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SAB 121: ABA, SIFMA ask SEC to exclude digital securities from custody requirements
February 16, 2024
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Almost two years ago, the Securities and Exchange Commission (SEC) introduced Staff Accounting Bulletin (SAB 121) relating to digital asset custody. It requires assets to appear on the custodian’s balance sheet, a very unorthodox accounting treatment. Now major banking and securities industry bodies – ABA, SIFMA, BPI and FSF * – have written a letter to the SEC. They’re asking for amendments to the bulletin’s requirements.

They request that the rule not cover all crypto-assets and ask for it to exclude use cases that combine DLT and traditional assets. In other words, they want digital securities excluded, even if cryptocurrencies stay in.

SAB 121 will have a chilling effect on banking organizations’ ability to develop responsible use cases for distributed ledger technology (DLT) more broadly,” the letter states.

That’s because bank capital requirements are based on the balance sheet. The more assets, the more capital has to be set aside.

Secondly, they request that the balance sheet requirement is removed for banks. They’re happy to disclose the amounts of crypto-assets held in custody as a note.

The letter also states, “Digital asset custodial services are currently offered by various non-banking organizations, thereby keeping activity outside the prudential perimeter and avoiding the necessary oversight by regulators.” 

One of the SEC’s primary missions is to protect consumers, but SAB 121 has the opposite effect with Bitcoin ETFs. The letter highlights that SAB 121 prevented regulated banks from providing Bitcoin custody for the recent Bitcoin ETF launches. The two largest ETFs from BlackRock iShares and Fidelity now have a combined $8.3 billion assets under management. Coinbase provides custody for most of the ETFs (not Fidelity’s), creating a concentration risk.

Congress opposition to SAB 121

Meanwhile, the Government Accountability Office (GAO) ruled in November that Congress should have reviewed SAB 121. Last week there was meant to be a vote on a Congressional resolution to cancel SAB 121. We don’t believe that vote happened, but we have contacted legislators to confirm.

  • The associations are the Bank Policy Institute (BPI), American Bankers Association (ABA), Financial Services Forum (FSF) and the Securities Industry and Financial Markets Association (SIFMA).

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The Great Onboarding: US Government Anchors Global Economy into Web3 via Pyth Network

For years, the crypto world speculated that the next major cycle would be driven by institutional adoption, with Wall Street finally legitimizing Bitcoin through vehicles like ETFs. While that prediction has indeed materialized, a recent development signifies a far more profound integration of Web3 into the global economic fabric, moving beyond mere financial products to the very infrastructure of data itself. The U.S. government has taken a monumental step, cementing Web3's role as a foundational layer for modern data distribution. This door, once opened, is poised to remain so indefinitely.

The U.S. Department of Commerce has officially partnered with leading blockchain oracle providers, Pyth Network and Chainlink, to distribute critical official economic data directly on-chain. This initiative marks a historic shift, bringing immutable, transparent, and auditable data from the federal government itself onto decentralized networks. This is not just a technological upgrade; it's a strategic move to enhance data accuracy, transparency, and accessibility for a global audience.

Specifically, Pyth Network has been selected to publish Gross Domestic Product (GDP) data, starting with quarterly releases going back five years, with plans to expand to a broader range of economic datasets. Chainlink, the other key partner, will provide data feeds from the Bureau of Economic Analysis (BEA), including Real Gross Domestic Product (GDP) and the Personal Consumption Expenditures (PCE) Price Index. This crucial economic information will be made available across a multitude of blockchain networks, including major ecosystems like Ethereum, Avalanche, Base, Bitcoin, Solana, Tron, Stellar, Arbitrum One, Polygon PoS, and Optimism.

This development is closer to science fiction than traditional finance. The same oracle network, Pyth, that secures data for over 350 decentralized applications (dApps) across more than 50 blockchains, processing over $2.5 trillion in total trading volume through its oracles, is now the system of record for the United States' core economic indicators. Pyth's extensive infrastructure, spanning over 107 blockchains and supporting more than 600 applications, positions it as a trusted source for on-chain data. This is not about speculative assets; it's about leveraging proven, robust technology for critical public services.

The significance of this collaboration cannot be overstated. By bringing official statistics on-chain, the U.S. government is embracing cryptographic verifiability and immutable publication, setting a new precedent for how governments interact with decentralized technology. This initiative aligns with broader transparency goals and is supported by Secretary of Commerce Howard Lutnick, positioning the U.S. as a world leader in finance and blockchain innovation. The decision by a federal entity to trust decentralized oracles with sensitive economic data underscores the growing institutional confidence in these networks.

This is the cycle of the great onboarding. The distinction between "Web2" and "Web3" is rapidly becoming obsolete. When government data, institutional flows, and grassroots builders all operate on the same decentralized rails, we are simply talking about the internet—a new iteration, yes, but the internet nonetheless: an immutable internet where data is not only published but also verified and distributed in real-time.

Pyth Network stands as tangible proof that this technology serves a vital purpose. It demonstrates that the industry has moved beyond abstract "crypto tech" to offering solutions that address real-world needs and are now actively sought after and understood by traditional entities. Most importantly, it proves that Web3 is no longer seeking permission; it has received the highest validation a system can receive—the trust of governments and markets alike.

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US Dept of Commerce to publish GDP data on blockchain

On Tuesday during a televised White House cabinet meeting, Commerce Secretary Howard Lutnick announced the intention to publish GDP statistics on blockchains. Today Chainlink and Pyth said they were selected as the decentralized oracles to distribute the data.

Lutnick said, “The Department of Commerce is going to start issuing its statistics on the blockchain because you are the crypto President. And we are going to put out GDP on the blockchain, so people can use the blockchain for data distribution. And then we’re going to make that available to the entire government. So, all of you can do it. We’re just ironing out all the details.”

The data includes Real GDP and the PCE Price Index, which reflects changes in the prices of domestic consumer goods and services. The statistics are released monthly and quarterly. The biggest initial use will likely be by on-chain prediction markets. But as more data comes online, such as broader inflation data or interest rates from the Federal Reserve, it could be used to automate various financial instruments. Apart from using the data in smart contracts, sources of tamperproof data 👉will become increasingly important for generative AI.

While it would be possible to procure the data from third parties, it is always ideal to get it from the source to ensure its accuracy. Getting data directly from government sources makes it tamperproof, provided the original data feed has not been manipulated before it reaches the oracle.

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