SEC Hosts Second Crypto Roundtable, Discusses Tailored Regulation

The Securities and Exchange Commission (SEC) has been actively engaged in various initiatives related to cryptocurrency regulation, including the creation of a crypto task force and hosting roundtable meetings. These efforts have been particularly significant in recent months, according to Kyla Curley, a partner at StoneTurn. The roundtables are crucial as they involve stakeholders from all aspects of the industry, extending beyond the perspectives of regulators and lawmakers.

The SEC's second crypto roundtable, held last Friday, focused on tailoring regulation for crypto trading. The panel included representatives from major players in the industry, such as Coinbase and Uniswap Labs, as well as legal experts and a leader from the New York Stock Exchange. SEC Acting Chair Mark Uyeda acknowledged several challenges in regulating crypto, including the fact that most tokenized securities are unregistered and that compliance with the "order protection rule" may not be feasible for various tokenized or non-tokenized securities trading in on- and off-chain markets. Additionally, crypto trading platforms often handle custody, execution, and clearing, unlike traditional securities exchanges.

During the roundtable, panelists were asked about their main wishes regarding upcoming SEC actions. NYSE chief product officer Jon Herrick emphasized the need for "precision" in identifying the problems to solve, rather than starting with a solution and then searching for issues it can address. Texture Capital CEO Richard Johnson suggested that the goal should be to use blockchain as the official record of ownership for securities, smart contracts for settlement, and stablecoins/tokenized Treasurys for the cash leg of securities transactions. Coinbase’s Gregory Tusar called for a "holistic and integrated" market structure that allows securities and commodities to trade side by side, noting that the distinction between the two is not as clear-cut as it may seem.

Some panelists went further, suggesting that the SEC and the Commodity Futures Trading Commission (CFTC) should merge. Texture Capital CEO Richard Johnson and Urvin Finance co-founder Dave Lauer proposed this idea, with Austin Reid, FalconX’s head of revenue and business, noting that regulatory consolidation would unlock innovation and allow US firms to better compete globally. Uniswap Labs chief legal officer Katherine Minarik urged the commission to champion the importance of peer-to-peer transactions, self-custody technology, and the value of privacy and safety that can come from such technology. She expressed concern that requiring decentralized finance (DeFi) to act like centralized finance could hinder its future potential.

Chelsea Pizzola, associate general counsel at Cumberland DRW, highlighted the industry's optimism for crypto legislation but urged the SEC not to wait for it to offer more guidance and/or rulemaking. She suggested that the commission clarify instances in which secondary market transactions would or wouldn’t fall within their jurisdiction. Pizzola’s point echoed Uyeda’s earlier comment that a time-limited, conditional exemptive relief framework for registrants and non-registrants could boost US blockchain tech innovation while the SEC develops a long-term solution.

The next roundtable, scheduled for April 25, will focus on crypto custody considerations. The ongoing dialogue between the SEC and industry stakeholders is expected to continue, shaping the future of crypto regulation in the US.