Rules should be clearly written, not rely on law enforcement to intimidate.

Written by: Liu Honglin, Shao Jiadian

If you say that the relationship between the U.S. SEC and the cryptocurrency industry has been good in the past two years, it’s basically like saying a tiger is a Buddhist who loves to eat vegetables. Most of the time, the SEC's attitude has been either "don't do it yet" or "if you dare to do it, I dare to sue." But now, the tone seems to have changed a bit.

On May 12, SEC Chairman Paul S. Atkins delivered a highly content-dense speech at the "Cryptocurrency Assets Roundtable." At first glance, it appeared to be an industry exchange, but in reality, it was a systematic reflection on the SEC's cryptocurrency regulatory model over the past few years. More importantly, he spent nearly an hour reiterating the regulatory logic of "on-chain securities."

If we were to summarize the tone of his speech in one sentence, it would be: rules should be clearly written, not rely on law enforcement to intimidate.

This is the first time in recent years that the SEC has explicitly proposed establishing a "dedicated regulatory framework" for the issuance, custody, and trading of cryptocurrency assets, acknowledging that current rules do not apply to on-chain assets. This is a signal that cannot be ignored for the entire Web3 industry.

Issuance: It's not "not allowed to issue," it's "you can't fill out this form"

In recent years, the SEC's strategy regarding token issuance has been almost "presumed illegal," but without providing a legal path. Most projects that dare to engage with U.S. investors must be prepared for litigation. Even if you want to comply and follow the S-1 or Reg A registration paths, you often find yourself stuck because the forms themselves are not applicable.

S-1 is the standard registration document filled out during a U.S. company's IPO, requiring detailed disclosure of executive compensation, use of funds, corporate governance structure, and more; Reg A (Regulation A) is a lightweight registration exemption mechanism designed for small and medium-sized issuers. However, for most Web3 projects, both of these tools seem too cumbersome or even incompatible, as token projects often lack a traditional corporate structure, and the use of funds is often executed automatically on-chain, making it impossible to "pre-write" many core contents.

Chairman Atkins was very straightforward this time: the current disclosure requirements for securities issuance should not be forcibly applied to on-chain assets. "Square pegs should not be forcibly inserted into round holes," he directly stated in his speech. He proposed promoting registration exemptions, disclosure templates, and safe harbor provisions specifically applicable to cryptocurrency assets, exploring more realistic regulatory paths.

He also specifically pointed out the SEC's past "ostrich-style management": initially pretending not to see, hoping the industry would self-destruct, and then diving headfirst into enforcement, creating deterrence through individual cases, but never establishing unified rules. Now he has made it clear—rules must be passed by the committee, no longer relying on "improvised enforcement."

Custody: Technology is not the problem; the problem is the system blocking technology

The issue of cryptocurrency asset custody in recent years has essentially been a question of "who will manage it." Traditional financial institutions have been scared off by SAB 121, and self-custody lacks legal status, resulting in many funds and institutions wanting to participate in on-chain asset allocation but ultimately getting stuck in the custody phase.

SAB 121 is an accounting announcement issued by SEC staff in 2022, requiring companies to include customer-held cryptocurrency assets on their own balance sheets, leading to a sharp increase in regulatory risk. Its original intention was to protect user assets, but the actual effect was to drive most banks and brokerages out of the cryptocurrency custody market.

Now that SAB 121 has been revoked, the chairman has also made it clear that this document is "illegal, unapproved, and has a negative impact." But more importantly, he has begun to discuss how to fix it moving forward.

He pointed out that as long as security is sufficient, technological capabilities can replace traditional custody qualifications. Under certain conditions, self-custody can also be a compliant option. This actually opens up compliance possibilities for DeFi platforms, wallet providers, and even on-chain asset management projects.

Additionally, he criticized the failed design of the "Special Purpose Broker-Dealer" system, which has only approved two entities with poor results. He hinted that this mechanism needs to be restructured, meaning that the compliance paths for custody and trading may be re-integrated and the barriers lowered in the future.

Trading: Moving from "trading equals breaking the law" to "limited exemption pilot"

The SEC has long held a strong regulatory stance on trading on-chain assets, especially regarding the hurdle of "whether it constitutes a security," which has led most token projects into a deadlock of "not landing, not compliant, and not daring to go online."

In this speech, Chairman Atkins's statements were clearly a loosening of restrictions. He proposed allowing ATS (Alternative Trading Systems) platforms to support mixed trading of securities and non-securities.

ATS is a classification of securities trading platforms under the U.S. regulatory system, which can be understood as "non-listed exchanges." Many digital asset platforms have attempted to register as ATS to provide compliant trading capabilities. However, the current ATS system has not provided a clear definition for cryptocurrency assets, causing most platforms to hesitate.

The chairman also emphasized the necessity of a "exemption mechanism." This means that if a project cannot temporarily meet all compliance requirements due to technological innovation or special structure, the SEC may provide a testing space under certain conditions. This is not a free-for-all, but a conditional, supervised, and trial-error compliance channel.

Industry Impact: Regulatory boundaries are no longer based on guesswork; compliance space is beginning to emerge

The greatest significance of this speech lies in the fact that it is not a case explanation for a specific project, nor is it a personal opinion of a committee member, but rather the first complete expression of the logic that should govern cryptocurrency asset regulation by the SEC chairman under the committee's authorization.

The policy background behind this is also very clear: the Trump administration hoped to make the U.S. the "global cryptocurrency capital," and the SEC, as the core financial regulatory agency, can no longer pretend that cryptocurrency assets are a peripheral business.

In the coming years, on-chain securities, stablecoins, RWA, and token payment platforms may become pilot windows under the new SEC rules. Entrepreneurs and project parties must also shift from the previous "circumventing regulation" model to a state of "designing endogenous compliance."

Advice from a Web3 lawyer: It's not "you can do it now," but "you can do it legally"

From a practical perspective, we would advise:

First, pay attention to structural adjustments in issuance paths like S-1 and Reg A. If the SEC promotes disclosure rules specific to cryptocurrency, project parties can reasonably choose registration exemption methods without having to start by issuing tokens from outside the U.S. every time to avoid compliance.

Second, emphasize the preparation for custody compliance. Whether it’s on-chain wallets, self-custody systems, or relying on third-party service providers, it is necessary to quickly assess their compliance boundaries under the new rules.

Third, pay attention to policy adjustments regarding ATS and related trading platforms. If you are working on exchanges or matching products, now may be a window for re-evaluating structural design.

Fourth, carefully assess whether the project is suitable for the "conditional exemption" mechanism. Some early projects may not be suitable for full registration but can obtain a landing path through rule exemptions. This is a compliance route, not a gray channel.

This speech does not announce that the cryptocurrency industry "can do it now," but rather provides a way to discuss how to do it.

If you are considering launching a U.S. token project, structuring RWA products, or exploring compliant trading channels as a Web3 entrepreneur, feel free to communicate with our team. Mankun Law Firm has long focused on the alignment of cryptocurrency regulations between China and the U.S., assisting projects in legally completing the path design from 0 to 1.

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