The SEC's Division of Corporation Finance expressed the view that Canton Coin is a "digital commodity" in a letter dated Tuesday. Staff applied the SEC's March interpretation concerning securities laws and crypto to the Canton Network's native token. Staff said unregistered programmatic minting by Canton's validators and application providers would not prompt an enforcement recommendation.
The staff's position relied on two representations made by Canton's lawyers. Canton's lawyers said network operations and supply and demand determine the token's value, rather than other parties' managerial efforts. Canton's lawyers also represented that the network lacks a "central party." Canton said the token debuted without an initial coin offering or premine. Canton said participants initially could earn tokens only through operating network infrastructure and applications. Canton dated the request letter October 30, four days before the staff's response.
The SEC cautioned that the letter offers only the staff's enforcement position rather than a legal conclusion. The SEC also said the position depends on the facts Canton supplied. Canton described the letter as the first such relief following the SEC's March interpretive release. That release concluded that most crypto assets are not securities. The letter also represents the first such relief since the SEC proposed Regulation Crypto Assets in August.
The Depository Trust & Clearing Corp. launched a tokenization service one week before the relief. The service uses both Canton and DTCC's private network. The service enables firms to tokenize stocks and Treasuries held at DTC. Morgan Stanley said Tuesday that the bank was among the first banks using the service. Digital Asset CEO Yuval Rooz said financial institutions need confidence in technology and the economic model supporting that technology. Digital Asset created the Canton Network.
The decision forms part of a wider regulatory shift following the Clarity Act's September stall in the Senate. The SEC and CFTC have been leading efforts to establish crypto rules. SEC Chair Paul Atkins said in July that the agency stood ready to act should Congress fail to do so. The SEC recently proposed requirements governing crypto custody by advisers and funds. Digital Asset secured $355 million earlier this year from Wall Street firms and a sovereign wealth fund.