United States: The White House Working Group on Digital Asset Markets Report: Establishing Clear Regulation Based on a Digital Assets Taxonomy

By: Sarah V. Riddell and Vivian K. Bridges

The President’s Working Group on Digital Asset Markets Report (the Report) emphasizes that a clearly defined taxonomy is essential for establishing a regulated digital asset market and identifying the appropriate federal regulator (i.e., the SEC or CFTC) based on a digital asset’s functions.

The Report sets forth a taxonomy of digital assets that could enable more efficient regulation by dividing digital assets into three main categories:

Security Tokens

• Securities: Digital assets that constitute securities or are offered and sold as an investment contract.  
• Tokenized Securities: The representation of securities as digital assets on blockchain or distributed ledger technology to record the ownership of securities that an issuer issues. Although tokenized securities are securities, the Report suggests that the SEC could issue relevant relief for these securities, limited in time or scope.
• Non-Security Digital Assets Subject to an Investment Contract: Tokens offered or sold as the subject of an investment contract, but that may be separable from such investment contract in later transactions. The Report provides that the SEC could provide a safe harbor from securities registration for these types of transactions.

Commodity Tokens

• Commodity: Digital assets that have been identified as commodities, such as bitcoin and ether. The Commodity Futures Trading Commission has anti-fraud and anti-manipulation authority over spot digital assets and regulates derivatives based on digital assets.
• Network or Protocol Tokens: Tokens intrinsically connected to the functioning of a network or protocol, allowing users to participate in the decentralized network rather than provide holders future profit flows from managerial efforts.

Tokens for Commercial and Consumer Use

• Non-fungible tokens issued by a centralized entity that provide access to a specific good, service, or privilege (event tickets, warehouse receipts, and identity credentials, among others), subject to other laws governing commercial transactions. Future regulation should concentrate on consumer protections and disclosures.

If you have any questions or would like additional information, please contact Sarah V. Riddell, Vivian K. Bridges, Richard F. Kerr, Jeremy M. McLaughlin, or Cheryl L. Isaac.