In a statement, SEC Commissioner Hester Peirce cautioned that crypto vaults—which use smart contracts to allocate user assets to yield-generating activities like staking and lending—and onchain lending strategies may implicate the federal securities laws, including as investment contracts, as investment companies, or through the issuance of notes that constitute securities. Peirce emphasized that moving activities onchain does not take them outside the SEC’s regulatory purview and warned market participants against doing “gymnastics” to read the law as inapplicable to activities that fall within the scope of the federal securities laws. Commissioner Peirce invited market participants involved in designing or operating crypto vaults and onchain lending platforms to engage with the SEC to find compliant paths forward and welcomed input on whether existing rules need to be modified to accommodate these innovations while still protecting investors.
With the August congressional recess in the horizon, the CLARITY Act negotiations continue in the Senate. Treasury Secretary Scott Bessent stated that lawmakers were at the “1-yard line” and urged the Senate to pass the bill, though some issues linger. On July 22, Senator Cynthia Lummis released an updated draft of the CLARITY Act that incorporates work products of both the Senate Banking and Senate Agriculture Committees. The bill now includes a Trump-approved ethics provision barring certain officials, including the president and other members of the executive branch and their spouses, from offering or issuing digital assets. However, some key Democrats have voiced opposition to the bill, because they believe ethics enforcement by the DOJ wouldn’t be strong enough. The updated bill text also retains text allowing for some stablecoin rewards, which has been a point of contention with bank trades associations. Senate Majority Leader John Thune had been optimistic about passage and noted there will be a vote in the next couple of weeks – as of yet, that vote is not scheduled.
On July 21, a superior court judge granted Washington state’s motion for a preliminary injunction against Kalshi, finding that its sports-related event contract likely violated the state’s gambling laws. The court rejected Kalshi’s central legal argument that its registration with the CFTC places its contracts under exclusive federal jurisdiction and instead ruled that the Commodity Exchange Act does not prevent Washington from applying its gambling laws to the platform. The injunction will not take effect until August 5 at the earliest, giving the parties a window to discuss implementation, and additional filings are due by August 3. Kalshi pushed back on the ruling, with a spokesperson reiterating the company’s belief that states can’t regulate federally registered prediction markets.
According to news reports, Kalshi has requested CFTC approval for precious metal-linked perpetual futures. The action would expand the prediction market’s perpetual contracts beyond crypto to create derivatives for gold, silver, and platinum. Instead of the 24/7 constant schedule for crypto perpetuals, the precious metal-linked contracts would trade five days a week for 24 hours a day, which matches the markets for precious metals. Kalshi filed the request in a process that would give the CFTC 45 days to determine whether to approve.
On July 21, the SEC updated its FAQs to include a new Question 260.40. The new FAQ’s answer affirms that an issuer offering tokenized securities under Rule 506(c) of Regulation D may accept a digital attestation on its accredited investor status and financing of its minimum investment amount, though “adequate records regarding the steps taken to verify that a purchaser was an accredited investor” must be retained by the issuer. The FAQ’s answer also clarified that issuers may rely on the guidance found in the No Action Letter of March 12, 2025 with respect to non-exclusive methods to reasonably verify a purchaser’s accredited investor status that may be relied upon for blockchain-based offers and sales.