A New Chapter in Cryptocurrency Regulation: Establishing a Clear Framework to Promote Blockchain Securities Innovation

I am honored to share my views with all the distinguished guests at today's tokenization roundtable.

The current topic of discussion is very timely, as we are witnessing a critical stage in the migration of the securities market from traditional database systems to Blockchain-based distributed ledger technology.

This transformation can be likened to the historic changes in the audio industry from vinyl records to tapes and then to digital formats. The convenient transmission, modification, and storage capabilities of digital audio files have brought revolutionary innovations to the music industry. Audio content has been liberated from the constraints of fixed formats, achieving interoperability across various devices and platforms. It can be restructured, decomposed, and programmed, creating entirely new product experiences, while also driving hardware development and innovation in streaming business models, bringing immense value to consumers and the economy.

Similarly, the migration of securities to on-chain systems is expected to completely reshape the market landscape, creating entirely new ways of issuing, trading, holding, and using. For example, on-chain securities can achieve automated and transparent dividend distribution through smart contracts. Tokenization can also transform low-liquidity assets into high-liquidity investment opportunities, facilitating capital formation. Blockchain technology will bring numerous innovative application scenarios to the securities market, giving rise to new market activities that the existing regulatory framework has not yet considered.

To make the United States a leader in the global encryption field, the SEC must synchronize with innovation and consider necessary regulatory reforms to adapt to on-chain securities and other encryption assets. Rules designed for traditional securities may be incompatible or unnecessary in the on-chain asset environment, potentially hindering the healthy development of Blockchain technology.

One of my important missions as the SEC Chair is to establish a reasonable regulatory framework for the encryption asset market, create clear rules for the issuance, custody, and trading of encryption assets, and effectively combat illegal activities. Clear rules are crucial for protecting investors from fraud, especially in helping them identify illegal scams.

The SEC has entered a new era. Policy making will no longer rely on ad-hoc enforcement actions, but will fully utilize existing rule-making, interpretation, and exemption authority to provide workable standards for market participants. SEC enforcement will return to the original intent of Congress, focusing on violations of established duties, particularly fraud and market manipulation.

This work requires collaboration among multiple departments within the SEC, so I am pleased to see the commissioners working together to establish a special task force on cryptocurrency. For a long time, the SEC has been troubled by the decentralization of policy-making. This special task force demonstrates how we can work together to provide the public with the regulatory clarity they urgently need.

Next, I will focus on three key areas of cryptocurrency asset policy: issuance, custody, and trading.

Issuance

First of all, I hope the SEC will establish clear and reasonable guidelines for cryptocurrency assets that constitute securities or are subject to investment contracts. Currently, only four cryptocurrency asset issuers have completed the registration and issuance under Regulation A. Issuers generally avoid such offerings, partly due to the difficulty in meeting the relevant disclosure requirements. For issuers that do not intend to issue traditional securities such as stocks, bonds, or notes like (, it is particularly challenging to determine whether cryptocurrency assets constitute "securities" or are governed by investment contracts.

In recent years, the SEC initially adopted an "ostrich mentality"—hoping that cryptocurrencies would disappear on their own. It then shifted to a strategy of "enforcement before inquiry." Although the SEC claims to be willing to communicate with potential registrants, it has not made the necessary adjustments to registration forms for this new technology. For example, the S-1 form still requires detailed information on executive compensation and the use of proceeds, which may not be relevant for investment decisions in crypto assets. Despite the SEC having previously adjusted forms for asset-backed securities and real estate investment trusts, it has not made corresponding adjustments in the face of growing demand for investment in crypto assets. We cannot encourage innovation with a "square peg in a round hole" approach.

I am committed to pushing the SEC to develop a new approach. Staff recently issued a statement regarding registration and offering disclosure obligations and clarified that certain offerings and crypto assets are not subject to federal securities laws. I hope that they will continue to provide clarification on other types of issuances and assets, as directed. The existing registration waivers and safe harbors may not fully apply to certain cryptoasset offerings, and I believe these statements are only temporary measures – substantive action by the SEC is critical. I have asked for consideration of the need for additional guidance, registration exemptions, and safe harbors to open a pathway for cryptoasset issuance in the United States. Under securities law, the SEC has broad discretion to accommodate the development of the crypto industry, and I intend to make full use of those authorities.

Custody

Secondly, I support granting more autonomy to registered institutions, allowing them to decide how to custody encryption assets. SEC staff recently withdrew Staff Accounting Bulletin No. 121, clearing significant obstacles for companies wishing to provide encryption asset custody services. The statement itself was a serious mistake, and the staff had no authority to take such broad action without a formal rulemaking process. This caused unnecessary confusion, with impacts far exceeding the SEC's jurisdiction. However, what the SEC can do goes beyond simply repealing SAB 121; it can further enhance legitimate competition in the custody services market.

It is necessary to clarify which custodians meet the qualifications of "qualified custodians" as specified in the Investment Advisers Act and the Investment Company Act, and to provide reasonable exceptions for common practices in the cryptocurrency market. Many advisors and funds can utilize advanced technology self-custody solutions, which may outperform certain market custodians in protecting cryptocurrency assets. Therefore, custody rules may need to be updated to allow self-custody in specific circumstances.

In addition, it is necessary to consider abolishing the "special purpose broker-dealer" framework and replacing it with a more reasonable system. Currently, there are only two special purpose broker-dealers operating, clearly due to strict limitations. Broker-dealers have never been prohibited from acting as custodians for non-security crypto assets or crypto asset securities, but the SEC may need to clarify the applicability of customer protection and net capital rules in such activities.

Transaction

Third, I support allowing registered institutions to trade more types of products on their platforms and engage in previously prohibited market demand activities. For example, some brokerage firms are attempting to launch "super apps" that offer integrated trading of securities, non-securities, and other financial services. Federal securities laws do not prohibit registered broker-dealers with alternative trading systems from facilitating non-securities trading, including "pair trading" between securities and non-securities. I have requested staff assistance in designing a modernized ATS regulatory system to better accommodate encryption assets. Additionally, I have requested an exploration of whether further guidance or rulemaking is needed to promote the listing and trading of encryption assets on national securities exchanges.

While the SEC is committed to establishing a comprehensive regulatory framework for cryptocurrency assets, market participants should not be forced to go overseas for blockchain technology innovation. For institutions wishing to launch new products and services that may be inconsistent with existing rules, conditional exemptions may be an appropriate option.

I look forward to collaborating with the government and congressional colleagues to make the United States the best place for participating in the global encryption asset market.