By Paul S. Atkins, Chairman
Compiled by: TechFlow
Thank you, and good afternoon. It is a pleasure to be with you all today. First, I want to thank Commissioner Pierce and the Cryptocurrency Working Group for organizing today's event, and also thank Commissioners Crenshaw and Uyeda for participating. And of course, I want to especially thank our roundtable discussants and moderator Troy Paredes, who volunteered their time and talents to support our cause.
The theme of today’s roundtable is “Decentralized Finance and the American Spirit.” This theme is very appropriate because core American values such as economic freedom, private property rights, and innovation are deeply rooted in the genes of decentralized finance (DeFi).
Blockchain is undoubtedly a very creative and potentially revolutionary innovation that makes us rethink the way intellectual and economic property rights are owned and transferred. Blockchains are shared databases that enable ownership of digital property called crypto assets without relying on intermediaries or centralized institutions. These peer-to-peer networks use economic mechanisms to incentivize participants to verify and maintain the database according to the network's rules. These are free market systems where users pay demand-based fees to network participants in order to include transaction records in so-called "data blocks" with limited storage capacity.
Previously, the U.S. government has used litigation, speeches, monitoring, and threats of regulatory action to discourage Americans from participating in these market-based systems, alleging that participants and providers of “staking-as-a-service” services may be engaging in securities transactions. I am grateful to the Division of Corporation Finance staff for making clear that voluntary participation in proof-of-work or proof-of-stake networks as “miners,” “validators,” or “staking-as-a-service” providers is outside the scope of the federal securities laws. While I am pleased with this progress, it is not a formal rule with the force of law, so we cannot stop there. The SEC must write regulations based on the authority Congress has given us.
Another core feature of blockchain technology is the ability for individuals to autonomously manage their crypto assets through their personal digital wallets. The right to autonomously manage private property is one of the fundamental American values, and this right should not disappear just because people log on to the Internet. I support providing market participants with greater flexibility so that they can autonomously manage their crypto assets, especially when intermediaries add unnecessary transaction costs or restrict the ability to participate in staking and other on-chain activities.
The previous president’s administration undermined innovation in self-managed digital wallets and other on-chain technologies through regulatory actions, claiming that developers of such software may be engaging in brokerage activities. However, engineers should not be subject to federal securities laws simply for publishing such software code. As one court has said, it is irrational to hold developers of self-driving cars liable for third parties using the cars to violate traffic rules or rob banks — citing the court’s decision, “In such cases, one would not sue the car company for facilitating the wrongdoing, but rather the individual who committed the wrongdoing.”
Many entrepreneurs are developing software applications that do not require operator management. This self-executing software code that is available to everyone but controlled by no one and enables private peer-to-peer transactions sounds like science fiction, but blockchain technology makes it possible. This new category of software can achieve these functions without intermediaries. I believe that we should not let century-old regulatory frameworks hinder these technological innovations that have the potential to disrupt and, most importantly, improve and advance the current traditional intermediary model. We should not automatically be afraid of the future.
These on-chain, self-executing software systems have proven resilient in the face of the crisis. While centralized platforms have faltered or even collapsed under recent pressures, many on-chain systems continue to operate as designed by open-source code.
Most current securities rules and regulations are based on the regulation of issuers and intermediaries, such as broker-dealers, advisors, exchanges, and clearing organizations. The drafters of these rules and regulations may not have anticipated that self-executing software code could replace these issuers and intermediaries. I have asked Commission staff to explore whether further guidance or rulemaking is needed to help registrants transact with these software systems in compliance with applicable law.
I am also very excited about issuers and intermediaries using on-chain software systems to remove economic friction, improve capital efficiency, support new financial products, and enhance liquidity. Current securities regulations already take into account the possibility of issuers and intermediaries using new technologies, but I have asked staff to consider whether the Commission's rules and regulations need to be revised to better provide the necessary support for issuers and intermediaries who want to manage on-chain financial systems.
As the Commission and its staff work to come up with specialized rules for on-chain financial markets, I have directed staff to consider a conditional exemption framework, or “innovation exemption,” to quickly allow registered and unregistered parties to bring on-chain products and services to market. The innovation exemption could help achieve President Trump’s vision of making the United States the “global crypto capital” by encouraging developers, entrepreneurs, and other companies willing to comply with certain conditions to innovate on-chain technology in the United States.
Thank you for your attention and I look forward to the discussion ahead.
