The US focus is on tokenization friendly accounting rules | Opinion

Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of crypto.news’ editorial.

On January 23, 2025, President Donald Trump began delivering on his promise to transform the digital asset industry by supporting policies, rules, and regulations for the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy in order to secure America’s position as the world’s leader, by undertaking “Tokenization Friendly Initiatives.”  These included:

• President Donald Trump issued an executive order, Strengthening American Leadership in Digital Financial Technology, which established a Working Group on Digital Asset Markets chaired by White House AI and crypto czar David Sacks (who shared his opinions here);
• The US Securities Exchange Commission revoked accounting rule SAB 121 that hindered financial institutions from custodying customer digital assets.

About SAB 121

The rule required an entity to recognize a liability and corresponding asset at fair market value, or FMV, for its obligation to safeguard digital assets for customers. This balance sheet disclosure requirement, which did not apply to traditional assets—such as securities—held in custody, posed challenges for banks subject to regulatory reserve requirements. The rule significantly increased the financial burden on these financial institutions wanting to offer digital asset custody services, potentially deterring them from entering the market. 

The rule also required entities to provide a significant number of detailed disclosures, both in the footnotes to the financial statements and outside the financial statements, about the nature and amount of digital assets being safeguarded and any risks related to concentrations in digital asset safeguarding. Such disclosures included information about who held the cryptographic keys, who maintained internal recordkeeping, and who was obligated to secure the digital assets and protect them from loss or theft. 

Furthermore, the rule was not easy to use because it did not define safeguarding. Entities were often required to use significant judgment to determine whether a transaction fell within the rule’s scope.

For these reasons, traditional financial institutions did not favor SAB 121. It essentially created a significant barrier to offering digital asset custodial services, hindering tokenization innovation. 

“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.”

About SAB 122

Accordingly, SAB 122, which applies to annual periods beginning after December 15, 2024, with elective rescission in any earlier interim or annual financial statement period, does not completely absolve a reporting company from recognizing a liability relating to digital asset custodial activities of entities.

Conclusion

The Working Group on Digital Asset Markets includes SEC Acting Chairman Mark T. Uyeda, who launched a task force led by Republican Commissioner Hester Peirce charged with developing a “comprehensive and clear regulatory framework for digital assets.” The goal of this task force is to regulate “less through enforcement” and more through established regulatory guidelines, paths to registration, and disclosure requirements that will continue to drive institutional participation in tokenization and broader market growth.