Quantum Updates 48 | June 2025

US SEC Opens Proceedings on VanEck Bitcoin and Ethereum Trusts Proposal to Permit In-Kind Creations and Redemptions

On 2 June 2025, the United States Securities and Exchange Commission (US SEC) issued an Order instituting proceedings to assess whether to approve or disapprove a proposed rule change by Cboe BZX Exchange, Inc. The proposal seeks to modify the terms of listing for the VanEck Bitcoin Trust and VanEck Ethereum Trust, permitting in-kind creations and redemptions of shares using bitcoin and ether respectively, rather than fiat currency. The amendment request was filed under Section 19(b)(1) of the United States Securities Exchange Act of 1934 and SEC Rule 19b-4, with proceedings now initiated under Section 19(b)(2)(B) of the same Act.

• The proposed rule change was originally submitted on 19 February 2025 and published in the Federal Register on 5 March 2025.
• The US SEC had extended the initial review period until 3 June 2025, and has now formally instituted proceedings to further evaluate the implications of allowing in-kind transactions.
• In-kind creation and redemption would allow market participants to deliver or receive bitcoin and ether directly, instead of converting to or from cash during share creation or redemption.
• All other operational terms previously approved for the VanEck Bitcoin and Ethereum Trusts will remain unchanged and binding as part of their ongoing listing obligations under BZX Rule 14.11(e)(4).
• The US SEC’s order clarifies that initiating proceedings does not prejudge the outcome or indicate a favourable or adverse decision on the merits of the proposal.
• The focus of the proceedings will be whether the proposed in-kind mechanism aligns with Section 6(b)(5) of the United States Securities Exchange Act of 1934, which mandates rules that prevent fraud and manipulation, promote fair trading, support market efficiency, and protect public interest.
• The US SEC has invited public comments on whether the proposed amendment complies with the statutory and regulatory framework, particularly the investor protection and market integrity requirements.
• Stakeholders may submit comments within 21 days of the proposal’s publication in the Federal Register, and rebuttals within 35 days, citing file number SR-CboeBZX-2025-031.
• All submissions will be reviewed before the US SEC reaches a final determination on whether to approve, disapprove, or institute additional proceedings.
• US SEC us taking careful consideration of operational innovations in digital asset-backed investment products, especially those involving physical (in-kind) settlement mechanisms within regulated trust structures.

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US SEC Initiates Proceedings on WisdomTree Bitcoin Fund Proposal to Permit In-Kind Creations and Redemptions

On 2 June 2025, the United States Securities and Exchange Commission (US SEC) issued an Order instituting proceedings to assess whether to approve or disapprove a proposed rule change by Cboe BZX Exchange, Inc. The proposal seeks to amend the listing terms of the WisdomTree Bitcoin Fund to allow in-kind creations and redemptions involving bitcoin, under BZX Rule 14.11(e)(4) governing commodity-based trust shares. The initiation of proceedings allows for a more detailed evaluation of the legal and policy implications of the proposed change without presuming any conclusion on its merits.

• The proposed rule change was filed on 20 February 2025 under Section 19(b)(1) of the United States Securities Exchange Act of 1934 and US SEC Rule 19b-4, and was published in the Federal Register on 5 March 2025.
• The US SEC extended the review period on 14 April 2025 to 3 June 2025, and now, as of 2 June 2025, has opened proceedings under Section 19(b)(2)(B) of the US Exchange Act.
• The amendment would permit the WisdomTree Bitcoin Fund to settle share creations and redemptions using bitcoin instead of cash, aligning its operational model with in-kind trust structures used in other commodity-based funds.
• The proposed change preserves all previously approved conditions and representations that governed the fund’s initial listing approval on 10 January 2024.
• The proceedings are intended to determine whether the proposal is consistent with Section 6(b)(5) of the US Exchange Act, which mandates that exchange rules prevent manipulation, uphold just trading principles, ensure a free and open market, and protect investors and the public.
• The US SEC invites public comments, supported by legal reasoning or empirical data, to assess the proposal’s consistency with applicable regulatory standards.
• Public submissions referencing file number SR-CboeBZX-2025-033 may be sent electronically or by post, and rebuttal comments will be accepted within 35 days of publication in the Federal Register.
• The SEC may also consider requests for oral presentations under Rule 19b-4, though none are scheduled at present.

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US SEC Appoints Natalia Díez Riggin as Senior Advisor and Director of Legislative and Intergovernmental Affairs

On 2 June 2025, the US SEC confirmed the permanent appointment of Natalia Díez Riggin as Senior Advisor and Director of the Office of Legislative and Intergovernmental Affairs. Ms. Riggin had been serving in the role on an acting basis since January 2025. She will now formally lead the Commission’s coordination with the U.S. Congress, federal departments, and state-level regulatory bodies.

• Riggin holds a Bachelor of Arts degree in political science and history from the University of Illinois Chicago.
• Riggin most recently served as a senior professional staff member on the U.S. Senate Committee on Banking, Housing, and Urban Affairs under Chairman Tim Scott.
• Her prior roles was of deputy legislative director for Senator John Kennedy and staff director for the Senate Banking Committee’s Economic Policy Subcommittee.
• She also served as a policy aide to Senators Mike Enzi and Mark Kirk.

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US SEC Commissioner Crenshaw Highlights Regulatory Inconsistency in Crypto Asset Classification Amid ETF Registrations

On 31 May 2025, Commissioner Caroline A. Crenshaw of the United States Securities and Exchange Commission (US SEC) released a dissenting statement titled “Muddying the Waters: More Confusion on Crypto Asset Security Status.” The statement criticises the US SEC’s inconsistent approach to classifying crypto assets under federal securities laws, especially in light of recent ETF approvals involving Ethereum (ETH) and Solana (SOL). Crenshaw warned that these contradictions undermine legal coherence and leave market participants exposed to regulatory ambiguity.

• Commissioner Crenshaw referred to the approval of Rex-Osprey ETH + Staking ETF and Rex-Osprey SOL + Staking ETF. These ETFs were made effective under Form N-1A, implying ETH and SOL are treated as securities.
• Crenshaw noted prior staff statements had concluded that similar assets, including meme coins and stablecoins, were not securities.
• She argued that the same assets cannot simultaneously be classified as securities and non-securities.
• The US SEC Division of Investment Management had raised unresolved concerns over ETF disclosures and compliance.
• These concerns were not fully addressed before the ETFs were approved. According to Crenshaw, there is a lack of procedural rigour in how staff comments were handled.
• She referenced the US SEC’s prior statements on meme coins (27 February 2025), proof-of-work mining (20 March 2025), and stablecoins (4 April 2025) and claims that current practice is inconsistent with those earlier declarations ad that regulatory expediency is overtaking legal precision.
• Crenshaw concluded that the US SEC is creating legal confusion through contradictory actions and called for consistent application of the Securities Exchange Act of 1934.
• Her statement highlights growing internal disagreement within the US SEC and further demands clear rules, formal processes, and an end to conflicting guidance on crypto asset regulation.

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US SEC Commissioner Hester M. Peirce Releases Statement Titled “Providing Security is not a ‘Security’” in Support of US SEC Division of Corporation Finance’s Statement on Certain Protocol Staking Activities

On 29 May 2025, United States Securities and Exchange Commission (US SEC) Commissioner Hester M. Peirce issued a public statement titled “Providing Security is not a ‘Security’” endorsing the earlier staff statement issued by the US SEC Division of Corporation Finance titled “Statement on Certain Protocol Staking Activities” Commissioner Peirce welcomed the clarification that staking crypto assets, whether individually, or through custodial and non-custodial providers, does not constitute a securities transaction under US federal securities laws when limited to network-level consensus participation. She asserted that regulatory uncertainty had previously deterred public engagement with staking, weakening the decentralisation goals of proof-of-stake (PoS) networks.

• Commissioner Peirce supported the Division’s conclusion that protocol staking, under specific factual circumstances, is not a securities transaction, affirming that solo staking, non-custodial staking, and custodial staking services may all fall outside US securities law if conducted as described.
• The guidance clarifies that features like slashing protection, early unbonding, asset aggregation, and reward scheduling are technical services and do not transform staking into an investment contract under the Howey test.
• Commissioner Peirce stated that the clarification enables broader staking participation without fear of regulatory violation.
• She stated that prior ambiguity harmed network decentralisation by discouraging American users from participating.
• Peirce connected this guidance with the March 2025 SEC statement on proof-of-work mining, which reached similar conclusions.
• She noted that execution of blockchain consensus mechanisms alone does not meet the legal definition of a securities offering.
• Commissioner Peirce urged stakeholders to submit further questions and feedback to the Division for continued guidance refinement.
• She expressed optimism about the US SEC’s Crypto Task Force examining additional network-based activities.
• While concluding she thanked Cicely LaMothe, Acting Director of the US SEC’s Division of Corporation Finance, and her team for issuing the guidance and stated that this statement is a constructive step toward regulatory clarity without stifling technological participation.

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US CFTC Commissioner Kristin Johnson’s Remarks on “Exploring AI Risks and Opportunities Across the Digital and Cyber Landscape” Signals Compliance Shift in Financial Markets with GenAI, Agentic AI and Cyber Risk Management in Financial Markets

On 29 May 2025, United States Commodity Futures Trading Commission (US CFTC) Commissioner Kristin Johnson delivered keynote remarks titled “Exploring AI Risks and Opportunities Across the Digital and Cyber Landscape” at the Federal Reserve Bank of Dallas Symposium, discussing the regulatory treatment of artificial intelligence in financial markets. In her remarks she recognised AI not merely as a technological development but as a transformative compliance and systemic risk vector, she outlined a supervisory approach grounded in differentiated AI typologies—namely generative AI (GenAI) and agentic AI—while linking them to real-world operational threats, supervisory technology (SupTech) expectations, and evolving cyber risk architectures. The address underscores the US CFTC’s regulatory direction: nuanced, risk-calibrated, but firm in demanding oversight, governance, and defensibility in all AI-integrated financial operations.

• Commissioner Johnson categorised AI evolution into three phases: traditional machine learning, GenAI, and agentic AI.
• She cautioned against treating AI as a speculative concern; it is now operational and directly affecting compliance, trading, and risk systems.
• The US CFTC will assess AI implementations based on use-case specificity and their functional integration into market or compliance infrastructures.
• GenAI holds promise for compliance simplification but suffers from hallucinations, lack of explainability, and output instability.
• Financial institutions should not rely on GenAI outputs without deterministic constraints, human oversight, and auditable logs.
• GenAI used in AML/KYC or regulatory reporting must be independently validated and risk-tested.
• Agentic AI offers potential as a compliance multiplier, enabling autonomous fraud detection, credit risk scoring, and real-time reporting.
• However, firms must ensure governance over agentic AI, including data provenance, override protocols, and learning loop containment.
• Poor-quality training data in agentic systems could create self-reinforcing feedback loops, propagating regulatory errors at scale.
• The US CFTC may introduce expectations for “kill switch” mechanisms and human-in-the-loop overrides in mission-critical agentic AI deployments.
• AI has become central to cyber threats—examples include deepfake-enabled fraud and synthetic identity scams.
• Simultaneously, AI is a defence mechanism under SupTech, enabling fraud pattern detection and real-time surveillance.
• The US CFTC is expected to mandate documentation on both AI-enabled defences and the firm’s protection against AI-powered attacks.
• Commissioner Johnson indicated that SupTech adoption will soon be viewed as mandatory for regulated firms.
• Internal transformation roadmaps should include data lake structuring, AI-based compliance tooling, and automated regulatory workflows.
• MRAC has proposed updates to Rule 39.18 introducing mandatory Third-Party Risk Management (TPRM) programmes for DCOs.
• These TPRM frameworks would govern onboarding, monitoring, and disengagement of external AI service providers.
• Firms should map AI dependencies—such as LLM vendors, API libraries, and cloud services—and introduce risk-weighted control matrices.
• Johnson’s remarks confirm that the US CFTC will continue aligning with international SupTech norms and model governance standards.
• She emphasised the balance between innovation and prudential oversight, urging firms to build “fit-for-purpose” AI governance.
• Regulated entities must now embed AI documentation, risk registers, and operational audit trails into enterprise-level compliance.

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US SEC Division of Corporation Finance Clarifies Regulatory Status of Crypto Protocol Staking Under US Federal Securities Laws

On 29 May 2025, the Division of Corporation Finance of the United States Securities and Exchange Commission (US SEC) issued a statement titled “Statement on Certain Protocol Staking Activities.” This interpretive statement outlines the US SEC’s position on whether staking activities conducted on public, permissionless Proof-of-Stake (PoS) networks constitute offers or sales of securities under the Securities Act of 1933 and the Securities Exchange Act of 1934. Applying the Howey test, the statement differentiates between self-staking, delegated staking, and custodial staking. It provides compliance clarity for industry participants and affirms that when staking activities are administrative in nature and do not depend on the entrepreneurial efforts of others, they are not securities transactions.

• “Crypto asset” is defined as a blockchain-based digital asset that includes tokens, coins, virtual currencies, or digital assets secured via cryptographic protocols.
• “Covered Crypto Asset” refers to assets used to validate or maintain PoS consensus and do not carry economic rights such as dividends or business income claims.
• “Protocol Staking” involves securing PoS networks by staking tokens for validation purposes, including through solo staking, delegation, or custodial arrangements.
• In Self (Solo) Staking, if a node operator uses its own assets and operates independently, the staking activity does not meet the “efforts of others” prong of the Howey test.
• Delegated Self-Custodial Staking is also outside the scope of securities laws where asset owners retain custody and control, and validators act without discretion.
• Custodial Staking remains permissible provided custodians act only administratively, without control over staking decisions or asset reuse, and customers retain full beneficial ownership.
• Ancillary Services like slashing indemnity or unbonding are not considered managerial efforts and do not convert staking into securities offerings if not marketed as yield products.
• The Howey Test remains central: no common enterprise or profit expectation from others’ efforts implies that ministerial or technical staking functions do not constitute a securities offering.
• The guidance cautions against offering fixed returns, liquid staking, or discretionary pooling, which could invite recharacterisation under federal securities laws.
• The statement is non-binding and does not cover emerging models like restaking or composite DeFi protocols, which require separate legal analysis.
• This interpretive statement by the US SEC Division of Corporation Finance signals a function-over-form approach. While staking, when aligned with protocol-defined utility functions, is not inherently a securities offering, staking programmes that embed profit elements or discretionary asset management risk triggering securities regulation.
• Crypto platforms, custodians, and service providers should structure staking services with transparency, retain user ownership, and avoid creating investment-like expectations.

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US SEC Commissioner Caroline A. Crenshaw’s Dissenting Statement on Protocol Staking Challenges Division-Level Exemptions: A Legal Reality Check for Crypto Entities

On 29 May 2025, United States Securities and Exchange Commission (US SEC) Commissioner Caroline A. Crenshaw issued a strongly worded dissent titled “Stake it Till You Make It?,” challenging the views set forth in the US SEC Division of Corporation Finance’s “Statement on Certain Protocol Staking Activities.” Crenshaw’s dissent rejects the US SEC Division of Corporation Finance’s position that certain crypto staking arrangements fall outside the ambit of federal securities laws, arguing instead that such exemptions ignore settled judicial precedent, risk investor misunderstanding, and signal premature deregulation. She urges crypto platforms to treat the US SEC Division of Corporation Finance’s statement not as safe harbour, but as a limited, non-binding opinion that cannot override legal reality, judicial rulings, or formal rulemaking obligations.

• Commissioner Crenshaw rebukes the Division’s position as legally inconsistent with SEC v. W.J. Howey Co. and recent federal court rulings in SEC v. Binance and SEC v. Coinbase that upheld staking-as-a-service as an investment contract.
• She asserts that Division-level guidance cannot nullify enforceable case law or serve as a regulatory shield for profit-driven staking models involving third-party infrastructure or pooled validation.
• Crenshaw analogises these staking programs to Gary Plastic, where traditional products were repackaged into investment contracts, warning that technological enhancements do not nullify securities law scrutiny.
• Features such as slashing indemnity, liquidity assurance, and early unbonding are described as entrepreneurial, not merely ancillary, when they introduce risk-modifying or profit-enhancing characteristics.
• She cautions that undefined exclusions within the Division’s statement—such as the scope of staking discretion or the effects of reward reinvestment—expose platforms to ambiguity-driven enforcement risk.
• The dissent underscores the improper use of statutory financial terms like “custodian” and “ownership” in staking contexts, which may mislead users about the legal treatment of assets during insolvency or fraud.
• Crenshaw argues that user agreements offering segregation, indemnity, or safekeeping protections often lack enforceability in court, and cannot replace actual legal protections or regulatory guarantees.
• She concludes that staff guidance must not replace formal rulemaking and urges the US SEC to adopt clear, binding rules on staking activities to avoid fragmented legal interpretations and uneven investor protections.
• Crypto Firms must adopt full-spectrum legal reviews, risk governance aligned with ISO standards, and an internal control framework that treats staking as a potential securities activity unless conclusively proven otherwise.

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US SEC Extends Decision on Grayscale Avalanche Trust ETF Listing Under Nasdaq Rule 5711(d); Final Action Now Expected by 15 July 2025

On 28 May 2025, the United States Securities and Exchange Commission (US SEC) published a ‘Notice of Designation of a Longer Period’ concerning a proposed rule change by The Nasdaq Stock Market LLC to list and trade shares of the Grayscale Avalanche Trust (AVAX) under Nasdaq Rule 5711(d). This extension designates 15 July 2025 as the new deadline by which the US SEC must approve, disapprove, or institute proceedings to disapprove the proposal. The Grayscale Avalanche Trust is structured as a commodity-based trust designed to provide regulated market access to Avalanche (AVAX), a Layer 1 proof-of-stake digital asset, using a format previously applied to single-asset crypto trusts by Grayscale.

• On 16 February 2025, the proposed rule change was published for public comment in the Federal Register (Release No. 102812, 90 FR 16022).
• On 27 March 2025, the rule change was formally filed by Nasdaq with the US SEC (SR-NASDAQ-2025-030).
• On 31 May 2025, the initial 45-day statutory review period from publication was due to expire.
• On 28 May 2025, the US SEC extended the review deadline to 15 July 2025 through Release No. 34-103141.
• On or before 15 July 2025, the US SEC will either approve, disapprove, or initiate proceedings to determine whether to disapprove the proposal.
• This extension under Section 19(b)(2) of the Securities Exchange Act of 1934 allows the US SEC further time to assess the rule change and associated market structure implications.
• The proposed listing is being considered under Nasdaq Rule 5711(d), which governs commodity-based trust shares and has been previously used for other Grayscale products such as Bitcoin and Ethereum trusts.
• The extension should not be interpreted as a reflection of the Commission’s stance on the substance of the proposal. All updates and related documents are available under file number SR-NASDAQ-2025-030 on the official US SEC website.

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ASIC Initiates Australian Federal Court Proceedings Against Blockchain Global Former Director for Alleged Directors’ Duties Breaches Linked to ACX Exchange Collapse

On 28 May 2025, the Australian Securities and Investments Commission (ASIC) filed civil penalty proceedings in the Australian Federal Court against Mr. Liang (Allan) Guo, former director of Blockchain Global Ltd (now in liquidation), alleging serious breaches of directors’ duties under the Australian Corporations Act 2001. The allegations arise from Mr. Guo’s role in the management of the now-defunct ACX Exchange, a cryptocurrency platform operated by Blockchain Global that collapsed in December 2019, leaving thousands of users unable to access their funds. ASIC’s action signals a deepening regulatory crackdown on crypto-asset governance failures, particularly those involving mismanagement of customer funds and deficient corporate recordkeeping.

• ASIC alleges that Mr. Guo breached his duties as a director by failing to act with care and diligence, mismanaging customer assets, issuing misleading statements regarding fund administration, and neglecting basic corporate governance responsibilities.
• The ACX Exchange operated from mid-2016 to December 2019, when customer withdrawals of fiat and crypto assets were abruptly halted. The platform’s failure resulted in significant retail investor losses.
• Liquidators were formally appointed on 11 February 2022, and a report submitted to ASIC on 01 November 2023 concluded that Blockchain Global Ltd may have committed multiple breaches of the Corporations Act 2001. The total liabilities were assessed at AUD 58.6 million, including AUD 22.75 million in claims from former ACX Exchange users.
• ASIC initiated its investigation in January 2024. The Federal Court proceedings are the first public enforcement action arising from the collapse.
• ASIC’s allegations include specific failures to safeguard user funds, improper or misleading handling of exchange balances, and the absence of adequate accounting records and compliance systems during Mr. Guo’s tenure.
• Mr. Guo departed Australia on 23 September 2024, following the expiry of interim travel restraint orders that had earlier been obtained by ASIC to ensure his availability for investigation. He has not returned to the jurisdiction since.
• The proceedings seek civil penalties under the Australian Corporations Act, including possible disqualification from managing corporations, in addition to other remedies the Court may consider appropriate.

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ASIC Seeks Clarification from Australian High Court on Crypto Products in Block Earner Case

On 21 May 2025, the Australian Securities and Investments Commission (ASIC) formally announced that it is seeking special leave to appeal to the High Court of Australia, aiming to overturn the decision of the Full Federal Court in its enforcement proceedings against Web3 Ventures Pty Ltd, trading as Block Earner. This escalation to the apex court is intended to resolve a critical question of law: whether a fixed-yield crypto-lending product such as Block Earner’s “Earner” qualifies as a “financial product” within the meaning of the Australian Corporations Act 2001. The appeal seeks clarity amid the regulatory uncertainty surrounding interest-generating crypto services and may have far-reaching implications for the classification of decentralised and centralised financial products in Australia’s securities law framework.

• The Disputed product i.e. Block Earner’s “Earner,” enabled customers to earn fixed returns by depositing specific crypto-assets, which the company then lent to generate yield.
• In a judgment dated 9 February 2024, the Australian Federal Court found that the Earner product constituted an unlicensed financial service under the Corporations Act 2001, while dismissing ASIC’s allegations concerning Block Earner’s separate “Access” product.
• On 4 June 2024, the Federal Court declined to impose penalties on Block Earner for the Earner product, prompting ASIC to file an appeal on 18 June 2024. Block Earner cross-appealed on 9 July 2024, contesting the court’s conclusion that it required an Australian Financial Services Licence (AFSL).
• On 6 March 2025, the Full Federal Court heard both the appeal and cross-appeal. On 22 April 2025, the court ruled entirely in favour of Block Earner, reversing the earlier finding and holding that the Earner product did not constitute a financial product.
• ASIC’s position is that the term “financial product” under the Australian Corporations Act is intentionally broad, principles-based, and technology-neutral, and that it should capture novel financial constructs involving crypto-assets that generate fixed returns, regardless of underlying asset structure.
• ASIC believes that the Australian High Court’s guidance is essential to clarify the statutory framework applicable to crypto financial services, to prevent loopholes that could be exploited through technological form rather than economic function.
• A hearing date before the Australian High Court has not yet been fixed.

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