SECURITIES & EXCHANGE COMMISSION CRYPTO TASK FORCE ROUNDTABLE
For questions on the note below, please contact the Delta Strategy Group team.
On May 12, the Securities and Exchange Commission’s (SEC) Crypto Task Force held a roundtable entitled, “Tokenization: Moving Assets Onchain: Where TradFi and DeFi Meet.” Following opening remarks from Chairman Atkins and Commissioners, the roundtable was composed of two panels: “Evolution of Finance: Capital Markets 2.0” and “The Future of Tokenization.” The agenda and panelists’ biographies can be found here. Chairman Atkins’ keynote remarks are available here, with Commissioner Peirce’s available here and Commissioner Crenshaw’s here.
Below is a summary of the hearing prepared by Delta Strategy Group, which includes several high-level takeaways.
Key Takeaways
The following is a summary of the main topics explored in the hearing.
- Chairman Atkins outlined his priorities for establishing a rational regulatory framework for crypto asset markets, focusing on three key areas: issuance, custody, and trading. He stated that the migration of securities from off-chain databases to blockchain-based on-chain systems requires an assessment of whether existing regulations remain appropriate. He warned that applying legacy rules designed for traditional securities to crypto assets risks stifling innovation and undermining the U.S.’s positioning to be the “crypto capital.” He detailed his agenda of ensuring regulatory certainty and compatibility for issuance alongside supporting compliant, competitive markets for custody and trading of crypto assets.
- Chairman Atkins criticized the SEC’s initial “head-in-the-sand” approach to digital assets, followed by an ineffective enforcement-driven regulatory model. He called for a reassessment of whether existing exemptions and safe harbors are fit-for-purpose, highlighting the Commission’s broad discretion under the securities Acts to accommodate the crypto industry. He committed to using the SEC’s rulemaking and exemptive authorities to provide clear, workable pathways for crypto asset issuance over “ad hoc” enforcement actions.
- Chairman Atkins supported providing registrants with more optionality in determining how to custody crypto assets, stating that the SEC can do much more to enhance competition in the market for legally compliant custodial services than only rescinding Staff Accounting Bulletin No. 121 (SAB121). He raised the need to clarify which entities qualify as “qualified custodians” under the Advisers Act and Investment Company Act, while considering reasonable exceptions to accommodate self-custody solutions that offer advanced security features. He argued that current custody rules may not reflect market practices and should be updated accordingly. He also posed questions about the viability of the existing Special Purpose Broker-Dealer framework, noting limited operations due to restrictive conditions, and suggested that a more practical regime may be necessary.
- Chairman Atkins advocated for modernizing the alternative trading system (ATS) regulatory regime to more effectively accommodate crypto assets and enable broker-dealers to offer integrated trading platforms. He referenced his staff directive to explore conditional exemptive relief and rulemaking to allow for broader product offerings and prevent innovation from moving offshore.
- Commissioner Peirce emphasized that tokenized securities should be regulated as traditionally issued securities, as she advocated for treating tokenized securities based on their economic substance, not the underlying technology. She asserted that the type of database used to record ownership of securities does not affect the substance of the securities issued nor create a new variation. She stressed the need for the SEC to evaluate whether existing rules designed for off-chain systems are compatible with on-chain assets, cautioning that tokenization’s potential cannot be realized without legal clarity.
- Commissioner Peirce agreed with Chairman Atkins on the need to clarify the application of custody rules to tokenized assets, including defining which entities qualify as “qualified custodians.” She cited confusion created by the Commission’s Special Purpose Broker-Dealer statement, critiquing its broad definition of “crypto asset security” and custody complications for tokenized traditional securities. She called for targeted rulemaking to resolve challenges related to DeFi integration, permissionless networks, and security classifications alongside formal Commission action to modernize custody requirements.
- Commissioner Uyeda emphasized the importance of a transparent regulatory framework for compliant tokenization of real-world assets as he advocated for a regulatory framework focused on critical safeguards, rather than attempting to address every conceivable investment permutation or scenario. He discussed that tokenization implicates major financial market processes, including issuance, trading, transfer, settlement, and ownership records, and therefore requires thoughtful regulatory design and industry input to inform a practical and effective framework for on-chain assets.
- Commissioner Crenshaw issued caution around facilitating tokenization, especially before the technology proves fit for purpose, as she posed questions about its definition, technological feasibility, and regulatory necessity. She noted ambiguity between and subsequent regulatory implications from natively issued blockchain securities and tokenized representations, asking whether tokenization means issuing a security directly on a blockchain or refers to creating a digital representation of a security on a blockchain.
- Commissioner Crenshaw questioned why the SEC should prioritize blockchain over other technologies, warning that doing so could constitute regulators diverging from their tech-neutral mandate. She challenged the proposition that tokenization’s instant settlement improves market functionality, highlighting the critical roles of the current T+1 cycle in netting, liquidity, and compliance functions. She asked whether proposed changes to market structure address any specific dysfunction, as she cautioned against premature regulation at scale, warning against systemic shifts that could harm traditional financial (TradFi) markets.
- Panelists outlined the various use cases and market opportunities tokenization presents to fundamentally enhance capital markets by improving settlement efficiency, collateral utility, and investor access through automation and programmability. They underscored that tokenization is an evolution of market infrastructure, not a new asset class, which requires targeted, formal Commission action to foster compliant innovation and global competitiveness. Some panelists discussed that tokenized assets should be regulated based on economic substance, not technical form. Others characterized tokenization as a convergence of asset creation and market infrastructure solutions within dematerialization, with technology features becoming intrinsic to the asset’s definition.
- The panels highlighted the need for standardized taxonomies and coordinated regulatory frameworks to prevent fragmentation and regulatory silos, ensuring consistency in the treatment of tokenized securities. The discussion showcased support for the SEC to modernize frameworks to accommodate self-custody, streamline ownership records via public blockchains, and ensure regulatory interoperability across networks and jurisdictions. Across the panels, interoperability was viewed as a central requirement for tokenization to enhance capital markets. Panelists explained that while tokenization offers benefits, such as improved settlement efficiency and collateral mobility, operational benefits depend on the ability of tokenized assets to move seamlessly across different blockchains and market infrastructures with inherent compliance functions like know your customer (KYC) and anti-money laundering (AML) provisions.
PANEL I — EVOLUTION OF FINANCE: CAPITAL MARKETS
Panelists
- Moderator: Jeff Dinwoodie, Cravath
- Cynthia Lo Bessette, Fidelity
- Eun Ah Choi, Nasdaq
- Will Geyer, Invesco
- Sandy Kaul, Franklin Templeton
- Robert Mitchnick, BlackRock
- Christine Moy, Apollo Management
- Johnny Reinsch, Tokenized Asset Coalition
- Christian Sabella, DTCC
- Alex Zozos, Superstate
Discussion
- Geyer outlined tokenization’s potential to enhance shareholder communication through smart contracts, streamlining proxy voting and dividend distributions while improving efficiency, speed, and security. He identified further operational efficiencies in investment management, transfer agency, and custody workflows. He noted that tokenization could reduce market risk by shortening settlement cycles and improving collateral utility but clarified it does not necessarily mean moving to T+0 settlement.
- Geyer supported regulatory sandboxes and safe harbors as mechanisms to foster innovation, noting that existing regulatory frameworks provide a solid foundation for tokenization initiatives and should be adapted rather than reinvented. He advocated for a market structure that accommodates coexistence between traditional and tokenized securities under a unified regulatory framework, allowing for natural arbitrage and price efficiency. He also questioned issuer rights to tokenize funds, ETFs, or listed securities as he cited the need to understand the global implications of tokenization at scale.
- Lo Bessette highlighted the expanded utility of tokenizing traditional assets through enabling 24/7, 365-day transfers, allowing for more efficient capital management and continuous global market access. She noted that tokenization facilitates new investment structures, improves capital allocation, and increases diversification by making traditionally illiquid assets tradable. She expressed support for regulatory sandboxes, safe harbors, and pilot programs to foster on-chain financial innovation, referencing active investment in developing blockchain-based applications.
- Zozos emphasized that while centralized databases for securities have been scalable and resilient, they create limitations and single points of failure. He argued that tokenized equities offer benefits such as registered ownership, peer-to-peer transfers, enhanced collateral utility, as well as participation in DeFi lending and exchange activities. He outlined how tokenization improves investor protections and compliance while streamlining settlement, clearing, and corporate governance processes through on-chain transparency. He described tokenization as an evolution of dematerialization, framing it as a new file format that adds programmability and functionality beyond what is possible with traditional centralized systems.
- Ah Choi emphasized taxonomy as the foundation for integrating tokenized securities into existing market infrastructure, highlighting tokenization’s potential to alleviate system congestion in areas like collateral management and proxy processes. She argued that a clear and predictable taxonomy is essential to align regulatory adjustments with investor protection and interests. She stated that digitizing securities does not alter their substance, advocating for rule calibrations that respect this principle while accounting for distinctions between private and public securities, including differences in disclosure requirements and shareholder rights.
- Sabella outlined DTCC’s ongoing work with tokenization, citing projects like Project Ion and recent collateral mobility experiments to evaluate scalability, operational efficiency, and market infrastructure resilience. He identified four key areas where tokenization can drive improvements: flexible settlement cycles, asset servicing, collateral optimization, and corporate actions, all of which benefit from programmability and automation. He stressed the importance of interoperability across tokenization platforms to avoid market fragmentation and enable consistent application of security interests across chains. He underscored the need for regulatory clarity on how tokenized assets are treated in distressed scenarios as he urged the Commission to address legal enforceability, dual listings, and National Market System considerations to ensure tokenized assets function equivalently to traditional securities.
- Kaul highlighted that tokenization offers an opportunity to rethink common-sense investor protections by also prioritizing investor access and control. She criticized the current account-based system for being overly complex and costly for investors, especially those outside institutional channels. She explained Franklin Templeton’s experience running tokenized money market funds on public blockchains since 2022, noting it improved reporting accuracy, reduced costs, and expanded access to previously hard-to-trade assets. She explained that tokenization allows legal and regulatory terms to be embedded directly into the asset, improving transparency and efficiency. She raised tokenization’s potential to enhance market resilience by facilitating faster access to underlying collateral in times of stress and called for efforts to reduce market fragmentation through tokenized liquidity pools.
- Reinsch highlighted tokenization’s role in democratizing access through fractionalization, addressing current market gaps where only stablecoins and speculative assets engage meaningfully with DeFi. He stressed the need for thoughtful regulation and global interoperability to prevent fragmented silos as jurisdictions adopt token asset rules. Reinsch described tokenization as a spectrum, from off-chain asset representation to fully native on-chain issuance, requiring asset-specific approaches. He underscored operational risks in managing dual on-chain and off-chain records, advocating for digitally native issuance to ensure consistency as he called for regulatory frameworks enabling both technical and legal interoperability to support functional tokenized markets.
- Moy outlined tokenization’s role in automating manual processes, reducing costs, and enabling compliance through smart contracts, while promoting multi-asset interoperability across private and public markets. She emphasized that tokenized securities, permissioned assets with embedded regulatory controls, should be recognized as compliant instruments operating on public blockchains. She called for regulatory updates to modernize transfer agent functions, recognize blockchains as official ownership records, and eliminate duplicative off-chain recordkeeping. She argued that tokenized securities should qualify for custody and trading without triggering additional burdens under SEC rules, supported investor choice in self-custody, and advocated for stablecoin settlement without imposing extra regulatory barriers.
- Mitchnick explained that BlackRock’s issuance of a tokenized stable value yield fund in March 2024, in partnership with Securitize as the tokenization agent, demonstrates the practical benefits of tokenization for investors. He noted that the role of a “tokenization agent” differs from a traditional transfer agent and is more suitable in this context. He discussed how the tokenized fund structure enables investors to access the full yield of U.S. Treasuries while maintaining real-time liquidity through instant conversion to and from stablecoins. He highlighted the ability to dismantle the long-standing trade-off between liquidity and yield, allowing investors to achieve both simultaneously through the efficiencies of blockchain-based digital assets.
PANEL II — THE FUTURE OF TOKENIZATION
Panelists
- Moderator: Tiffany Smith, WilmerHale
- Hilary Allen, American University Washington College of Law
- Gene Hoffman, Chia Network
- Johann Kerbrat, Robinhood
- Kelly Mathieson, Canton
- Sidney Powell, Maple Finance
- Georgia Quinn, Securitize
- Joshua Rivera, Blockchain Capital
- Angela Walch, Independent Researcher
Discussion
- Quinn explained that tokenization is the process of representing an asset on a blockchain without changing its fundamental substance, emphasizing that tokenized securities remain subject to existing regulatory controls, including AML, transfer restrictions, and accreditation requirements. She outlined how blockchain technology, layered with smart contracts administered by a transfer or tokenization agent, enables automated controls and mitigates risks associated with permissionless blockchains.
- Quinn distinguished tokenized securities from bearer crypto assets, stressing that tokenized securities incorporate built-in safeguards, and highlighted public blockchains’ superior auditability, transparency, and resilience to insider risk. She argued that transparency is a feature of blockchain, not a flaw, and that public failures create opportunities for community-driven improvements that ultimately strengthen blockchain systems.
- Allen delineated tokenization as a technology, rather than an asset, that aims to create efficiencies for existing market participants. She noted that most SEC-regulated securities are already digital, and the real challenge lies in reconciling digital ownership records with physical assets. She distinguished between efficiencies gained through public, permissionless blockchains and those from programmability and composability, emphasizing that smart contracts can operate on traditional ledgers without blockchain inefficiencies. She suggested that regulatory experimentation should focus on permissioned ledgers, citing global initiatives from the UK’s Financial Conduct Authority (FCA) and the Bank for International Settlements (BIS).
- Allen cautioned that permissionless blockchains introduce new intermediaries who are less visible and not traditionally regulated, posing significant operational risks. She emphasized that removing netting and moving to instant settlement could harm market stability, describing how system pauses and settlement cycles play critical roles in managing risk and liquidity. She warned that increased blockchain scalability often relies on off-chain solutions, which introduce further vulnerabilities, as she highlighted risks in smart contract automation, where pre-programmed actions may fail to account for unforeseen events, creating fragility in times of crisis. She voiced concerns about fractionalization, comparing it to securitization, as she urged the SEC to consider systemic financial stability risks, warning that efficiencies could amplify fragility and inject volatility into TradFi.
- Hoffman characterized tokenization as both a digital asset and a technology, emphasizing its extreme efficiency gains for investors and issuers. He highlighted fractional ownership as a major benefit, contrasting true blockchain-based ownership with synthetic retail platforms where investors may not hold underlying shares. He talked about how blockchain dramatically simplifies administration, with significant cost reductions compared to traditional systems. He explained that public blockchains enable a radically different liquidity profile, allowing 24/7 global trading and real-time capital reallocation, which traditional systems cannot match. He raised concerns with the term “tokenization” when used to describe third-party asset wrappers, suggesting that when the issuer is directly involved, tokenization becomes a streamlined form of regulated issuance, restoring investor rights such as self-custody.
- Mathieson described tokenization as a convergence where technology features become intrinsic to the asset’s definition, merging asset creation and market infrastructure solutions within dematerialization. She emphasized that tokenization, while fundamentally a technological improvement, is redefining how assets are conceptualized and delivered in financial markets.
- Kerbrat described tokenization as a driver of financial inclusion, citing its ability to enable microfinance, tokenized remittances, and local capital formation. He discussed how by removing intermediaries, tokenization reduces transaction costs and increases competition as he highlighted that 24/7 global access to markets will reduce dependence on brokers and trading hours.
- Kerbrat noted that T+0 settlement could lower capital requirements and mitigate risk, while asserting that challenges related to net settlement can be solved with smart contracts and stablecoins. He outlined blockchain’s transparency, operational efficiencies, and its ability to embed compliance functions like KYC and AML directly into tokenized assets. He argued that tokenization will enhance price discovery, create new capital channels, and support global marketplace development, referencing advancements in Hong Kong and Singapore.
- Rivera emphasized blockchains’ substantial applications for capital efficiency, financial inclusion, and expanding but not replacing existing financial rails. He acknowledged that blockchains are not yet as scalable, efficient, or fast as centralized trading systems, but highlighted technological advancements projecting 65,000 to 100,000 transactions per second as key to future competitiveness. He discussed how programmatic execution through code offers transparency and efficiency advantages, enabling rules-based automation of financial market functions.
- On settlement cycles, Rivera questioned whether T+0 is a detriment or benefit, noting that while netting provides efficiencies, it does not eliminate trading costs due to continued margining and collateral requirements. He argued that blockchain’s value lies in providing optionality for market participants, automating execution, clearing, and settlement processes that are currently intermediated.
- Powell discussed tokenization’s role in enhancing transparency, real-time performance tracking, and near-instant settlement, alongside improving liquidity through continuous repayments and secondary markets. He contrasted U.S.-available products with DeFi-native versions offshore, which offer greater liquidity, retail access, and DeFi integrations such as fixed-rate locking and collateralized borrowing. He emphasized that enabling interoperability drives more participation, better liquidity, and expanded use cases, as he warned of liquidity fragmentation across chains.
- Powell highlighted discrepancies between on-chain token ownership and off-chain legal records as he described how regulation can assist innovation by facilitating the attachment of legal rights to tokenized assets. He emphasized the importance of aligning the rule of law with blockchain execution to ensure harmony between contract terms and asset functionality on networks. He also pointed to KYC/AML frameworks as an area for regulatory improvement, explaining that simplified transferability and collateralization would be more effective if counterparties could access liquid markets via decentralized exchanges versus being limited to narrow, pre-KYCed buyer pools.