On-chain Securities Development: A New Perspective on the Securities Market
“The development of on-chain securities has the potential to reshape various aspects of the securities market, including new methods of issuance, trading, holding, and usage.” This article is the full text of a recent speech by SEC new commissioner Paul Atkins on “Asset Tokenization,” compiled and translated by Dongqu.
(Background: BlackRock’s key meeting with the SEC! In-depth discussions on crypto ETF pledging and options regulation, will institutional entry accelerate?)
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The U.S. Securities and Exchange Commission (SEC) convened its fourth cryptocurrency roundtable earlier this week, focusing on the theme of “Tokenization: Assets on the Chain — The Intersection of Traditional Finance and Decentralized Finance.”
SEC new commissioner Paul Atkins also attended the meeting and delivered an extensive speech. Below is the full text provided by the SEC, translated by Dongqu.
Thank you all, good afternoon. I am honored to engage with such an outstanding group at this roundtable forum on “Asset Tokenization.” I also appreciate the participation of all the panelists in today’s discussion.
This afternoon’s topic is very timely, as securities are gradually migrating from traditional (or “off-chain”) databases to blockchain-based (or “on-chain”) ledger systems.
This transition from off-chain to on-chain is akin to the evolution of music recordings from analog vinyl records to tapes and then to digital files decades ago. As audio could be easily encoded into digital formats and transmitted, modified, and stored, this digitization unleashed the innovative potential of the music industry.
Music is no longer confined to static, fixed formats but can traverse different devices and applications, achieving interoperability and combination, being deconstructed and reassembled, thereby giving rise to entirely new products. This has also spurred the emergence of new hardware devices and streaming content business models, ultimately benefiting both consumers and the U.S. economy.
Similarly, the development of on-chain securities has the potential to reshape various aspects of the securities market, including new methods of issuance, trading, holding, and usage. For instance, on-chain securities can transparently distribute dividends to shareholders through smart contracts. Asset tokenization can also transform assets with traditionally lower liquidity into investment opportunities with enhanced liquidity. Blockchain technology brings vast new application scenarios to the securities market, and these innovative activities often exceed the imagination and scope of current securities regulatory frameworks.
To realize President Trump’s vision of “making America the global capital of crypto assets,” the SEC must keep pace with innovation and evaluate whether regulatory rules need adjustments to accommodate on-chain securities and other crypto assets. The regulatory framework designed for off-chain securities may not be suitable for on-chain assets and could even hinder the development of blockchain technology.
During my tenure, one of the most important tasks will be to establish a rational and clear regulatory framework for crypto assets, setting forth explicit rules for the issuance, custody, and trading of crypto assets while continuously combating bad actors engaged in illegal activities. Transparent and clear rules will help protect investors from fraud and make it easier for them to identify unlawful fraudulent activities.
The SEC will enter a new era. Future policy-making will no longer rely on random enforcement actions to “substitute punishment for regulation.” Instead, we will leverage existing rulemaking, interpretation, and exemption authorities to set practical standards for market participants. Enforcement actions will return to Congress’s original legislative intent — focusing on addressing violations of established obligations, especially those involving fraud and market manipulation.
This mission requires collaboration among multiple divisions within the SEC. Therefore, I am very pleased that Commissioners Uyeda and Peirce have joined forces to establish the “Crypto Task Force.” In the past, the SEC has been bogged down by a “homegrown” approach to policy-making, and the task force is the best demonstration of how we can break down departmental barriers and quickly provide clear direction for the market and the public.
The three key focus areas of crypto asset regulation that I mentioned — issuance, custody, and trading — I will explain one by one.
Issuance
First, I hope the SEC can establish clear and logical guidance for the issuance of crypto assets that “are securities or investment contracts.” So far, only four crypto asset issuers have registered or issued under Rule A. Most issuers avoid this kind of issuance, partly due to burdensome disclosure obligations that are difficult to adapt to the characteristics of crypto assets. When the issuance target is not traditional stocks, bonds, or notes, issuers find it even harder to determine whether their crypto assets constitute “securities” or involve investment contracts.
In recent years, the SEC first adopted an “ostrich” strategy of ignoring the situation, seemingly hoping the crypto industry would disappear on its own. It then shifted to a “shoot first, ask questions later” enforcement approach, encouraging businesses to “come in and talk,” yet it never adjusted the registration documents for new technologies.
For example, Form S-1 still requires detailed disclosure of executive compensation and fundraising purposes, which may not hold substantial relevance for investment decisions in crypto assets. The SEC has adjusted forms for asset-backed securities and real estate investment trusts (REITs), but has yet to make changes in the highly scrutinized area of crypto assets that investors have focused on for the past few years. We cannot force new phenomena into traditional frameworks, trying to fit square pegs into round holes.
I am determined to lead the SEC down a new path. The SEC team recently issued statements regarding certain disclosure obligations for registration and issuance, clarifying certain allocation behaviors and the perspective that crypto assets do not involve federal securities laws. I will continue to guide the team to provide further clarifications on other allocations and asset types. However, the existing registration exemptions and safe harbor rules may not entirely apply to certain crypto asset issuances. I believe these departmental statements can only serve as a transitional solution; the SEC must take formal action. Therefore, I have instructed the team to evaluate whether additional guidance, exemptions, or safe harbors are needed to create a lawful and compliant pathway for crypto asset issuance. I firmly believe the SEC has sufficient discretion under securities laws to support the development of the crypto industry, and I will push for this to happen.
Custody
Secondly, I support providing registrants with more options to determine how to custody their crypto assets. The SEC team recently rescinded Staff Accounting Bulletin No. 121, a decision that was a significant mistake, lacking authorization from the committee and proper consultation, which resulted in market confusion far exceeding the SEC’s jurisdiction. However, what the SEC can do goes beyond abolishing SAB 121; it should further promote competition in a lawful and compliant custody market through action.
We need to clearly define which institutions qualify as “qualified custodians” and reasonably adjust the applicability of qualified custody concerning common practices in the crypto market. Many investment advisors and funds have self-custody capabilities that even outstrip some traditional custodial institutions in the market; therefore, the existing custody rules need updating to allow for self-custody in certain circumstances.
At the same time, the existing “special purpose broker-dealer” framework may also need to be abolished and rebuilt. To date, only two special purpose broker-dealers are in operation, clearly due to excessive restrictions in the current system. In fact, broker-dealers have never been prohibited from providing custody services for non-security crypto assets or crypto asset securities, but the SEC may need to further clarify the applicability of rules related to “customer asset protection” and “capital net worth.”
Trading
Thirdly, I support allowing registrants to trade a more diverse range of products on their platforms according to market demand, which has been an obstruction from the SEC in the past. For instance, some broker-dealers wish to launch a one-stop “super app” that provides both security and non-security trading, along with other financial services. Federal securities laws do not prohibit registered broker-dealers with alternative trading systems (ATS) from facilitating “pair trading” between securities and non-securities. I have requested the team’s assistance in designing a modernized ATS regulatory framework to better incorporate crypto assets. Additionally, we will assess whether further guidance or legislative amendments are needed to allow crypto assets to be listed and traded on national securities exchanges.
As the SEC and the team work diligently to develop a comprehensive regulatory framework for crypto assets, market participants should not be forced to “go offshore” in search of innovation space in blockchain. I intend to explore whether conditional exemptions can be provided for registrants and non-registrants, enabling them to legally launch new products and services even when existing rules are not fully developed.
I look forward to working closely with the Trump administration and colleagues in Congress to make America the best country for participating in the global crypto asset market.
Thank you all for listening, and I look forward to the upcoming discussion.
