SEC's Future Regulatory Shift: Embracing Encryption and On-chain

The Great Depression of 1929 led to the establishment of the Securities Exchange Act of 1934 and the SEC. However, the SEC that followed was unable to effectively prevent financial innovations or crises from occurring. In 1998, LTCM faced severe setbacks in the Russian bond market using quantitative methods, nearly triggering a crisis similar to that of 1929. Nevertheless, the ATS regulations came into effect in 1999, allowing quantitative trading, hedging, and arbitrage to fully leverage information technology.

After the financial crisis in 2008, although regulations on dark pool trading were strengthened, dark pools still exist. By 2025, after the new chairman of the SEC takes office, there is a determination to embrace future trends—comprehensive on-chain and compliance. This means that future trading, asset allocation, and yield management will revolve around blockchain, just as natural as using a computer. At the same time, airdrops, staking, IXO, and reward programs will be redefined to create a comprehensive application with American characteristics.

The timeline for the SEC's regulatory shift is roughly as follows: the former chairman left in January, the new chairman took office in April and introduced new encryption policies, establishing a dedicated working group, and by the end of July, a comprehensive encryption project was launched. This change stems from various factors, including the need for a dignified resolution to lawsuits with multiple encryption companies, as well as requests from some large companies to ease regulations.

The approval of physical staking and redemption of Bitcoin and Ethereum ETFs is a significant step forward, but other cryptocurrencies and forms still need to be reviewed one by one. In response to this trend, relevant authorities have begun to expand their regulatory powers, and the White House has also released a report that essentially accepts the existing decentralized financial system.

The SEC faces the risk of being replaced by other agencies, so it must take proactive measures. The new regulatory framework will cover three aspects: personnel, funding, and rules, allowing businesses that originally needed to operate overseas to be conducted legally in the United States. This includes multiple areas such as the issuance of stablecoins and tokenized stocks.

In the future, blockchain technology will profoundly change the financial system, from paper certificates to electronic transactions, and then to comprehensive on-chain processes. Any asset that can be financialized has the potential to be tokenized, which will greatly reduce information asymmetry. Decentralized finance may ultimately become a new mainstream form of finance, rather than just a supplement to traditional finance.

This transition may become a necessary path for asset innovation, but it could also serve as a booster for financial bubbles. The SEC's new policy can be seen as a milestone moment for decentralized finance, but its specific implementation effects and level of acceptance remain to be seen. In the future, the boundaries between digital goods and digital securities may become blurred, and relevant regulatory agencies may need to integrate.