Getting Infrastructure vs. Intermediary Right: EU Transfer of Funds Regulation and the US GENIUS Act

Introduction On March 17, 2026, the U.S. Securities and Exchange Commission (SEC), together with the Commodity Futures Trading Commission (CFTC), issued its most comprehensive statement to date on how federal securities laws apply to crypto assets. The Interpretation represents a significant step in clarifying how regulators view token classification, interpret “investment contract”, and categorize core blockchain activities. Of course, we were very pleased that the agencies classify AVAX as a digital commodity and not a security in the Interpretation. But there is much more to dig into. Over the past year, Avalanche Policy Coalition (APC) has advanced a framework for crypto regulation centered on three principles: (1) the nature of the asset matters, (2) infrastructure and intermediaries must be treated differently, and (3) regulation should be workable and grounded in real market structure. Our April, May and September 2025 comment letters to the SEC Crypto Task Force articulated these ideas in detail. This post compares the SEC Interpretation with that framework, highlighting where they align, where they differ, and how the two approaches relate conceptually. Token Classification: Converging on Function One of the most important developments in the SEC Interpretation is the introduction of a five-part taxonomy for crypto assets: digital commodities, digital collectibles, digital tools, stablecoins, and digital securities. This approach aligns closely with APC’s long-standing emphasis on token classification based on function, which we call the nature of the asset test and is grounded in the functions and features of the token rather than how it is marketed or what it is called. APC has described “protocol tokens” as a distinct category of assets integral to the functioning of blockchain networks. The SEC’s category “digital commodities” captures much of this same concept. These assets derive value from the programmatic operation of a functional crypto system and supply-and-demand dynamics, rather than from the expectation of profits based on managerial efforts. The SEC definition of digital commodity as part of a crypto system emphasizes functionality at both the Layer 1 and application layer, much as APC’s protocol token is agnostic about the layer on which the protocol functions. This is an important recognition that digital commodities may exist at various levels of the tech stack. Also important, the SEC does not opt for a slavish application of a “decentralization” requirement as the deciding factor for the nature of the asset.  Rather, it remains focused on functionality and consumptive use.  This flows as well into its interpretation of “investment contract,” discussed below. The two approaches therefore converge in substance, reflecting a growing consensus around function-based token classification, which we have championed for many years. Both the SEC and APC recognize that tokens such as AVAX, BTC, and ETH do not have the features or functions of securities and should be analyzed accordingly. The difference lies primarily in structure: APC proposed a distinct legal category for protocol tokens, subject to distinct treatment, while the SEC states that digital commodities may fall into the broader world of commodities. Similarly, the SEC addresses stablecoins, particularly those covered by the GENIUS Act and prior staff guidance, finding them to not be securities while noting that other stablecoin arrangements may require further analysis. This reflects its alignment with the nature of the asset test APC articulated, which evaluates tokens based on their specific characteristics and functions. Assets vs. Transactions: A Shared Distinction A central theme of the SEC Interpretation is the explicit distinction between a crypto asset and the transaction in which it is offered or sold. For example, a digital commodity is not itself a security; however, it may be sold pursuant to an investment contract. This is a point of strong alignment with APC’s framework. APC has consistently emphasized that digital assets should not be classified as investment contracts or other types of securities simply because they are involved in activities that look like capital-raising. The SEC Interpretation adopts this principle directly, clarifying that the legal analysis should focus on the contract, transaction, or scheme, rather than the asset itself.  This phrase, taken directly from Howey, has often been overlooked.  The SEC correctly recognizes that it is the lynchpin of how Howey defines investment contract. Oranges simply are not and never will be securities. This brings crypto assets into alignment with other areas of law, where non-security assets (such as commodities or real estate) can be part of securities transactions without themselves becoming securities.  Investment Contract Analysis: Different Approaches One of the main areas of divergence is how to define and apply the concept of an “investment contract.” APC has proposed a framework with clearer boundaries for when securities laws apply. In particular, we encouraged the following definition: “an express agreement between a seller and buyer that provides for the investment of money in a common enterprise with a reasonable expectation of profits solely from the undeniably significant managerial or entrepreneurial efforts of the seller.” This definition starts with the basic articulation from Howey and adds modifications based on prevailing Supreme Court case law and other precedent. By reviving the word “solely” from the original Howey test and requiring an express agreement, this definition provides greater certainty about the “who” and the “what” of the investment contract. The SEC, by contrast, provides guidance on how it will apply the originally articulated version of the Howey test to crypto assets, resulting in less definitive regulatory boundaries. The SEC Interpretation places significant emphasis on issuer representations and promises, including their source, timing, and specificity, in determining whether purchasers have a reasonable expectation of profits from the efforts of others. These concepts reflect a close reading and application of Howey and its progeny, which we agree with. We just wish for something that is easier to apply. Both approaches aim to clarify the same issue, but they differ in methodology. APC emphasizes clearer rules and definitions, while the SEC relies on interpretive guidance within an existing legal framework. Lifecycle and “Separation”: Different Structures, Similar Outcomes APC has proposed a lifecycle-based framework distinguishing between pre-functionality and functional protocol tokens for purposes of determining SEC jurisdiction. Under that approach, protocol tokens sold prior to protocol functionality would be presumed to be the subject of an investment contract, resulting in a securities law framework for their offer and sale.  In contrast, tokens used in a functioning protocol would fall outside the federal securities laws. The SEC does not adopt this structure in full but incorporates elements of it in the Interpretation. Instead, it introduces the concept of “separation” under which a non-security crypto asset can cease to be subject to an investment contract once purchasers no longer reasonably expect the issuer’s essential managerial efforts to remain connected to the asset. This test does not rely solely on “sufficient decentralization” or related concepts, but looks at the overall facts and circumstances to determine whether separation has occurred. While the mechanisms differ, the underlying idea is similar: the regulatory treatment of a token as part of an investment contract or not can change over time as the network evolves and other events occur. APC’s approach uses a more structured lifecycle model, while the SEC relies on a fact-specific analysis tied to issuer activities and market expectations. Infrastructure vs. Intermediaries: Alignment in Core Activities APC has consistently argued that regulation should focus on intermediaries, not infrastructure providers. Validators, node operators, and protocol participants perform technical functions and should not be treated as financial intermediaries. The SEC’s Interpretation reflects this principle in its treatment of specific activities. It concludes that, when conducted as described, the following do not involve securities transactions: Protocol mining Protocol staking Certain wrapping arrangements Certain no-consideration airdrops In each case, the SEC characterizes these activities as administrative or ministerial, rather than managerial or intermediary in nature. Rewards created through staking and delegation are treated as compensation by the network for services performed, not profits derived from the efforts of others. This represents a clear point of convergence. The SEC recognizes that core protocol activities operate at the infrastructure layer and should be treated differently from traditional intermediary services. Token Issuance and Market Structure: Different Levels of Detail APC’s framework includes proposals for a more comprehensive regulatory structure, including tailored approaches to token issuance, disclosures, and the role of intermediaries. The SEC’s Interpretation does not address these areas in detail. It focuses primarily on classification and the application of existing law, rather than introducing new exemptions, disclosure regimes, or intermediary frameworks. Conclusion The SEC’s Interpretation and APC’s framework share a common foundation. Both approaches recognize the importance of functional token classification, the distinction between assets and transactions, and the need to treat infrastructure differently from intermediaries. They also reflect a broader convergence around core securities law principles; particularly, the focus on economic reality, consumptive use, and the distinction between managerial and non-managerial activity. At the same time, they differ in how those principles are implemented. The SEC relies on interpretive guidance within existing legal frameworks, while APC has proposed more structured approaches to classification, lifecycle analysis, and market design. Taken together, the two perspectives reflect an evolving consensus around the core concepts that should guide crypto policy. As regulatory discussions continue, these shared principles provide a foundation for further development of a coherent and workable framework. Avalanche Policy Coalition will continue to engage with policymakers and stakeholders to support thoughtful, functional approaches to crypto regulation.

London Calling Part 2: The UK’s Journey from Roadmap to Reality Eight months ago, we wrote about the UK’s crypto journey being still largely about direction of travel. The legislative perimeter had been sketched out, regulators had published their roadmap, and the ambition to become a global hub for digital assets was firmly back in the political vocabulary. The framework was coming, but for firms on the ground, it still felt a step removed from current reality. That is no longer the case. Since then, the UK has moved from strategy to execution at a pace that is difficult to ignore. The government has now laidthe statutory instrument that brings cryptoasset activities formally into the financial services regime, creating new regulated activities from trading platforms to stablecoin issuance and giving the FCA the legal foundations for a full rulebook. At the same time, the FCA has finalised a core package of consultations covering market structure, admissions and disclosures, market abuse, and a dedicated prudential regime - the operating manual for the future UK crypto market. Add to that the Bank of England’s systemic stablecoin proposals, a new stablecoin-focused regulatory sandbox and sprint, the confirmation of the authorisations gateway timeline, and even primary legislation clarifying that digital assets can attract property rights, the picture becomes clear: the UK is no longer designing a regime in theory. It is building one in real time. Authorisations Approaching The new regime will take effect on October 25, 2027. From 30 September 2026, firms will be able to apply for licences, with a five-month window in which early applicants gain the significant advantage of being able to continue operating while their applications are assessed (even after commencement). But there will be no automatic transition. Every firm, regardless of its current status, will need to pass through the gateway if it wishes to conduct regulated business in the UK. The shift from the MLR framework to FSMA authorisation changes the evidential threshold at the gateway. Applications will need to set out not only what the firm intends to do, but how its governance, risk management, capital planning and operational arrangements will meet the relevant Handbook standards by go-live. Early engagement through the FCA’s specialist crypto authorisations teams and the pre-application support service should help firms interpret those expectations, but authorisation will depend on the credibility and completeness of the proposed operating model not just the timing of the application. For the market, this is the moment when regulatory policy becomes a commercial timetable. From Speed to Calibration For years, the standard critique of the UK was that it was moving too slowly. But that argument no longer passes muster. Few major jurisdictions have attempted to deliver, in parallel, a full conduct regime, a market-structure framework, a prudential rulebook, a systemic stablecoin model, an authorisation gateway and a legislative perimeter, all on a clearly sequenced and short timeline. The UK is now doing exactly that. The question has therefore changed. It is no longer whether the UK can move fast enough. It is whether the regime, once complete, will be calibrated well enough to compete. At Avalanche Policy Coalition, we hope that the calibration will properly take into account a workable token classification system that differentiates financial instruments from other types of assets so that the regulatory perimeter is correctly scoped, as well as preserve the distinction between infrastructure and intermediation. Developers, validators, node operators, and open-source contributors, among others, who do not custody assets or exercise unilateral discretion should not be treated as financial intermediaries. Protecting infrastructure neutrality will support innovation without weakening consumer protection. The Coherence and Competitiveness Challenge The UK’s great structural advantage has always been its integrated regulatory architecture. With HM Treasury setting the perimeter and the FCA and Bank of England dividing responsibilities along clear conduct and financial-stability lines, the system is far less fragmented than in jurisdictions where multiple federal and state authorities overlap. That should make it easier to deliver a single, coherent framework. But coherence is not automatic. It has to be designed. Firms are now looking at how the layers fit together in practice: how the FCA’s stablecoin rules interact with the Bank’s systemic regime, particularly as firms consider the transition from an FCA-only framework to dual supervision once systemic thresholds are reached; how prudential requirements align with conduct expectations; and how market-abuse, disclosure and trading-platform rules operate as a unified whole rather than as separate compliance exercises. This is not an academic question. Global firms do not build to individual consultations; they build to the overall regime. That determines where they locate trading infrastructure, where they base senior management, where they deploy capital and where new products are launched first. If the cumulative effect is predictable and proportionate, capital and talent will follow, and the UK will continue to be a competitive force around the world. Birdseye View The UK has reached the point where it can no longer be described as a jurisdiction “planning” its crypto regime. It is implementing it, on a defined timeline, with a full licensing process in sight. That is a significant achievement and one that only a small number of global financial centres have matched. The question is no longer one of speed or first mover advantage. It is about identifying the right risks and calibrating them appropriately, allowing firms to operationalise with confidence. The UK is at a crossroads. If the final framework is as coherent and proportionate, the UK has a genuine opportunity to translate regulatory progress into market leadership. Coherence requires not only institutional alignment, but clarity that different asset types and activities are appropriately regulated (or not). That is what will attract firms who are not simply looking for certainty, but for a regime within which they can scale. Otherwise, the UK will struggle to convert historical and structural advantage into long-term competitive advantage.

In August we compared the upcoming stablecoin regimes in the US and UK. Since that post, the UK has moved forward in shaping how these digital assets should be regulated as part of the financial system, especially if they become widely used for everyday payments. This post provides an update to describe the significant changes in direction in the latest UK proposals from the Bank of England and HM Treasury. The Bank of England has the mandate to create rules for ‘systemic’ stablecoins given their potential impact on financial stability, while HM Treasury (part of the UK government) is creating the detailed law that will give UK regulators the powers they need (and set the overall guidelines) to develop regulation. The big change in the UK is the focus on “systemic” stablecoins, and how they and their issuers are to be regulated.  The concept of systemic stablecoin regulation does not appear directly in US law under the GENIUS Act, although provisions of GENIUS require regulators to evaluate stablecoins and their issuers for potential threats to financial system stability. Below, we focus on the UK proposal. Why the UK is Focusing on Stablecoins Now Stablecoins (digital tokens designed to maintain a stable value against a fiat currency) remain the fastest-growing form of money in the digital economy. They are a key pillar of our token classification system, which you can read more about here. The UK government and regulators have been clear: if stablecoins are going to function like money in daily life and not just in crypto trading, then they must be subject to a regulatory framework that protects consumers and safeguards financial stability. The goal is to integrate stablecoins responsibly into the UK’s financial architecture, while also supporting the innovation they represent. This will go hand-in-hand with proposals for comprehensive crypto regulation that were originally introduced in 2023 through proposed changes to the Financial Services and Markets Act. The UK government (HM Treasury) ‘laid’ secondary legislation in December 2025 that would put much of the 2023 updates into effect, including defining stablecoins as regulated financial instruments and regulating their issuance.   The Core Focus: “Systemic” Stablecoins In coordination with HM Treasury and the FCA, the latest Bank of England consultation paper was published in November 2025. Its focus is on pound sterling-denominated “systemic” stablecoins. These are stablecoins that become so widely used in everyday retail payments that, if something went wrong, they might affect not only consumers and businesses at scale, but the wider financial system as well. What makes a stablecoin systemic? While the full details will be clarified in the final regulation, it’s essentially based on how many people and businesses use it (and for what kinds of payments) and the extent of its interconnections with the financial system. HM Treasury has the power to designate stablecoins as systemic and once it has done so, the stablecoin would fall under a joint regulatory regime, with the Bank of England looking after financial stability and prudential requirements, and the Financial Conduct Authority (FCA) overseeing consumer protection and conduct under its own upcoming stablecoin regime.  Non-systemic stablecoins will be regulated solely by the FCA under existing and upcoming cryptoasset rules. A non-systemic stablecoin, for example, is one used for a day-to-day payment or as an on-/off-ramp to the crypto ecosystem that does not have a critical mass of users in the UK.  Note that even with this consultation paper, much of the regulation of stablecoins, their issuers and their usage remains subject to additional rulemaking.  Those looking for certainty need to remain patient, notwithstanding that the government has been considering these issues since at least 2023. New Backing Asset Rules: A Balancing Act One of the biggest changes in the new proposals is how issuers of stablecoins designated systemic would be required to back the coins they issue; that is, what assets they must hold to ensure that coins remain redeemable at a fixed value in pounds sterling. Under the draft proposals: At least 40% of backing assets must be held as unremunerated (non-interest-bearing) deposits at the Bank of England - effectively very liquid central bank money. Up to 60% can be held in short-term UK government debt (gilts), which can earn a return and help make issuer business models viable. This is a shift from earlier proposals that would have required almost all backing assets to be held at the central bank with no interest.  The Bank of England is also considering offering liquidity lines to issuers, and proposes allowing them to repo out backing assets as a means of accessing additional liquidity. The idea is to strike the right balance: making sure issuers can always meet redemption requests even in a crisis, while also not squeezing them out of business by forcing ultra-conservative backing rules.These requirements will make systemic stablecoin issuers look a lot like so-called narrow banks and the stablecoin itself a lot like a central bank digital currency. “Step-Up” and Transitional Rules There are also transitional measures to support issuers that are systemic from the start. Such firms could temporarily hold up to 95% of their backing assets in short-term government debt during their early growth phase, before scaling into the full 60/40 structure. This “step-up” regime is designed to give new market entrants space to grow while still ensuring they eventually meet stringent safeguards. It is designed to limit worries of a ‘cliff-edge’ from transitioning from the FCA to the BoE’s systemic regime. Consumer Safeguards and Limits Controversially, to reduce the risk that stablecoins could pull deposits out of the banking system too quickly (which could affect credit and financial stability) the proposals include temporary holding limits per systemic stablecoin: £20,000 per individual £10 million per business (with exemptions possible for some business uses) These limits are framed as transitional, with regulators monitoring whether they can be adjusted as the market matures. It is not clear how these limits would be enforced from a practical perspective. Other Noteworthy Requirements in the Consultation A few other important parts of the consultation include: Direct payment system access: Systemic stablecoins should be able to settle with traditional money systems, making redemptions and transfers smoother. Safeguarding backing assets: Reserves must be ring-fenced and held in the UK, with clear legal claims for coin-holders. Subsidiary requirements: Foreign stablecoin issuers targeting the UK market would need UK-based and regulated subsidiaries. Birdseye View  While the UK continues to develop and adapt its framework for stablecoins, it seems to be still mired in basics and with overlap between the FCA and BoE’s roles. The BoE’s updated stablecoin policy proposals reflect a pragmatic approach: significant safeguards to protect users and financial stability, flexibility to support issuer viability, and a clear path toward integrating stablecoins into the payments system, which will allow them to be part of commerce in the UK. But some basic concepts still need to be clarified. And the UK is running out of time. Whether this proposed framework will help the UK compete with the US’s crypto-friendly stance and the EU’s MiCA regime remains a live debate.  It’s important to note that these are draft proposals open for comment, and we expect there will be robust discussion between the Bank of England and industry on the details. They are not set in stone and may be subject to change. We will continue to watch with interest for new developments and await the final rules.