SEC Chairman elaborates on the new framework for on-chain issuance, custody, and trading: from law enforcement regulation to rule reconstruction.

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

Compilation: Meta Era Compilation

Original Title: SEC Chairman Discusses On-Chain Issuance, Custody, and Trading for the First Time

Date: May 12, 2025

Location: Washington D.C.

Thank you everyone, good afternoon. I am very pleased to address all the guests at today's roundtable discussion on "Tokenization." [1] I also want to thank all the panel members who participated in the discussion.

The topic we are discussing today is very timely, 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 akin to the transition of audio from analog vinyl records to tapes, and then to digital software several decades ago. Audio can be digitally encoded, allowing for easy transmission, modification, and storage, which unleashed tremendous innovative potential in the music industry. [2] Audio is no longer limited to static, fixed formats, but can interoperate across devices and applications. It can be combined, split, and programmed, resulting in entirely new product forms. This has also led to the emergence of 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 various aspects of the securities market, including issuance, trading, holding, and using securities. For example, on-chain securities can enable automatic distribution of dividends through smart contracts. Tokenization can also enhance capital formation by transforming assets that are originally illiquid into tradable investment opportunities. Blockchain technology is expected to expand the various new uses of securities, giving rise to many market activities that current regulatory frameworks have not anticipated.

In order to realize President Trump's vision of "making America the global crypto capital," the [4] committee must keep pace with innovation and reassess whether existing regulations need to be updated to accommodate 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 incompatibilities or unnecessary regulatory burdens that could stifle the development of blockchain technology.

As a core task of my presidency, I will establish a reasonable and clear regulatory framework for crypto assets, formulating explicit rules for the issuance, custody, and trading of crypto assets, while cracking down on violators and protecting investors from fraud.

The SEC's policy will no longer be determined by "improvised enforcement." We will return to the original intent set by Congress, establishing clear standards applicable to market participants through formal procedures such as rulemaking, interpretations, and exemptions. Enforcement should return to the execution of existing rules, especially in preventing fraud and manipulation.

This work requires close collaboration between the various offices and divisions of the SEC. Therefore, I am very pleased that Commissioners Uyeda and Peirce have jointly established the "Cryptocurrency Asset Working Group." The SEC has long been plagued by the phenomenon of policy silos. This working group reflects our determination to break down barriers and rapidly establish clear policies.

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

1. Issuance

First of all, I hope the SEC can establish clear and reasonable guidelines for the issuance of crypto assets involving securities or investment contracts. So far, only four crypto asset companies have issued crypto assets through registration and Regulation A. [5] Most issuers choose to avoid registered offerings, partly because the related disclosure requirements are difficult to meet. If the issuance is not traditional securities (such as stocks, bonds, or notes), it is even harder for issuers to determine whether the crypto asset constitutes a "security" or investment contract. [6]

In recent years, the SEC has adopted what I call an "ostrich policy" approach—seemingly hoping that the crypto industry would automatically disappear. It then shifted to a "shoot first, ask questions later" style of regulatory enforcement. While verbally welcoming project teams to "come in and communicate," it has not made any necessary adjustments to the registration forms. For example, the S-1 form still requires disclosure of executive compensation and the use of funds, which are often irrelevant or impossible to assess in crypto projects. The SEC has previously adjusted forms for specific cases such as asset-backed securities and real estate trusts, but has yet to make any adjustments for crypto offerings despite the growing interest in crypto asset investments in recent years. We cannot try to "force a square peg into a round hole" to forge a new path.

Currently, SEC staff has issued a statement regarding the disclosure obligations for cryptocurrency asset issuances. [7] Staff has also begun to clarify that certain cryptocurrency assets and distribution activities are not subject to securities laws. [8] However, I believe that this "staff statement" is merely a very temporary measure—SEC must advance reforms through formal committee actions. I have instructed staff to explore whether additional exemption mechanisms, safe harbor provisions, and viable pathways for cryptocurrency issuers are necessary. I believe the SEC has broad discretion under securities laws to support the crypto industry, and I will push for this work to achieve results.

2. Custody

Secondly, I support giving registered institutions more choices in custodying crypto assets. SEC staff recently rescinded "Staff Accounting Bulletin No. 121" (SAB 121), which cleared significant obstacles for companies providing crypto asset custody services. [9] The bulletin itself was a serious mistake - not only was it not approved by the committee, but it also overstepped its authority and caused unnecessary confusion in the market.

The SEC needs to do more than just revoke SAB 121. We should further clarify which institutions can be considered as "qualified custodians" under the Investment Advisers Act and the Investment Company Act, and provide reasonable exemptions for some common crypto custody methods. Many funds or advisory firms actually have more advanced self-custody solutions, whose security even surpasses that of some third-party custodians. Therefore, it is necessary for the SEC to allow compliant self-custody under certain conditions.

In addition, we may need to completely abolish and restructure the existing Special Purpose Broker-Dealer framework. [10] Currently, only two institutions have obtained this status, clearly due to the overly strict restrictions they face. In fact, broker-dealers have never been prohibited from custodying crypto assets, regardless of whether they constitute securities. The SEC may need to further clarify how the Customer Protection Rule and Net Capital Rule apply to crypto custody.

3. Trading

Third, I support registered institutions providing a richer array of trading products based on market demand, breaking the previous SEC restrictions on cryptocurrency trading. For example, some brokers wish to launch integrated "super apps" that combine securities, non-securities, and financial services. Federal securities laws do not prohibit registered brokers from facilitating non-securities transactions on their ATS platforms, including "hedging trades" that involve both securities and non-securities. I have asked staff to study how to modernize the ATS rule system to better serve cryptocurrency asset trading. At the same time, we are exploring how to enable national securities exchanges to more smoothly list cryptocurrency assets through rules or guidance.

Although the SEC and its staff are working to establish a comprehensive regulatory framework for crypto assets, participants in the securities market should not be forced to offshore innovative blockchain technology. I also want to explore conditional exemption mechanisms that allow new products and services, which are currently constrained by existing rules, the opportunity to innovate under compliance.

I am willing to work with the Trump administration and colleagues in Congress to make the United States the best place for the global cryptocurrency market.

Thank you all for listening, and I look forward to the exciting discussion ahead.