SEC Commissioner Hester Peirce: Tokenized securities are still subject to federal securities laws

Recently, with the rise of tokenized stocks in the US market, Republican SEC Commissioner Hester Peirce made an important statement on July 9. She emphasized that although blockchain technology has strong potential, it does not change the nature of the underlying assets. Tokenized securities are essentially still securities and must comply with existing federal securities regulations.

Peirce elaborated on two main ways of tokenization in her statement: first, the issuer directly converts its own stock into a blockchain version; second, a custodian wraps third-party securities and issues corresponding receipts. She particularly warned that the latter model may introduce additional counterparty risk, as token holders need to rely on the custodian's solvency and control over the underlying stock.

For distributors of tokenized securities, Peirce recommends that they fully consider their disclosure obligations under federal securities laws and refer to the relevant guidelines recently issued by the SEC's Division of Corporation Finance. She also encourages market participants to communicate with the SEC early in the development of tokenized products.

Peirce specifically pointed out that the nature of tokenized securities may vary depending on the specific circumstances. For example, some tokens may be regarded as "security receipts," while others may be classified as "security-based swap transactions." Whether on-chain or off-chain versions of securities instruments, they should comply with the same legal requirements.

In response, ConsenSys lawyer Bill Hughes summarized on social media: "In short, the SEC has taken note of some aggressive plans to launch tokenized U.S. stocks, and it is time to proceed with caution. Communicate with regulators to explore possible exemptions or rule adjustments. But remember, securities laws apply both inside and outside of blockchain."

Bloomberg ETF analyst James Seyffart interprets Peirce's statement as a warning to companies and protocols planning to develop securities tokenization bridges.

It is worth noting that several companies, including some well-known cryptocurrency exchange platforms, have expressed their intention to launch tokenization of stocks. If approved by the SEC, this would enable them to offer blockchain-based traditional stock trading services, thus competing directly with traditional financial brokerage firms.

However, this new technology has also raised some concerns. Critics argue that it could be used to circumvent SEC regulations and pose new risks to retail investors. Senator Elizabeth Warren stated that a cryptocurrency market structure bill currently under review in the House includes provisions that could allow non-cryptocurrency companies to avoid SEC regulation through asset tokenization.

As the market for tokenized securities continues to develop, regulators, market participants, and investors need to closely monitor the latest trends in this area to ensure a balance between innovation and regulation.