1/ Today we’re publishing Crypto and the Evolution of the Capital Markets. Skeptics like to say crypto is a solution in search of a problem, but in reality, it’s an answer to a decades-old one that the traditional securities markets still haven’t fixed: the lack of a more direct, efficient, and trustless system for owning and trading assets. Blockchain and tokenization represent a natural evolution of the capital markets, the same way the move away from paper stock certificates did, half a century ago. 2/ Our piece traces this evolution, taking us back to the collapse of Wall Street under the weight of paper stock certificates in the 1960s, to Congress and the SEC's response: a deeply intermediated, highly regulated market structure built for a pre-digital world. Half a century later, that legacy infrastructure still largely defines how our capital markets operate.

papers.ssrn.com/sol3/papers.cf…

To the @SECGov staff who know that crypto assets and services, by their very nature, can’t comply w/ existing securities regs, but feel they have no choice but to bring enforcement actions under existing law: there is a better way. In the ‘90s, Congress gave the SEC broad authority to exempt entire classes of securities from the federal securities laws. And the SEC has used it. In 2004, asset-backed securities – securities backed by things like mortgages – were new, but had quickly grown to a $416B market.

By trying to regulate both cefi and defi all at once, we’ve delayed some of the most necessary and obvious cefi regulations that COULD have and SHOULD have easily passed by now, and would have prevented or mitigated some of the blowups that have occurred this year. Some examples: In tradfi there’s the “Customer Protection Rule” which requires broker-dealers to safeguard customer cash and securities, and maintain physical possession or control of customers’ fully paid and excess margin securities, free of any liens or interest to a third party.

Back in 2017 when I started working on crypto @SECgov, we saw mostly ICOs that looked like IPOs: teams selling tokens to the public to raise money to build protocols or apps that didn’t exist yet, w/ little to no disclosures so the public could know what they were getting into. While some argue these were never “investment contracts,” what’s undeniable now is how far crypto has come: it's a diverse and vibrant ecosystem of actively used protocols, layers, apps, & DAOs, and tokens can have different purposes, utility & functionality. A token can be: