Interpretation of the U.S. SEC Chairman's In-Depth Discussion on On-Chain Issuance, Accomplice, and Trading

In the past two years, if you were to say that the relationship between the US SEC and the encryption industry is good, it would basically be like saying a tiger is a Buddhist and loves to eat vegetarian. Most of the time, the SEC's attitude has either been "don't do it for now" or "if you dare to do it, I dare to sue you." But now, the tone seems to have changed a bit.

On May 12, Paul S. Atkins, the chairman of the U.S. Securities and Exchange Commission (SEC), delivered a speech rich in content at the "Cryptocurrency Asset Roundtable." At first glance, it seemed like an industry exchange, but in reality, it was a systematic reflection on the SEC's encryption regulatory model over the past few years. More importantly, he spent nearly an hour re-explaining the regulatory logic of "on-chain securities."

If I were to summarize the tone of his speech in one sentence, it would be: Rules should be clearly written and should not rely on enforcement to intimidate.

This is the first time in recent years that the SEC has clearly proposed to establish a "special regulatory framework" for the issuance, custody, and trading of encryption assets, and has acknowledged that current rules do not apply to on-chain assets. This is a signal that cannot be ignored for the entire Web3 industry.

Issuance: It's not "not allowed to issue", it's "you can't fill out this form"

In recent years, the SEC's strategy on Token issuance has been almost "de facto illegal", yet it does not provide a legitimate pathway. Most projects that dare to involve American investors must be prepared for litigation. Even if you want to be compliant and go through the S-1 or Reg A registration paths, you often find yourself stuck because the forms themselves are not applicable.

S-1 is the standard registration document filled out by American companies during an IPO, requiring detailed disclosure of executive compensation, use of funds, corporate governance structure, and other content; Reg A (Regulation A) is a lightweight registration exemption mechanism designed for small and medium-sized issuers. However, for most Web3 projects, both of these tools seem too cumbersome or even incompatible, as Token projects do not have a traditional corporate structure, the use of funds is often executed automatically on-chain, and many core contents cannot be "pre-written."

Chairman Atkins was very frank this time: the disclosure requirements for current securities issuance should not be forcibly applied to on-chain assets. "Square pegs should not be forcibly inserted into round holes," he said directly in his speech. He proposed to promote registration exemptions, disclosure templates, and safe harbor provisions specifically applicable to encryption assets, and to explore more realistic regulatory paths.

He also specifically pointed out the SEC's past "ostrich management": initially pretending not to see, hoping the industry would die out on its own, then diving headfirst into enforcement, creating deterrence through individual cases, but never establishing unified rules. Now he has made it clear - rules must be passed by the committee, no longer relying on "improvised enforcement."

Custody: The technology is not the problem, the issue is that the system is holding back the technology.

The custody issue of encryption assets in recent years has actually been a question of "who will manage it." Traditional financial institutions have been intimidated by SAB 121, and self-custody has no legal status, resulting in many funds and institutions wanting to participate in on-chain asset allocation but ultimately getting stuck in the custody phase.

SAB 121 is an accounting announcement issued by SEC staff in 2022, requiring companies to include custodial client encryption assets on their own balance sheets, which has led to a sharp increase in regulatory risks. Its intention is to protect user assets, but the actual effect has been to drive most banks and brokerages out of the encryption custody market.

The SAB 121 has now been revoked, and the chairman has clearly stated that this document is "illegal, unapproved, and has a negative impact." But more importantly, he began to talk about how to fix it next.

He pointed out that as long as the security is sufficient, technical capabilities can replace traditional custodial qualifications. Under certain premises, self-custody can also be a compliant option. This actually opens up compliance possibilities for DeFi platforms, wallet providers, and even on-chain asset management projects.

In addition, he criticized the failure of the design of the "Special Purpose Broker-Dealer" system, which only approved two firms with poor results. He hinted that this mechanism needs to be restructured, meaning that the compliance paths for custody and trading in the future may be reintegrated and the thresholds lowered.

Trading: Moving from "Trading is Lawful" to "Limited Exemption Pilot"

The SEC has long held a strong regulatory stance on on-chain asset trading, especially regarding the hurdle of "whether it qualifies as a security," causing most Token projects to fall into a deadlock of "not landing, not compliant, and not daring to go live."

In this speech, Chairman Atkins clearly stated the need for deregulation. He proposed that ATS (Alternative Trading Systems) platforms should support mixed trading of securities and non-securities.

ATS is a classification for securities trading platforms under the U.S. regulatory framework, which can be understood as "alternative trading systems." Many digital asset platforms have attempted to register as ATS to provide compliant trading capabilities. However, the current ATS system has not made a clear definition regarding encryption assets, causing most platforms to hesitate.

The chairman also emphasized the necessity of the "exemption mechanism." In other words, if a project temporarily cannot meet all compliance requirements due to technological innovation or structural uniqueness, the SEC may provide a testing space under certain conditions. This is not a free-for-all, but rather a conditional, supervised, and trial-and-error compliance channel.

Industry Impact: Regulatory boundaries are no longer a guess, compliance space is beginning to emerge

The greatest significance of this speech lies in the fact that it is not a case study on a specific project, nor is it a personal opinion of a committee member, but rather the SEC chairman's first complete articulation of the logic that should underpin the regulation of encryption assets, authorized by the committee.

The policy background behind this is also very clear: the Trump administration hopes to make the United States the "global encryption capital," and the SEC, as the core financial regulatory agency, can no longer pretend that encryption assets are a peripheral business.

In the coming years, on-chain securities, stablecoins, RWA, Token payment platforms may become pilot windows under the new SEC rules. Entrepreneurs and project parties must also shift from the previous "regulatory evasion" model to a state of "designing endogenous compliance."

Advice from a Web3 Lawyer: It's not about "can do", but rather "can do legally"

From a practical perspective, we would recommend:

First, pay attention to the structural adjustments of issuance paths such as S-1 and Reg A. If the SEC promotes exclusive disclosure rules for encryption, project parties can reasonably choose registration exemption methods, rather than having to start avoiding from issuing coins outside the United States each time.

Second, emphasize the preparation of custody compliance. Whether it is an on-chain wallet, a self-custody system, or relying on third-party service providers, it is necessary to quickly assess their compliance boundaries under the new rules.

Third, pay attention to the policy adjustments of ATS and related trading platforms. If you are working on an exchange or a matching product project, this may be a window period for structural design to be revisited.

Fourth, carefully assess whether the project is suitable for the "conditional exemption" mechanism. Some early projects may not be suitable for full registration but can obtain a landing path through rule exemptions. This is a compliance route, not a gray area.

This speech did not announce that the encryption industry "can be done", but rather provided that the way to do it can be discussed.