The Chairman of the SEC Delivers a Speech on the Regulation of Encryption Assets

At a recent tokenization roundtable, the chairman of the SEC delivered an important speech on the regulation of encryption assets. He pointed out that securities are migrating from traditional databases to blockchain-based distributed ledger systems, a shift that could fundamentally reshape various aspects of the securities market.

The chairman likened this transformation to the evolution of audio from analog to digital formats, believing it could bring new ways of issuing, trading, holding, and using securities. For example, on-chain securities can use smart contracts to periodically allocate dividends to shareholders, and tokenization can also enhance asset liquidity and facilitate capital formation.

In order to make the United States a global leader in the encryption field, the SEC must synchronize with innovation and consider regulatory reforms to accommodate on-chain securities and other encryption assets. The chairman emphasized that the rules designed for traditional securities may not be applicable to on-chain assets and could even hinder the development of blockchain technology.

The chairman stated that the committee will no longer rely on ad hoc enforcement actions to formulate policies, but will instead use existing rule-making, interpretation, and exemption powers to create practical standards for market participants. He also announced the establishment of a special task force for encryption to coordinate the work of various departments within the committee.

In the speech, the chairman focused on three key areas of encryption asset policy: issuance, custody, and trading.

In terms of issuance, the chairman committed to formulating clear and reasonable guidelines for the issuance of encryption assets. He criticized the committee's past "ostrich mentality" and "shoot first, ask questions later" enforcement strategy, stating that he would promote the development of new guidelines, including considering additional guidance, registration exemptions, and safe harbors.

Regarding custody, the chairman supports providing registrants with more autonomy to decide how to custody their encryption assets. He mentioned the decision to withdraw Accounting Announcement No. 121 and stated that it is necessary to clarify which types of custodians meet the legal requirements for "qualified custodians."

In terms of trading, the chairman supports allowing registrants to trade a wider variety of products on their platform and to engage in previously prohibited activities. He mentioned the concept of "super apps" and stated that he has asked staff to explore how to design a modern regulatory framework for alternative trading systems.

Finally, the chairman expressed a willingness to consider granting conditional exemptions to participants seeking to bring new products and services to market. He emphasized that he will coordinate with government and congressional colleagues to strive to make the United States the best place in the world for participation in the encryption asset market.