Original Author: Paul Atkins, Chairman of the SEC

Compiled by | Odaily Planet Daily (@OdailyChina)

Translator | CryptoLeo (@LeoAndCrypto)

In the early hours of today, SEC Chairman Paul Atkins delivered a speech on the theme of "Making America the World’s Crypto Capital." The most important point was the launch of Project Crypto, which is the next step following the White House's Digital Asset Report. Atkins summarized his vision for future changes in crypto regulation during the SEC's tenure into several parts, including securities law, custody, geographical restrictions, and licensing.

Before detailing the Project Crypto plan, Atkins briefly reviewed the evolution of capital markets, from the establishment of the New York Stock Exchange to the current development of blockchain/cryptocurrency. "Throughout this process, the SEC has always played an important role—maintaining the market. The market and technology have continuously progressed, evolving from paper stock certificates and delayed clearing and settlement systems to electronic settlement through computers, and finally to the widespread adoption of electronic trading systems, all with the SEC's involvement. The SEC has both driven innovation and, regrettably, stifled it."

Now, regulation does not need to cling to remnants of the past, which is unfriendly to new fields. To realize Trump's vision of making America the world’s crypto capital, the SEC needs to promote new initiatives while also considering the potential benefits and risks of transitioning the U.S. market from off-chain to on-chain. Project Crypto aims to modernize securities rules and regulations, promoting the development of the U.S. financial market on-chain. The Digital Asset Report released by the White House yesterday has been hailed by the industry as a "regulatory bible," covering updates on regulations related to crypto businesses, stablecoins, banking, and taxation. Atkins stated that the SEC would fully cooperate with this asset report.

Project Crypto encourages the SEC's policy department to collaborate with the cryptocurrency working group led by Peirce to quickly formulate proposals to implement the recommendations of the President's Working Group on Financial Markets (PWG), aiming to ensure that the U.S. becomes the best place in the world for entrepreneurship, cutting-edge technology, and participation in capital markets.

Regarding the latest developments in Project Crypto, Atkins stated:

"I have instructed the Commission staff to draft concise rules regarding the allocation, custody, and trading of crypto assets for public knowledge and comment. While the Commission staff works to finalize these regulations, the Commission and its staff will consider using interpretive, exemptive, and other authorities in the coming months to ensure that outdated rules do not stifle innovation and the entrepreneurial spirit in the U.S. Many of the SEC's legacy rules and regulations are outdated in the 21st century, let alone for the on-chain market. The SEC must revise its rulebook so that regulatory moats do not hinder progress and competition for new entrants and existing businesses, thereby harming the interests of the general public."

Due to the extensive content of the speech and its format, Odaily summarized the five key points from Atkins' speech as follows:

1. Onshoring Crypto—Cryptocurrency vs. Securities Law is a Thing of the Past

Atkins' first point in the speech primarily addressed the numerous U.S. offshore crypto companies under the previous SEC regulation. The ultimate reason for many companies' exodus was the SEC's method of determining whether something is a security—the Howey Test. For example, the conflict between the 2017 ICO boom and securities law led many projects to face SEC penalties.

Regarding this conflict, Atkins mentioned in his speech that the urgent task is to clarify the rules for some crypto entrepreneurs so they know whether their projects need to comply with securities law. Atkins stated, "I have instructed the Commission staff to develop clear guidelines so that market participants can determine whether a particular crypto asset is a security or subject to investment contract obligations. Our goal is to help market participants categorize crypto assets into categories such as digital collectibles, digital goods, or stablecoins, and assess the economic realities of transactions. This approach allows market participants to determine based on clear guidelines whether any unfulfilled promises or commitments by the issuer render the crypto asset subject to investment contract obligations."

For those crypto assets governed by securities law, including so-called ICOs, airdrops, and network rewards, under previous SEC regulation, issuers excluded U.S. users to avoid compliance and litigation. The future goal is for issuers to enjoy legal certainty and a relaxed regulatory environment while including Americans.

Recently, tokenization has also gained popularity, with many companies seeking to "tokenize" their common stock, bonds, partnership interests, and other securities, or to tokenize third-party securities. However, most of this has occurred due to U.S. regulations being conducted overseas. Many Wall Street moguls and unicorn companies are also very interested in tokenization. Atkins stated that he has asked the Commission staff to work with companies seeking to distribute tokenized securities within the U.S. and to provide relief where appropriate to ensure that the U.S. is not left behind.

Additionally, Atkins explained that the market needs a regulatory framework for securities-type crypto assets, emphasizing that securities-type crypto assets are not a threat. Many issuers will prefer the flexibility in product design granted by securities law, and investors will benefit from obtaining allocations, voting rights, and other functions of securities. Atkins also looks forward to new use cases for securities-type crypto assets in business, such as participating in blockchain networks through tokenized equity.

2. Trading Freedom—More Diverse Custodians and Exchanges

The second part concerns the choice of crypto custodians and exchanges. Atkins stated that the SEC has a responsibility to ensure that users have the maximum choice when deciding to custody and trade crypto assets. The right to self-custody one's private property is a core American value, ensuring the right to use self-custodied digital wallets to maintain personal crypto assets and participate in on-chain activities (such as staking).

Previous regulatory rules, such as the "Special Purpose Broker-Dealer Framework" SAB 121 and "Operation Chokepoint 2.0," have led to a lack of choice among custodial service providers in the U.S. The existing custodial rules did not consider crypto assets when they were formulated. The focus now needs to be on how best to adjust the existing system to facilitate the custody of crypto assets, which may include possible exemptions or other relief measures in addition to modifying the rules themselves.

Market participants "should be allowed to engage in various businesses under the most efficient licensing framework possible," without being forced to adapt to outdated regulatory frameworks for the sake of regulation. The purpose of the framework is to fully protect investors.

3. "Reg Super-App"—The Evolution of State-Level Licensing Applications

The third part primarily discusses the licensing issues for crypto-related institutions. Securities intermediaries should be able to offer a wide range of products and services with a single license. Broker-dealers with alternative trading systems should be able to trade non-security crypto assets, as well as securities of crypto assets, traditional securities, and other services (such as crypto staking and lending), without needing to apply for licenses in fifty states or multiple federal licenses. There is nothing in federal securities law that prohibits registered trading venues with the SEC from listing non-security products on their platforms. In this regard, Atkins stated that he has instructed the Commission staff to develop further guidance and proposals to turn this vision into reality, referring to it as the "Reg Super-App" regulatory super application.

This Reg Super-App model works well for banks, freeing them from many redundant regulatory frameworks, such as broker-dealer and clearing agency registration. Regulators should provide the necessary minimum effective regulation to protect investors while allowing entrepreneurs and businesses to thrive, and this should also apply to crypto, which should not be pushed outside the U.S. due to licensing requirements.

Atkins stated, "I have instructed the Commission staff to develop a framework that allows non-security crypto assets and securities-type crypto assets to trade concurrently on SEC-regulated platforms, and I have also asked the staff to assess the usage of the Commission's authorized exemptions, allowing non-security crypto assets subject to investment contract obligations to trade on unregistered trading venues. This model not only allows unregistered state-licensed crypto platforms to list certain crypto assets but also paves the way for CFTC-regulated platforms to offer products with margin functionality—even if Congress has not granted the CFTC any additional authority, it can still release greater liquidity for these assets."

4. Unlocking the Potential of the U.S. Market—Unregulated Decentralization

In the fourth part, Atkins discussed on-chain software systems, stating that on-chain software systems have potential in the securities market, and the forms and scales of on-chain software are diverse: some systems are truly decentralized and operate without any intermediaries; others have operators. Both types of on-chain software should have a place in the financial market.

The same applies to crypto; any regulatory market structure for crypto must pave the way for software developers, allowing them to develop on-chain software systems that operate without any intermediaries. Decentralized financial software systems (such as automated market makers) facilitate automated, non-intermediated financial market activities, while federal securities law has always assumed that the participation of intermediaries requires regulation. However, this does not mean that regulation should intervene to enforce the presence of intermediaries when the market can operate in a decentralized manner.

Therefore, both models should exist in the future, protecting pure software code developers, reasonably distinguishing between centralized and decentralized, and establishing reasonable and feasible rules for intermediaries seeking to operate on-chain software systems. Decentralized finance and other forms of on-chain software systems will become part of the securities market.

Atkins stated, "To turn this vision into reality, we need to consider making some modifications to the rules. For example, to accommodate the trading of on-chain tokenized securities, we may need to explore amendments to the National Market System Rules (Reg NMS). Additionally, we need to take regular measures to correct the market distortions caused by this. Many of you may remember that last month marked the twentieth anniversary of my lengthy dissenting opinion, co-authored with Commissioner Cynthia Glassman, opposing the passage of Reg NMS. Given that we have experienced twenty years of specific rules that have distorted market activities and hindered the development of the securities market, this dissenting opinion now seems even more noteworthy. Congress clearly wishes for 'the development of the national market system to be guided by competitive forces rather than unnecessary regulation.' I will seek ways to promote innovation and competition in our markets."

5. Innovation Exemptions—Services and Business Models that Do Not Fully Comply with Regulations Also Have Opportunities to Enter the Market

In the final part, Atkins discussed how innovative models might bypass certain regulatory frameworks to enter the market. The U.S. has been seeking innovative models, and innovation should not be restricted by red tape and one-size-fits-all rules. Atkins stated that the SEC is actively considering the possibility of initiating innovative industry requests, while also contemplating an innovation exemption that would allow both registrants and non-registrants to quickly bring new business models and services that do not fully comply with existing rules and regulations to market.

Atkins stated, "Under my vision for the innovation exemption, innovators would be able to immediately bring new technologies and business models to market without having to comply with mandatory regulatory requirements that are incompatible or overly burdensome, which could hinder productive economic activity. Instead, they could adhere to some principle-based conditions designed to achieve the core policy goals of federal securities law. These conditions might include, for example, a commitment to regularly submit reports to the Commission, inclusion in a whitelist or 'verified pool' feature, and restrictions on tokenized securities that do not meet compliance features (such as the ERC 3643 token standard). I encourage market participants and SEC staff to focus on commercial viability when considering various models."

Although Atkins stated at the beginning of the speech that these views represent his personal opinions and do not fully represent the SEC, many of his ideas are already on the right track.

This makes us exclaim: "Looking back at the Gensler era under Atkins, the SEC's attitude has really changed."

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