The Blockchain Association and Ava Labs recently visited with the Securities and Exchange Commission’s Crypto Task Force to discuss the topic of two types of “protocol tokens,” as the Commission works toward creating a regulatory approach toward tokenization.
Regulation PT
These digital assets break down as follows:
- Pre-Functionality Protocol Tokens, over which the SEC would retain jurisdiction via investment-contract-based oversight;
- Functional Protocol Tokens, which operate in live systems and fit within the CEA’s “commodity” definition.
The pitch is that Protocol Tokens are not securities, but sales of Pre-Functionality Tokens can be investment contracts, handled through a prescriptive framework.
The group sees this structure as providing regulatory clarity without new statutory categories.
Regulation PT would become a new exemption where offerings up to $50 million or up to 10% of total token value would come with mandatory disclosures such as AML/KYC requirements, sale agreements, and a notice filing.
Once a Protocol Token becomes functional, current SEC- and CFTC-registered intermediaries would be permitted to support trading, custody, clearing, and settlement for that token.
There would be a grace period to encourage digital asset trading to return to the US.
The group proposes a joint working structure, including the CFTC and SEC, to build out the proposal.