#USSECPushesCryptoReform

U.S. Securities and Exchange Commission Pushes Comprehensive Crypto Reform Through "Project Crypto"

The United States Securities and Exchange Commission is currently executing a fundamental transformation in its approach to digital asset regulation. Under the leadership of Chairman Paul Atkins, the agency has launched "Project Crypto," a sweeping initiative designed to replace the previous enforcement-centric model with a structured framework providing regulatory clarity and support for innovation. This reform effort represents one of the most significant shifts in U.S. financial regulation since the emergence of digital assets.

The Strategic Vision: From Enforcement to Engagement

The philosophical foundation of Project Crypto reflects a deliberate departure from the approach taken by previous SEC leadership. Speaking at the SEC-CFTC Harmonization event on January 29, 2026, Chairman Atkins articulated a vision centered on providing clear "rules of the road" for market participants rather than relying primarily on enforcement actions to establish regulatory boundaries after the fact . This approach emphasizes transparent rulemaking and guidance as the primary mechanisms for shaping market behavior.

SEC staff have elaborated on this vision, explaining that the agency aims to move decisively away from the prior paradigm of regulation through enforcement actions. Instead, the focus has shifted toward providing market clarity through interpretative guidance and staff-level direction that enables innovation while maintaining appropriate investor protections . This philosophical recalibration reflects recognition that the previous approach created significant uncertainty that drove crypto innovation overseas.

Interagency Coordination: The SEC-CFTC Harmonization Agenda

A defining characteristic of Project Crypto is its emphasis on coordination between the SEC and the Commodity Futures Trading Commission. On January 29, 2026, both agencies jointly announced that Project Crypto would proceed as a collaborative initiative, reflecting the reality that modern financial markets operate across traditional jurisdictional boundaries .

CFTC Chairman Michael Selig emphasized during the joint announcement that market participants should be able to offer multiple products through single platforms without navigating overlapping regulatory regimes and duplicative compliance obligations . This commitment to harmonization addresses one of the most persistent complaints from industry participants, who have long struggled with conflicting or ambiguous jurisdictional determinations.

The agencies have committed to developing a comprehensive memorandum of understanding to formalize information sharing, surveillance coordination, and supervisory cooperation. Both Chairs emphasized that this coordination would extend beyond current leadership through routine engagement and day-to-day collaboration among agency staff .

Core Regulatory Priorities Under Project Crypto

Crypto Asset Taxonomy and Classification Framework

A central focus of Project Crypto involves developing a clear and practical taxonomy for digital assets. SEC staff are preparing interpretative guidance that would establish criteria for determining when crypto assets fall within or outside the definition of investment contracts subject to securities regulation . This guidance aims to resolve the long-standing ambiguity that has plagued market participants regarding whether particular tokens constitute securities or commodities.

CFTC Chairman Selig has articulated a vision under which digital commodities, digital collectibles, and digital tools would not be treated as securities, even when initially sold as part of an investment contract . Both agencies have committed to working toward joint codification of this token taxonomy as an interim measure while Congress considers legislative definitions .

The taxonomy framework contemplates distinguishing between several categories of digital assets. Pure cryptocurrencies with demonstrated decentralization would fall under commodity regulation. Utility tokens providing access to functional networks might receive treatment distinct from securities. Non-fungible tokens lacking standardization and investment characteristics could be classified as collectibles outside traditional securities frameworks. Only tokens representing traditional financial assets or exhibiting clear investment contract characteristics would remain subject to full securities regulation .



Subsequently, the Division of Trading and Markets issued guidance clarifying when broker-dealers may maintain direct custody of digital asset securities. This guidance establishes operational conditions under which staff would not object to a broker-dealer treating itself as having physical possession of customer assets, including maintaining direct on-chain access, conducting ongoing blockchain assessments, and implementing robust key management controls .

These custody clarifications remove significant barriers that previously prevented mainstream financial institutions from offering digital asset services, potentially enabling broader participation by traditional market participants.

Tokenized Securities and Settlement Infrastructure

The SEC has also advanced frameworks supporting tokenization of traditional securities. In December 2025, the agency issued no-action relief to the Depository Trust Company authorizing a three-year controlled production service to tokenize specified DTC-custodied assets on approved blockchains . The initial scope encompasses U.S. Treasury securities, select large-cap equities, and index-tracking ETFs.

This relief permits tokenized representations to carry the same entitlements as traditional securities while enabling 24/7 peer-to-peer transfers between approved wallets. The phased implementation approach contemplates expanding eligible assets and participants over time, subject to demonstrated controls and auditability .

SEC staff have also issued guidance on taxonomies associated with tokenized securities, distinguishing between issuer-sponsored and third-party sponsored models. This guidance recognizes both direct and indirect ownership structures, providing clarity for market participants developing tokenization initiatives .

Innovation Exemption Program

In December 2025, Chairman Atkins announced the establishment of an innovation exemption program scheduled to take effect in January 2026 . This program creates a structured regulatory sandbox enabling qualifying crypto projects to test products and services without immediately satisfying all traditional securities registration requirements.

Eligibility criteria require demonstrating meaningful decentralization, with governance token distribution limits and community voting participation thresholds. Projects must also undergo independent smart contract audits and implement non-custodial architectures ensuring user asset control .

Qualifying projects receive exemptions from complex registration requirements, instead completing simplified disclosures through project white papers and risk summaries. Exemption periods range from twelve to thirty-six months based on demonstrated decentralization levels. Importantly, the program introduces formal asset classification that distinguishes between commodity-type tokens, functional utility tokens, collectibles, and tokenized securities for regulatory purposes .

Prediction Markets and Event Contracts

The CFTC, coordinating with SEC, has signaled significant policy shifts regarding prediction markets and event contracts. Chairman Selig has directed staff to withdraw the CFTC's 2024 proposed rule that would have restricted political and sports-related event contracts, as well as a 2025 staff advisory cautioning registrants regarding such products .

The agency will instead pursue new rulemaking establishing clearer standards for event contracts, providing certainty to market participants. The CFTC may also reconsider its participation in litigation involving jurisdictional questions affecting prediction markets .

Perpetual Derivatives and Retail Leveraged Trading

The CFTC has identified onshoring perpetual derivatives markets as a priority, recognizing these products as important for risk management and price discovery. Chairman Selig has directed staff to explore using existing regulatory tools to enable U.S. persons to access perpetual contracts through appropriate frameworks .

Regarding retail leveraged crypto trading, the CFTC will draft rules clarifying when leveraged, margined, or financed retail crypto transactions may occur off-exchange under the actual delivery exception. The agency will also consider codifying venue requirements for such products and exploring new designated contract market categories tailored to retail leveraged crypto trading .

Tokenized Collateral

The CFTC has advanced initiatives enabling use of tokenized collateral in derivatives markets. In December 2025, staff issued guidance confirming that futures commission merchants and derivatives clearing organizations may accept tokenized collateral, subject to conditions regarding legal enforceability, segregation, and appropriate risk-based valuation approaches .

Staff also issued no-action relief permitting futures commission merchants to accept non-securities digital assets, including payment stablecoins, as customer collateral, withdrawing previous guidance that had limited such practices .

Examination Priorities Reflecting the New Approach

The SEC's Division of Examinations released its 2026 examination priorities in November 2025, notably omitting any explicit reference to cryptocurrency or digital assets for the first time in several years . This omission reflects the agency's shift away from framing digital asset markets as an inherent risk category requiring specialized scrutiny.

Instead, the examination priorities focus on core regulatory areas including fiduciary duties, asset custody, and customer information protection. Particular emphasis is placed on Regulation S-P compliance and data privacy, reflecting recognition that safeguarding customer information represents a fundamental supervisory priority regardless of asset class .

This does not mean crypto firms escape SEC oversight entirely. Examiners may still evaluate digital asset businesses under broader themes such as custody, cybersecurity, or anti-money laundering controls, but the specialized crypto-focused examination regime has been integrated into mainstream supervisory categories.

Interaction with Congressional Legislation

Throughout Project Crypto implementation, SEC leadership has emphasized the importance of pending congressional action on digital asset market structure. Both Chairmen Atkins and Selig have acknowledged that legislation would provide greater durability by anchoring regulatory frameworks in statute and reducing the risk of policy reversals across administrations .

The Senate Agriculture Committee advanced its version of digital asset market structure legislation on January 29, 2026, voting along party lines to move the bill forward while members committed to continued bipartisan negotiations . This text will ultimately require reconciliation with the Senate Banking Committee's framework before comprehensive legislation can proceed to the Senate floor.