It was tokenization week, with the SEC holding a panel on the topic, Chair Atkins delivering multiple speeches which hit on tokenization topics like self-custody and trading, and a TradFi mainstay advocating for the SEC to hurry up and wait with layers of forced intermediation instead of pursuing the highest/best use of blockchain technologies. Congress was also busy, with a hearing overseeing prudential regulators (and their GENIUS Act implementation status) and reported findings from the House investigation into Operation Chokepoint 2.0.
Here’s everything that happened last week in crypto law:
The SEC Innovation Exemption Expected This Month
When the Chair of the SEC talks, I listen, so even though this speech doesn’t mention crypto it is an important insight into his policy priorities. In a related interview on Squawk Box, Chair Atkins said he expected the innovation exemption he has teased as being released in about a month, so excited to see that! This seems like a good point to provide some background on what we currently know about the planned “innovation exemption” and what to expect when it is released.
Tl;dr– Shortly after taking the helm at the SEC, Chair Atkins laid out his plan for “Project Crypto” which included what he referred to as a planned “Innovation Exemption” with later statements stating he was targeting December to the release of that exemptive framework. The stated purpose of the exemption is to allow trading to occur under restrictions which “achieve the core policy aims of the federal securities laws” without pedantically requiring things like books and records of transfers that occur on an immutable and publicly distributed blockchain-enabled ledger. He also followed up recently with a speech before the SEC tokenization panel (discussed below) which seems to indicate trading on DeFi and self-custody of tokenized securities will be parts of the exemption, but there have not been any public leaks about the extent of the exemption.
OTHER STORIES
SEC Tokenization Pannel: In addition to the above, the SEC hosted a series of panels on corporate governance in the age of AI and tokenization of stocks. Chair Atkins also gave a speech at the start of those panels where he addressed his thoughts on the issues including the need for a framework for improved trading through DeFi. Which was timely in light of the Citadel letter discussed below.
House Report on Chokepoint 2.0: The House Financial Services Committee released their findings from their investigation into the systematic debanking of crypto companies deemed “Operation Chokepoint 2.0” and it mostly said what everybody knew: it happened, it was coordinated, and it can happen again unless real changes are implemented.
ETH Fusaka Upgrade Goes Live: I’ve been mocked for being an ETH believer like the Squidward meme when all my SOL and BTC maxi friends were having more fun. But it continues to ship improvements like the Fusaka upgrade which further scales the network without compromising decentralization.
GENIUS Act Regs Expected Soon: Acting FDIC Chair Travis Hill said in his recent House Financial Services Committee hearing testimony that he expected the agency to issue GENIUS Act implementing regs later this month (and a separate framework for tokenized deposits? Which also is huge).
Prudential Regulators House Testimony: In addition to the alpha regarding the FDIC’s implementing regulation timeline, there were a few other nuggets that came from the House Financial Services Committee’s prudential regulator oversight hearing. It seems like BSA reporting thresholds actually have a chance of changing? Also a push to tailor regulations to be more fit to size/purpose, which would be a boon for FinTech startups who currently face massive regulatory costs before they even get out the gate.
CFTC Tokenized Margin Submission: Super happy with this letter to the CFTC that the Digital Chamber submitted regarding the use of tokenized assets to meet margin requirements in CFTC-regulated trading. Also props to the homie Gage Raju-Salicki, who is a rising star in crypto law and I am pumped I got to work with him finally! I will also link the CFTC Spot Crypto trading approval story here, which I think is a nothingburger but still worth covering.
Blackrock Tokenization Maxis: Blackrock’s Larry Fink and Franklin Templeton’s Jenny Johnson have been talking tokenized financial products for years now, so it is no surprise Larry is continuing to push for tokenized financial products saying tokenization could do for finance what the early internet did for information. Even the boomers at Vanguard are coming around to crypto.
Sony Stablecoin: Sony is launching a stablecoin which will be the default payment options for PlayStation games and other digital goods in Sony’s entertainment markets. Now make game skins tradable NFTs and my “crypto in gaming” predictions from 5 years ago can finally come true!
10 Things About DeFi: This was a good quick hitter from DeFi Education Fund which gives ten quick facts about DeFi. Still probably a bit too technical for use with people with no crypto knowledge, but good explainer for people who know crypto and maybe own some bitcoin on a centralized exchange, but haven’t engaged with the rest of the digital asset ecosystem.
MSCI Crypto Company Delisting: The Digital Chamber sent a letter to House and Senate finance leaders regarding an MSCI proposal which would remove from their index listings any company that holds 50% or more of its balance sheet in crypto. If it’s an operating company that otherwise meets inclusion thresholds, the fact that it holds its assets in BTC vs. USD should not make a difference.
Citadel Doesn’t Like DeFi: Citadel recently submitted a letter to the SEC advocating that decentralized trading protocols should not be permitted for trading tokenized securities. Not sure more forced intermediation is how we get the highest/best use of tokenized securities, but also not a shocking position for an entrenched TradFi actor like Citadel to take. TradFi can either catch up or be left behind, but I don’t think the next 3 years are going to be great for people pushing for forced intermediation. Smart TradFi understands this and are looking for ways to be service providers for people that want their security and fiduciary skills for crypto to be done by a TradFi named brand.
Base vs. SOL: The Base team created a bridge to SOL which apparently started a war between the SOL and Base development teams? I honestly do not understand this beef but it took over my timeline this week so I have to mention it.
Prediction Markets Stay Hot: I could honestly just include a full section on prediction markets each week and fill up a half page. But to avoid annoying you all, what I was paying attention to this week was MetaMask’s polymarket integrations and even CNBC getting in on the action with Kalshi. This comes as more states like Connecticut look to crack down claiming these markets are uncleansing state gaming.
CONCLUSION
If you have any questions or would like me to write about anything else, let me know on Twitter (X?) or Farcaster. As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.
Outro/Disclaimer: In late 2022, while I was at Polsinelli, I started preparing weekly updates for attorneys at the firm to stay abreast of the latest Web3 legal developments. I now post the weekly updates on my personal blog every Tuesday, where I also provide links to more obscure legal developments and otherwise discuss industry trends and stories. Please note, the views and opinions I express are solely my own. They do not reflect the official stance or endorsement of the Digital Chamber or any of its members.
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