Commissioner Hester Peirce on The State of Crypto Regulation in 2025 | Rise Up 📱

Well, thank you for that great introduction. It's really nice to be back. I had a good time the last time we did this. Though we were in person last time, so this will be a little new challenge, I guess. I do want to give you my disclaimer, which is that my views are my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners.

It's hard to pick a thing that's changed the most because really everything in crypto regulation has changed pretty dramatically in the US over the last year. And you know that wasn't a surprise to anyone who was watching what the different positions were. The president came in with a very clear plan to change the way crypto regulation was approached in the United States. We at the SEC started very early on that project. The acting chairman Mark Ueda at the time set up the crypto task force and that's the group that I've been leading and really the goal of that task force is to work with staff across the commission to try to get to a better place. And we really did make a change on a lot of approaches. First, we stopped using regulation by enforcement. And instead we put a lot of emphasis on trying to use our regulatory tools, whether that's staff actions to provide guidance around what does and doesn't fit within the SEC's regulatory perimeter or whether that's working on longer term rule making and commission level guidance and perhaps commission level exemptions as well. So that's what we've been working on. You did mention at the outset that we've been talking to a lot of people. A lot of that conversation has come through one-on-one meetings with people in the space, but also we've been doing a series of roundtables. We started out by doing a series of substance matter organized roundtables that were larger events and then we've also gone out on the road and met with some smaller crypto projects in different cities across the country. And then we have a very active written input function where we're getting letters from lots of people. And so that work has been very helpful as we think about longer term regulation. And then of course, and this is not necessarily a change because Congress has been working on crypto legislation for quite some time. Even before the election, they were working on that. But there's really a lot of momentum. Genius Act was passed. The market structure act is being worked on as we speak. The House already has a version of it out there and voted on and the Senate is working on their own. And so we also have been engaged with both House and Senate as they work on that legislation. So I feel like we're making a lot of progress. We also are working with our fellow regulators including the CFTC. The president's working group on digital assets put out a report that covers a whole range of issues related to crypto policy. So I think that gives you a sense that there's a lot happening. And we're in a very different place than we were a year ago.

Yeah. Well, and there is a lot in that question. I first with respect to the Genius Act, I do think that that was a key piece of legislation to get done just in terms of having a framework around stable coins, which then become so important in DeFi. And I think in crypto more generally, people are going to use stable coins for a lot of different things. And so that was important to get that done. We do not have authority, as you mentioned, over stable coins. That's more of a banking regulatory issue. But when you start to talk about yield generating assets, they become securities. And so we've long had tokenized money market funds, I expect there will be continued interest in those products and those are something that people can already offer and so we expect that will continue. In terms of longer term regulation, at the SEC, we are, you know, the question of when does a crypto asset qualify as a security is one that we all know has been talked about a lot over the years. And so we're working on providing some more clarity there. I think you got a preview of some of that in a recent speech by the chairman where he laid out sort of a taxonomy for thinking about crypto assets and we really do welcome feedback. I think that's always welcome throughout this whole process. So people if they want to take a look at that speech I would love to hear reactions to it. And then we're looking at the chairman has also mentioned an innovation exemption which would allow experimentation with tokenized securities. A lot of the interest over the last year that we've been getting has been not about necessarily native crypto assets because most of those as we're finally now admitting probably are not actually within the SEC's remit. But if you take a regular security and you tokenize it, whether that's natively onchain or through some other manner, that of course will be a security. And so we're working on an innovation exemption around how those would trade and we're also looking at providing longer term rule making, a longer term rule making project that would allow us to work with people who do want to come in and register their securities offerings, their crypto asset offerings with us. And so those are some of the projects that we have going on with respect to DeFi in general. I mean I think that this is where there will be a lot of conversation. This is the source of a lot of conversation in discussions around the market structure bill that Congress is working on. And what I think is important in that discussion is to really underscore that when people engage in transactions that are peer-to-peer or peer-to-process, there is in my mind a very strong argument for saying that there's not a there there, that regulation does not reach those kinds of transactions. Right? The role of regulation has really been around centralized intermediaries. And why is that? Because centralized intermediaries, while they can be helpful in mediating transactions, they can also do things like walk away with your money. They can have conflicts that they don't tell you about. They can be careless. They might not intend to walk away with your money, but they do something careless. And so really that has been where regulation has focused. And I don't think it's wise to try to say well just because we have this new technology we want to extend regulation into transactions that would in old times not have had to go through a regulatory framework.

Yeah. Well, I think the first thing to remember is that we really at the SEC, we're really focused on the things that are within our remit. So, if you're taking something that's a security and you're tokenizing it, that certainly is within our remit. If you're taking an apartment building and you're chopping it up and selling pieces of that, that may also be within our, you know, when you're fractionalizing assets that would not otherwise be within our jurisdiction. If you fractionalize and sell it, that may be within our remit also. And so, we have to first look at that question. But when I talk about the innovation exemption, I'm really talking about a response to the efforts by people out there to take traditional securities, whether equity or debt securities, to tokenize those, and to trade those and you know, really it is an experiment. Let's see how these new blockchain rails work for these types of assets. And so the goal of an exemption like an innovation exemption is to allow people the opportunity to experiment with different approaches to tokenizing and to then work our way into a long-term regulatory framework that works for those kinds of assets. And so it is a temporary measure with the idea that people will be able to graduate into a more permanent regulatory regime. And it's just a recognition that some rules don't make sense in the same way because the technology is different. Maybe the transfer agents role is different. It's you know there are questions around how the existing rule set applies or should apply. And so that's really what we're trying to work through with people.

Well, certainly I mean there are some challenges there and I would say if you have an equity security there is an issuer. So the question is who is the issuer of the security and is the issuer of the security actually involved in the tokenization process because there are a lot of people trying different models of tokenization some of which do not involve the issuer and so then you may have another entity and you need to understand what exactly are you buying when you're buying that security and is there additional risk that's imposed because you've got another entity involved. But to your question about so say an issuer a company decides to tokenize its securities and those securities then are able to trade through DeFi and they can change hands through DeFi. I think the questions that we need to answer there, you know, how do those changes in ownership get recorded? You know, who's getting the dividends for that security when there's something to vote on, who gets to vote? So there need that's those there some tricky questions there about how that transfer actually occurs when it's recorded how it's recorded what is the official record ownership record for something you know what role does the transfer agent play versus the blockchain itself and so these are some really interesting questions that lawyers have to think about and then of course there questions around AML KYC who's going to be, you know, can a token that represents a security transfer someone who's not been subject to some AML KYC process? If so, who is the one who enforces that? Do you code it into the smart code for the token so that it can only go to someone who to an address that has been through this process. So I think there are a lot of those kinds of questions that we're working through.

Well, I mean, when a company issues a security, it either has to issue it as a registered offering, you know, either has to register the offering or it has to be subject to an exemption. And so then I mean the question becomes how you know how relevant is it in what form it is issued. And so I think that those are the kinds of questions that people are working through and thinking about is you know does it matter even if some are on blockchain some are tokenized and some are not right? Some are in paper certificates and some are not. So, it's those kinds of things that we're working through.

Well, I mean, I would recommend people come and talk to us because there are just questions about I mean, there have been people who have already companies that have already issued tokenized securities, whether those are money market funds or companies. There are companies that have already done that. But I do think it's helpful to come and talk to us if you're talking about having tokenized and non-tokenized securities trading alongside each other. How do those markets interact with one another? We have all kinds of rules that apply to so-called national market system securities, NMS securities around how those can be traded and so those are the kinds of things that I really recommend people come and talk to us about. But you know there is interest in experimenting with this. People are already doing it. And I think the goal at the end of the day for a lot of people is to have these things be interchangeable, the tokenized version and the non-tokenized version. But the mechanics of how that works really do matter.

Yeah. So the crypto task force is a temporary task force put in place by the acting chairman in the early part of this year and then you know reaffirmed by the current chairman Chairman Atkins and the goal of the task force is really to work with people across the SEC to get us to a better place on regulation. So, a lot of the work is being done by other staff across the SEC, but people on the task force are working on these issues all the time. And so, we're helping to shepherd that process. In terms of getting involved, we have, if you go to the SEC's website, sec.gov, you'll see a button that you can click for the crypto task force. And if you click on that, you'll see different ways of interacting with us, whether that is through providing written input. I put out in February a long very long list of questions. So, you're welcome to answer any or all of those questions or answer questions that I didn't ask that you think I should have asked. And then if you want to meet with the crypto task force, you can put in a meeting request. We of course want to know what you want to come in and talk to us about. And we want you to be as prepared for that conversation as possible to make it worthwhile. And then you know, you can see all of the meetings that we've had. You can see all of the written input that we've gotten. So, you can respond to information that you see on there. Now, if you're a crypto project or if you're someone who's trying to work on tokenization or trying to work on some aspect of this, what you should do is you should reach out to us and come talk to us after having thought through where you might need exemptive relief. And so that probably will involve your speaking with a lawyer and trying to understand where you might need relief. And then we're happy to have those conversations with you. We might end up inviting to that meeting people from the subject areas at the SEC who might also want to hear from you at that meeting.

And then I should also note that when I travel to different cities, I usually post that I'm going to be traveling and if people want to meet with me I'm happy to meet with people as well. I'm happy to do it as, you know, if you have a particular issue you want to talk about or if you have a local group that you'd like me to meet with, I'm always happy to do that. So, please let me know when you see those postings.

They have great people working with me. So yes, it's I don't get any credit for that except that I had a hand in selecting some of these people to be part of the work.

Yeah, I mean I am excited about some of the things that we've already put out in terms of guidance and there have been some great DePIN no action letters that have come out recently. I'm also excited about what's coming forward in terms of providing more clarity around the taxonomy of tokens so that people can really grapple in a more logical way with this question of when is a token part of an investment contract and how can we know when it's broken out of that investment contract and is now trading freely on its own. So I think that's one piece that I'm really excited to see people's feedback on. I am excited about the innovation exemption. I think it'll be an opportunity for people to try some new things. You know, it will be at the end of the day up to the market whether or not tokenization of everything happens as some people anticipate, but there are benefits that come with tokenization. And I'm really looking forward to seeing people have that chance to try for commercial viability in this area in a way that's not just a flash in the pan experiment, but it's something that can then through a regulatory framework that we put in place can last and people can really see whether there are lasting benefits of tokenizing which you know obviously I think there's some promise there but it will be up to the market to decide.

Well, you really have to look at the definitions in the securities laws and then see whether something satisfies those definitions. People may not all agree on how that works, but I think we should start from the premise that there's no right or wrong. If you want to be centralized, that's fine. We have regulations for that and so go do it. If you truly want to build something that's decentralized, if you want to just put up some code and put it out there and people can use it, then my argument would be there isn't anyone at that point. If it's open-source code, it's out there, anyone can use it. There is no one to register at that point. So, I think it's kind of a practical question. Is there actually someone who is controlling every aspect of this or is there someone who can turn the key on so that all of the money in the treasury of this protocol goes to that one person. I mean that looks kind of centralized to me. So, I think it's really the question of are we actually eliminating the person that you have to trust in order for this to work? If there is someone who you're trusting to make this work, it's not decentralized. And so I think this is a conversation that people can bring very different perspectives to. A lot of people in the regulatory world look at things and they say there can be no such thing as decentralization. There will always be someone who's in control. I come out very much on the opposite end of that. I think that if you're just writing software code, you're putting it out there, people are using it or you're giving people access to that code, but you're not custodying their assets. I would argue that looks a lot less centralized than something where you're custodying assets or you're controlling that code and you're the only one who can update it and it's not open source. So I think those are some of the factors that I'm looking at. But again, this is an area where I would love input. I would love to see how other people think about it. Because they're important conversations for us to have.

Yeah. I mean, I think that's right. And I don't know what the world will look like, and I try to say that as often as possible because I'm just one person and I'm a regulator, but I can see a world in which you have a lot of things built on public blockchains, right? The public blockchains are decentralized blockchains. They're not run by anyone. But then you have people building things on top of those and using that infrastructure to build things that are centralized and those centralized entities then can be subject to regulation in the same way that other centralized entities would.

No, I think that is a good way of explaining it. It really is up to the market to decide. I you know I don't know if everyone's conception of a new product is going to work but we see that in the traditional markets too. People try products to see whether the market likes them. Sometimes the market does, sometimes it doesn't. So, so long as like a Alex, what's the coin the crazy meme coin you always give the asic Obama enu.

So, so yeah, I mean a couple things. One is you know there are disclosure obligations, right? So, you've got to meet those disclosure obligations. And then second I would say yeah there you can go through the generic listing standards. We put that out those out because we as you all know we're getting inundated with applications for new products. And so having generic standards seem to be the way to go. If you have a product that doesn't meet those generic standards, you can still come in through the normal process. It's just not going to be as fast. And again, I caution people, I think this is a really good moment to say when you buy a product in the United States, whether it's a share of a company or you buy an ETF or an ETP, the assumption should not be, oh, the SEC has decided this is a good investment and they've signed off on it. That is not actually at all the case. All we have done is we've worked through our normal process which is really around disclosure. And then you know we have these generic standards that some of these products have met. But there's no seal of approval from the SEC. This is not us telling you it's good for anyone, let alone good for you. You've got to make those decisions for yourself. If you can't make them for yourself, go find someone professional to help you with those decisions. It is a real misconception that a lot of people have, whether it's about crypto or other products, that the SEC plays some sort of merit regulation role. We do not.

Yeah, I'm a bit of a broken record, but I think it's so important because I'm a huge believer in individual in the dignity of each individual person, right? But part of that dignity means that

You make decisions for yourself and your family, and when things go wrong, you don't go running to someone to say, 'Why didn't you stop me from making that decision?'

Yes, that we have enough of an educational framework to make a decision. An uninformed choice is obviously not really a fair thing.

Well, I mean, education is something that we could do a lot better job on in this country. People need to really be thinking about financial products and services much younger. And I think one of the advantages of all of the interest in crypto and all of the renewed retail interest in retail equity trading is that people are finding that they need to get more educated. And so maybe that will kick off a real change in this country so that we start educating people in elementary school to think about these questions.

All right. Thank you. I appreciate that. Although, I probably should also stop talking.

I think that's a really good point and I have to say that earlier today I was having a discussion with some other people and I said it's a real shame that we can't actually see how this technology works ourselves because I really need to understand what this looks like and how it works for me to figure out how to write a good regulation for it.

So I would like to see there be some way where we did let people do more experimentation who are trying to write the regs.

Uh yeah, exactly. Let's get right on that. I mean like as well, I mean people coming in and doing demos for us is probably a good thing. So that is something that, you know, why don't I just put an invitation out there for people to come show me how things work even if I can't press the buttons myself.