associated with illicit actors, even outside conventional banking systems. The report also calls for updates to victim compensation and asset forfeiture laws concerning digital assets, as well as expanded anti-tipping off and theft regulations to encompass digital asset businesses, accompanied by flexible cybersecurity standards and better sharing of cyber threat intelligence.
Tax Recommendations
The report outlines guidance on the taxation of digital asset transactions, including activities such as staking, mining, and wrapping. It advocates for treating digital assets as a distinct asset class for tax purposes, with regulations akin to those applicable to stocks and commodities. Clarifications on the tax implications of stablecoins are also recommended, including their classification as debt and addressing wash sale and anti-bearer bond regulations. The recommendations include the application of wash sale rules to digital assets (excluding stablecoins), updates to broker reporting protocols, the treatment of actively traded digital asset loans like securities loans, and guidance on small digital asset receipts (airdrops, staking, mining), as well as the timing of income recognition from these activities. Furthermore, it requires reporting for foreign digital asset accounts and streamlining reporting forms for the IRS and FinCEN to ensure consistency and minimize the burden on brokers and businesses.
Conclusion
The White House’s digital asset roadmap indicates a significant move towards clearer and more favorable regulatory frameworks for digital assets and blockchain technologies in the United States. Federal agencies including the Treasury, SEC, CFTC, OCC, FDIC, and others are expected to act swiftly on the report’s recommendations. Additionally, Congress may consider new legislation to clarify aspects of digital asset market structure, tax treatment, and anti-illicit finance policies. Companies are encouraged to review their compliance, risk management, and reporting practices in light of these recommendations while staying vigilant for future regulatory and legislative changes.
