SEC Commissioners Kick Start Debate on Tokenization
At the fourth SEC Crypto Task Force roundtable, SEC Commissioners framed the regulatory issues over asset tokenization.
Chair Atkins called for a clear regulatory framework to support the shift from "off-chain" to blockchain-based "on-chain" securities. He outlined a three-part agenda focused on issuance, custody and trading. On issuance, he criticized legacy disclosure requirements as ill-suited to crypto assets, stressing that forms like S-1 include irrelevant details for blockchain-based offerings and discourage registration. He emphasized the need for tailored guidance, new exemptions and safe harbors. He asserted that "[c]ommission action is ... necessary" to enable compliant offerings. On custody, he supported broader optionality, including allowing self-custody, and called for updated definitions of "qualified custodian" and replacement of the "special purpose broker-dealer" framework. On trading, he backed modernization of the ATS regime and supported allowing broker-dealers to offer combined services—including trading in securities and non-securities—through "super apps." He also warned that, without regulatory reform, innovation may move offshore.
Commissioner Peirce described tokenization as an evolution of "internet-based protocols" that can enhance market efficiency, transparency and accessibility by enabling traditional assets to operate on crypto networks. She emphasized that tokenized securities should be treated the same as traditionally issued ones, stating that "the type of database used to record ownership of securities does not affect the substance of the securities issued." She stated that smart contracts and crypto applications can expand how investors use their assets. She also raised concerns about regulatory uncertainty, including whether a crypto network can serve as a transfer agent record and how custody rules apply. She emphasized the need for legal clarity grounded in "fact and law."
Commissioner Uyeda emphasized the need for proactive policymaking, arguing that "market participants should not be left guessing as to how they can comply." He highlighted the transformative potential of tokenization in "issuance, trading, transfer, settlement, and record of ownership," perhaps for assets such as real estate or intellectual property. He said that while blockchain's transparency could reduce intermediation and compliance costs, regulatory hurdles exist, particularly under Regulation NMS. He also cautioned against letting outdated tools hinder innovation and urged a focus on "critical safeguards," rather than regulating "every conceivable investment permutation and scenario."
Commissioner Crenshaw questioned the rush to rebuild the financial system around tokenization, emphasizing the lack of clarity around what tokenization truly entails. She challenged the feasibility of moving core market functions "on-chain," citing scalability issues with public blockchains and the questionable value of private ones. She raised the concern that facilitating blockchain adoption could amount to the SEC "picking winners and losers." She also cautioned that instant settlement—a key promise of tokenization—could undermine vital market protections like netting, liquidity and fraud prevention. She asked: "what are we trying to build, [and] why?" and urged any regulatory shifts be limited in scope and grounded in clear market need.