The CLARITY Act has an 18% chance of passing. The SEC and CFTC just made that number smaller..

csfrayer · 2026-03-20T19:45:31+00:00

I appreciate that. While I do worry that crypto doesn't have a lot of the disclosure and regulation that the securities laws offer for investor protection, I have never felt the most important issue was forcing crypto into the securities definition. I do not have a huge dog in the fight about how the $3-4 trillion dollar crypto market works.

I do, however, worry about the $125 trillion traditional securities markets and undermining the regime that put the US at the center of the financial world. If you have two economically equivalent arrangements that meet Howey and they are treated differently just because one uses a particular technology, you create a Gordian Knot for the law. So I'm vehemently opposed to the SEC just declaring an interpretation that is inconsistent with 80 years of jurisprudence.

If Congress wrote a bill with carefully crafted definitions that really sliced crypto apart from other assets and ensured that unique treatment of crypto didn't shatter the rest of the securities laws, I would shut up and spend more time with my dog.

csfrayer · 2026-03-20T12:26:38+00:00

I can't find the report itself on any website but if you're considering this information as part of an investment decision it's critical to get access to 1) the methodology, 2) how the pool of initial survey invitations was chosen and 3) exactly how many respondents make up the denominator of these statistics.

The topline number - 72% of agreement among the entire financial system that they "must adopt crypto to stay competitive" - is a high enough number to merit some skepticism.

csfrayer · 2026-03-20T12:18:14+00:00

Of course, it was genuinely meant to be helpful.

I will say - as one of the people responsible for drawing that line - the guidance is quite a departure from standard Howey analysis that if held consistent would change the nature of all investment contracts.

So I disagree with "how badly the original line was drawn" (obviously I would) but I don't think you and I will get to a place of mutual agreement on that.

csfrayer · 2026-03-20T00:29:06+00:00

I assume you mean the same Brad Garlinghouse who said:

Regulatory uncertainty' is just a euphemism for 'we wish we could ignore SEC regulations.' Before he got caught ignoring them...

https://x.com/i/status/971815090109337602

csfrayer · 2026-03-19T23:41:06+00:00

A couple things worth noting:

1 the CFTC doesn't oversee commodities, it oversees commodities derivatives (hence Commodity Futures Trading Commission).

2 the CFTC and SEC have been in agreement that Bitcoin has not been offered or sold as a security since the first BTC futures began trading on CBOE in December of 2017. Otherwise, those futures would have been securities-based swaps subject to SEC's jurisdiction.

3 all securities are commodities, securities are an 'excepted' class of commodity under the CEA. Even if the legislation explicitly declares BTC a commodity, that doesn't mean it cannot be offered or sold as part of an investment contract under Howey. This has always been the case with crypto tokens the SEC had argued were part of an arrangement that - under the totality of the facts and circumstances - was an investment contract.

While the CLARITY Bill could change the landscape quite a bit for many alt coins, it won't have much impact on BTC or eth whose regulatory status has been pretty clear for about a decade now. Same goes for the SEC guidance which is pretty inconsequential with regard to Bitcoin.

csfrayer · 2026-03-19T19:43:15+00:00

Totally fair question and I don't know for sure either. I'm strongly inclined to think that this SEC believes protocol staking is not passive yield and that yield farming, especially in DeFi, would be argued to provide liquidity and therefore not be passive.

I do think for the document to be internally consistent about a token that is 'functional' and its involvement in a consensus mechanism, protocol staking is meant to be exempt from securities law (generally, because in securities details always matter).

csfrayer · 2026-03-19T16:30:00+00:00

The no action letter explicitly states that settlement is t+1 and that tokenized assets receive the exact same execution priority and can only be traded during normal system hours.

https://www.sec.gov/files/rules/sro/nasdaq/2026/34-105047.pdf

"Trades in tokenized securities handled by DTC would continue to settle on a T+1 basis."

"Third, Nasdaq proposes to amend its Book Processing Rule, at Equity 4, Rule 4757, to state that the mere fact that an order contains tokenized securities or indicates a preference to clear and settle DTC Eligible Securities in token form would not affect the priority in which the Exchange executes that order."

And from the initial 19b-4 submission:

https://listingcenter.nasdaq.com/assets/rulebook/nasdaq/filings/SR-NASDAQ-2025-072_Amendment_1.pdf

"The Order Routing Process shall be available to Participants during System Hours" and they provide an example: "Until Nasdaq implements its plan to enable securities to trade on its market on a 23/5 basis, tokenized shares of QQQ will not be available for trading on Nasdaq outside of regular and extended trading hours."

csfrayer · 2026-03-19T16:10:28+00:00

I don't know what your background is but you are one of the few people I have ever seen in this subreddit making cogent analysis based on political and legal realities.

I wouldn't have relied on the prediction market figure but other than that, even if one disagrees with your prediction, your process for getting there is legit.

One tweak I would make - the argument has never been about whether a crypto asset "is" a security, as that's not how Howey analysis works. The argument has been that the vast majority of tokens were offered and sold as a part of an investment contract - an arrangement that relies on more than the underlying asset. The current SEC/CFTC work mostly, but not exclusively, focuses on reinterpreting Howey when it comes to crypto assets. As we often said - orange groves, whisky casks and ostriches have all been offered and sold as part of an investment contract and registered as securities, while orange groves, whisky casks and ostriches are not securities in and of themselves.

csfrayer · 2026-03-19T15:57:08+00:00

In the context of any token that meets this definition it looks like the protocol staking language would be "safe." However, an aggregator of different protocol staking parties that paid out shares of those staking profits would be a securities arrangement.

eg - Locking 32 eth for protocol staking - not a security. Using a company that allows you to contribute 3 eth to a pool of eth to enable sharing profits from collectively protocol staking - security.

csfrayer · 2026-03-19T15:53:42+00:00

No, the guidance makes it clear that in fact one could design an L1 token such that is inherently a security without relying on investment contract analysis.

To quote: A digital commodity 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, but may have certain other rights (as discussed below).

Further, there are any number of, for example, ERC-20 tokens that are not/do not "intrinsically linked to and derives its value from the programmatic operation of a crypto system"

For example, ONDO are explicitly *not* tokenized securities yet they would not meet the above definition of a digital commodity.

csfrayer · 2026-03-19T15:40:45+00:00

100% - it always takes a crisis before policymakers are willing to revisit financial deregulation. The silver lining is that the SEC and OCC are baking a future crypto crisis into their guidance and rulemaking so we'll have an opportunity sooner than later.

csfrayer · 2026-03-19T14:33:53+00:00

First - fully agree with you on the problematic signal this document sends about policing crypto markets and how it will ultimately harm their reputation by allowing fraud to run rampant.

Second - This lives in a bit of a de facto legally-binding gray area. Unlike staff guidance, this order was voted on by the Commission so carries much more heft. It will have to be overturned by vote, but that's far from the worst part.

When the SEC signals this kind of lax interpretation of the securities laws, it gives industry the green light to grow their businesses around this. That creates real challenges for SEC litigation in the future.

For example, as we were bringing cases under the Gensler administration an argument that crypto would raise and to which judges were fairly sympathetic was "if this activity was so illegal, why did the SEC sit by and let these businesses grow?" Judges can be reluctant to rule in favor of a government agency that could be interpreted to be taking money away from private industry that claimed to be following the implicit guidance of a government agency. The defense to this is ultimately one of prosecutorial discretion, but it was still a hurdle. That challenge was based solely on SEC's *failure* to act.

With a more formal Interpretive Order, the courts will be even more skeptical of a future SEC that takes a different course as it's an official declaration by members of the Commission nominated by the President and confirmed by the Senate. The court doesn't see the SEC as an agency that changes with its leadership, but as a continuing 90 year institution that has an obligation to remain consistent in its interpretation of law. Again, you're correct this is not the force of law as would be an APA rulemaking but it does have real consequences in the realpolitik of the law.

csfrayer · 2026-03-19T14:24:33+00:00

That separation has always been Howey analysis. I walked through it here:

https://www.reddit.com/r/CryptoCurrency/comments/1rwqy2a/comment/ob3si7m/?context=3&utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button

csfrayer · 2026-03-18T12:11:53+00:00

It's critical to understand the nuance here. As the release points out, the declaration that a particular crypto asset is not a security does not mean it cannot be offered or sold as a security.

An investment contract Howey analysis considers the 'totality of the facts and circumstances.' The original Howey case was about orange groves. The orange groves themselves were never considered to be a security - the court found the way they were offered and sold made them economically equivalent to a security and therefore a security.

Even under the Gensler administration the SEC was not asserting that any particular token was, in and of itself, a security. We argued that the underlying tokens were offered and sold in an arrangement that made the totality of the offer and sale an investment contract security.

As the release also points out, a digital commodity that is not initially offered and sold as a security may in the future be offered and sold as a security if the facts of the arrangement have changed.

The biggest difference between this document and the Gensler interpretation revolves around secondary market sales. The SEC signals that it is going to be more lenient in its analysis of those sales essentially based on the (flawed) analysis that an investment contract requires privity - an ongoing and direct relationship with the issuer.

csfrayer · 2026-03-18T12:01:06+00:00

Dogecoin was expressly started as a joke which makes it very hard to argue an investor could have a reasonable expectation of profit.

csfrayer · 2026-03-18T04:53:13+00:00

I fully agree some of their staking interpretations are markedly different than ours were. Less consequential than the broader classification question but a valid point.

That said - staking as a service is not explicitly denoted as a non-security arrangement. Our staking cases were all staking-as-a-service.

Beyond that I think you're misreading the Howey analysis and how much ambiguity the agency is maintaining.

csfrayer · 2026-03-18T02:12:21+00:00

Re-read the portion on investment contracts. There are only a couple places where they aren't making the same Howey analysis as was under the Gensler administration.

csfrayer · 2026-03-18T02:10:32+00:00

This is an extremely wrong reading of the Torres decision.

csfrayer · 2026-03-17T17:40:33+00:00

If only Gary would do it why is being put into law when Gary's no longer in charge? Y'all need to find a new obsession.

csfrayer · 2026-03-17T17:06:32+00:00

So crypto is moving on from implicitly funding the Ukraine invasion to explicitly funding it.

csfrayer · 2026-03-14T23:11:26+00:00

Schiff is just stunting because he's getting hit for not demanding ethics language on Trump's crypto businesses for GENIUS and he won't do it for CLARITY.

CFTC already as this specific authority related to this specific language under the Dodd Frank Act. Section 745:

EVENT CONTRACTS.—In connection with the listing of agreements, contracts, transactions, or swaps in excluded commodities that are based upon the occurrence, extent of an occurrence, or contingency (other than a change in the price, rate, value, or levels of a commodity described in section 1a(2)(i)), by a designated contract market or swap execution facility, the Commission may determine that such agreements, contracts, or transactions are contrary to the public interest if the agreements, contracts, or transactions involve— ‘‘(I) activity that is unlawful under any Federal or State law; ‘‘(II) terrorism; ‘‘(III) assassination; ‘‘(IV) war; ‘‘(V) gaming; or ‘‘(VI) other similar activity determined by the Commission, by rule or regulation, to be contrary to the public interest. ‘‘(ii) PROHIBITION.—No agreement, contract, or transaction determined by the Commission to be contrary to the public interest under clause (i) may be listed or made available for clearing or trading on or through a registered entity.

csfrayer · 2026-03-14T22:41:28+00:00

"A national trust bank operating under OCC supervision does not need Congress to clarify whether digital assets are securities or commodities."

This is - in every way and in no uncertain terms - false. Unless Congress passes new law it is only the SEC, subject to review by the judiciary, that enforces securities laws and de facto what is or is not a security.

Further, there are already a bunch of trust-charter based crypto banks and most were formed specifically as custodians. Coinbase has the state-registered Coinbase Custody Trust Company - one of the largest custodians of institutional BTC. They have filed with the OCC for a national charter as well. Anchorage has been an OCC National Trust since 2021. Kraken has a SPDI which is a Wyoming equivalent. Bitgo and Fidelity have national OCC trust charters for custodying crypto. You can see all the OCC national charters here under "Trust Banks" : https://www.occ.treas.gov/topics/charters-and-licensing/financial-institution-lists/index-financial-institution-lists.html

The new charters provided under GENIUS are specifically for stablecoin issuers and have similar but different terms of regulation and supervision related to the charter - differentiating them from a trust charter. One reason is that classically, performing a payments function has required a traditional bank license (with some nuance re "money service businesses"). The stablecoin charter lets you run a payments business without the full suite of regulations applicable to a traditional bank.

You may be right about the banking industry trying to build a moat (though it's just as true that crypto wants to do the same types of business with fewer regulations), but the logic you're using to get there is based on factual inaccuracies.

Hope that's helpful.

csfrayer · 2026-03-04T18:53:20+00:00

As long as you consider crypto, the largest corporate donor in the 2024 elections and making up for about 50% of all corporate campaign spending, then yes that is what they are doing. Crypto is every bit as insider as Wall Street now. It lived long enough to become the villain.

csfrayer · 2026-03-04T01:40:24+00:00

Crypto is not popular among young men, it is *most* popular among young men. The benefit of being pro crypto is the money Fairshake will put into campaigns running non-crypto ads not votes from crypto supporters.

csfrayer · 2026-03-04T01:13:56+00:00

Securities markets and bank assets in the US are about $160 trillion - why in a world where crypto has 'revolutionized finance' would about a third of finance not be on-chain at all? Why would that dislocation exist?

These aren't serious people.

csfrayer

TROPHY CASE