Original author: Paul Atkins, Chairman of the U.S. Securities and Exchange Commission

Compiled by Odaily Planet Daily ( @OdailyChina )

Translated by CryptoLeo ( @LeoAndCrypto )

Early this morning, SEC Chairman Paul Atkins delivered a speech on the theme of "Building the United States into the World's Crypto Capital." The most important of these speeches was the launch of Project Crypto, which is also the next step in the White House's "Digital Asset Report." Atkins summarized the crypto regulatory changes envisioned by the SEC during its future administration in several parts, including securities laws, custody, geographical restrictions, and licensing applications.

Before detailing Project Crypto, Atkins briefly reviewed the evolution of the capital markets, from the founding of the New York Stock Exchange to the current development of blockchain and cryptocurrency. "Throughout this process, the SEC has always played a vital role—maintaining the market. Markets and technology have been constantly evolving. The US market has evolved from paper stock certificates and delayed clearing and settlement systems to electronic settlement via computers, and finally to the widespread use of electronic trading systems today. The SEC has both promoted innovation and, unfortunately, stifled it."

Today, regulation doesn't need to cling to remnants of a bygone era, which is unfriendly to emerging sectors. To fulfill Trump's vision of making the United States the world's crypto capital, the SEC needs to push for something new, but it must also consider the potential benefits and risks of shifting the US market from off-chain to on-chain. Project Crypto aims to modernize securities rules and regulations and push the US financial market on-chain. The "Digital Asset Report" released by the White House yesterday has been hailed by the industry as a "regulatory bible." It covers regulatory updates for crypto businesses, stablecoins, banking, and taxation. Atkins stated that the SEC will fully cooperate with the asset report.

Project Crypto prompted the SEC’s policy arm to collaborate with the Cryptocurrency Working Group, led by Peirce, to quickly develop proposals to implement the recommendations of the Financial Markets Working Group (PWG), aimed at ensuring that the United States remains the best place in the world for entrepreneurship, cutting-edge technology, and participation in capital markets.

Regarding the latest progress of Project Crypto, Atkins said:

I have directed Commission staff to draft concise, standard rules for the distribution, custody, and trading of cryptoassets for public review and comment. As Commission staff work to finalize these rules, the Commission and its staff will consider using interpretive, exemption, and other authorities in the coming months to ensure that outdated rules do not stifle American innovation and entrepreneurship. Many of the SEC's legacy rules and regulations are no longer relevant in the 21st century, let alone for on-chain markets. The SEC must revise its rulebook so that regulatory moats do not hinder progress and competition among new entrants and incumbents, to the detriment of Main Street.

Since the speech was quite extensive and was delivered in the form of a lecture, Odaily summarized the five main points of Atkins' speech as follows:

1. Crypto Onshore — Cryptocurrency vs. Securities Law is a thing of the past

Atkins' first point in his speech was mainly aimed at the many US offshore crypto companies that were previously regulated by the previous SEC. The ultimate reason for the exodus of many companies was the SEC's method of determining whether they were securities - the Howey test. For example, the conflict between the ICO craze in 2017 and securities laws caused many projects to face penalties from the SEC.

Regarding this conflict, Atkins also mentioned in his speech that it is imperative to clarify the rules for crypto entrepreneurs so that they know whether their projects need to comply with securities laws . Atkins stated, "I have instructed Commission staff to develop clear guidance so that market participants can determine whether a crypto asset is a security or an investment contract. Our goal is to help market participants classify crypto assets into categories such as digital collectibles, digital commodities, or stablecoins and assess the economic realities of transactions. This approach will allow market participants to determine, based on clear guidelines, whether any unfulfilled promises or commitments by an issuer make a crypto asset subject to an investment contract."

For crypto assets subject to securities laws, including so-called ICOs, airdrops, and network rewards, issuers previously excluded US users from the scope to avoid compliance and litigation. The goal is to ensure that issuers enjoy legal certainty and a relaxed regulatory environment, while also including US users .

Tokenization has been a hot topic recently, with many companies seeking to tokenize their common stock, bonds, partnership interests, and other securities, as well as third-party securities. However, due to US regulations, most of these operations are conducted overseas. Many Wall Street giants and unicorn companies are also interested in tokenization. Atkins stated that he has instructed Commission staff to work with companies seeking to distribute tokenized securities within the United States and, where appropriate, provide relief to ensure that the US is not left behind .

Atkins also explained the market's need for a regulatory framework for security-type crypto assets. He stated that security-type crypto assets are not a scourge , and that many issuers will prefer the flexibility afforded by securities laws for product design. Investors will also benefit from access to distribution rights, voting rights, and other features of securities. Atkins also anticipates new commercial use cases for security-type crypto assets, such as the ability to participate in blockchain networks through tokenized equity.

2. Freedom to trade – more diverse custodians and exchanges

The second part is about the choice of crypto custody and exchange. Atkins said that the SEC has the responsibility to ensure that users have the greatest choice when deciding to custody and exchange crypto assets. The right of individuals to self-custody their private property is a core value of the United States, ensuring the right to use self-custodial digital wallets to maintain personal crypto assets and participate in on-chain activities (such as staking) .

Previous regulations, such as SAB 121 (Special Purpose Broker-Dealer Framework) and Operation Chokepoint 2.0, have resulted in a lack of custodial service providers in the US market. Existing custody rules were not designed with crypto assets in mind. The question now arises: how best to adapt the existing system to facilitate the custody of crypto assets? This includes not only amending the rules themselves but also possible exemptions or other remedies.

Market participants "should be allowed to engage in a variety of businesses under the most efficient licensing structure possible" and should not be forced to adapt to the old regulatory framework for the sake of regulation. The purpose of the framework is to fully protect investors.

3. “Reg Super-App” — The Evolution of Applying for State Licenses

The third section focuses on licensing requirements for crypto-related institutions. Securities intermediaries should be able to offer a wide range of products and services with a single license. Broker-dealers with alternative trading systems should be able to offer trading in non-security crypto assets, as well as crypto-asset securities, traditional securities, and other services (such as crypto staking and lending) without having to apply for licenses in more than fifty states or multiple federal licenses. Nothing in federal securities law prohibits SEC-registered trading venues from listing non-security products on their platforms. Atkins stated that he has directed Commission staff to develop further guidance and proposals to make this vision a reality, dubbing it the "Reg Super-App."

This type of Reg Super-App model works well for banks, as they are exempt from many duplicative regulatory frameworks , such as broker-dealer and clearing organization registration. Regulators should provide the minimum necessary and effective regulation to protect investors while allowing entrepreneurs and businesses to flourish, and this applies to crypto as well. Crypto shouldn't be pushed outside the United States simply by applying for licenses.

Atkins stated, “I have directed Commission staff to develop a framework to allow non-security crypto assets and security-type crypto assets to trade side-by-side on SEC-regulated platforms. I have also directed staff to evaluate the use of Commission authorization to allow non-security crypto assets subject to investment contracts to trade on trading venues not registered with the SEC. This model would not only allow state-licensed crypto platforms not registered with the SEC to list certain crypto assets, but would also pave the way for CFTC-regulated platforms to offer margin-enabled products—unlocking greater liquidity for these assets even without any additional authorization from Congress.”

4. Unleashing the potential of the US market – decentralization without regulation

In the fourth part, Atkins talked about on-chain software systems and said that on-chain software systems have potential in the securities market. On-chain software comes in various forms and sizes: some systems are truly decentralized and do not require any intermediaries to operate; some on-chain software systems have operators; both types of on-chain software should have a place in the financial market.

The same is true for crypto. Any crypto regulatory market structure must pave the way for software developers to develop on-chain software systems that do not require any intermediaries to operate. Decentralized financial software systems (such as automated market makers) promote automated, non-intermediary financial market activities. Federal securities laws have always assumed that the participation of intermediaries requires regulation, but this does not mean that regulation should intervene in order to force the existence of intermediaries when the market can operate in a decentralized manner.

Therefore, both models should exist in the future, protecting pure software code developers , making a reasonable distinction between centralization and decentralization, and establishing reasonable and feasible rules for intermediaries seeking to operate on-chain software systems. Decentralized finance and other forms of on-chain software systems will become part of the securities market .

Atkins stated, “To make this vision a reality, we will need to consider some regulatory changes. For example, we may need to explore revisions to the National Market Management System (Reg NMS) to accommodate the trading of tokenized securities on-chain, and we will also need to take the usual steps to correct the resulting market distortions. Many of you may recall that twenty years ago last month, I co-authored a lengthy dissent with Commissioner Cynthia Glassman opposing the passage of Reg NMS. This dissent is even more compelling now, given that we have been dealing with specific rules for two decades that have distorted market activity and hindered the development of securities markets. Congress clearly intended that ‘the development of a national market system be guided by the forces of competition, not unnecessary regulation.’ I will be looking for ways to foster innovation and competition in our markets.”

5. Innovation exemption: Services and business models that do not fully comply with regulations also have the opportunity to enter the market

Finally, Atkins discussed the potential for innovative models to circumvent certain regulations and enter the market. The United States is constantly seeking innovative models, and innovation should not be constrained by red tape and one-size-fits-all regulations . Atkins stated that the SEC is actively considering the possibility of initiating innovative industry requests and is also considering an innovation exemption that would allow both registrants and unregistered entities to quickly bring to market new business models and services that don't fully comply with existing rules and regulations.

Atkins stated, “Under my vision for an innovation exemption, innovators would be able to bring new technologies and business models to market immediately without being subject to incompatible or overly burdensome mandatory regulatory requirements that could hinder productive economic activity. Instead, they could be subject to principles-based conditions designed to achieve the core policy objectives of the federal securities laws. These conditions could include, for example, a commitment to periodic reporting to the Commission, the inclusion of whitelisting or ‘verified pool’ features, and restrictions on tokenized securities that do not conform to a token standard that includes compliance features, such as ERC 3643. I encourage market participants and SEC staff to consider various models with an eye toward commercial viability.”

Although Atkins stated at the beginning of his speech that these views only represent his personal views and do not fully represent the SEC, many of his ideas are already on the right track .

This makes us sigh: "Looking back at the Gensler era before Atkins, the SEC's attitude has really changed."