Author: Nancy, PANews
Tokenized assets (RWA) are sparking a global trend of on-chain movement. The influx of capital and the abundance of assets have rapidly transformed this on-chain movement from a testing ground native to crypto into a new battleground for Wall Street.
While the RWA sector is developing at a high speed, there are divergences between TradFi (traditional finance) and Crypto. On one side, Wall Street is more focused on regulatory arbitrage and systemic risk, emphasizing stability and order; on the other side, the crypto industry pursues innovation speed and decentralization, fearing that existing frameworks will limit development.
A few months ago, the SEC announced plans to launch a package of exemptions for crypto innovations, scheduled to take effect this January. However, this pro-crypto radical policy faced strong opposition from Wall Street, and due to the legislative pace of the crypto market structure bill, the originally promised effective date will be delayed.
Wall Street's Blockade: Crypto Exemption May Be Delayed
This week, JPMorgan, Citadel, and SIFMA (Securities Industry and Financial Markets Association) held a closed-door meeting with the SEC's crypto working group. During the meeting, these Wall Street representatives clearly opposed providing broad regulatory exemptions for tokenized securities and argued that the existing federal securities law framework should apply.
The crypto exemption mechanism is a "green channel" tailored by the SEC for tokenized securities and crypto products like DeFi, aimed at allowing these projects to temporarily avoid cumbersome full securities registration while meeting certain investor protection conditions, enabling rapid launch of innovative products.
However, in response to the SEC's attempt to greenlight tokenized assets through regulatory shortcuts, these financial institutions issued stern warnings, believing that such actions could harm the overall U.S. economy. They suggested that regulatory agencies should conduct strict penetrating management rather than simply granting exemptions. Even if there are any exemptions for innovation, they must be narrow, based on strict economic analysis, and have stringent guardrails, and should never replace comprehensive rule-making.
They further emphasized that regulatory treatment should be based on economic characteristics rather than the technology used or category labels (such as DeFi), advocating for the principle of "same business, same rules" in regulation, and strongly opposing the establishment of dual regulatory standards. They argued that any broad exemptions attempting to bypass long-term investor protection frameworks would not only weaken protections for investors but also lead to market chaos and fragmentation.
The meeting also specifically mentioned the flash crash incident in October 2025 and the collapse of Stream Finance as cautionary tales, emphasizing that if tokenized securities are allowed to drift outside the protections of existing securities laws, the U.S. financial market will face significant systemic risks.
At the same time, Wall Street expressed concerns regarding the SEC's inclination to exclude certain DeFi projects from compliance obligations. SIFMA pointed out that many so-called DeFi protocols actually perform core functions of brokers, exchanges, or clearinghouses, yet exist in a regulatory vacuum. The DeFi environment presents numerous unique technical risks, including predatory trading from maximum extractable value (MEV), pricing mechanism flaws of automated market makers (AMM), and opaque conflicts of interest. However, DeFi was not the only core topic of this meeting; according to Decrypt, major advocates of DeFi were unaware of this meeting.
Additionally, for wallet providers involved in tokenized asset activities, the meeting emphasized that wallets executing core brokerage functions and earning transaction-based revenue must register as broker-dealers and distinguish between non-custodial and custodial wallet models.
Ultimately, Wall Street's stance is very clear: embracing innovation does not mean starting from scratch. Rather than establishing a parallel independent regulatory system, it is better to confine tokenized assets within the existing mature compliance framework.
The highly anticipated crypto exemption mechanism now faces uncertainties. SEC Chairman Paul Atkins has withdrawn the previously scheduled timeline for the crypto exemption policy to be released this month. In a recent joint meeting with the CFTC, Atkins pointed out that the uncertainties in the advancement of the crypto market structure bill could directly affect the timing of the exemption mechanism's effectiveness, and decisions need to be made with caution. When asked about the specific implementation timeline, he declined to commit to releasing final rules this month or even next month.
Fully Included in Securities Law Regulatory Scope: Tokenized Products Divided into Two Categories
In addition to regulatory issues, the legal positioning and regulatory applicability of tokenized securities have not yet been clarified. To this end, Paul Atkins announced plans last November to establish a classification system for tokens, based on the Howey test, to clarify which crypto assets constitute securities and to clarify the regulatory framework for crypto assets.
On January 28, the SEC officially released guidance on tokenized securities, aimed at aligning with the market structure bill being advanced by U.S. lawmakers, providing clearer regulatory pathways for market participants to conduct related businesses within a compliance framework.
The document clearly states that whether a security is regulated depends on its legal attributes and economic substance, rather than whether it is tokenized; tokenization itself does not change the applicability of securities law. In other words, merely putting assets on-chain or tokenizing them does not change the applicability of federal securities law.
According to the SEC's definition, tokenized securities refer to financial instruments presented in the form of crypto assets, with ownership records maintained entirely or partially through a crypto network.
The document categorizes the tokenized securities models in the market into two core categories: issuer-sponsored and third-party sponsored, and specifies the regulatory requirements for each.
The first category is the issuer-direct tokenization model: this refers to the issuer (or its agent) directly using blockchain technology to issue and record holder information, regardless of whether on-chain or off-chain records are used. Such tokenized securities must comply with the same legal obligations for registration, information disclosure, etc., as traditional securities.
The second category is the third-party tokenization model: this is divided into custodial, where token holders enjoy indirect ownership of custodial securities through tokens; and synthetic, which only tracks the price performance of the underlying securities without transferring any substantive ownership or voting rights, and such products may constitute securities-based swaps.
The document emphasizes the potential risks of third-party tokenized products, noting that this model can create additional counterparty risks and bankruptcy risks, and some products must be subject to stricter regulatory rules for securities-based swaps.
The SEC also stated that it is "open for business," ready to actively communicate with market participants about specific compliance pathways and assist companies in conducting innovative businesses within the framework of federal securities law.
As the SEC implements more detailed regulations on RWA, it will significantly reduce the risk of regulatory arbitrage and pave the way for more traditional institutions to enter the market.
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