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

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

Source: SEC

Compiled by: Meta Era

Date: May 12, 2025

Location: Washington, D.C.

Thank you all, good afternoon. I am pleased to address the guests at today’s roundtable on "Tokenization."[1] I also want to thank all the panel members participating 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 decades ago. The ability to digitally encode audio allows for easy transmission, modification, and storage, unleashing tremendous innovative potential in the music industry.[2] Audio is no longer confined to static, fixed formats but can interoperate across devices and applications. It can be combined, split, and programmed to create entirely new product forms. 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 disrupted the music industry, on-chain securities have the potential to reshape every aspect of the securities market, 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 previously illiquid assets into tradable investment opportunities. Blockchain technology is expected to expand the various new uses of securities, giving rise to many market activities not previously envisioned by existing committee rules.

To realize President Trump's vision of "making America the global capital of crypto,"[4] this committee must keep pace with innovation and reassess whether existing regulations need to be updated to accommodate on-chain securities and other crypto assets. Applying rules designed for off-chain securities directly to on-chain assets may create incompatible or unnecessary regulatory burdens, stifling the development of blockchain technology.

One of my core tasks as chair will be to establish a reasonable and clear regulatory framework for crypto assets, setting forth clear rules for the issuance, custody, and trading of crypto assets while cracking down on wrongdoers and protecting investors from fraud.

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

This work requires close collaboration among the various offices and divisions of the SEC. Therefore, I am very pleased that Commissioners Uyeda and Peirce have jointly established the "Crypto Asset Working Group." The SEC has long been hampered by 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 focus for crypto asset policy: issuance, custody, and trading.

1. Issuance

First, I hope the SEC can 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 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"—seemingly hoping the crypto industry would automatically fade away. It then shifted to a "shoot first, ask questions later" enforcement-style regulation. While verbally welcoming project teams to "come in and talk," no necessary adjustments have been made to the registration forms. For example, the S-1 form still requires disclosure of executive compensation and use of funds, which are often irrelevant or impossible to assess in crypto projects. The SEC has adjusted forms for special cases like asset-backed securities and real estate investment trusts, but has yet to make adjustments for crypto offerings despite the sustained growth in interest in crypto asset investments. We cannot try to "force a square peg into a round hole" to pave new paths.

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

2. Custody

Second, I support giving registered entities more options for the custody of crypto assets. SEC staff recently rescinded Staff Accounting Bulletin No. 121 (SAB 121), which cleared significant obstacles for businesses providing crypto asset custody services.[9] The bulletin itself was a serious misstep—not only was it not approved by the commission, but it also overstepped its authority, causing unnecessary confusion in the market.

The SEC needs to do more than just rescind SAB 121. We should further clarify which entities 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 may even exceed that of some third-party custodians. Therefore, the SEC needs to allow compliant self-custody under certain conditions.

Additionally, we may need to completely abolish and reconstruct the existing "Special Purpose Broker-Dealer" framework.[10] Currently, only two entities have obtained this designation, clearly due to overly strict restrictions. In fact, brokers 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 allowing registered entities to offer a richer array of trading products based on market demand, breaking past SEC restrictions on crypto 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 matching non-securities trades on their ATS platforms, including "hedging transactions" involving both securities and non-securities. I have asked staff to explore how to modernize the ATS rule framework to better serve crypto asset trading. We are also exploring ways through rules or guidance to enable national securities exchanges to more smoothly list crypto assets.

While the SEC and its staff are working hard to develop a comprehensive regulatory framework for crypto assets, securities market participants should not be forced to offshore their innovative blockchain technologies. I also want to explore conditional exemption mechanisms that allow new products and services, which are currently difficult to implement due to 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 crypto asset market.

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