Original Title: "Crypto Exemption Fails to Take Effect in January! SEC Urgently 'Hits the Brakes,' Wall Street in an Uproar"
Original Author: Nancy, PANews
Tokenized assets (RWA) are sparking a wave of on-chain adoption globally. With the influx of capital and the abundance of assets, this on-chain movement has rapidly evolved from an experiment native to crypto into a new battleground for Wall Street.
While the RWA (Real-World Assets) sector is experiencing rapid development, a divergence exists between TradFi (traditional finance) and crypto. On one side, Wall Street focuses more on regulatory arbitrage and systemic risks, emphasizing stability and order. On the other hand, the crypto industry prioritizes innovation speed and decentralization, fearing that existing frameworks may hinder progress.
Months ago, the SEC announced a package of exemptions for crypto innovation and planned for them to take effect in January of this year. However, this crypto-friendly progressive policy faced strong opposition from Wall Street. Additionally, due to the legislative pace of the crypto market structure bill, the originally promised effective date will be postponed.
Faced with pressure from Wall Street, the cryptocurrency exemption may be extended.
This week, JPMorgan, Citadel, and SIFMA (Securities Industry and Financial Markets Association) held a closed-door meeting with the SEC's cryptocurrency task force. During the meeting, these Wall Street representatives clearly opposed broad regulatory exemptions for tokenized securities and advocated for the application of existing federal securities law frameworks.
The encryption exemption mechanism is a "fast track" tailored by the SEC for encrypted products such as tokenized securities and DeFi. It aims to allow these projects to temporarily avoid the cumbersome full securities registration process, enabling them to quickly launch innovative products while meeting certain investor protection requirements.
However, these financial institutions issued stern warnings against the SEC's plan to fast-track tokenized assets through regulatory shortcuts, arguing that such actions could harm the U.S. economy as a whole. They advised regulators to implement strict, comprehensive oversight rather than simply granting exemptions. Even if any exemptions for innovation were to exist, they must be narrowly tailored, based on rigorous economic analysis, and come with strict safeguards. They must never replace the development of comprehensive regulations.
They further emphasized that regulatory treatment should be based on economic characteristics rather than the technology used or category labels (e.g., DeFi), and advocated for the regulatory principle of "same business, same rules." They strongly opposed the establishment of dual regulatory standards, arguing that any broad exemptions attempting to bypass the long-standing investor protection framework would not only weaken investor safeguards but also lead to market confusion and fragmentation.
The meeting also specifically referenced the flash crash in October 2025 and the collapse of Stream Finance as cautionary examples, emphasizing that U.S. financial markets would face significant systemic risks if tokenized securities were allowed to operate outside the protections of existing securities laws.
At the same time, Wall Street also expressed concerns regarding the SEC's tendency to exclude certain DeFi projects from compliance obligations. SIFMA pointed out that many so-called DeFi protocols in fact perform core functions of brokers, trading platforms, or clearing agencies, yet exist in a regulatory vacuum. The DeFi environment presents numerous unique technical risks, including predatory trading arising from maximum extractable value (MEV), flaws in automated market maker (AMM) pricing mechanisms, and opaque conflicts of interest. However, DeFi was not the sole focus of this meeting. According to Decrypt, the main advocates of DeFi were not even aware of the meeting.
In addition, regarding wallet providers involved in tokenized asset activities, the meeting emphasized that wallets executing core brokerage operations and earning transaction-based revenues must register as brokerage dealers, while also distinguishing between non-custodial and custodial wallet models.
Ultimately, Wall Street's stance is clear: embracing innovation does not mean starting from scratch. Rather than establishing a parallel, independent regulatory system, it is better to place tokenized assets within the existing, well-established compliance framework.
The highly anticipated cryptocurrency exemption mechanism is now facing uncertainty. SEC Chair Paul Atkins has withdrawn the previously planned timeline for the cryptocurrency exemption policy, which was set to be released this month. At a recent joint meeting with the CFTC, Atkins noted that uncertainties in the progress of the cryptocurrency market structure bill could directly affect the pace of the exemption mechanism's implementation, and emphasized that decisions must be carefully considered. When asked about the specific timeline for implementation, he refused to commit to releasing the final rules even by next month.
Fully incorporate into the regulatory framework of the Securities Law, tokenized products are divided into two categories.
In addition to regulatory issues, the legal classification of tokenized securities and the applicable regulatory framework remain unclear. To address this, Paul Atkins announced in November last year a plan to establish a token taxonomy, using the Howey Test to clarify which crypto assets constitute securities, thereby defining the regulatory framework for crypto assets.
On January 28, the SEC officially released guidance on tokenized securities, aiming to complement market structure bills being advanced by U.S. legislators. This guidance provides market participants with a clearer regulatory pathway to conduct related business within a compliance framework.
The document clearly states that whether a security is subject to regulation depends on its legal characteristics and economic substance, not on whether it takes a tokenized form. Tokenization itself does not alter the scope of application of securities laws. In other words, merely tokenizing or putting an asset on a blockchain does not change the applicability of federal securities laws.
According to the SEC's definition, tokenized securities are financial instruments presented in the form of cryptographic assets, where ownership records are fully or partially maintained through a cryptographic network.
The document categorizes tokenized securities models in the market into two core categories: issuer-sponsored and third-party-sponsored, and clearly defines the regulatory requirements for each.
The first category is the direct tokenization model by the issuer: this refers to the issuer (or its agent) directly issuing and recording holder information using blockchain technology, regardless of whether the records are maintained on-chain or off-chain. Such tokenized securities must comply with the same legal obligations as traditional securities, including registration and disclosure requirements.
The second category is the third-party tokenization model, which is further divided into two types: custodial and synthetic. In the custodial model, token holders indirectly own the underlying securities through their tokens. In the synthetic model, the tokens merely track the price performance of the underlying securities without transferring any actual ownership or voting rights. Such products may constitute security-based swaps.
The document highlights the potential risks of third-party tokenization products, noting that this model could introduce additional counterparty and insolvency risks, and that some products would be subject to stricter security-based swap regulatory rules.
The SEC has also expressed that the "door is open," stating that it is ready to actively communicate with market participants regarding specific compliance pathways and assist companies in conducting innovative businesses within the framework of federal securities laws.
As the SEC implements more detailed regulations for RWA (Real-World Assets), the risk of regulatory arbitrage will be significantly reduced, paving the way for more traditional institutions to enter the market.
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