On January 23, 2025, President Donald Trump initiated a series of policy changes designed to bolster the digital asset industry. These ‘Tokenization Friendly Initiatives’ aim to solidify the United States’ position as a world leader in digital finance, blockchain technology, and related sectors.
A key component of this initiative was an executive order, ‘Strengthening American Leadership in Digital Financial Technology,’ which established a Working Group on Digital Asset Markets. This group, chaired by White House AI and crypto czar David Sacks, is tasked with developing strategies to support the growth of digital assets. Further, the U.S. Securities and Exchange Commission (SEC) revoked Staff Accounting Bulletin 121 (SAB 121), a move aimed at making it easier for financial institutions to offer digital asset custody services.
SAB 121, issued in March 2022, created significant hurdles for banks wishing to custody digital assets. The rule mandated that financial institutions recognize a liability and corresponding asset at fair market value (FMV) for holding customer digital assets. Unlike traditional assets, this requirement created complications for institutions subject to regulatory reserve requirements. The rule also necessitated detailed disclosures about custody arrangements.
William Quigley, a blockchain investor and co-founder of WAX.io, explained the practical impact: “SAB 121 placed a significant restraint on the ability of banks to maintain custody of cryptocurrency assets on behalf of customers by requiring a bank to reflect at FMV both an asset and a liability, for which it must reserve capital on its balance sheet even though it is not the owner of the digital asset. The rescission of SAB 121 will allow banks to tokenize.”
The rescinding of SAB 121 allows banks more flexibility in handling digital assets. In its place, Staff Accounting Bulletin 122 (SAB 122) provides greater flexibility to banks and traditional financial institutions, permitting them to revert to pre-SAB 121 accounting principles. This will allow financial institutions to manage their accounting for custodial services under established standards without the one-to-one asset-to-liability ratio previously mandated.
The President’s Working Group on Digital Asset Markets includes SEC Acting Chairman Mark T. Uyeda, who launched a task force. This task force, led by Republican Commissioner Hester Peirce, is responsible for developing a comprehensive, clear regulatory framework for digital assets, with the aim of fostering growth through established guidelines rather than strictly through enforcement.
These initiatives have been positively received by major players in the financial sector. The Bank of New York (BNY), the American Bankers Association, and Etherealize.io, which connects financial institutions to the Ethereum ecosystem, have all expressed support.
