The US Securities and Exchange Commission recently convened a public roundtable, Tokenization – Moving Assets Onchain: Where TradFi and DeFi Meet, the fourth in a five-part series hosted by its Crypto Task Force. The May 12 roundtable included representatives from traditional financial institutions, exchanges, asset managers, decentralized finance (DeFi) platforms, and legal and policy experts to examine the current state of asset tokenization and identify potential regulatory, technological, and operational implications of transitioning traditional financial assets onto blockchain-based platforms.
The Tokenization Roundtable is the fourth roundtable in the series Spring Sprint Toward Crypto Clarity. The roundtables reflect the Staff’s continued interest in understanding how crypto asset technologies interact with existing securities laws and signal growing momentum toward formal rulemaking and interpretive guidance in this area.
The panelists broadly agreed that tokenization has the potential to transform capital markets while also underscoring the need for regulatory clarity, technical standards, and appropriate safeguards to ensure market integrity and investor protection.
Across the discussion, a consistent theme emerged: tokenization is best understood as a technology-enabled process, not a new type of asset. At its core, tokenization refers to placing real-world financial instruments (such as equities, bonds, or fund interests) onto a blockchain, enabling programmable ownership and related transaction features.
Some compared this transformation to the evolution from certificated shares to electronic records, with the leap to tokenization offering the prospect of additional features such as the ability to incorporate automated compliance, real-time settlement, and improved transparency and inclusion for investors.
SEC Chairman Paul Atkins gave the keynote address, highlighting the energy behind moving from traditional “off-chain” databases to blockchain-based “on-chain” ledger systems. Chairman Atkins stated that migration to on-chain securities has the potential to remodel aspects of the securities market, enabling new ways of issuing, trading, owning, and using securities, such as using smart contracts for transparent dividend distribution or enhancing capital formation by transforming illiquid assets into liquid investment opportunities. He noted this technology holds promise for novel use cases not currently contemplated by the SEC’s legacy rules.
Chairman Atkins stated his objective is to develop a rational regulatory framework for crypto asset markets that consists of clear rules for the issuance, custody, and trading of crypto assets while continuing to deter illegal activity. He outlined the SEC’s goals and the challenges it faces with respect to three areas of focus for crypto asset policy:
1. Issuance
The SEC intends to establish clear and sensible guidelines for distributions of crypto assets that qualify as securities or are subject to an investment contract. Challenges currently exist with satisfying disclosure requirements and determining if a crypto asset is a security. Chairman Atkins criticized past approaches, described as “head in the sand” and “regulation through enforcement,” which did not adapt disclosure requirements for this new technology.
The SEC is now pursuing a new course, with Staff recently issuing statements on disclosure obligations and clarifying that certain distributions and assets do not implicate federal securities laws. However, existing registration exemptions and safe harbors may not be fit for purpose, making SEC action—beyond Staff pronouncements—vital and necessary. The Staff is considering whether additional guidance, exemptions, and safe harbors are needed to create pathways for crypto asset issuances in the United States.
2. Custody
The SEC supports providing registrants with greater optionality in determining how to custody crypto assets. The recent rescission of Staff Accounting Bulletin No. 121 is viewed as removing a significant impediment to the custody of crypto assets, however, further clarity is needed on which types of custodians qualify as “qualified custodians” and on reasonable exceptions for common crypto practices.
Updates to custody rules may be necessary to allow advisers and funds to engage in self-custody under certain circumstances. The “special purpose broker-dealer” framework may need to be repealed and replaced with a more rational regime, and clarity is needed on applying customer protection and net capital rules to crypto custody by broker-dealers.
3. Trading
Chairman Atkins favors allowing registrants to trade a broader variety of products, responding to market demand. This could include enabling “super apps” or “pairs trading” between securities and non-securities. Staff have been asked to explore modernizing the Alternative Trading System regulatory regime and whether guidance or rulemaking is needed for listing and trading crypto assets on national securities exchanges.
In addition to outlining the three areas of focus for the SEC’s regulation of crypto assets going forward, Chairman Atkins proposed exploring whether conditional exemptive relief would be appropriate for registrants and nonregistrants bringing new products and services to market that may not currently be compatible with existing rules. Chairman Atkins stated the goal is to coordinate the SEC’s efforts with the administration and the US Congress to make the United States the global leader of crypto asset markets.
Before the panel discussions began, the SEC commissioners provided insight into challenges and objectives they believe the Staff and the panelists should take into consideration when discussing the regulation and facilitation of tokenization.
SEC Commissioner Caroline Crenshaw expressed concerns and potential shortcomings of tokenization and its ability to increase market efficiency. She expressed significant doubts about the ability of tokenization to speed up settlement due to issues with scaling, and also suggested that the delay created by the current T+1 settlement cycle is a feature and not a bug, providing for more stable markets in times of stress.
She explained that the current system facilitates netting, which drastically reduces the volume requiring final settlement, which is key to handling high trading volumes, market stability, and facilitating liquidity. She called for extreme regulatory caution and reiterated the importance of protecting traditional markets, noting that it is estimated that less than 5% of US households are involved in crypto and therefore any changes to financial market regulations must not be detrimental to the TradFi markets that most Americans depend on.
SEC Commissioner Mark Uyeda noted that the new technologies related to tokenization could benefit investors by enhancing liquidity for otherwise relatively illiquid assets, reducing delays associated with intermediation, and decreasing transactional costs. Tokenization also has the potential to simplify or streamline certain compliance functions through smart contracts for on-chain assets.
These potential improvements are tied to key characteristics of blockchain technology such as its transparent ledger and decentralized nature. Commissioner Uyeda stated that when considering the implications of new technologies the Commission should focus on designing a framework that includes critical safeguards rather than trying to address every possible investment permutation and scenario.
SEC Commissioner Hester Peirce listed the potential benefits that tokenization may have on securities markets, including increased operational efficiency, transactional transparency, liquidity, and accessibility; faster settlement (potentially near-instant and simultaneous on the same network); and greater investor opportunity. Tokenized securities can be used as collateral and a means of settlement for other crypto assets on-chain. Commissioner Peirce expressed the need for legal clarity for tokenization to reach its full potential.
She noted several issues that create uncertainty, including whether a crypto network can serve as the master securityholder file for Exchange Act transfer agent rules, confusion regarding a broker-dealer’s ability to custody tokenized traditional securities due to the special purpose broker-dealer statement, and a proposed Advisers Act custody rule amendment that could preclude tokenized traditional securities on public, permissionless networks from an exception to the qualified custodian requirement. She concluded that, absent a compelling factual and legal reason, the SEC should treat tokenized securities the same as traditionally issued securities.
The first panel of the Tokenization Roundtable featured a diverse panel of experts from leading financial institutions from the crypto asset industry. The discussion addressed terminology used by the crypto industry, exploring opportunities and challenges presented by current regulatory infrastructure and existing law, and offered practical advice from the industry to the SEC on how to best move forward.
Key Discussions
Opportunities in Tokenization and Blockchain: Panelists discussed the potential of tokenization to enhance shareholder communication, improve proxy and dividend distributions, and increase operational efficiencies. Tokenization was generally described as a way to de-risk markets by shortening settlement cycles and present a pathway toward 24/7 global capital markets.
Regulatory and Infrastructure Challenges: The panel highlighted the desire for a regulatory sandbox to encourage innovation and stressed the importance of regulatory interoperability among different tokenization platforms. They emphasized the need for a clear crypto asset taxonomy and, accordingly, to adjust rules and regulations to fit the evolving financial landscape.
Investor Protections and Compliance: Improved investor protections and compliance capabilities were examined, and panelists discussed how to ensure that only eligible investors could engage with tokenized securities. The role of smart contracts in automating compliance and reducing costs was also highlighted by the panel.
Evolution of Financial Markets: The panelists reflected on the evolution of financial markets from paper to digital and the role of fintech in providing trading and market surveillance capabilities. They discussed how tokenization could ease congestion within the traditional market system and improve collateral management.
Future of Capital Markets: The discussion included the potential for tokenized securities to democratize access to investing and the role of digital assets in providing real-time market efficiencies. The panelists explored the idea of tokenized stable value yield funds and their benefits for institutional investors.
Practical Advice for the SEC
Regulatory Framework: The panelists advised the SEC to consider a regulatory framework that supports innovation while remaining focused on investor protection. They suggested using exemptive and no-action relief to address market-driven issues and emphasized the importance of a common regulatory framework to facilitate capital formation.
Intermediary Evolution: The panel discussed the role of intermediaries in the evolving financial landscape, with a focus on how intermediaries would need to adapt to these new technologies. The panelists highlighted the importance of choice in intermediary interactions and the potential for automated market making without intermediaries.
Regulatory Innovation Programs: The panel again discussed the use of regulatory sandboxes to test new technologies and better inform legislation, and emphasized the need for a practical sandbox environment that focuses on how test runs can directly inform regulatory rules.
The panel concluded with a call for the traditional financial industry to embrace new technologies and for the SEC to adopt regulatory frameworks that support innovation while maintaining investor trust and market acceptance. The panelists stressed the importance of not allowing outdated regulations to hinder the progress of new players in the financial markets.
The second panel of the Tokenization Roundtable, The Future of Tokenization, showcased a multidisciplinary panel of experts, including academics, legal scholars, digital asset platform leaders, and investors. The discussion explored the evolving landscape of tokenization, examining future use cases and potential regulatory considerations for the SEC as it navigates the evolving digital asset space.
Identified Benefits: Efficiency, Inclusion, and Market Modernization
The panelists identified several key benefits that tokenization could bring to capital markets, centered around operational efficiency, broader market access, and structural innovation:
Regulatory Considerations and Challenges
While the technological promise of tokenization was widely acknowledged, the panelists also highlighted several regulatory and legal uncertainties that need to be addressed to foster broader adoption:
The panel concluded with diverging perspectives on how the SEC should navigate the complexities of tokenization and blockchain regulation. Some panelists suggested convening a meeting of experts from various fields to collaborate and address these challenges, while others advocated for the SEC to establish its own set of guiding principles.
The discussion also highlighted the difficulties the SEC faces in attempting to regulate technologies and entities that currently fall outside its existing framework as well as certain technological issues that remain unresolved by mathematicians, such as the interoperability of blockchain systems. These challenges underscore the need for a flexible and thoughtful approach to regulation that balances innovation with market integrity.
The Tokenization Roundtable reflects the SEC’s ongoing efforts to engage with industry stakeholders and explore the integration of emerging technologies into the regulatory landscape. As tokenization continues to evolve, market participants should monitor regulator developments and assess the implications for their operations and compliance obligations. The SEC’s Crypto Task Force will hold its fifth and final roundtable, DeFi and the American Spirit, on June 9, 2025.
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