Rules Land, People Leave: A New Regulatory Posture Ten Days After CLARITY’s Collapse

With one FAQ, the SEC draws a clean line around “functional networks”; the Federal Reserve locks bank-grade reserve rules on stablecoin issuers. Yet “Crypto Mom” Peirce and industry advocate Mersinger both announce their exits in the same week — the administrative shift under legislative failure is now racing a talent vacuum in Washington.

The SEC’s FAQ: Drawing the Howey Line for “Functional Networks”

On September 25, the SEC’s Division of Corporation Finance published a set of crypto-asset FAQs that finally give administrative boundaries to a question that has dogged the industry for years: “is a project still a security after launch?” These answers are not Commission rules and explicitly carry “no legal force or effect,” but they operationalize the five-category token taxonomy (digital commodities, digital collectibles, digital tools, stablecoins, and digital securities) that the SEC and CFTC jointly issued in the March interpretive release.

The core conclusion: once a network is “functional,” developers who continue to secure, maintain, or improve it, fund ecosystem development projects, or help expand network effects are no longer engaged in the “essential managerial efforts” at the heart of the Howey test. In other words, a running blockchain no longer requires its developers to disappear to avoid securities-law problems — continued development and non-security status can coexist.

The FAQs also address three concrete practices. First, token buybacks: announcing a buyback of a non-security token on a functional network does not itself amount to a promise of essential managerial efforts. But before a network is functional, if an issuer frames a buyback as “creating yield or return for token holders,” the analysis changes. Second, liquid staking receipts: a receipt that merely evidences ownership of a deposited digital commodity, without adding new economic rights, can be classified as a “digital tool”; a receipt issued by a protocol-based liquid staking provider, whose value derives from the programmatic operation of a functional network and market supply-and-demand, can even be classified as a “digital commodity.” Yet the issuer cannot lend, pledge, rehypothecate, or otherwise use the deposited assets. Third, trading platforms: merely providing a secondary market for a token does not automatically make an exchange a “promoter” under Rule 405 of the Securities Act.

This framework speaks directly to a market reality in which token buybacks largely vanished after 2022 and only returned in 2025 as the regulatory climate warmed. The models of Hyperliquid (99% of buybacks executed by automated systems with no foundation discretion), Uniswap (through a DAO-controlled fee-routing proposal), and Pump.fun are precisely the “structure-driven” patterns the FAQs describe. The market reacted within hours — Uniswap founder Hayden Adams welcomed the guidance on X.

The Fed’s GENIUS Implementation: Reserves, Capital, and the Yield Ban

Earlier the same day, the Federal Reserve Board published two proposed rules on September 24 implementing the GENIUS Act, opening a 60-day public comment window. This is a pivotal step in building a bank-grade regulatory framework for the stablecoin issuers the Board supervises (“Board-supervised permitted payment stablecoin issuers”). The first proposal (Docket R-1899, a 392-page notice) covers reserves, capital, risk management, and custody; the second (Docket R-1900) establishes an application process for Fed-supervised banks to issue stablecoins through subsidiaries, including appeals, hearings, and final-determination procedures.

On reserves, every stablecoin in circulation must at all times be fully backed by reserve assets with a fair value at least equal to the coin’s par value. Eligible reserve assets include US dollar cash, Federal Reserve balances, deposits at insured institutions, Treasuries with 93 days or less to maturity, overnight repos, and “tokenized versions of some of the foregoing assets” — but a tokenized reserve is admitted only where it “confers legal rights that are identical to those of the non-tokenized form of the same asset.” Redemption must occur within two business days, unless the Board extends it where an issuer poses a threat to its own safety and soundness or to financial stability.

Capital requirements come in two parts. Uninsured deposits and undercollateralized reverse repos held as reserves carry a two percent charge. Operational risk carries a graduated charge on coins outstanding: 2.0% for the first $20 billion, 1.5% for the next $30 billion, and 1.0% above $50 billion, plus 25% of the three-year average of revenue from anything other than reserve assets. The Board’s memo explains that operational risk “may not increase linearly” with scale, so the capital burden falls as a share of the book as the book grows — an issuer with $20 billion outstanding holds $400 million (2%), one with $50 billion holds $850 million (1.7%), and one with $100 billion holds $1.35 billion (1.35%). An issuer below its minimum at a quarter-end must file a remediation plan; if still below the next quarter, it must liquidate its reserves and redeem all stablecoins.

The most watched element is a yield-prohibition presumption that reaches past the statute’s words. Following the OCC’s approach, the Board would presume an issuer is paying interest or yield to a holder where it has an arrangement to pay an affiliate or a related third party, and that party has an arrangement to pay a holder of the issuer’s coins “solely in connection with the holding, use, or retention of such payment stablecoin.” The preamble carves out two exceptions: the prohibition is “not intended to prevent a merchant from independently offering a discount,” nor does it stop an issuer from sharing profits derived from the payment stablecoin with a non-affiliate partner in a white-label arrangement. For Circle, whether its September 22 arrangement to pay Binance a monthly fee on USDC held in a Circle wallet product falls within the ban depends on whether Binance in turn passes it on to end holders — neither company has disclosed.

“Crypto Mom” Departs: The Dual Inflection Point of Administrative Shift and a Talent Vacuum

On the very day the SEC was rushing out its FAQs — September 25 — Commissioner Hester Peirce posted her resignation letter on X with the caption “T minus 7,” making her departure official for October 2. Peirce, a commissioner since January 2018 and widely known as “Crypto Mom,” wrote in the letter that serving at the agency was “the honor of my professional lifetime” and framed “maximizing people’s freedom to choose what is best for themselves and their families within sensible regulatory parameters” as the regulator’s vital task. She will join Regent University School of Law as an associate professor in November.

Peirce’s departure is procedurally significant. Under 17 C.F.R. § 200.41, when fewer than three commissioners are in office, a quorum consists of however many are in office — meaning that after October 2, the SEC’s Chairman Paul Atkins and Commissioner Mark Uyeda alone can advance enforcement and rulemaking, with no dissent appearing on the official record. Peirce’s formal dissents were never mere gestures; developers and lawyers used them as substantive legal arguments in court and before Congress. She was also the only commissioner publicly defending self-custody as a fundamental right. With the White House yet to name a successor, and Senate confirmation typically taking six to twelve months, the SEC could be down to two commissioners for all or most of 2027.

The industry side is shifting too. On September 25, the Blockchain Association announced that CEO Summer Mersinger will step down on October 16 and remain as an advisor through year-end, with founding CEO Kristin Smith returning as interim CEO on October 17. Mersinger, a former CFTC commissioner, led the association through the GENIUS Act advocacy and the push for regulatory clarity at the SEC and CFTC. Tellingly, the association’s departure statement makes no mention of the CLARITY Act — the bill it repeatedly lobbied for, which died in a Senate procedural vote on September 15 and is now expected to be shelved until 2027.

The CFTC Moves in Parallel: Tokenized Customer Funds and On-Chain Records

The administrative shift is not SEC’s alone. On September 24, the CFTC’s Market Participants Division, Division of Market Oversight, and Division of Clearing and Risk jointly updated their crypto-asset FAQs, adding four new answers: futures commission merchants (FCMs) and derivatives clearing organizations (DCOs) may invest customer funds in tokenized forms of already-permitted investments (such as tokenized money market fund shares), provided the tokenized asset grants the holder “the same or functionally equivalent legal and economic rights” as the conventional form; and entities may use blockchain or distributed ledger technology to satisfy the recordkeeping obligations under Regs 1.31 and 45.2, including the option to forgo maintaining off-chain copies. But one boundary was not crossed: FCMs still may not invest customer funds in payment stablecoins — for the CFTC, a stablecoin is collateral, not an investment.

The same afternoon, the Fed demanded “identical” legal rights for tokenized reserve assets while the CFTC accepted “the same or functionally equivalent” — two regulators writing two different standards for the same instrument on the same day. It is both a step toward technological neutrality and a warning that tokenized assets will face a patchwork of standards across regulatory boundaries.

Implications for Industry Practitioners