SEC Commissioner Warns Tokenization of Securities Must Comply with Federal Securities Laws

Recently, as multiple companies actively promote tokenization of stocks into the U.S. market, Hester Peirce, a Republican commissioner of the Securities and Exchange Commission (SEC), issued a statement on July 9, clearly stating that while blockchain technology is powerful, it cannot change the inherent attributes of the underlying assets. She emphasized that tokenized securities essentially still belong to securities and must strictly comply with federal securities regulations.

Peirce stated in the declaration that tokenized stocks, notes, or rights still fall under the category of securities. She requires issuers, intermediaries, and dealers to strictly comply with current federal laws when creating, selling, or transferring these securities.

Tokenization mainly has two forms: first, the issuer directly mints a blockchain version of its stock; second, the custodian wraps third-party securities and issues receipts. Peirce warns that the latter model may introduce counterparty risk, as token holders need to rely on the custodian's creditworthiness and control over the underlying stock.

Peirce also reminded that distributors of tokenized securities need to consider their disclosure obligations under federal securities laws. She suggested that market participants should communicate with the SEC and its staff early in the design of tokenized products.

In response, ConsenSys lawyer Bill Hughes summarized on social media: "In short, we've heard some crazy plans about launching tokenized US stocks, and you need to think seriously about it. Discuss with us, and we can consider whether an exemption or modification of rules is needed. But don't misunderstand, securities laws apply both on-chain and off-chain."

Bloomberg ETF analyst James Seyffart believes that Peirce's clarification sounds like a warning to all companies and protocols planning to build bridges for securities tokenization.

Currently, several companies, including some well-known cryptocurrency exchanges, have expressed interest in launching tokenized stocks. If approved by the SEC, they will be able to offer blockchain-based trading of traditional stocks, thereby competing directly with traditional financial brokerage firms.

SEC Chairman Paul Atkins stated in an interview that the agency should encourage innovation. However, critics argue that this new technology could become a means to evade SEC regulation and expose retail investors to new risks.

Senator Elizabeth Warren pointed out that a cryptocurrency market structure bill set to be voted on in the House may allow non-cryptocurrency companies to tokenize their assets in order to evade SEC regulation. She warned that under this bill, public companies could easily escape SEC oversight simply by putting their stocks on the blockchain.