SECURITIES & EXCHANGE COMMISSION CRYPTO TASK FORCE ROUNDTABLE
For questions on the note below, please contact the Delta Strategy Group team.
On April 11, the Securities and Exchange Commission’s (SEC) Crypto Task Force held a roundtable entitled, “Between a Block and a Hard Place: Tailoring Regulation for Crypto Trading.” The agenda and panelists’ biographies can be found here. Nicholas Losurdo moderated the roundtable panels composed of:
- Tyler Gellasch, President and CEO, Healthy Markets Association
- Jon Herrick, Chief Product Officer, New York Stock Exchange
- Richard Johnson, CEO & Founder, Texture Capital
- Dave Lauer, Co-Founder, Urvin Finance and We the Investors
- Katherine Minarik, Chief Legal Officer, Uniswap Labs
- Christine Parlour, Chair of Finance and Accounting, UC Berkeley
- Chelsea Pizzola, Associate General Counsel, Cumberland DRW
- Austin Reid, Global Head of Revenue and Business, FalconX
- Gregory Tusar, VP, Institutional Product, Coinbase
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.
- Acting Chairman Uyeda emphasized that while the application of securities laws to blockchain-based platforms presents challenges, the decentralized technology and networks also offer significant benefits and financial efficiencies. He suggested that SEC exemptive relief could facilitate limited-scale experimentation with on-chain clearing models as the agency evaluates longer-term solutions. Panelists emphasized the need to bring crypto trading volume back to the U.S., with Reid suggesting success should be measured by domestic market share and regulatory clarity.
- Commissioner Peirce emphasized that successful markets depend on regulatory flexibility to support emerging business models and innovative markets. She raised the need for the SEC to consider how existing rules apply to emerging practices like pairs trading, including non-USD denominated trading pairs, and whether rules should be modified or clarified to accommodate such activities. She stressed the importance of recognizing overlapping jurisdictions and regulatory fragmentation as a barrier to effective oversight. She encouraged the Commission to explore how technology itself, such as blockchain-based tools, might help meet regulatory obligations traditionally imposed on intermediaries.
- Commissioner Crenshaw warned that crypto trading platforms often bundle multiple critical functions, such as brokerage, custody, and clearing, into a single entity, unlike traditional financial markets where these roles are segmented and regulated separately. She argued that vertical integration creates conflicts of interest and elevates systemic risk. She expressed concern that retail investors may assume protections based on their experience with traditional markets, despite the lack of corresponding safeguards for investor protection. She questioned how to ensure best execution, mitigate custody risks, and implement meaningful oversight for platforms that fall outside traditional regulatory perimeters.
- Panelists debated the scope of SEC authority over different types of digital asset trading, with some urging clear jurisdictional boundaries between the SEC and Commodity Futures Trading Commission (CFTC), and others emphasizing the need for tailored guidance on how existing securities laws apply to decentralized and secondary market activities. Lauer asserted that digital securities fall squarely within the SEC’s jurisdiction and called for agency consolidation to reduce regulatory turf wars. Reid argued that the SEC should focus on securities and related intermediaries in working with the CFTC on commodity oversight. Minarik emphasized that peer-to-peer decentralized finance (DeFi) transactions and self-custody fall outside the SEC’s scope because they do not present the same risks as intermediated services.
- Pizzola highlighted that applying the Howey test requires a transaction-by-transaction analysis, cautioning against assuming all secondary market transactions are securities and calling for regulatory refinement to ensure any framework is workable across both centralized and decentralized systems. She emphasized the value of interim SEC guidance or rulemaking to clarify how certain secondary market transactions should be treated in the absence of legislation. She reiterated that identifying specific scenarios where digital asset transactions would or would not fall under the SEC’s jurisdiction, as opposed to being considered commodities under the CFTC’s authority, would provide much-needed clarity in the absence of legislation.
- Lauer emphasized that the lack of clarity has directly harmed investors and necessitated dual agency cooperation, noting that Financial Innovation and Technology for the 21st Century Act (FIT21) provides a strong foundation. Johnson argued that FIT21 presents an opportunity to replace the fragmented regime of state licensing with a cohesive federal framework, noting that broker-dealers already operate within long-standing regulatory rules that could evolve to incorporate digital assets. Tusar supported FIT21’s efforts to facilitate dual registration, allowing entities to handle both securities and commodity digital assets under a single structure, which he said could streamline processing and surveillance alongside improving capital efficiency. Reid added that FIT21’s framework could help bring trading volume back onshore by offering clear paths to registration for exchanges, broker-dealers, and custodians. Minarik and Pizzola noted that FIT21 may require more specificity in addressing peer-to-peer transactions, self-custody, and secondary market activity involving non-security digital assets.
- The panel noted that traditional markets rely on clearinghouses to reduce counterparty risk and ensure market resiliency while crypto markets, particularly DeFi platforms and vertically integrated exchanges, often operate without traditional clearing mechanisms. Herrick and Parlour stressed that while central clearing adds safeguards, it may not be compatible with blockchain’s real-time, peer-to-peer architecture. Tusar and Reid argued that blockchain technology itself offers an opportunity to modernize clearing, with smart contracts and tokenized collateral potentially replicating the benefits of central clearing while increasing capital efficiency. The discussion acknowledged that some centralized oversight may be necessary for institutional adoption and to align with traditional compliance frameworks.
- Panelists discussed the role of the Supplemental Leverage Ratio (SLR) in shaping market participation and liquidity for digital assets, with several raising the need to increase current SLR requirements, which treat all assets equally regardless of risk. They noted that it may constrain banks’ ability to intermediate U.S. Treasury and digital asset markets effectively especially in periods of stress, suggesting that reforms to the SLR could improve capital efficiency and support broader participation in markets involving tokenized or low-risk assets, including Treasury securities and digital asset transactions.
- Reid highlighted the biggest challenge in tokenized markets is a lack of liquidity and outlined the need for frameworks that foster secondary market growth, noting that institutional clients are most concerned with custody safety, counterparty risk, and liquidity. He emphasized that federal preemption, especially in custody and trading, could improve U.S. firms’ competitiveness. He noted that consolidating oversight in these areas would reduce regulatory fragmentation and support more effective global participation.
- Several panelists recommended that regulation be based on what service a firm performs rather than its label, with Gellasch urging the SEC to evaluate whether entities act as exchanges, brokers, or custodians and to regulate them accordingly. He pointed to lessons from traditional markets, such as the adoption of best execution standards, market access rules, and consolidated audit trails, arguing these tools are adaptable to crypto. Herrick reinforced that successful markets rely on trust, liquidity, and resiliency, and regulation should promote those principles, citing current risks such as crypto liquidity providers operating without robust regulatory oversight. Tusar warned that regulation should not obstruct innovation but should ensure clear customer protections and enable market efficiency.
- Gellasch, Tusar, and Johnson emphasized that brokers are critical access points for investors and should be subject to traditional obligations like anti-money laundering (AML) and know your customer (KYC), best execution, and disclosure requirements. Herrick and Reid discussed the evolving nature of brokers in crypto and the integration of exchange, clearing, and custody roles, with Reid advocating for clear registration pathways tailored to each function. Lauer recommended using SEC exemptive relief to allow regulated crypto trading to proceed while formal rules are developed. The roundtable debated how much of blockchain-based trading should be regulated by rules versus refined through competition, with Tusar arguing that market forces can naturally drive improvements in execution quality and reduce the need for rigid mandates like the order protection rule.
- Lauer raised concerns about vertical integration and cited market structure lessons learned from the FTX collapse in discussions on improved trade reporting to support market integrity, increase investor trust, and reduce conflicts of interest. He noted that permitting trading platforms to issue their own tokens, conduct proprietary trading, and act as custodians for customer assets concentrates risk and creates unmanageable conflicts of interest. He argued that structural separation, not just disclosure, is required to address these risks. Gellasch reinforced the need for both on-chain and off-chain transaction reporting to build transparency and trust, adding that disclosures are especially important due to the high-risk nature of many tokens, but cautioned that trust cannot be manufactured without regulatory backstops.