SEC Chairman discusses on-chain issuance, custody, and trading for the first time.

Source: SEC

Compiled by: Meta Era

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 on "Tokenization." [1] I also want to thank all the group 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 unleashes tremendous innovation 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, giving rise to entirely new product forms. This has also spawned various new types of 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 have the potential to reshape the securities market in all aspects, including the issuance, trading, holding, and use of 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 were previously 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 commission rules have not envisioned.

In order to realize President Trump's vision of making America the global crypto capital, [4] this committee must keep pace with innovation and reassess whether the current 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 hinder the development of blockchain technology.

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

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

This work requires close collaboration between various offices and departments 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 embodies our determination to break down barriers and quickly formulate clear policies.

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

1. Issuance

First, 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 associated disclosure requirements are difficult to meet. If the issuance is not traditional securities (such as stocks, bonds, or notes), it is even harder for the issuer to determine whether the crypto asset constitutes a "security" or an investment contract. [6]

In recent years, the SEC has adopted what I call an "ostrich policy"—seemingly hoping that the crypto industry will automatically disappear. It then shifted to a law enforcement style of regulation characterized by "shoot first, ask questions later." While verbally welcoming project teams to "come in and communicate," it has made no necessary adjustments to the registration forms. For example, the S-1 form still requires the disclosure of executive compensation and the use of funds, which are often irrelevant or difficult to assess in crypto projects. The SEC has previously adjusted forms for specific cases like asset-backed securities and real estate trusts, but it has yet to make adjustments for crypto offerings despite the ongoing growth in interest in crypto asset investments in recent years. We cannot try to "force a square peg into a round hole" to pave the way for new paths.

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

2. Custody

Secondly, I support giving registered institutions more options for the custody of crypto assets. SEC staff recently withdrew "Accounting Bulletin No. 121" (SAB 121), which cleared a significant obstacle for businesses 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, causing unnecessary confusion.

The SEC needs to do more than just revoke SAB 121. We should also further clarify which institutions can be considered "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 exceeds 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, which is clearly due to the excessively strict restrictions imposed on them. 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 agencies providing a richer variety of trading products based on market demand, breaking the past restrictions imposed by the SEC on crypto trading. For example, some brokers wish to launch an integrated "super app" that combines securities, non-securities, and financial services. Federal securities laws do not prohibit registered brokers from facilitating non-securities transactions on their ATS platforms, including "hedge trades" involving both securities and non-securities. I have asked staff to study how to modernize the ATS rule system to better serve crypto asset trading. At the same time, we are also exploring ways through rules or guidance to allow national securities exchanges to more smoothly list crypto assets.

Although the SEC and its staff are working hard 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 difficult to implement due to current regulatory constraints, 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.