The U.S. Securities and Exchange Commission’s (SEC) Division of Corporation Finance has issued a no-action letter indicating it views Canton Coin, the native token of the Canton Network, as a “digital commodity.” According to the SEC’s Division of Corporation Finance, agency staff would not recommend enforcement action if Canton’s validators and application providers mint the token programmatically without registering it, based on representations made by Canton’s lawyers.
This guidance arrives shortly after the Depository Trust & Clearing Corp. (DTCC) launched a tokenization service that operates on the Canton Network and DTCC’s own private network, enabling firms to convert DTC-held stocks and Treasuries into tokens. Morgan Stanley reported on Tuesday that it was among the initial banks to utilize this DTCC service.
Basis for SEC Staff Position
SEC staff based their position on two key representations from Canton’s legal counsel. The first is that Canton Coin derives its value from the network’s programmatic operation and from supply and demand, rather than from the managerial efforts of others. The second representation is that the Canton Network has no “central party.”
Canton Coin was launched without an initial coin offering or a premine. According to a statement from Canton, tokens were initially earned solely by running network infrastructure and applications. Canton’s request letter to the SEC was dated October 30, with the staff responding four days later.
Limitations of the Guidance
It is important to note that the SEC’s letter reflects only the staff’s position on enforcement and does not constitute a definitive legal conclusion. The agency also highlighted that the relief is contingent on the facts presented by Canton. “Financial institutions need confidence in both the technology they use and the economic model that supports it,” said Yuval Rooz, CEO of Digital Asset, the creator of the Canton Network.
Canton stated that this letter marks the first such relief since the SEC published its March interpretive release, which suggested that most crypto assets are not securities. It also follows the agency’s August proposal for Regulation Crypto Assets.
Broader Regulatory Context
This development aligns with a broader shift in the regulatory landscape, particularly after the Clarity Act stalled in the Senate in September. The SEC and the Commodity Futures Trading Commission (CFTC) have increasingly taken the lead on establishing rules for the crypto sector. SEC Chair Paul Atkins had previously indicated in July that the agency was prepared to act on crypto rules if Congress did not. The SEC has also recently proposed rules concerning how investment advisers and funds should hold crypto assets.
Digital Asset, the company behind the Canton Network, raised $355 million earlier this year from various Wall Street firms and a sovereign wealth fund.
The SEC’s guidance on Canton Coin offers a specific instance of regulatory interpretation for digital commodities, underscoring the evolving nature of tokenization and the cautious engagement of traditional finance. However, this guidance is a staff position based on specific representations and is not a final legal conclusion.
Why This Matters
The materials describe a narrow update: The SEC’s Division of Corporation Finance stated it views Canton Coin as a ‘digital commodity’ and would not recommend enforcement action if Canton’s validators and application providers mint the token programmatically without registering it, based on representations made by Canton’s lawyers. Whether this SEC staff position constitutes a definitive legal conclusion.
Broader Context
Source materials place the factual news in this context: The blockchain behind Wall Street’s newest tokenization service just got a regulatory nod for its native token.
