What the SEC’s Project Crypto Means for the Future of Crypto Trading
• 7 min read • by Kelvin Jones
What the SEC’s Project Crypto Means for the Future of Crypto Trading
Overview of SEC’s Project Crypto Initiative
Project Crypto is a Commission-wide initiative to modernize securities rules and regulations to enable America’s financial markets to move on-chain and bolster SEC digital asset oversight (a key milestone in U.S. crypto regulation 2025). Under this program, the SEC aims to implement the President’s Working Group recommendations and align its policies with the GENIUS Act for stablecoins. The initiative focuses on clarifying token distributions, custody arrangements, and trading protocols to foster a vibrant crypto ecosystem. By providing clear guidelines, the SEC seeks to cement the United States as the “crypto capital of the world.”
For teams building stablecoin rails, see our Best Stablecoins for Private Swaps guide for on-chain compliance best practices.
Key Regulatory Changes
Bringing Crypto Asset Distributions Back to America
A cornerstone of Project Crypto is to onshore crypto asset offerings by establishing a domestic framework for token distributions. This effort targets convoluted offshore structures by requiring issuers to register offerings and provide purpose-fit disclosures for initial coin offerings and airdrops. Clear distribution rules are expected to lower compliance costs and stimulate U.S.-based capital formation. Ultimately, this will help restore confidence among issuers, investors, and service providers.
In-Kind ETF Creation and Redemption
One of the most immediate changes has been permitting in-kind creations and redemptions for Bitcoin and Ethereum exchange-traded products (ETPs). Authorized participants can now exchange actual tokens with issuers, rather than cashing out and repurchasing, which reduces trading friction. This change aligns crypto ETPs with traditional commodity-based ETP practices, improving cost efficiency. Market participants anticipate deeper liquidity and tighter spreads as a result of these reforms.
Token Classification and the Howey Test
Project Crypto directs SEC staff to develop bright-line rules for determining whether a crypto asset is a security under federal law. Despite past enforcement actions, most crypto assets do not meet the Howey Test criteria for investment contracts. By clarifying the four prongs—in particular, the expectation of profits derived from others’ efforts—market participants can more confidently structure tokens outside of securities regulations. This targeted approach seeks to balance innovation with investor protection.
Custody and Trading Modernizations
Project Crypto also proposes modernizing traditional custody rules that were not designed for digital assets. Under the new guidance, non-security tokens held by broker-dealers will not trigger the stringent asset segregation of Rule 15c3-3. Crypto-asset custodians must still meet robust control location standards, including third-party vaulting and insurance provisions. These updates aim to safeguard customer assets while recognizing the unique properties of on-chain markets.
Stablecoin Regulation and the GENIUS Act
Complementing Project Crypto, the GENIUS Act provides a federal framework for payment stablecoins, defining issuer eligibility, full-reserve requirements, and mandatory audits. The Act explicitly excludes compliant stablecoins from securities and commodities classifications, placing oversight with agencies like the OCC and FDIC. Issuers must maintain 1:1 reserves in cash or high-quality liquid assets and furnish monthly disclosures to ensure transparency. These reforms reinforce stablecoins as reliable rails for digital payments and settlement.
Industry Responses and Market Impact
Market feedback on Project Crypto has been broadly positive, with industry leaders praising the shift from enforcement-first to rules-based regulation. This momentum mirrors other on-chain breakthroughs—like private XRPL swaps—where clear rules have unlocked new flows (check out how to Swap XRP Anonymously Across Chains — No KYC Needed). Jamie Selway, Director of the Division of Trading and Markets, noted that in-kind ETF approvals “provide flexibility and cost savings… resulting in a more efficient market.” Major asset managers and exchanges have indicated they will adjust operations to leverage the new on-chain capabilities. Collectively, these measures are expected to deepen market participation and support the development of super-apps that combine trading, custody, and DeFi functions.
Future Outlook for Crypto Trading
Project Crypto marks a generational opportunity to integrate decentralized technologies into the heart of U.S. capital markets. Over the coming months, the SEC will refine rule proposals for crypto distributions, custody, and trading, using public notice and comment to ensure stakeholder engagement. The long-term goal is to enable software-driven on-chain markets that coexist with existing regulations, fostering competition and innovation. As guidelines solidify, both institutional and retail participants will benefit from a more transparent, efficient, and resilient crypto trading environment.
Sources
- SEC Launches Project Crypto Initiative
- GENIUS Act: Stablecoin Policy Framework
- SEC ETF Reforms Summary (2025)
- Analysis of the Howey Test for Digital Assets
- Jamie Selway Commentary on Market Structure
Published July 31, 2025. Last updated July 31, 2025.