The SEC Chairman discusses on-chain issuance, custody and transaction for the first time

Original title: "Keynote Address at the Crypto Task Force Roundtable on Tokenization"

Source: SEC

Compilation: Meta Era Compilation

Time: May 12, 2025

Location: Washington, DC

Thank you everyone, good afternoon. I am very happy to address the guests at this roundtable on "Tokenization". [1] Thanks also to all the panelists involved in the discussion.

The topic we are discussing today is very time-sensitive, as securities are increasingly migrating from traditional (i.e. "off-chain") databases to blockchain (i.e. "on-chain") ledger systems.

The migration of securities from off-chain to on-chain systems is like the transition of audio from analog vinyl records to tapes to digital software decades ago. Audio can be digitally encoded and can be easily transmitted, modified and stored, which unlocks the great potential for innovation in the music industry. [2] Audio is no longer limited to static and fixed formats, but can be interoperable across devices and applications. It can be combined, split and programmed to form a completely new product form. This has also spawned various new hardware devices and streaming business models, greatly benefiting consumers and the U.S. economy. [3]

Just as digital audio has disrupted the music industry, on-chain securities also have the potential to reshape the securities markets in all aspects of issuance, trading, holding and using securities. For example, on-chain securities can automatically distribute dividends through smart contracts. Tokenization can also enhance capital formation and transform assets that are otherwise poorly liquid into tradable investment opportunities. Blockchain technology is expected to expand many new uses of securities, giving birth to many market activities that have not been envisioned by current committee rules.

To realize President Trump’s vision of “making the United States a global crypto capital”, [4] The Commission must keep pace with innovation and reassess whether current regulation needs to be updated to adapt to on-chain securities and other crypto assets. If the rules applicable to off-chain securities are directly applied to on-chain assets, it may create incompatible or unnecessary regulatory burdens, inhibiting the development of blockchain technology.

One of my core tasks as Chairman will be to establish a reasonable and clear framework for crypto assets regulation, establish clear rules for the issuance, custody and transaction of crypto assets, and to combat illegal acts and protect investors from fraud.

The SEC policy will no longer pass “impact law enforcement” decisions. We will return to the original intention set by Congress, setting clear standards applicable to market participants through formally formulating rules, interpretations and exemptions. Law enforcement should return to the implementation of existing rules, especially to prevent fraud and manipulation.

This effort requires close collaboration between SEC offices and departments. Therefore, I am very happy that Uyeda and Peirce jointly established the Crypto Assets Working Group. The SEC has long been trapped in policy silos. This working group reflects our determination to break down barriers and quickly develop clear policies.

Next, I will share three key areas of crypto asset policy: issuance, custody and trading .

1. Issuance

First, I hope that the SEC will establish clear and reasonable guidance for the issuance of crypto assets involving securities or investment contracts. To date, only four crypto asset companies have issued crypto assets through registration and Regulation A. [5] Most issuers choose to avoid registration and issuance, partly because the relevant disclosure requirements are difficult to meet. If the issuance of traditional securities (such as stocks, bonds, notes), it is more difficult for the issuer to determine whether the crypto asset constitutes a "securities" or an investment contract. [6]

Over the past few years, the SEC has taken what I call the “ostrich policy”—it seems to be counting on the crypto industry to automatically die out. It then changed to law-enforcement supervision of "fire first and ask questions". The project party is welcomed to "come in and communicate", but in fact, no necessary adjustments are made to the registration form. For example, Form S-1 still requires disclosure of executive compensation and funding purposes, which are often irrelevant or unevaluable in crypto projects. The SEC has adjusted the table for special circumstances such as asset-backed securities and real estate trusts, but in the face of the continued growth in crypto asset investment interest in recent years, it has not made adjustments to crypto issuance for a long time. We cannot try to open up new paths by tucking square nails into round holes.

Currently, SEC staff has issued a statement on the obligation to disclose crypto assets issuance. [7] Staff have also begun to clarify that certain crypto assets and distribution practices do not apply to the Securities Law. [8] But I think this "staff statement" is just a very temporary measure--the SEC must advance reform through formal committee actions. I have instructed staff to study whether additional exemptions, safe harbor clauses are needed, and provide viable paths for crypto asset issuers. I believe that the SEC has extensive discretion under the securities laws to support the crypto industry and I will push this work to fruition.

2. Hosting

Secondly, I support the registry to have more options for custody of crypto assets. SEC staff recently revoked Accounting Bulletin No. 121 (SAB 121), which cleared major obstacles for enterprises to provide crypto asset custody services. [9] The communiqué itself was a serious mistake—not only without the approval of the Commission, but also overstepping its authority to interfere in the market, causing unnecessary chaos.

The SEC has to do more than revoke SAB 121. We should further clarify which institutions can be regarded as "qualified trustees" under the Advisory Act and the Investment Company Act, and provide reasonable exemptions for some common crypto-hosting methods. Many funds or consultants actually have more technologically advanced self-custodial solutions that are even more secure than some third-party custodial agencies. Therefore, it is necessary for the SEC to allow compliant self-hosting under certain conditions.

In addition, we may need to completely abolish and reconstruct the existing "Special Purpose Broker-Dealer" framework. [10] Only two institutions have obtained this status at present, obviously because they are too strict. In fact, brokers have never been banned from custody of crypto assets, whether they constitute securities or not. The SEC may need to further clarify how the Customer Protection Rules and Net Capital Rules apply to crypto custody.

III. Transaction

Third, I support registration institutions to provide richer trading products based on market demand, breaking the restrictions on crypto trading by past SECs. For example, some brokers want to launch an integrated "super app" that integrates securities, non-securities and financial services. Federal Securities Act does not prohibit registered brokers from matching non-securities transactions on their ATS platforms, including “held transactions” between securities and non-securities. I have asked staff to study how to modernize the ATS rules system to better serve crypto asset transactions. At the same time, we are also exploring the use of rules or guidance to enable the national stock exchange to launch crypto assets more smoothly.

While the SEC and its staff are working to develop a comprehensive regulatory framework for crypto assets, securities market participants should not be forced to offshore innovation in blockchain technology. I also want to study the conditional exemption mechanism that allows new products and services that are difficult to implement due to current rules and regulations, and have the opportunity to innovate under the premise of compliance.

I would like to work with colleagues in the Trump administration and Congress to make the United States the best place for the global crypto asset market.

Thank you for listening and looking forward to the exciting discussion ahead.