SEC Roundtable: Successes, Failures, and Next Steps

Original Title: SEC Roundtable: Hits, Misses and What's Next

Article Authors: Prathik Desai, Nameet Potnis, Thejaswini M A

Article Translation: Block Unicorn

Last Friday, the U.S. Securities and Exchange Commission (SEC) took the first step towards easing tensions with the cryptocurrency industry, but fell short of providing all the answers the industry was hoping for.

After years of a "enforcement-first" approach, the securities regulator convened a high-profile industry roundtable meeting for the first time, dubbed the "Spring Sprint Towards Cryptocurrency Clarity."

Despite the hopeful title, attendees at the two-hour meeting spent a significant amount of time debating the decades-old "Howey Test" standard rather than a clearly laid out regulatory path.

The meeting did yield some results — but was it enough? This article will explore the significance of this regulatory shift for the crypto industry:

· How the SEC acknowledged past failures but still struggles to define a future direction

· What the proposed DART tracking system means for transparency

· Why NFTs could be the next area to receive regulatory guidance

· What key industry needs were missing from the discussion

New Leadership, New Regulatory Approach

The SEC's regulatory style has seen a stark contrast between the end of the Trump administration and the beginning of the Biden administration. Former Chairman Gary Gensler had asserted that most cryptocurrencies are securities and used enforcement as a primary tool, while Acting Chairman Mark Uyeda and Commissioner Hester Peirce acknowledged the need for collaboration to reset the regulatory framework at the start of the meeting.

"I think we are prepared for the sprint ahead," Peirce told attendees, referring to the task force's ambitious "Spring Sprint Towards Cryptocurrency Clarity" plan.

"Can we articulate the characteristics of a security in a way that captures the variety of crypto assets that currently exist and may exist in the future?" This is one of the questions Peirce posed in addressing the dilemma of treating cryptocurrency as a security.

This public dialogue invitation marks a shift in the SEC's stance.

The roundtable invited over a dozen securities lawyers and cryptocurrency experts, including prominent figures on the supportive side such as Miles Jennings, A16z's Director of Crypto Policy and Legal Counsel, as well as critics like former SEC lawyer John Reed Stark.

Most notably, the SEC openly acknowledged that its previous approach had failed.

Miles Jennings, A16z's Director of Crypto Policy and Legal Counsel, was candid. "The prior administration's regulatory approach to the industry failed to serve any of the SEC's goals - neither protecting investors nor fostering capital formation or market efficiency. Therefore, the current approach is clearly a failure, and we need to improve." What was even more surprising is that the SEC seemed to agree with this view.

Old Issues, Limited Progress

Despite the new faces and a friendly atmosphere among participants, the roundtable quickly got embroiled in a familiar debate: How to determine the securities nature using the 1946 Howey Test?

Throughout almost the entire discussion, participants debated how this nearly 80-year-old orange grove framework applied to tokens, decentralized exchanges, and other crypto innovations.

For an industry looking to break free from the past, this focus on improving old tools rather than building new ones left many disappointed.

"Crypto optimists (advocates) believe that relying on existing law and the never-ending Howey test rulings is not a viable regulatory framework," said crypto lawyer Bill Hughes in an article on X.

The industry hoped for a fresh start - defining what is a security and what is not a security - rather than endlessly applying outdated precedents.

The tension played out in real time, with some participants attempting to steer the conversation towards a more forward-looking approach. Rodrigo Seira, Special Counsel at Cooley LLP, questioned the fundamental premise that investment intent automatically turns a transaction into a security. "I think we must understand that just because there is an investment intent behind a purchase, it does not mean the transaction automatically becomes a security," Seira said, using the example of purchasing art with both aesthetic and investment value. While the conversation remained focused on the definition of securities, subtle hints of more practical progress emerged on the event's fringes.

Commissioner Peirce told reporters off the record that following her recent comments on meme coins and proof-of-work mining, non-fungible tokens (NFTs) could be the next category to receive SEC guidance. Peirce said, "I think we will see, in the NFT space as well, some guidance that helps people think through when things are securities and when they are not."

This offhand remark has significant implications for projects like Stoner Cats and Flyfish Club, which have faced SEC lawsuits in the past for using NFT sales to fund their ventures. Formal clarity could open doors for creators to use NFTs as a legitimate fundraising tool without having to go through securities registration.

DART System: The Quiet Revolution of Transparency

Aside from specific outcomes of the roundtable, there was something else that stood out — a parallel development that could fundamentally reshape reporting in crypto transactions.

The U.S. Securities and Exchange Commission's recently announced Digital Asset Reporting and Tracking System (DART) will change the way regulatory bodies monitor the crypto market. Unlike the philosophical debate around the Howey Test, DART represents a practical approach to addressing a core issue at the SEC: transparency.

The proposed system will not only track transactions on public blockchains but also monitor private off-chain transactions, providing a comprehensive view of cross-platform digital asset ownership. This tackles a longstanding regulatory blind spot — while transactions on DeFi protocols are publicly visible on-chain, centralized exchanges often settle trades internally without recording them on the blockchain.

The SEC statement reads, "Digital asset securities transactions — whether on-chain or off-chain — should be subject to the same transaction reporting requirements as traditional securities transactions."

What makes DART particularly significant is that it was developed in collaboration with the U.S. Commodity Futures Trading Commission (CFTC) — a stark contrast to the roundtable meeting, where despite both the CFTC and DART sharing jurisdiction over digital assets, there was no representation from the CFTC.

This interagency collaboration model suggests that behind the façade of public debates, regulatory bodies are quietly advancing towards a more unified regulatory framework. For an industry long plagued by regulatory fragmentation, this pragmatic collaboration may ultimately achieve regulatory synergies that roundtable discussions and public speeches cannot.

However, the DART system has also raised serious privacy concerns. By concurrently capturing public blockchain data and private off-chain transaction activity, the system grants regulators unprecedented monitoring capabilities over the cryptocurrency market. For traders who value the anonymity of blockchain transactions, this heightened surveillance signals a significant shift in cryptocurrency oversight towards traditional financial monitoring norms.

Industry observers are closely watching how the DART system will balance transparency goals with privacy protection needs — and whether this system will spur a new wave of privacy protection technology innovation.

Final Thoughts

Four days after the roundtable meeting concluded, the industry began to question whether this would pave the way for a new era of crypto regulation or just redefine the same old challenges.

The SEC's Crypto 2.0 plan led by Commissioner Pierce has set a new tone. Staff statements on meme coins and mining, upcoming potential NFT guidance, and the agency's willingness to engage directly with the industry all indicate a tangible shift in approach.

The timing is particularly crucial — the U.S. Congress is advancing legislation similar to last year's "FIT21 Act," which would establish a new framework for classifying digital assets. Renowned lawyer Renato Mariotti pointed out, "The missed opportunity of Friday's roundtable failed to influence this legislative process by nurturing innovative ideas with long-term regulatory value."

While Commissioner Pierce's "Spring Sprint" plan signals a shift in regulatory thinking from an "enforcement-first" approach to a more open stance, Friday's discussion remained stuck in decades-old frameworks rather than building a regulatory system fit for the new era.

Given institutional constraints, the emergence of such a compromise was not surprising.

With the SEC currently operating with only three commissioners and awaiting Paul Atkins' confirmation hearing this Thursday, the SEC lacks both the statutory authority to drive comprehensive reform and the corresponding mechanisms for enforcement. At this stage, it can only implement limited regulatory actions through non-binding staff statements on meme coins and mining activities.

While the proposed DART system represents the most substantive progress — aiming to establish unprecedented transparency mechanisms in the cryptocurrency market through collaboration with the CFTC — its essence is still to apply the traditional financial regulatory paradigm to emerging financial formats.

The most fatal flaw in the current regulatory system is its response time. Blockchain innovation iterates at the speed of code deployment, while the SEC's decisions are hampered by the slow process of committee consensus. This widening "regulatory innovation deficit" has become the industry's unspoken core contradiction.

Cryptocurrency companies navigating through the regulatory fog should recognize their strategic direction: true change momentum comes from congressional legislation, not roundtable discussions. Rather than endlessly debating how the "Howey Test" applies to digital assets, the "FIT21 Act" clearly offers a more constructive regulatory framework.

The so-called "Spring Sprint" at the moment feels more like a cautious stroll — better than standing still, but ultimately hard to catch up to the full-speed industry train.

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