Digital Currency & Blockchain Quarterly Litigation Update

Welcome to Goodwin's Digital Currency & Blockchain Quarterly Litigation Update, in which our Chambers-ranked global team of specialists shares highlights and key litigation and enforcement updates that are shaping the industry, as well as relevant legislative updates. To receive future updates, please subscribe.

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In this issue

1. Recent SEC Developments: Interpretive Guidance, Enforcement Resolution, and Policy Vision
2. State Enforcement Updates: States Step into the Regulatory Gap
3. Litigation Updates
4. Policy & Legislative Updates

1. Recent SEC Developments: Interpretive Guidance, Enforcement Resolution, and Policy Vision

Topic 1: SEC Issues No-Action Relief on State Trust Crypto Custody and DePIN Tokens

Key Takeaway: In a sharp departure from the limited no-action relief granted during the Gensler era, the US Securities and Exchange Commission (SEC) recently released two impactful no-action letters: one addressing crypto-asset custody by state-chartered trust companies ("State Trust Companies"), and a second involving the DoubleZero decentralized physical infrastructure network ("DePIN") token distribution. Taken together, these letters evidence the SEC's more open and pragmatic approach to digital asset market innovation and will likely encourage more industry participants to seek proactive guidance and clearance from the SEC, in contrast to the crypto-hostile attitude of the prior administration.

State Trust Companies No-Action Letter
In the State Trust Companies letter, the Office of the General Counsel of the SEC's Division of Investment Management confirmed it would not recommend enforcement against registered advisers or regulated funds for maintaining crypto assets with qualifying state-chartered trusts acting in fiduciary capacities similar to national banks. Commissioner Hester Peirce applauded this position, noting that advisers have long faced uncertainty over whether such entities qualify as "banks" under the Investment Advisers Act and the Investment Company Act of 1940. Peirce emphasized that the relief does not expand the class of permissible custodians but rather confirms that appropriately supervised state trusts already fit within the existing statutory framework. Commissioner Caroline Crenshaw, however, cautioned that staff-level no-action relief "cannot override statutory definitions or substitute for formal rulemaking," warning that the letter may leave investors vulnerable where oversight varies across state regimes.

Despite Crenshaw's admonitions, most market participants view the letter as providing long-sought clarity for funds and advisers regarding cryptocurrency custody, particularly following the rescission of Staff Accounting Bulletin No. 121 and ongoing efforts across various federal banking agencies to define permissible digital asset activities.

DoubleZero DePIN No-Action Letter
In the DoubleZero DePIN letter, dated September 29, 2025, the SEC's Division of Corporation Finance confirmed that it would not recommend an enforcement under Section 5 of the Securities Act of 1933 and Section 12(g) of the Securities Exchange Act of 1934 if the 2Z token was distributed programmatically to participants who contribute resources, such as bandwidth, storage, or computing power, to its decentralized physical infrastructure network. Commissioner Peirce hailed the decision as evidence that the SEC can engage constructively with innovators "without expanding our reach beyond what Congress has mandated." She drew a sharp distinction between DePIN models and traditional securities offerings: DePIN tokens, Peirce explained, function as incentives for work performed or services rendered, not as investments premised on the managerial efforts of others. In her view, treating these functional reward tokens as securities "would suppress the growth of networks of distributed providers of services."

While both letters are highly fact-specific and are therefore limited to their respective factual circumstances, they reflect a meaningful shift toward regulatory pragmatism and do provide encouraging guidance to the industry. The SEC is acknowledging that the existing securities framework can accommodate certain digital asset activities without wholesale legislative overhaul, and for market participants, the letters offer some measure of clarity.

Topic 2: SEC and Gemini Reach Settlement in Principle

Key Takeaway: The SEC's settlement in principle with Gemini Trust Company marks a likely close to one of the agency's earliest post-FTX cryptocurrency enforcement actions. The settlement is consistent with the SEC's broader pattern of resolving enforcement actions brought by the prior administration against digital-asset participants. If finalized, the deal — following Genesis Global Capital's $21 million settlement — would resolve allegations that Gemini's Earn program offered and sold unregistered securities.

The SEC announced that it has reached a settlement in principle with Gemini Trust Company to resolve allegations that the cryptocurrency exchange offered and sold unregistered securities through its Gemini Earn lending program. The parties notified Judge Edgardo Ramos of the US District Court for the Southern District of New York on September 15, 2025, that they have agreed to stay the case indefinitely while final settlement terms are documented and approved by the SEC. In the letter, the parties stated that if the agreement is not finalized by December 15, 2025, they will file a joint status report to update the court.

The tentative deal follows the SEC's parallel settlement with Genesis Global Capital LLC, Gemini's onetime Earn program partner, which agreed to pay a $21 million civil penalty in March 2024 to resolve related allegations. The SEC's complaint, filed in January 2023, had accused both Gemini Trust Company and Genesis Global Capital LLC of jointly offering interest-bearing cryptocurrency accounts that constituted unregistered securities under the federal securities laws.

If approved, the Gemini settlement would mark the final chapter in one of the SEC's earliest and most visible post-FTX cryptocurrency enforcement actions. While details of the resolution have not been disclosed, an agreement in principle aligns with the SEC's recent pattern of resolving digital-asset cases through dismissals or negotiated settlements rather than litigating them to judgment, consistent with the agency's more tempered, post-Gensler approach.

Topic 3: SEC Chairman Paul Atkins Unveils "New Day" Vision and Hopes for Coordinated Oversight with the CFTC

Key Takeaway: Paul Atkins, the Chairman of the SEC, recently announced a "New Day" vision for pragmatic and technology-aware oversight and his plans for a "new era of collaboration" between the SEC and US Commodity Futures Trading Commission (CFTC) aimed at ending decades of duplicative regulation while restoring statutory discipline to rulemaking.

In his September 4, 2025, "New Day" statement, SEC Chairman Atkins emphasized that a "key priority" of his chairmanship is "clear rules of the road for the issuance, custody, and trading of crypto assets while continuing to discourage bad actors from violating the law." Atkins proposes to withdraw several carry-over rulemakings outlined in the SEC's spring 2025 rulemaking agenda (for instance, regarding board diversity requirements and certain disclosure expansions) that he deems misaligned with his regulatory philosophy, while placing at the forefront digital asset rules, capital formation reforms, and modernization of disclosure regimes. As detailed in a recent Goodwin insight, industry experts are interpreting this agenda as a reset of SEC priorities toward "tailored, mission-focused" regulations that emphasize technology, capital formation, clarity, and investor protection.

In his September 29, 2025, remarks at the SEC-CFTC Joint Roundtable, Chairman Atkins once again invoked the notion of a "New Day for U.S. Capital Markets" intended to mark a strategic break from decades of regulatory overlap and uncertainty. Atkins was explicit in his vision of "harmonization" between the SEC and CFTC, with the agencies "operat[ing] in concert, side by side, hand in glove, so that American innovation and investment can thrive." He emphasized that the agencies' near-term opportunity lies in building a framework of seamless, coordinated oversight that preserves investor protection while minimizing duplicative burdens.

Chairman Atkins characterized the prior era as one in which "[f]ields [were] [l]ittered with the [b]odies of [w]ould-[b]e [p]roducts," as innovators navigated conflicting mandates of the SEC and CFTC, directed capital into redundant collateral regimes, or simply relocated offshore. Atkins framed the coming years as an inflection point, one in which coordinated, innovation-friendly oversight could determine whether the United States leads or lags in the digital age. The challenge, of course, will be whether the SEC and CFTC can translate these ambitions into concrete proposals that encourage innovation and avoid new conflicts or gaps.

2. State Enforcement Updates: States Step into the Regulatory Gap

Key Takeaway: While there remains a lull in crypto enforcement on the federal level, state regulators are continuing to adopt the governmental oversight and enforcement role previously taken on by federal agencies. Two recent actions from New York and Oregon state regulators illustrate how state authorities are seeking to fill the perceived gap in federal enforcement.

NYDFS–Paxos Settlement
On August 7, 2025, the New York Department of Financial Services ("NYDFS") announced a settlement resolving its allegations that Paxos Trust Company failed to maintain effective anti-money laundering ("AML") and customer-due-diligence controls in connection with its partnership with Binance to issue and manage the Binance USD (BUSD) stablecoin. NYDFS's investigation found that Paxos did not adequately monitor for "significant illicit activity" occurring through Binance, failed to escalate red flags to senior management, and lacked defined guidelines for opening investigations following law-enforcement requests. The agency's review identified more than $1.6 billion in suspect transactions, including activity involving OFAC-sanctioned entities. To resolve the matter, Paxos agreed to pay a $26.5 million penalty and commit nearly $50 million to compliance enhancements, including $22 million earmarked for programmatic improvements.

The consent order brings to a close NYDFS's long-running investigation into Binance-related activity and underscores NYDFS Superintendent Adrienne Harris's message that the department will continue "taking significant steps to ensure accountability" in the virtual currency industry. Paxos, which was one of the first firms authorized by NYDFS to engage in virtual currency business back in 2015, has since ceased minting Binance-branded stablecoins following a 2023 supervisory directive. In a public statement in response to the announcement of the settlement, Paxos said the matter caused "no consumer harm" and reaffirmed its commitment to global compliance standards.

Oregon's Coinbase Action Stayed Pending Attorney General's Remand Motion
Oregon's lawsuit against Coinbase, Inc., which alleges that Coinbase operated an unregistered securities platform and thereby exposed Oregonians to "risky investments," remains on hold to determine whether the case should remain in federal court or return to state court. Originally filed in Oregon state court in April 2025, the action was removed by Coinbase to federal court on the basis of federal question jurisdiction. The Oregon attorney general has since moved to remand, arguing that the State's claims arise solely under Oregon's securities laws and therefore belong in state court. After Coinbase subsequently moved to dismiss the case, the Oregon attorney general sought an expedited stay of briefing while the court considers its pending motion to remand the case to state court — or in the alternative, grant an extension of time to respond to Coinbase's motion to dismiss. In a docket text order entered August 12, 2025, Magistrate Judge Jolie A. Russo granted the State's motion, staying Coinbase's motion to dismiss until the remand issue is resolved. Under the court's order, Oregon will have 14 days to respond to Coinbase's dismissal motion once the remand motion is finally adjudicated. The stay effectively pauses substantive briefing on Coinbase's motion to dismiss, at least until the court determines whether Oregon's claims will proceed in federal or state court.

Coinbase has publicly criticized the case, pointing out in a comment letter to the US DOJ that "[f]or years, the State of Oregon advised the public that digital assets, including cryptocurrencies, are 'not regulated' by the State as securities and should be viewed as commodities 'similar . . . to gold.'" (Comment Letter at 7 (quoting Compl. 3, Coinbase, Inc. v. Kotek, No. 25-cv-40324 (Or. Cir. Ct., Cnty. of Marion) (July 10, 2025)). This action remains a test case for state-level enforcement authority over cryptocurrency exchanges, coming just months after the SEC voluntarily dismissed its own registration-based claims against Coinbase. Once the remand motion is adjudicated and Coinbase's motion to dismiss is fully briefed, whether Oregon's challenge proceeds or stalls may influence whether other state attorneys general pursue similar actions under local securities laws.

3. Litigation Updates

Topic 1: Private Litigation Updates: Courts Narrow Scope of Celebrity-Endorsed Digital-Asset Actions & SDNY Vacates TRO and Denies Preliminary Injunction in $LIBRA Token & $M3M3 Token Case

Key Takeaway: Recent rulings in NFT cases show courts are increasingly willing to narrow procedurally overbroad suits and exercise caution in extending existing securities laws to digital assets that function primarily as collectibles rather than purported investment contracts. A recent SDNY decision reflects a broader judicial skepticism toward granting extraordinary relief in cryptocurrency cases and reinforces that plaintiffs must meet traditional equitable standards (and not just allege digital-asset volatility) to obtain injunctive relief.

EthereumMax Class Partially Certified
On August 7, 2025, Judge Michael W. Fitzgerald (C.D. Cal.) partially granted class certification in In re EthereumMax Investor Litigation, allowing subclasses in California, New York, New Jersey, and Florida to proceed but rejecting a proposed nationwide class of roughly 5,900 purchasers of EthereumMax (EMAX) tokens. The putative class alleges a 2021 "pump-and-dump" scheme organized by EthereumMax executives and a group of promoters, including celebrities Kim Kardashian, Floyd Mayweather Jr., and Paul Pierce, claiming that they misled retail purchasers into overpaying for EMAX tokens that later collapsed in value.

Judge Fitzgerald held that while the proposed nationwide class satisfied the threshold requirements of numerosity, commonality, and typicality, it failed the predominance test under Rule 23(b)(3). The plaintiffs' nationwide theory relied solely on California and Florida securities statutes, but the Court found that applying those laws to a nationwide class would require individualized factual inquiries into where each EMAX purchase legally occurred and would risk the "inappropriate extraterritorial application" of state law. Of the roughly 5,900 EMAX purchasers, only about 700 were in California and fewer than 400 in Florida, leaving the vast majority of purchasers outside the territorial reach of those statutes. The ruling narrows the case to four state-specific subclasses, allowing claims to proceed under the respective jurisdictions' securities laws while denying certification of a nationwide class.

Bored Ape NFT Claims Dismissed
On October 2, 2025, Judge Fernando M. Olguin (C.D. Cal.) dismissed a putative class action accusing Yuga Labs Inc. and a group of celebrity endorsers, including Justin Bieber, Paris Hilton, and Madonna, of unlawfully promoting Bored Ape Yacht Club (BAYC) NFTs as unregistered securities. The 2022 lawsuit claimed that Yuga Labs and its promoters violated federal securities laws by marketing BAYC NFTs as profit-generating investments and by failing to disclose compensation for celebrity endorsements.

Judge Olguin held that BAYC NFTs fail to meet the Howey test and thus are not securities under federal law, distinguishing them from other NFT collections that courts have deemed plausibly investment-like, such as Dapper Labs' NBA Top Shot NFTs and DraftKings NFTs. Judge Olguin emphasized that BAYC purchasers acquired NFTs on third-party marketplaces such as OpenSea and Coinbase, not through an issuer-controlled platform, and that Yuga Labs' receipt of fixed royalties from secondary sales "decoupled" its financial interests from purchasers' profits.

The decision clarifies that NFTs sold primarily as collectibles or cultural assets, rather than as investments, fall outside the scope of federal securities laws. It marks a significant win for NFTs and may signal judicial reluctance to treat collectible digital assets such as NFTs as investment contracts absent explicit profit-sharing arrangements or active issuer involvement.

Earlier this year, Yuga Labs announced that the SEC had closed its investigation into the company. The SEC likewise ended a similar inquiry into the NFT marketplace OpenSea. Together, these developments may further narrow the scope of legal inquiries in the NFT sector.

SDNY Vacates TRO and Denies Preliminary Injunction in Meme Coin Action
On August 19, 2025, Judge Jennifer L. Rochon (S.D.N.Y.) denied a motion for preliminary injunction and dissolved an earlier ex parte temporary restraining order, in Hurlock v. Kelsier Ventures et al. The action arises from two meme coin launches on the Solana blockchain, $M3M3 and $LIBRA, that plaintiffs allege were structured to allow insiders to control trading dynamics and pricing. According to the complaint, defendants coordinated to restrict trading at launch, inflate token prices, and later sell their holdings at a profit. Plaintiffs also allege that the $LIBRA launch was publicly promoted as having the endorsement of Argentine President Javier Milei.

Judge Rochon had previously issued a temporary restraining order that barred defendants and related parties from transferring or otherwise interfering with any $LIBRA cryptocurrency or proceeds, including roughly 57 million USDC and approximately $110 million in assets that plaintiffs claimed were traceable to $LIBRA trading.

But following an August 19, 2025, hearing, Judge Rochon lifted the TRO and removed the restrictions she placed on moving $LIBRA launch transaction fees. Judge Rochon rejected plaintiffs' argument that there was a danger the assets in question would disappear simply because they were digital assets. She also denied plaintiffs' motion for a preliminary injunction, concluding that plaintiffs had not demonstrated irreparable harm because an adequate remedy at law (monetary damages) was available to plaintiffs. Even assuming no adequate remedy existed, the Court held that there were no extraordinary circumstances warranting injunctive relief. Judge Rochon further stated that she was "extremely skeptical" plaintiffs could establish a likelihood of success on the merits or even raise "serious questions" as to their claims. As of September 29, 2025, all defendants have moved to dismiss plaintiffs' complaint, with consolidated briefing running through November 18, 2025.

Judge Rochon's decision reflects courts' reluctance to treat crypto cases as exceptional when applying traditional equitable standards. The ruling reinforces that, absent clear evidence of irreparable harm or an imminent risk of dissipation, plaintiffs cannot rely on the transferability or volatility of cryptocurrency to obtain extraordinary relief such as a TRO or asset freeze.

Topic 2: The DOJ Continues to Prioritize Rooting Out Fraud

Key Takeaway: Recent guilty pleas and convictions in federal criminal cases underscore the DOJ's continued focus on the prosecution of defendants who cause financial harm to digital asset investors and consumers.

Tornado Cash Trial Results in Co-Founder Conviction and Hung Jury on Remaining Charges
On August 6, 2025, following a four-week trial in the Southern District of New York, a jury found Roman Storm (co-founder of Tornado Cash¹, an open-source crypto asset mixer) guilty of one count of conspiracy to operate an unlicensed money transmitting business, but it deadlocked on the more serious charges of conspiracy to commit money laundering and conspiracy to commit sanctions violations. This verdict has been widely heralded as a significant victory for the future of DeFi, with broad implications for both financial privacy and freedom of expression.

In August 2022, the U.S. Treasury's Office of Foreign Assets Control ("OFAC") sanctioned Tornado Cash under Executive Order 13694 by adding Tornado Cash to the Specially Designated Nationals and Blocked Persons List ("SDN List"), thereby making it illegal for US persons to send or receive assets through the platform. OFAC alleged that the platform had handled more than $7 billion in illicit funds, including $600 million stolen by Lazarus Group, North Korea's state-funded hacking organization. In November 2024, the US Court of Appeals for the Fifth Circuit overturned the sanctions designation, ruling that Tornado Cash's smart contracts did not qualify as "property" under the International Emergency Economic Powers Act — a necessary condition to impose the sanctions. OFAC officially removed Tornado Cash from the SDN List in March 2025.

The US Attorney's Office for the Southern District of New York initially charged Tornado Cash co-founders Roman Storm and Roman Semenov with charges for conspiracy to commit money laundering, conspiracy to commit sanctions violations, and conspiracy to operate an unlicensed money transmitting business in August 2023. In May 2025, in accordance with a memorandum issued by Deputy Attorney General Todd Blanche titled "Ending Regulation By Prosecution," the US Attorney's Office dropped the charge that Storm conspired to operate a money transmitting business while failing to register as a money service business with FinCEN, in violation of 18 U.S.C. § 1960(b)(1)(B) and confirmed it would proceed to trial on the claim that Storm conspired to violate 18 U.S.C. § 1960(b)(1)(C) by operating an unlicensed money transmitting business in a manner that "otherwise involves the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity."

At trial, the US Attorney's Office argued that Storm knew or should have known that Tornado Cash was being used by criminals to conceal their illegal gains but continued to operate and profit from the platform. The defense argued that Tornado Cash is a privacy tool with a legitimate purpose and that most of the funds that passed through the platform were wholly unrelated to criminal activity. The defense also focused on the intent elements of the charges — arguing that Storm did not willfully conspire to commit a crime. After almost a week of deliberation, the jury remained deadlocked on the two more significant charges of conspiracy to commit money laundering and conspiracy to commit sanctions violations — resulting in a partial mistrial. The jury convicted Storm of one count of conspiracy to operate an unlicensed money transmitting business in connection with Tornado Cash. On August 11, 2025, the court set a briefing schedule for the parties' post-trial motions and excluded time until December 18, 2025, for a retrial. The court scheduled a conference to discuss the post-trial motions, also for that date.

The partial conviction suggests that non-custodial, decentralized protocols can trigger liability for founders and executives under existing financial services laws if they qualify as money transmitting businesses. At the same time, the jury's inability to agree on the more serious charges underscores the difficulty in proving intentional or knowing facilitation of criminal activity by individual developers of a DeFi platform when there is no direct control over how users utilize the platform. The US Attorney's Office's decision to pursue these charges is consistent with the priorities set out in the Blanche Memorandum — public safety, the prevention of cyber-terrorism, and the protection of digital assets and their owners. Developers should consider building in compliance safeguards to monitor risk and detect misuse, even for non-custodial platforms.

Terraform Founder Do Kwon Pleads Guilty in Connection with $40 Billion Crypto Fraud Scheme
On August 12, 2025, Do Kwon — founder and former CEO of Terraform Labs ("Terraform") — pled guilty to one count of conspiracy to commit commodities fraud, securities fraud, and wire fraud and one count of wire fraud in the US District Court for the Southern District of New York. Earlier this year, Kwon pled not guilty to a broader nine-count indictment brought by the US Attorney's Office for the Southern District of New York arising out of an estimated $40 billion in investor losses resulting from the collapse of stablecoin TerraUSD (UST) and the staking and governance Luna tokens. Kwon was arrested in Europe in March 2023 and extradited from Montenegro at the end of 2024.

Terraform was a cryptocurrency and blockchain company founded by Kwon in 2018. Kwon promoted Terraform as a self-contained, decentralized crypto ecosystem, but according to the US Attorney's Office, its core functions were manipulated and did not operate as claimed. Specifically, the US Attorney's Office alleged that Kwon secretly worked with a high-frequency trading firm to prop up UST when its algorithm failed to maintain a $1 peg; misrepresented the independence, roles, and finances of Luna Foundation Guard (LFG), misappropriating hundreds of millions of dollars in assets from it; falsely claimed that the Mirror Protocol — a platform that allowed for the creation, buying, and selling of synthetic versions of financial assets, such as stocks listed on United States securities exchanges using the Terra blockchain — was decentralized when, in fact, Kwon and Terraform maintained control over it; falsely claimed that the Terra blockchain was being used to process billions of dollars in financial transactions for Chai — a Korean payment platform — when, in fact, Chai processed transactions through traditional financial processing networks, not the Terra blockchain; and made misrepresentations about the use of a supply of one billion stablecoins programmed into the Terra blockchain at its creation (the Genesis Stablecoins), which Kwon used to fund fake Chai blockchain transactions and trading bots to manipulate the prices of synthetic assets that Mirror issued.

As part of his guilty plea, Kwon has agreed to forfeit $19 million in proceeds from his illegal schemes, including his interest in Terraform and its cryptocurrencies. He faces a maximum sentence of up to 25 years. Kwon is scheduled to be sentenced on December 11, 2025.

4. Policy & Legislative Updates

Topic 1: The White House Debuts Its Crypto Wish List

Key Takeaway: The White House issued its long-awaited report on the regulation of cryptocurrencies at the end of July, which includes legislative recommendations and agency rulemaking suggestions to regulate the use of digital assets in banking, finance (including guidance on countering illicit use of digital assets), and taxation. It also proposes a framework for the separation of the SEC's and CFTC's enforcement and rulemaking authority.

On July 30, 2025, the President's Working Group on Digital Asset Markets released a 166-page report on the Digital Asset industry. The report, titled "Strengthening American Leadership in Digital Financial Technology" (the "Report") charged the SEC and the CFTC with primary responsibility for providing guidance on the regulation of digital assets. Each of the Report's sections goes on to provide recommendations to those respective agencies, among others, regarding the following topics: Banking; Stablecoins and Payments; Countering Illicit Finance; and Taxation.

The Report begins with a comprehensive overview of the industry and how it evolved. The Report goes on to make recommendations to the SEC and CFTC on how to best enable the trading of digital assets at the federal level, dividing the duties between the agencies.

In a section called "Jurisdiction of Market Regulators," the Report makes clear that "[t]he CFTC should have clear authority to regulate spot markets in non-security digital assets. SEC and CFTC registrants should be permitted to engage in multiple business lines under the most efficient licensing structure possible, ensuring a clear and simple regulatory framework for digital asset market activities."

Notably, the Report recommends that the SEC use its rulemaking and exemptive authority under the Securities act to:

• "[e]stablish a fit-for-purpose exemption from registration . . . for securities distributions involving digital assets,"
• "[e]stablish a time-limited safe harbor or exemption from certain securities law requirements for transactions involving digital assets that may be subject to an investment contract because they are not yet fully functional or associated with a sufficiently decentralized network to allow for progressive functionality or decentralization,"
• "[e]stablish a safe harbor for certain airdrops from characterization as 'sales' under Section 2(a)(3) of the Securities Act or an exemption from the corresponding registration requirements under Section 5 of the Securities Act," and
• "[c]onsider also an exemption for distributions of digital assets by . . . [DePIN] providers in securities transactions for purposes of rewarding participation in DePIN networks, as well as distributions of certain NFT offerings."

The Report also recommends the SEC use its authority under the Exchange Act to, among other things:

• "[e]nable non-security digital assets that are tied to an investment contract to be traded on non-SEC registered trading platforms immediately following the primary distribution of the digital asset,"
• "[p]rovide relief for certain DeFi service providers from the broker-dealer (Section 15), exchange (Sections 5 and 6), and clearing agency (Section 17A) registration provisions of the Exchange Act," and
• "[c]reate a conditional 'innovation exemption' . . . to allow SEC registrants to engage in innovative new business models."

The Report's recommendations to the CFTC include that the CFTC should:

• "[p]rovide guidance to designated contract markets (DCMs) regarding the listing of leveraged, margined, or financed spot retail commodity transactions on digital assets,"
• "[p]rovide guidance as to how digital assets may be considered commodities" by "expanding upon prior guidance on 'actual delivery' of virtual assets," and
• "[p]rovide clarity on the applicability of various CFTC registration requirements to DeFi activities, smart contract protocols, or decentralized autonomous organizations (DAOs) consistent with technology-neutral principles."

The Report directed the CFTC and SEC to coordinate on rulemaking and seeking public comment. It also urges them to establish clear criteria for the use and graduation from any sandboxes that the respective agencies establish. The Report is the White House's attempt to provide guidance and clarity on regulation to continue to foster innovation in the digital asset industry in the United States.

Topic 2: Senate Takes Pass at Providing Clarity through New Digital Asset Draft Bill

Key Takeaway: Congress's motivation to provide regulatory guidance in the digital asset space is on full display in the latter half of 2025. The Senate is responding to the House-passed CLARITY Act with proposed digital asset legislation of its own. The Senate Banking Committee put forth the Responsible Financial Innovation Act of 2025 as its initial proposal for digital asset marketplace regulation, 12 Democrats put forth a proposal of their own, and a third framework is likely to emerge from the Senate Agriculture Committee. In light of the government shutdown, however, it is unlikely that the efforts to finalize a bipartisan bill will bear fruit prior to the end of 2025.

On September 5, 2025, the Senate Banking Committee released a more comprehensive discussion draft of its initial attempt at proposing a framework for regulating the market for digital assets. This draft, called the Responsible Financial Innovation Act of 2025 ("RFIA"), is the Senate's take on the issues sought to be remedied in the House-passed CLARITY Act and outlines a proposed legal regime for digital asset marketplace.

This draft presents one of two frameworks that have recently been proposed by the Senate. The other was proposed by 12 Senate Democrats on September 9, 2025, signaling bipartisan interest in resolving issues relating to digital asset market structure. The RFIA is not the only framework, and it is likely not the last framework to be put forth. The Senate Agriculture Committee is expected to release a discussion draft of its own to address the issue of regulating the market for digital assets in the near future, which will likely focus on addressing CFTC-related issues.

The RFIA sets out a number of definitions and, as anticipated, also attempts to provide guidelines for SEC reporting and enforcement. Importantly, and distinct from the proposed CLARITY Act, the RFIA uses a new defined term called an "Ancillary Asset" to categorize certain digital assets. The term is defined as "an intangible asset, including a digital commodity, that is offered, sold, or otherwise distributed to a person pursuant to the purchase and sale of a security through an arrangement that constitutes an investment contract." The RFIA draft outlines that ancillary assets are not securities and are not considered securities when traded on secondary markets. Additionally, assets distributed for a "nominal value of cash, property, services, or other assets in a broad, equitable, and non-discretionary manner or in a manner reasonably designed to facilitate the consumption of goods or services involving use of the ancillary asset or digital asset without a disqualifying financial interest" would not be considered securities transactions under the RFIA under a "Gratuitous Distribution" exemption.

Interestingly, the RFIA also proposes reducing regulatory burdens for ancillary assets when compared with securities regulations in numerous ways, stating that only ancillary asset originators (1) raising more than $5 million per asset in a 12-month period and (2) with average daily trading volumes of more than $5 million will need to provide semiannual disclosures to the SEC. The RFIA also proposes that disclosures are considered a "prospectus" for liability purposes and not a registration statement. Such disclosures are contemplated to cover general corporate information, economic details about the ancillary asset, risk factors, and more. Further, under the RFIA, periodic disclosure is not required if the originator of an asset certifies to the SEC that it has not engaged in more than a nominal level of managerial efforts in the prior year.

The RFIA would also reduce liability for promoters of ancillary assets, providing that there would be no liability for forward-looking statements made in disclosures if the following conditions were met: the statements are identified as forward-looking statements, the statements are contextualized with cautionary language, and any party bringing an action relating to such statements must show the promoter knew the statements were false or misleading at the time they were made.

The RFIA also adds an entirely new section addressing DePINs. In that section, assets used to power DePINs will not be treated as securities so long as they meet the decentralization criteria laid out by the bill. However, the exemption is not total. If a person owns more than 20% of the assets for any particular DePIN, the safe harbor is inapplicable.

The Senate's release of the RFIA marks a pivotal moment in the maturation of US digital asset regulation, offering the first comprehensive Senate framework that delineates when and how certain assets fall outside securities laws. By introducing tailored disclosure requirements and liability protections, the RFIA signals a potential shift toward a more predictable and innovation-friendly regulatory regime for digital assets.

Footnote

1. As a crypto asset mixer, Tornado Cash assures privacy and anonymity for its users by obscuring the origin and destination of crypto assets. The Tornado Cash protocol allows for the verification of transactions without revealing the underlying data, relying on immutable smart contracts, which are essentially one-party contracts between users and the platform, for the movement of assets. Tornado Cash serves as an intermediary and does not take custody of any funds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.