Fresh submissions to the US Securities and Exchange Commission are adding pressure to an already complex debate over how crypto self-custody and decentralized finance should be regulated, just as lawmakers and industry leaders push to advance federal market structure legislation.
On Tuesday, the SEC’s Crypto Task Force published two new entries on its “Written Input” page. The submissions focus on user self-custody rights and the regulatory treatment of proprietary trading in tokenized assets and DeFi markets, signaling growing concern over how forthcoming rules could reshape the sector.
Earlier coverage: Binance Signals Move Into Tokenized Stock Derivatives With New API Update
The filings land amid heightened lobbying around the proposed CLARITY market structure bill, with industry leaders, including Coinbase CEO Brian Armstrong, urging compromise to avoid stalling legislation.
Self-custody protections and DeFi oversight in focus
One submission, filed under the name “DK Willard,” centers on retail crypto users in Louisiana and references the state’s HB 488 law, which explicitly protects residents’ right to self-custody digital assets. The letter argues that any federal crypto framework should preserve strong registration, transparency, and anti-fraud and anti-manipulation requirements.
The submission warns that some proposed federal exemptions could allow developers or platforms to sidestep core investor protection obligations. That, it argues, would increase risks of fraud and financial crime, particularly for retail users relying on self-custody and decentralized tools.
A separate submission from the Blockchain Association’s Trading Firm Working Group addresses how dealer rules should apply to tokenized equity and DeFi markets. The group urged the SEC to clarify that firms trading tokenized assets solely for their own account — without customer solicitation, custody, or agency execution — should not automatically be classified as “dealers” under the Exchange Act.
The letter also notes that existing broker-dealer regulations were built for traditional market infrastructure and may not translate cleanly to smart contract-based settlement and onchain trading.
The Blockchain Association Letter. Source: SEC
CLARITY bill negotiations reach a sensitive phase
The submissions arrive as negotiations over the CLARITY Act continue on Capitol Hill, with lawmakers attempting to reconcile investor protection, innovation, and market competitiveness.
Patrick Witt, a senior White House adviser on crypto policy, has urged the industry to accept pragmatic compromises while the political window remains open, pointing to the challenges of balancing stablecoin yield, DeFi liquidity, and regulatory safeguards within a single legislative framework.
Speaking from Davos, Coinbase CEO Brian Armstrong acknowledged progress on CLARITY but emphasized the need for flexibility to ensure the bill can move forward. Industry participants broadly see the legislation as a critical step toward regulatory clarity, even as disagreements persist over how far exemptions and definitions should go.
Together, the latest SEC submissions underscore the growing tension between preserving decentralized principles like self-custody and adapting long-standing securities rules to a rapidly evolving onchain market.