SEC Commissioner Hester Peirce, aka Crypto Mom, has stated that tokenized securities remain securities and must comply with federal securities laws. In her official statement titled “Enchanting, but Not Magical,” Peirce clarified that tokenized securities must follow the same rules as traditional securities.
Tokens issued by third parties based on custodial assets may involve counterparty risks or legal ambiguities. Some tokens could be deemed “receipts for securities” or “security-based swaps,” which may not be permitted for retail trading. She urged market participants to adhere to federal securities laws and invited firms to join efforts with the SEC to clarify these rules.
Peirce Delivers a Clear Message to Blockchain Firms, Users
According to Peirce, blockchain is transformative, but doesn’t have the magical abilities to transform the nature of crypto assets. She added that tokenization doesn’t change the regulatory status of tokenization, and must answer to the rules that regulate traditional securities.
Tokenized equity and bonds must adhere to the same rules as their traditional counterparts. That means they must comply with registration, disclosure, custody, and anti-fraud measures. The SEC commissioner also clarified that regulatory requirements could differ when counterparty risks emerge due to third-party tokens.
For example, if custodial tokens are traded as security, the rules could differ. In furtherance of that, she encouraged all firms to meet with the regulatory agency to ensure clarity of these technical terms and to make exemptions when possible.
What Peirce’s Restrictive Statement Means for Crypto Firms and Users
Crypto firms, such as Coinbase and Robinhood, have been piloting tokenized stock offerings for a while. Peirce’s clarifications set a new compliance benchmark that these firms must treat tokenized stocks and bonds in a similar manner to traditional securities. That means tokenized securities are subject to file registrations and audits.
Since compliance is non-negotiable, there’d be no regulatory blind spots for DeFi protocols to bypass. Entities must comply with custody protections and trading rules to avoid sanctions. However, the SEC could make certain exemptions within a regulated system if blockchain’s functionality is unified.
For users, Peirce’s stance signals transparency and protection. Token holders will feel more confident knowing that the SEC’s oversight is intense and tight. Aside from increasing retail confidence, token holders may have access to collateralization opportunities and fractional ownership.
What’s Next for the SEC?
The SEC is currently considering a simpler crypto ETF approval, bypassing the lengthy 19b-4 application filings and embracing the Form S-1. The new process will approve ETF filings within 75 days if the SEC doesn’t object. The SEC has also acknowledged Trump Media’s application for a Bitcoin and Ethereum ETF.
Since President Donald Trump’s inauguration, the SEC has reinstated its commitment to ensuring regulations don’t stifle innovation. However, the regulatory body has stated it won’t stand for either to see the crypto space exploited and endanger users. The SEC could release a detailed framework for custody, trading, and token issuance.
Given MiCA’s success, the SEC could be pressured to adopt a similar approach to enable the United States to stay competitive in its bid to become the world’s crypto capital. Peirce’s statement confirms that regulations are essential, not optional. By that, users receive better protection and blockchain firms gain clarity on the nature of tokenized securities.
