As someone tracking SEC policy, the shift in approach has been dramatic. Let me explain where securities regulation stands post-SmartCon 2025.
The SEC Framework Evolution
2017-2021: Enforcement-First Era
- “Every ICO is a security” approach
- Enforcement actions without clear rules
- Industry frustration
2022-2024: Clarification Begins
- Howey Test applied to tokens
- Investment contract analysis framework
- Some clarity, still gaps
2025: Post-SmartCon Framework
- FIT21 bill pending (clear commodity/security split)
- Productive dialogue with industry
- Focus on fraud prevention, not innovation blocking
Token Classification Framework
When Is a Token a Security?
Applying Howey Test (1946 Supreme Court):
- Investment of money
- Common enterprise
- Expectation of profits
- From efforts of others
SEC’s Current Approach:
Clearly Securities:
- Tokens sold in ICO/presale
- Team controls protocol
- Ongoing development promises
- Marketing emphasizes profits
Likely Not Securities:
- Fully decentralized protocols
- No identifiable issuer
- Functional utility (not investment)
- Sufficiently decentralized (Ethereum 2.0 example)
Gray Area (Most Tokens):
Depends on facts and circumstances - this is the problem FIT21 aims to solve.
Exchange Registration Pathways
Current Options:
1. National Securities Exchange (Traditional)
- Full SEC registration (Form 1)
- SRO (Self-Regulatory Organization) requirements
- Expensive, time-consuming
- Example: None yet for crypto-native
2. ATS (Alternative Trading System)
- Register as broker-dealer + ATS
- Lower barriers than full exchange
- Limited to securities
- Example: tZERO (security tokens)
3. Special Purpose Broker-Dealer (SPBD)
- New framework under discussion
- Tailored for digital assets
- Custody, market making allowed
- Timeline: 2026 proposed rules
FIT21 Impact:
If passed, creates clear path for commodity token exchanges (CFTC regulated, not SEC).
Custody Rule Updates
SEC Custody Rule (Amended 2024):
For RIAs (Registered Investment Advisers):
- Must use qualified custodian for client crypto assets
- Qualified custodian = Bank, trust company, registered broker-dealer
- Surprise exam requirements
- Crypto-specific provisions
What Changed:
- Recognizes crypto custody is different
- Allows specialized crypto custodians (if qualified)
- Addresses DeFi staking, lending
- More flexible than initial proposal
Industry can now comply - Fidelity, Coinbase, Anchorage qualify.
Enforcement vs Guidance Balance
Past Criticism:
“Regulation by enforcement” - sued companies without clear rules
Current Approach:
- More guidance (Staff Accounting Bulletins, no-action letters)
- Proposed rules before enforcement
- Industry consultation
- Enforcement reserved for clear fraud
Better balance, though still room for improvement.
DeFi Regulation Challenges
The DeFi Problem:
Traditional regulation assumes:
- Identifiable issuer
- Centralized control
- Geographic jurisdiction
DeFi protocols:
- No single issuer
- Decentralized governance
- Global, borderless
SEC’s Struggle:
How to regulate protocols without attacking developers?
Emerging Framework (Not Final):
- Focus on interfaces (centralized access points)
- DAO treasury as quasi-entity
- Token sales = securities (regardless of protocol)
- Protocol itself? Still unclear
Industry Input:
DeFi Education Fund, others working with SEC on framework.
International Coordination
MiCA (EU Markets in Crypto-Assets):
- Comprehensive EU framework (effective 2024)
- Passport system (license in one country, operate EU-wide)
- Clear rules for stablecoins, utility tokens, security tokens
SEC Coordination:
- Regular dialogue with ESMA (EU securities regulator)
- Mutual recognition discussions
- Global baseline standards emerging
Challenge: Same token, different treatment across jurisdictions.
Staking Regulatory Clarity
Current Ambiguity:
Is staking a security?
- Kraken settled with SEC (stopped staking-as-a-service)
- Coinbase fighting SEC lawsuit
- Industry wants clarity
Likely Resolution:
Non-Custodial Staking: Not a security (you control tokens)
Custodial Staking-as-a-Service: May be security (investment contract)
Congressional legislation expected to clarify (2026).
What Industry Should Expect
2026 Regulatory Roadmap:
Q1-Q2: FIT21 passes - commodity/security distinction clear
Q2-Q3: SPBD framework proposed - exchange registration path
Q3-Q4: Staking clarity - legislation or SEC guidance
Q4: DeFi framework discussion draft
2027: Implementation begins, first registrations under new rules
SmartCon’s Impact on SEC
Industry participation at SmartCon with government officials sends signal to SEC:
- Blockchain is mainstream financial infrastructure
- Collaborative engagement works better than adversarial
- Clear rules benefit everyone (SEC, industry, investors)
Expect more constructive SEC approach in 2026.
To @alex_policy’s Questions:
SEC securities framework post-SmartCon:
- FIT21 creates commodity/security split
- SPBD provides exchange registration path
- Custody rule updated for crypto
- Staking clarity coming via legislation
- DeFi framework emerging (slowly)
- Enforcement balanced with guidance
Still work to do, but trajectory is positive.
#SEC #Securities #Regulation #FIT21 #Compliance