Tokenized securities classification remains unchanged
Alex Zozos, General Counsel at Superstate and former SEC attorney, makes a straightforward point about tokenized securities. They’re still securities. That’s the legal reality across most jurisdictions, he notes. When you tokenize an existing security, the underlying legal characteristics don’t magically disappear.
Commissioner Hester Peirce’s recent statements seem to reinforce this view. The classification stays consistent. It’s not really up for debate, at least not from a regulatory standpoint. I think this clarity matters more than people realize. It sets the boundaries for what’s possible within the existing framework.
The SEC’s dual approach to regulation
Zozos describes the SEC’s current posture as having two distinct buckets. There’s the enforcement side, which gets most of the headlines. Then there are the policy divisions working on longer-term frameworks. We’re still at what he calls “step zero” with the really difficult questions.
But there’s potential for change. A more receptive SEC might emerge in the future. The current approach feels cautious, perhaps overly so. The sandbox exemptions allow some experimentation, but they come with risks. Existential risks, as Zozos puts it.
Blockchain’s practical benefits for trading
The technology itself offers clear advantages. Speeds improve. Efficiencies emerge from updated systems. Self-custody becomes possible, giving investors more choice. That’s the practical side that often gets lost in regulatory discussions.
Decentralized systems could help prevent systemic failures, Zozos suggests. That’s an interesting point. Traditional financial systems have their vulnerabilities. Blockchain might offer some protection against cascading failures.
Transfer agents face existential questions with tokenization. Their traditional role in tracking ownership gets challenged. Galaxy’s approach creates what Zozos calls a “regulatory perimeter” for eligible holders. Issuers could technically serve as their own transfer agents, but the burden would be significant.
The blurring line between traditional and crypto markets
Zozos sees the distinction between crypto and traditional markets gradually fading. Project crypto, as he describes it, is about rethinking regulation more broadly. Not just tweaking existing rules, but reconsidering the whole approach.
Broker-dealer regulations exist to control risks from conflicts of interest. But self-custody reduces the need for traditional brokers. That creates tension. Wallets that exhibit broker-like features should probably be treated as brokers, Zozos argues. It’s a logical position, though implementation would be complex.
Regulatory arbitrage is already happening. Companies navigate different jurisdictions to avoid certain US regulations. Citadel, Zozos predicts, will become a major arbitrager between traditional and on-chain markets. The market will eventually figure out which tokenization models actually work.
New technologies don’t necessarily displace older systems immediately. There will be competition. More investor choice. The SEC’s role, in Zozos’s view, should be to create fair competition rather than picking winners. That’s a sensible approach, though easier said than done.
Blockchain updates networks of value. Payments, securities, the whole infrastructure. The DTC’s involvement in tokenization signals a significant shift. Exemptions allow experimentation, but the real test will be what happens when those exemptions expire.
Perhaps the most telling observation is about rethinking regulation broadly. Not just applying old rules to new technology, but reconsidering what regulation should achieve in a digital age. That conversation is just beginning.
