The United States' Leadership in the Digital Finance Revolution

Good afternoon. Thank you for inviting me to attend this meeting. I am pleased to gather with you all, especially at this critical moment when the United States is demonstrating leadership in the cryptocurrency market. Before sharing some thoughts, I want to thank the organizers for convening this timely discussion. Additionally, I must state that the views I express here today are solely my own and do not necessarily reflect the position of the SEC or other commissioners.

Today, I would like to talk about what we call the "crypto agenda," which will become the North Star in the SEC's historic effort to help make the United States the "global crypto hub." But before discussing our plans regarding the dominance of the crypto market, I would like to review some turning points in the history of capital market development, as they are quite similar to the juncture we are at now, and the future we shape should be worthy of the legacy we inherit.

From Wutong Tree to Blockchain: The Evolution of Capital Markets

The wind of innovation has always swept through our capital markets, sometimes even like a hurricane. In 1792, it stirred the branches and leaves of a sycamore tree - under its shade, more than twenty stockbrokers gathered to sign an agreement, founding the predecessor of the New York Stock Exchange. That handwritten agreement on parchment, consisting of less than a hundred words, opened up an elegant system that has dominated the order of capital flows for generations.

For centuries, our markets have never stood still. They expand, evolve, and reshape with contemporary ideas and technologies. The vibrancy of the market is due to human participation. The market directs human creativity towards society's most pressing problems and rewards those who develop the most valuable and popular solutions through incentive mechanisms. This is precisely the mechanism of the "invisible hand" described by Adam Smith: even as people pursue their own interests, the market can guide them towards serving the public good.

The responsibility of the SEC is to protect a market that allows human creativity and skills to benefit society. Throughout its history, the SEC has both promoted innovation and, regrettably, stifled it. Fortunately, the forces of progress will ultimately prevail. When our regulatory posture can embrace innovation with prudence instead of fear, America's leadership will always rise to a higher level.

1960s - At that time, I had not yet gotten involved - Wall Street was in a bull market, but the behind-the-scenes market operations were often tight. Most clearing and settlement transactions still relied on expensive and cumbersome processes. Paper stock certificates piled up and had to be transported by staff using carts, shuttling back and forth between Wall Street and financial centers across the United States.

This paper-based clearing and settlement system was designed for a more gentle era and is clearly unable to bear the sharply increasing trading volume. Delays in handling by a certain company can drag down the entire chain; instances of securities being lost or stolen occur frequently; the rate of transaction failures has risen significantly; some capital-weak brokerages even face bankruptcy due to trading interruptions. In desperation, trading hours have been shortened, and exchanges even halt trading every Wednesday just to give companies time to deal with the mountain of paper certificates.

The then-chairman of the SEC described this systemic collapse as "the most serious and prolonged crisis in the securities industry in 40 years... company bankruptcies and a sharp decline in investor confidence." It is commendable that the SEC responded actively at that time, promoting market participants to establish what we now know as the American Depository Trust and Clearing Corporation ( DTCC ), which fundamentally changed the way securities are held and traded.

From now on, paper certificates are no longer needed to circulate between clients and brokers, or between brokers. Securities ownership begins to be recorded in an electronic ledger. The certificates themselves are "frozen" and securely stored in a vault, while ownership is transferred through a computer system, laying the foundation for today's clearing and settlement systems.

In the late 1990s, electronic trading systems became popular, shaking many of the assumptions of traditional market structures. At that time, SEC Chairman Arthur Levitt also believed that the SEC had a responsibility to provide regulatory flexibility for innovations in electronic markets. Thus, the Alternative Trading System Rule, introduced in 1999, allowed these systems to be regulated as broker-dealers, rather than traditional exchanges.

This brings us to today - a moment that requires American ambition, a project that can unleash that ambition.

Our regulatory framework should not be locked in the simulation era, refusing to explore new frontiers. After all, the future is accelerating towards us, and the world will not wait for us. The United States cannot just catch up with the pace of the digital asset revolution; we must lead it.

Pioneering the Future: America's Leadership in the Financial Golden Age

Today, I want to announce to the world that under my leadership, the SEC will not stand by and watch innovation thrive overseas while our own capital markets stagnate. To achieve the vision of making the United States the global crypto capital, the SEC must consider the potential benefits and risks of moving our markets from off-chain to on-chain as a whole.

We are standing at a new threshold in the history of the capital markets. As I mentioned earlier, today I officially announce the launch of the "Crypto Initiative", a comprehensive initiative across the SEC aimed at modernizing securities regulation to enable the full migration of the U.S. financial markets onto the blockchain.

Not long ago, Congress passed the "GENIUS Act," establishing a golden regulatory standard for stablecoins in the global payments sector. Since then, some have publicly supported Congress passing legislation on crypto market structure within the year. I appreciate the bipartisan support demonstrated by the House in this process and look forward to the Senate further improving the relevant laws on this basis, to establish a system structure that resists regulatory overreach and solidifies the United States' dominant position in the global crypto industry.

Yesterday, the President's Working Group on Financial Markets released the "PWG Report," providing clear recommendations for the SEC and other federal agencies aimed at establishing a framework to maintain the United States' leadership in the digital asset market. This report serves as a blueprint intended to ensure that the U.S. remains at the forefront of blockchain and cryptocurrency technology. As someone said last week, he hopes "the whole world runs on the infrastructure of American technology." I am ready to help achieve this goal.

Therefore, I initiated the crypto plan and instructed the SEC's policy department to work closely with the crypto task force to quickly develop a plan to implement the recommendations of the PWG report. The crypto plan will ensure that the United States continues to be the most conducive country for entrepreneurship, developing cutting-edge technology, and participating in capital markets. We will bring back the crypto companies that fled the United States due to the previous administration's "enforcement over regulation" policy and "Operation Chokepoint 2.0(". Whether established companies or newcomers, the SEC welcomes market participants eager to innovate.

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Bringing Crypto Assets Back to the U.S.: A New Era for the SEC

The crypto plan will encompass a series of initiatives within the SEC.

First, we will be committed to bringing the issuance of crypto assets back to the United States. Those complex offshore corporate structures, pseudo-decentralized performances, and the confusion over whether crypto assets are considered securities will become a thing of the past. Some have already indicated that the United States is in its "golden age" - and under our new agenda, the crypto asset economy will also enter a golden age.

According to the recommendations of the "PWG Report", one of my primary tasks is to establish a regulatory framework suitable for the issuance of crypto assets in the United States as soon as possible. Capital formation is at the core of the SEC's mission, but for a long time, the SEC has ignored the market's demand for choice and has suppressed financing models based on crypto. This has led the crypto market to gradually move away from asset issuance, depriving American investors of the opportunity to participate in productive economic activities through this technology. The SEC's long-standing avoidance of crypto assets, taking a "shoot first, ask questions later" approach, should become history.

Despite the SEC's past stance of viewing most crypto assets as securities, in reality, most crypto assets are not securities. However, due to the ambiguous applicability of the "Howey Test," some innovators, to be on the safe side, treat all crypto assets as securities. Entrepreneurs in the United States are leveraging blockchain technology to modernize various traditional systems and tools. For example, Bernie Moreno, the current U.S. senator from Ohio and former entrepreneur, founded a company before his campaign that put automobile title deeds on the blockchain. He recognized the efficiency issues in title transfers and proposed practical solutions using blockchain technology.

These entrepreneurs need, and should have, a clear set of criteria to help them determine whether their business is subject to securities laws. I have instructed the committee staff to develop clear guidelines to assist market participants in determining whether a cryptocurrency asset is classified as a security or constitutes an investment contract. Our goal is to help them classify cryptocurrency assets according to these clear standards, such as digital collectibles, digital goods, or stablecoins, and assess the economic substance of their transactions. Through these classifications, market participants can determine whether the issuer has ongoing commitments or obligations, and thus assess whether the asset constitutes an investment contract.

Moreover, being classified as a security should not be the original sin of development. We need a regulatory framework that adapts to crypto securities, allowing these products to thrive in the U.S. market. Many issuers will be inclined to take advantage of the design flexibility offered by securities laws, and investors will benefit from attributes of securities such as dividends and voting rights. Project teams should not be forced to establish a DAO, create offshore foundations, or decentralize too early in non-ideal stages. I am excited about the new applications of crypto securities in business, such as participating in blockchain consensus mechanisms through tokenized stocks.

Therefore, for those cryptocurrency transactions that indeed fall under the scope of securities law, I have asked staff to propose specific disclosure regulations, exemptions, and a "safe harbor" system, including for so-called "Initial Coin Offerings )ICO(", "airdrops", and network reward programs. Our goal is to ensure that issuers no longer exclude U.S. users due to legal risks, but instead choose to include U.S. users in their issuance plans to enjoy legal certainty and a friendly regulatory environment. I believe that as long as we stick to this direction, it is possible to usher in an innovative Cambrian explosion.

In addition, many companies wish to "tokenize" securities such as common stocks, bonds, partnership equity, or to tokenize securities issued by others. Due to regulatory barriers in the United States, this type of innovation mostly occurs overseas. At the same time, our policy department has also received many applications - from well-known companies on Wall Street to unicorn companies in Silicon Valley - all hoping to obtain approval to distribute security tokens within the United States. I have asked the committee to work with these companies to provide regulatory exemptions where appropriate, ensuring that the U.S. is not left behind in crypto innovation.

Enhance Freedom: Provide Diverse Custody and Trading Venue Options

Second, to achieve the President's goals, the SEC must ensure that market participants have the maximum freedom in choosing custodians and trading platforms. As I have pointed out, the right to own and self-manage private property is one of the core values of the United States. I firmly believe that individuals have the right to use self-custody wallets to hold their crypto assets and participate in on-chain activities such as staking. However, some investors will still choose to entrust their assets to SEC-registered intermediaries, such as brokers or investment advisors, which are subject to additional regulatory requirements when providing custodial services.

During my term, implementing the recommendations of the "PWG Report" regarding the "modernization of SEC custody obligations for registered broker-dealers" will be a priority. The previous administration's initiatives, such as the "special purpose broker-dealer framework," the SAB 121 document, and the "Channeling Action 2.0," have resulted in a market with almost no compliant cryptocurrency custody service providers. The existing custody regulations do not consider the characteristics of cryptocurrency assets. I have instructed staff to explore how to adapt the current system, including providing exemptions or modifying rules when necessary, to promote the development of cryptocurrency custody services.

The "PWG Report" also recommends that market participants be allowed to engage in multiple lines of business under the most effective licensing structure. We cannot force them.