White House Digital Asset Markets Report: Implications for DeFi

On July 30, 2025, the President’s Working Group on Digital Asset Markets (PWG) released its long-awaited report titled “Strengthening American Leadership in Digital Financial Technology” (PWG Report), which effectively outlines policy recommendations designed to help Congress and federal agencies ensure U.S. dominance in digital asset markets. The PWG Report, mandated by President Trump’s Executive Order on digital assets, represents a pivotal moment in digital assets policy, and meaningful recognition of decentralized finance (DeFi). 

The PWG Report is expected to play a significant role for future market structure legislation. Federal agencies will also consider the recommendations in the PWG Report. As Paradigm’s VP of Government Affairs, Alex Grieve, explains, “On critical questions, such as dividing oversight between the SEC and CFTC, the report removes ambiguity and signals where the White House stands.” Following the release of the PWG Report, Securities and Exchange Commission (SEC) Chairman Paul Atkins and Commodity Futures Trading Commission (CFTC) Acting Chairman Caroline Pham announced the launch of “Project Crypto” and a “crypto sprint,” respectively, to begin implementing the report’s recommendations.

And, for DeFi? 

The PWG Report represents meaningful progress for DeFi. It accurately recognizes the differences between DeFi and centralized intermediaries, as well as the benefits of decentralization. DEF was proud to contribute technical assistance and expertise to the PWG Report. 

The DEF team read the 146 page PWG Report to understand and summarize potential implications for DeFi. This blog serves as a summary and analysis of the sections we believe are most relevant to DeFi. 

PWG Report: Background

As the PWG Report explains, digital assets and blockchain technologies can “revolutionize not just America’s financial system, but systems of ownership and governance economy-wide.” (p.5) Although a great deal of the early innovation in the crypto space occurred in the U.S., a great deal migrated offshore to avoid an unfavorable regulatory environment. 

On January 23, 2025, President Trump issued Executive Order No. 14178 (the EO), which aimed to strengthen American leadership in digital financial technology. The PWG was established under Section 4 of the EO and is chaired by David Sacks, the Special Advisor for AI and Crypto, and includes several administration officials, such as Treasury Secretary Scott Bessent, SEC Chairman Paul Atkins, CFTC Acting Chairman Caroline Pham, among others. The Department of Justice also participated in the PWG via designated attorneys. The PWG was tasked with reporting on regulatory and legislative proposals that would advance the policies in line with the EO, guiding America to become the “crypto capital of the world.”

The spirit and motivation behind the PWG Report is clearly expressed: “American citizens and businesses should be able to own digital assets and use blockchain technologies for lawful purposes without fear of prosecution. Likewise, American entrepreneurs and software developers should have the liberty, and regulatory certainty, to upgrade all sectors of our economy using these technologies.” (p. 6)

Understanding the Digital Asset Ecosystem: Definitions and Architecture

The beginning of the PWG Report provides an overview of the digital asset ecosystem, explaining blockchain technology, market size and trends, market participants, key regulators, market activities, and potential market risks. 

The PWG Report highlights that DeFi utilization is on the rise, with the total number of protocols and services expanding rapidly – noting that digital assets and blockchain technology will lead to “a more open and efficient financial system for all,” and that American entrepreneurs who “pioneer new industries using these technologies deserve both clarity on the policies that affect their efforts and praise for the progress they have made.” (p. 5) (emphasis added)

DEF contributed a custom graphic explaining the architecture of the DeFi technology stack, and we are honored to see it included in the PWG Report (p. 22):

The PWG Report elaborates on parts of the ecosystem, including the following explanations relevant to DeFi:

• Decentralized Protocols (p. 20): 

  • “The term ‘decentralized' typically refers to the use of blockchain technologies to provide financial or nonfinancial services on a peer-to-peer basis. DeFi protocols, which can include platforms, applications, and exchanges, are an emerging segment of the digital asset ecosystem that uses smart contracts to automate transactions and enforce transparently encoded rules. DeFi applications and platforms offer users the ability to interact with these protocols through web interfaces or mobile apps and access different services.”

• Developers and Protocol Teams (p. 24): 

  • “Developers and protocol teams build and maintain (i.e., propose upgrades to the relevant chain or protocol) blockchain networks and decentralized applications.”

• Blockchain Developers (p. 24): 

  • “Open-source software developers maintain and upgrade the software that powers blockchain networks. They are often responsible for writing or auditing the code that governs the creation, mining, or distribution of digital assets. While decision-making for many blockchain networks is decentralized and community-driven, individual open-source developers provide core contributions to their security and functionality.”

• Decentralized Autonomous Organizations (DAOs) (p. 25): 

  • “DAOs are community-governed administrative systems that operate according to a set of encoded and transparent rules.”

• Custody and Wallets (p. 33):

  • “Participants in the digital asset ecosystem either engage in self-custody, where they hold assets in their own wallets, or through a digital asset custodian, often a bank or state-chartered trust. A user’s digital asset holdings are not stored in the wallet, but instead are recorded on the blockchain, which can only be accessed using the user’s private key. This key provides proof of ownership of the asset and allows the user to transact with associated networks or protocols.”

The PWG Report also lists potential risks to consumers and market participants, including custody risks, fraud and cybersecurity risks, data privacy risks, and operational risks. (p. 38)

• Custody Risks (p. 38):

  • “Non-custodial wallets - through which parties may exercise individual control over their digital assets - eliminates intermediary risks and increases privacy. Non-custodial cold wallets are not connected to the internet and therefore reduce cyberattack risks. However, non-custodial wallets require individuals to manage their private keys. Loss or theft of a private key generally results in the loss of digital assets.”

• Data Privacy Risks (p. 38):

  • “In public blockchain networks, transaction and ownership information is often public or shared, potentially revealing identities via metadata despite being pseudonymous. This is especially concerning for payments, as transaction details can infer or reveal personal identifying information, like residence and demographics. Using self-custody and privacy-enhancing technologies can reduce privacy risks. At times, however, users may not be able to remain truly pseudonymous to all actors.”

Notably, the PWG Report highlights that although the U.S. has been the preeminent country for blockchain development, “the total share of open-source software developers in the U.S. dropped from 25% in 2021 to 18% in 2025. Many crypto firms turned their attention overseas due to regulatory uncertainty, regulation-by-enforcement, and systematic debanking. Reversing the decline of blockchain development in the U.S. is central to the goal of making America the crypto capital of the world.” (p. 24)

Policy Implications for DeFi 

Market Structure Policy Recommendations for DeFi (pg. 43-58)

The PWG Report acknowledges the unique value of DeFi technology, encouraging different treatment for DeFi vs. intermediaries, and proposes several key considerations centered on a control-based approach. It also emphasizes the need for policymakers to “embrace and support the option of DeFi for investors” and “encourage the development of regulatory frameworks that balance innovation with security” to help position the United States as a leader in the global crypto economy. (p. 57)

Enabling Digital Asset Trading at the Federal Level (pg. 51-55)

The PWG Report recognizes that a major benefit of DeFi is that it is non-custodial:

“[...] due to the underlying distributed ledger technology, digital asset markets function differently from markets for stocks, bonds, commodities, and derivatives. [...] In digital asset markets, programmable smart contracts allow buyers and sellers of certain digital assets on decentralized exchanges to be matched and ownership to change hands without a custodial third-party.” (p. 54)

The PWG Report acknowledges the very essence of DeFi and why certain DeFi-related service providers, activities, and innovations should be treated differently than intermediaries in the traditional financial market. Recommendations from the PWG Report for regulatory clarity include the following, which DEF will closely monitor to ensure that DeFi is protected throughout:

Immediate Actions	“SEC should consider using its rulemaking and exemptive authority under the Exchange Act to provide relief for certain DeFi service providers from the broker-dealer (Section 15), exchange (Sections 5 and 6), and clearing agency (Section 17A) registration provisions of the Exchange Act.”
	“CFTC should consider using its rulemaking, interpretative, and exemptive authority under the Commodity Exchange Act to provide clarity on the applicability of various CFTC registration requirements to DeFi activities, smart contract protocols, or decentralized autonomous organizations (DAOs) consistent with technology-neutral principles.”
Long-Term Considerations	“CFTC should consider how existing rules could be amended to enable the use of blockchain-based derivatives.”
	“SEC and CFTC should use their existing authorities to provide fulsome regulatory clarity that best keeps blockchain-based innovation within the U.S.”
Federal Preemption	“Congress should provide that federal law preempts state law with respect to securities and commodities laws applicable to SEC- and CFTC-registered intermediaries, including in the areas of state virtual currency business, ‘blue sky,’ and commodity broker laws.”

Regulatory Treatment of DeFi Under Market Structure (pg. 57-58)

Consistent with certain provisions of the CLARITY Act, the PWG Report instructs Congress to consider the following factors when assessing the regulatory treatment of DeFi in market structure legislation:

The extent to which a given software application exercises “control” over user assets.

• “Without the ability to exercise control over user assets or funds, a software application may not transmit money or exchange currency, and therefore might not be subject to the [Bank Secrecy Act (BSA)] as [a money services business (MSB)]. Importantly, without control, software applications generally lack the ability to misappropriate user assets.”

The extent to which a given software application, once built or deployed, is technologically capable of being modified.

• “Software applications in DeFi use smart contracts. In many cases, smart contracts cannot be modified or withdrawn once deployed. Implementing changes in those cases requires the creation of entirely new smart contracts.

• “The operations of a software application, including the smart contracts or the economics of the service more broadly, may be administered by a single actor or a group of actors working together.”

• “As such, Congress should consider the degree to which a single actor, or group of actors working together, has the unilateral ability to upgrade a software application’s smart contracts or change its economics in a manner not previously disclosed in the software or protocol rules.”

The extent to which a software application is controlled by, or operates with, a centralized structure or management.

• “If a product or service is operated, managed, or otherwise controlled by a business and facilitates access to a DeFi system engaged in otherwise regulated activity, that product or service should be subject to regulation accounting for underlying regulated activity and pursuant to the principles of fair competition, customer protection, conflicts of interest, integrity of code, cybersecurity standards, and other principles as appropriate.” 

The extent to which a given software application is technologically or logistically capable of complying with current regulatory obligations.

• “Many DeFi protocols and non-controlling blockchains do not have the functional ability to register as MSBs or otherwise comply with MSB obligations under the BSA, while businesses (as described above) could register. Nevertheless, Congress could consider how obligations can be fit-for-purpose to the technology and embrace the unique characteristics of DeFi, rather than placing the current financial regulatory regime on top of DeFi services.”

• “Care should be taken to ensure that actors are not permitted to structure products to subvert legal responsibilities.”

Modernizing BSA Duties Under DeFi Ecosystem (pg. 101-107)

The PWG Report recognizes that “the prevalence of money laundering and terrorist financing via digital assets remains well below that of the same activities utilizing fiat currency, bank and traditional money services fund transfers, and other methods that do not involve digital assets.” (p. 101)

This observation directly challenges the incorrect, often repeated misnomer: that digital assets are only used for illicit finance. This is not true, and forcing the DeFi industry to comply with compliance requirements for traditional finance is inefficient and is, in many cases, not technically feasible.  (Separately, DEF would argue that the existing BSA regime is outdated and broken – but that’s a separate analysis that you can read here). 

The PWG Report notes that the appropriate regulators have the necessary tools and authorities to counter illicit finance and provide clarity on BSA obligations and reporting. The PWG Report recommends recognizing practices that some participants in the DeFi ecosystem are implementing to mitigate illicit finance risk. However, the PWG also recommends adapting anti-money laundering (AML) and combating the financing of terrorism (CFT) obligations that are not quite suitable for DeFi activities. DEF will advocate for appropriate solutions to prevent illicit finance and ensure that DeFi technology is not burdened. 

• “Digital asset market structure legislation should consider creating digital asset specific financial institution types or sub-types within the BSA. FinCEN should evaluate whether and how its existing guidance related to the digital asset sector, including the guidance issued in 2013 and 2019, should be rescinded, modified, updated; [or should issue additional guidance (if needed),] to reflect legislative and regulatory changes.” (p. 153)

• “Legislation should consider specifying actors within the DeFi ecosystem that should have AML/CFT obligations, taking into consideration those actors’ roles in the ecosystem and attendant risks.” (p. 153)

• “Treasury should consider next steps regarding its proposed rulemaking concerning CVC mixing.” (p. 153)

For software providers that do not exert “total independent control” over user assets, the PWG Report suggests these services should not be considered as MSBs and therefore trigger BSA obligations – a critical win for DeFi. This is a position DEF has long advocated for, as recognized in the Blockchain Regulatory Certainty Act, and in DEF’s Policy Paper “Square Peg in a Round Hole: Why the Bank Secrecy Act Should Not Apply to Blockchain Participants.” Additionally, the PWG Report recommends relevant agencies develop principles-based requirements and increase information sharing to protect against malicious cyber actors.

Protecting DeFi Developers and Blockchain Infrastructure (pg. 106-108)

“American citizens and businesses should be able to own digital assets and use blockchain technologies for lawful purposes without fear of prosecution. Likewise, American entrepreneurs and software developers should have the liberty, and regulatory certainty, to upgrade all sectors of our economy using these technologies.” (p. 6) 

DEF agrees with this sentiment and we believe this is crucial not just for regulatory clarity, but for strengthening domestic market confidence and preserving the leadership status of America. However, recent prosecutions against software developers contradict this viewpoint and have created confusion, threatening U.S.-based software development. Relatedly, the PWG Report recommends that the actions against malicious actors must be properly scoped, and requests transparent developers obligations under the law to encourage the onshoring of blockchain development. 

• “Congress should codify principles regarding how control over an asset impacts BSA obligations, particularly for money transmitters, through legislation such as the Blockchain Regulatory Certainty Act, which has been incorporated into CLARITY. Specifically, such legislation could codify that a software provider that does not maintain total independent control over value is not engaged in money transmission for purposes of the BSA.” (p. 106)

Further, the PWG Report notes that sanctions obligations are particularly relevant for DeFi developers, as they apply to all U.S. persons, and advises that clear resources be given to developers and technologists to understand how sanctions obligations apply. Specifically, the PWG Report recommends:

• “Treasury should issue a Request for Information (RFI) to directly solicit sanctions compliance information, input, and recommendations from industry participants to understand ongoing developments and innovations and gaps in existing OFAC guidance as well as to identify opportunities for enhanced private sector collaboration.” (p. 154)

• “Treasury should consider revising and updating OFAC’s existing Sanctions Compliance Guidance for the Virtual Currency Industry brochure, which highlights existing compliance tools such as traditional sanctions screening and blockchain analytics to help improve sanctions compliance by all industry participants, in accordance with insight gleaned from the RFI process.” (p. 154)

Self-Custody (p. 108)

The EO emphasizes that it is the policy of the U.S. to protect and promote the ability of individual citizens and private-sector entities to maintain self-custody of their digital assets. In line with this, the PWG Report highlights that “Congress should enact legislation affirming that individuals can custody their own digital assets without a financial intermediary and engage in lawful peer-to-peer transactions using those assets.” (p. 6) 

Specifically, the PWG Report recommends:

• “Congress should evaluate the self-custody language that is included in CLARITY and codify the following principles through legislation that reinforce the importance of self-custody:

  • Principle 1: The importance of U.S. individuals maintaining the capability to lawfully hold, or custody, their own digital assets without a financial intermediary.

• Principle 2: The importance of enabling U.S. individuals to engage in lawful, direct digital asset transfers that do not involve a financial intermediary with another individual that lawfully self-custodies digital assets.” (p.108)

Financial Privacy (pg. 111-113)

While measures must be taken to counter illicit finance, the PWG Report highlights the need for regulations to be properly scoped, as privacy is critical to digital asset usage. The PWG Report is supportive of the Anti-CBDC Surveillance State Act, as well as other privacy protections enabling individuals to privately transact on public blockchains. 

Of note, the PWG Report mentions that entities are developing tools designed to support various elements of AML/CFT and sanctions compliance while maximizing user privacy. The PWG Report points to Zero Knowledge Proofs as an example, which can “enable users to confirm that their identity has been verified or subject to screening by a third party without revealing underlying personal information, as a way some tools use to maximize privacy.” (p. 112)

To advance privacy through digital identity and related tools, the PWG Report recommends:

• “As is required by GENIUS, Treasury should issue an RFI to gather information on innovative tools to detect illicit activity, including with respect to digital identity verification.” (p. 113)

• “Treasury should, in consultation with the federal functional regulators, consider issuing guidance to financial institutions on how they can utilize digital identity solutions within their existing customer identification programs” and ensure the guidance balances “secure identity verifications with protection of personally identifiable information.” (p. 113)

DEF’s Perspective

The PWG Report underscores the need to protect self-custody and software developers, recognizes the differences between CeFi and DeFi, and supports blockchain technology flourishing in the United States. 

DEF appreciates the PWG’s efforts and has integrated several of its recommendations into our response to the Senate Banking Committee Digital Asset Market Structure Request For Information. 

The PWG Report is available to read in full at Crypto.gov.