Interpretation of the remarks by the Chairman of the U.S. SEC on on-chain issuance, custody, and trading.

Rules should be clearly written and not rely on law enforcement to intimidate people.

Written by: Liu Honglin, Shao Jiadian

In the past two years, if you say that the US SEC has a good relationship with the crypto industry, it’s basically equivalent to saying that a tiger believes in Buddhism and loves to be vegetarian. Most of the time, the SEC's attitude is either "don't do it for now" or "if you dare to do it, I dare to sue you." But now the tone seems to have changed a bit.

On May 12, Paul S. Atkins, the chairman of the U.S. Securities and Exchange Commission (SEC), delivered a content-dense speech at the "Cryptocurrency Asset Roundtable". At first glance, it seemed like an industry exchange, but in reality, it was a systematic reflection on the SEC's cryptocurrency regulatory model over the past few years. More importantly, he spent nearly an hour re-explaining the regulatory logic of "on-chain securities".

If I were to sum up the tone of his speech in one sentence, it would be: rules should be clearly written and should not rely on enforcement to intimidate.

This is the first time the SEC has clearly proposed to establish a "dedicated regulatory framework" for the issuance, custody, and trading of crypto assets in recent years, acknowledging that current rules do not apply to on-chain assets. This is a signal that cannot be ignored for the entire Web3 industry.

Issuance: It's not "not allowed to issue", it's "you can't fill out this form"

In recent years, the SEC's strategy regarding Token issuance has been almost "default illegal," yet it does not provide a legal pathway. Most projects must be prepared for litigation if they dare to engage with American investors. Even if you want to be compliant and follow the S-1 or Reg A registration route, you often find yourself stuck because the forms themselves are not applicable.

S-1 is the standard registration document filed by U.S. companies during an IPO, requiring detailed disclosures of executive compensation, use of funds, corporate governance structure, and other information; Reg A (Regulation A) is a lightweight registration exemption mechanism designed for small and medium-sized issuers. However, for most Web3 projects, both of these tools seem too cumbersome or even incompatible, as Token projects often lack a traditional corporate structure, the use of funds is often executed automatically on-chain, and many core contents cannot be "pre-written".

Atkins, the chairman, was very straightforward this time: the current disclosure requirements for securities issuance should not be forcibly applied to blockchain assets. "Square pegs should not be forcibly driven into round holes," he said directly in his speech. He proposed to promote registration exemptions, disclosure templates, and safe harbor provisions specifically applicable to crypto assets, exploring more realistic regulatory paths.

He also specifically pointed out the SEC's past "ostrich management": at first pretending not to see it, hoping the industry would self-destruct, then diving into enforcement, using individual cases to create deterrence, but never establishing unified rules. Now he has made it clear—rules must be passed by the committee, no longer relying on "improvised enforcement."

Custody: Technology is not the problem, the issue is that the system is hindering the technology.

The custody issue of crypto assets has essentially been a question of "who will manage them" in recent years. Traditional financial institutions have been deterred by SAB 121, while self-custody lacks legal status. As a result, many funds and institutions wanting to participate in on-chain asset allocation are ultimately stuck at the custody stage.

SAB 121 is an accounting announcement issued by SEC staff in 2022, requiring companies to include customer crypto assets held in custody on their own balance sheets, leading to a sharp increase in regulatory risks. Its original intention was to protect user assets, but the actual effect was that most banks and brokerages withdrew from the crypto custody market.

Now SAB 121 has been revoked, and this time the chairman also clearly stated that the document is "illegal, unapproved, and has a serious impact." But more importantly, he began to discuss how to fix it next.

He pointed out that as long as the security is sufficient, technical capabilities can replace traditional custody qualifications. Under certain prerequisites, self-custody can also be a compliant option. This actually opens up compliance possibilities for DeFi platforms, wallet providers, and even on-chain asset management projects.

In addition, he criticized the failure in the design of the "Special Purpose Broker-Dealer" system, which has only approved two firms and has not performed well. He implied that this mechanism needs to be restructured, meaning that the compliance pathways for custody and trading may be integrated again in the future, lowering the barriers.

Trading: From "Trading is Subject to Law" to "Limited Exemption Pilot"

The SEC has maintained a strong regulatory stance on on-chain asset trading for a long time, especially regarding the hurdle of "whether it qualifies as a security," causing most token projects to fall into a deadlock of "not landing, not complying, and not daring to go online."

In this speech, Chairman Atkins's statement was clearly a loosening of regulations. He proposed to allow ATS (Alternative Trading Systems) platforms to support mixed trading of securities and non-securities.

ATS is a classification of securities trading platforms under the U.S. regulatory system, which can be understood as "alternative trading systems." Many digital asset platforms have attempted to register as ATS to provide compliant trading capabilities. However, the ATS system has not yet made a clear definition regarding crypto assets, leading most platforms to hesitate.

The chairman also emphasized the necessity of the "exemption mechanism." In other words, if a project cannot temporarily meet all compliance requirements due to technological innovation or special structure, the SEC may provide a testing space under certain conditions. This is not a free-for-all, but a conditional, supervised, and trial-and-error compliance pathway.

Industry Impact: Regulatory boundaries are no longer a guess, compliance space is beginning to emerge

The greatest significance of this speech lies in the fact that it is not a case explanation for a particular project, nor is it a personal opinion of a committee member, but rather the first complete articulation of the logic that should govern the regulation of crypto assets by the SEC chairman under the authority of the committee.

The policy background behind this is also very clear: the Trump administration hopes for the United States to become the "global crypto capital," while the SEC, as the core financial regulatory body, can no longer pretend that crypto assets are a peripheral business.

In the coming years, on-chain securities, stablecoins, RWAs, and token payment platforms may become pilot areas under the new SEC rules. Entrepreneurs and project teams must also shift from the previous "circumventing regulation" model to a state of "designing endogenous compliance."

Advice for Web3 Lawyers: It's not "can do" but "can do it legally"

From a practical perspective, we would suggest:

First, pay attention to the structural adjustments of issuance paths such as S-1 and Reg A. If the SEC promotes exclusive disclosure rules for cryptocurrencies, project parties can reasonably choose registration exemption methods, instead of having to start issuing coins from outside the United States each time to avoid compliance.

Secondly, pay attention to the preparation of custody compliance. Whether it is an on-chain wallet, a self-custody system, or reliance on third-party service providers, it is necessary to quickly evaluate their compliance boundaries under the new rules.

Third, pay attention to the policy adjustments of ATS and related trading platforms. If you are working on an exchange or a matching product project, this may be a window period for redesigning the structure.

Fourth, carefully assess whether the project is suitable for the "conditional exemption" mechanism. Some early projects may not be suitable for full registration, but can obtain a pathway through regulatory exemptions. This is a compliance route, not a gray area.

This speech does not announce that the cryptocurrency industry "is allowed to proceed," but rather provides a way to discuss how to proceed.

If you are a Web3 entrepreneur considering launching a US Token project, structuring RWA products, or exploring compliant trading channels, we invite you to communicate with our team. Mankun Law Firm has long focused on the alignment of crypto regulations between China and the US, assisting projects in designing the path from 0 to 1 within the legal framework.