SEC Discusses Tokenization, Crypto Players Eye Tests

Crypto players are increasingly eyeing more tokenization tests following the latest discussions with the SEC. The SEC's recent roundtable focused on tokenization, with Chair Paul Atkins emphasizing that the agency's policymaking will no longer rely on ad hoc enforcement actions. Atkins compared the transition of securities moving onchain to the evolution of audio recordings from vinyl records to digital software, highlighting the potential of blockchain technology to enable new market activities.

However, SEC Commissioner Caroline Crenshaw cautioned participants to proceed with caution. She questioned the benefits of instant settlement, noting that the delay between trade execution and settlement provides essential market functionalities and protection mechanisms. Crenshaw also raised concerns about the SEC's focus on blockchain technology over other types of distributed ledger technologies, suggesting that the technology has not yet been proven fit for purpose.

Despite Crenshaw's reservations, SEC Commissioner Hester Peirce noted that the SEC crypto task force is considering an exemptive order to allow firms to issue, trade, and settle eligible tokenized securities. Peirce explained that such sandboxes could help regulators adapt existing rules to accommodate trading tokenized securities at scale. Franklin Templeton's Sandy Kaul echoed this sentiment, urging for practical sandboxes that inform legislation and regulations, while also stressing the importance of consumer opportunity alongside consumer protection.

The roundtable included executives from major financial institutions such as BlackRock, Nasdaq, and Fidelity, as well as smaller, DeFi-centric players. Philipp Pieper, co-founder of RWA protocol Swarm, emphasized the need for DeFi founders to advocate for permissionless protocols and programmable assets to ensure regulations do not sideline startups. He highlighted the importance of proving the value of RWAs with tangible use cases, such as fractional ownership and liquid supply chain assets, to win over regulators and users.

Following the roundtable, several companies made significant moves in the stablecoin and tokenized asset space. Anchorage Digital CEO Nathan McCauley stated that stablecoins are becoming the backbone of the digital economy. VanEck launched its new VBILL fund, offering onchain access to US Treasury-backed assets across multiple blockchains. This fund facilitates atomic liquidity via Agora’s USD stablecoin (AUSD). BlackRock's BUIDL is another well-known tokenized yield fund, with assets under management making up roughly 40% of the nearly $7 billion tokenized Treasury space.

The ongoing SEC talks, despite not being groundbreaking, indicate that the industry is moving closer to regulatory clarity. This clarity is crucial for the tokenization of public stocks, private equities, and credit, as well as for the broader adoption of stablecoins and other tokenized assets. The industry's response to these discussions suggests a growing interest in exploring the potential of tokenization, with players eager to test new use cases and demonstrate the value of blockchain technology in financial markets.