Lynn Johannson, Advisor, Sustainability and ESG
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Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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SEC Commissioner Peirce Consults on Crypto Regulations
Crypto Regulations | March 3, 2025
Image: Freepik/wirestock
A Rare Opportunity for the Crypto Industry to Shape Future Regulation
SEC Commissioner Hester Peirce is inviting the public to provide input on the future of crypto regulation. She's launched a consultation to gather insights on how digital assets should be classified, traded, and overseen. This consultation presents a rare opportunity for industry participants, investors, and policymakers to directly influence the regulatory framework governing digital assets. The results could have profound implications on how tokens are issued, traded, and managed in the U.S. and around the globe.
See: Trump’s U.S. Crypto Reserve Sparks Market Surge, Debate
Until now crypto regulation in America has been a patchwork of unclear policies, aggressive enforcement, and courtroom battles. The industry has long argued that the U.S. lacks a clear framework for digital assets, pushing innovation offshore. Peirce’s invitation opens the door. Regulators are asking for help and the crypto industry should answer.
Key Issues in the Consultation Scope
1. Crypto Asset Taxonomy
The SEC wants to create a transparent and clear system for categorizing crypto assets, defining what qualifies as a security, a tokenized security, an investment contract asset, or something else entirely. Right now, many crypto assets exist in a regulatory gray area which has led to legal uncertainty and enforcement actions. For example, stablecoins are widely used for payments and trading but regulators are still debating whether they should be qlassified as securities, commodities, or a new category altogether. A structured classification system could provide the much needed clarity for businesses and investors, reducing risks and uncertainty.
2. Public Offerings and Registration Challenges
The SEC is looking at whether existing securities laws are suitable for crypto offerings or if new set of registration rules are needed. Current regulations were designed for traditional stocks and bonds, which operate differently from decentralized crypto projects.
See: SEC Policy Reversals and Crypto Case Dismissals
Many blockchain startups struggle to fit into outdated frameworks, leading to legal uncertainty and high compliance costs. A more practical and transparent registration process would help businesses raise funds legally while ensuring investors receive the right level of protection.
3. Safe Harbour for Blockchain Development
One of Peirce’s earlier proposals called ‘Rule 195’ suggested giving blockchain projects a grace period to develop before facing full securities regulations. This is/was meant to address the uncertainty around when a token transforms from being a security to a decentralized asset. For example, Ethereum initially launched through a sale but was later recognized as decentralized. Without clear guidelines many projects face enforcement risks simply for trying to build innovative networks. A well designed and intentioned safe harbour could provide legal breathing room for legitimate projects to grow.
4. Trading and Secondary Markets
The SEC is examining whether crypto exchanges should have their own regulatory category instead of being forced into existing stock exchange rules. Crypto trading platforms operate differently, often using automated market makers and decentralized networks rather than traditional dealer-broker arrangements and structures. Applying outdated regulations could stifle innovation or push trading platforms offshore. A regulatory framework that acknowledges these differences could foster safer, more efficient crypto markets while still addressing fraud and investor protection concerns.
5. Custody Rules for Crypto Assets
The SEC is reviewing how investment firms, brokers, and custodians should handle crypto assets securely. Unlike traditional securities, crypto assets can be self-custodied or held on platforms that may not meet the same regulatory standards as banks. High profile failures like FTX have already exposed the risks in unregulated custody practices, making it clear that rules are a priority. Institutional investors need certainty about how to hold and protect digital assets without violating SEC regulations.
6. Crypto Lending and Staking
The SEC is questioning whether crypto lending and staking services should be classified as securities. Many platforms allow users to earn rewards for locking up tokens or lending them out but the legal status of these services is unclear. Some regulators argue that certain staking rewards resemble unregistered securities offerings, which should lead to enforcement actions, however a clear stance on how these services should be regulated would prevent legal uncertainty and ensure fair treatment for both businesses and investors.
7. Tokenized Securities and Settlement
The SEC is evaluating how blockchain-based assets like tokenized stocks and bonds should be regulated. Traditional securities are settled through clearinghouses in one or two days (T+1 or T+2) but blockchain technology allows for almost instant settlement.
See: Insights from the Tokenization Report Act of 2024 Hearing
This makes financial markets more efficient and reduces costs but current regulations don’t account for these innovative developments. If policymakers can create securities rules to accommodate tokenized assets, it would lead to a more modern financial system.
8. Regulatory Sandbox for Innovation
The SEC is considering a regulatory sandbox, which would allow crypto projects to operate in a controlled environment with regulatory oversight before launching fully. Other countries, such as the UK, Singapore and Canada already have sandboxes, to varying degrees of success, to encourage financial technology innovation. A U.S. regulatory sandbox could give blockchain startups a legal framework to test compliance measures while reducing regulatory risk. This approach would lead to better rules that support both innovation and consumer protection.
What This Means for Canada
Although this consultation is happening in the U.S., its impact will be felt here in Canada and around the globe. Canadian regulators are sure to be paying close attention to how the SEC approaches crypto, and any major changes in U.S. policy could influence Canada’s own regulatory direction. For Canadian fintech companies, this is a chance to push for clearer rules that align across borders rather than having a confusing mix of multiple regulations that companies need to comply with, slowing down innovation while increasing costs.
Outlook
Peirce’s request for input opens the door for stakeholders to use their experience and expertise to present viable modern solutions. If the industry doesn’t engage, policymakers may proceed with restrictive measures that fail to address crypto’s many unique characteristics. Industry leaders, fintech startups, and investors should not sit on the sidelines. The best way to counter regulatory uncertainty is to be part of the new rule making process. The SEC is listening and now is the time to speak up!
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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