100th Edition: Midterms Reshape Congress, SEC Issues Crypto FAQs and No-Action Letter on ‘Digital Commodity’ Classification, Court Weighs CFTC Equity Perpetuals

This marks the 100th edition of the Paul Hastings Crypto Policy Tracker, and we thank our readers for following along as digital asset policy has continued to take shape.

Control of both chambers of Congress will change in January, bringing new leadership to the committees that oversee digital assets and requiring the Clarity Act to be reintroduced. The SEC staff updated its crypto asset FAQs with three new questions on the classification of crypto assets, addressing when a crypto system has a “central party” and how a “functional” crypto system relates to a “decentralized” one. The SEC staff also issued a no-action letter viewing a certain digital asset as a “digital commodity” and permitting programmatic token minting without registration. The CFTC allowed perpetual futures on individual stocks to begin trading on CFTC-registered exchanges, and a federal court denied a trade group’s request to halt trading but found that the group is likely to succeed on its claim that the CFTC exceeded its statutory authority. The OCC released a supervisory framework for examiners evaluating banks’ use of “super intelligence,” which states that examiners should not treat it as a separate risk category.

Legislative Updates

Midterm Elections Shift Congressional Control, Reshaping Digital Asset Legislative Landscape

• Democrats will take control of both chambers of Congress when the 120th Congress convenes on Jan. 3, 2027, and leadership of the committees with jurisdiction over digital assets, including Senate Banking, Senate Agriculture, House Financial Services and House Agriculture, will change hands.
• Any digital asset market structure legislation such as the Clarity Act would need to be reintroduced in the new Congress. Ethics, stablecoin yield and illicit finance are expected to remain key issues in any renewed negotiations. Pending agency work, including GENIUS Act implementation and SEC and CFTC rulemakings, is expected to continue regardless of the change in congressional control.

Regulatory Updates

SEC Updates Crypto FAQs on Decentralization and Governance

• On Nov. 2, the staff of the SEC’s Division of Corporation Finance updated its crypto asset FAQs, first released on Sept. 25. The update adds three questions on the classification of crypto assets under the SEC’s March 17 Interpretive Release (the Interpretation).
• The FAQs state that participants in a crypto system’s broad-based governance system generally will not be considered a “group” that could be a “central party” if they are not affiliated and do not have an agreement to act in concert. A central party “oversees participation” when it has the unilateral authority to control access to the crypto system at any level. “Functional” and “decentralized” are distinct concepts, and a functional crypto system to which a digital commodity is native has characteristics of decentralization.

SEC Staff Issues No-Action Letter, Views Token as a ‘Digital Commodity’

• On Nov. 3, the SEC Division of Corporation Finance issued a no-action letter responding to an Oct. 30 request on behalf of the creator of the Canton blockchain protocol. The staff stated that, based on representations made in the request letter, it views Canton Coin as a “digital commodity” under the SEC’s Interpretation and will not recommend enforcement action for programmatic minting of its tokens by validators and application providers without registration under Section 5 of the Securities Act or Section 12(g) of the Exchange Act.
• The staff highlighted two representations in particular: (i) that token derives its value from the programmatic operation of the network and from supply and demand, rather than from the essential managerial efforts of others, and (ii) that the network has no “central party” as defined in the Interpretation.

CFTC Allows Trading of Equity Perpetual Futures; Court Finds Challenge Likely to Succeed but Denies TRO

• On Nov. 3, CFTC Chairman Michael Selig announced that perpetual futures contracts on individual equity securities can begin trading for the first time on CFTC-registered exchanges that are also registered with the SEC as notice-registered national securities exchanges to trade security futures products. The contracts were deemed approved as security futures products.
• The Capital Markets Alliance Association sued the CFTC in the Southern District of New York and sought a temporary restraining order. On Nov. 3, the court denied the order because the plaintiff had not shown irreparable harm. The court found, however, that the plaintiff is likely to succeed on its claim that the CFTC exceeded its statutory authority because perpetual contracts do not provide for a “sale for future delivery of a single security” and therefore are not security futures, but instead “appear to satisfy the definition of a swap” subject to SEC regulation.

OCC Instructs Bank Examiners Not to Treat ‘Super Intelligence’ as a Separate Risk Category

• On Nov. 4, the OCC released a supervisory framework designed to support OCC examiners in evaluating banks’ use of “super intelligence” (SI), the administration’s term for artificial intelligence, in normal-course business activities. The framework allows examiners to identify SI-specific considerations that supplement existing model risk management, governance, technology, compliance and operational-risk practices, but states that examiners should not treat SI as a separate and distinct risk category and that banks are not required to define a separate SI risk appetite. Moreover, the guidance emphasizes a bank’s control intensity could increase with the potential consequences of an SI agent’s failure or misuse. However, the OCC stated that the framework does not establish supervisory expectations for banks or create new regulatory requirements.

SEC Amends Definition of Small Entities for Funds and Advisers

• On Nov. 4, the SEC adopted amendments to the definitions of “small business” and “small organization” under the Investment Company Act and the Advisers Act for purposes of the Regulatory Flexibility Act. The amendments raise the fund net asset threshold from $50 million to $10 billion and the adviser regulatory assets under management threshold from $25 million to $1 billion. Commissioner Mark T. Uyeda issued a statement on the adoption.

Additional Updates

Prediction Market Updates

• On Oct. 30, the 2nd Circuit granted the CFTC’s request to share its views on prediction market regulation at upcoming oral arguments between a prediction markets platform and Connecticut regulators.