The United States' Leadership in the Digital Financial Revolution

Good afternoon, everyone. Before sharing some thoughts, I want to thank the organizers for convening this timely discussion. The views I express today are my own and do not necessarily represent the position of the SEC or any other commissioners.

Today, I want to talk about what we call the "crypto plan," which will serve as a guide for the SEC in its historic effort to help make the U.S. the "global crypto capital." But before discussing our plans regarding the dominance of the crypto market, I want to first review some turning points in the history of capital market development, as they are quite similar to the juncture we find ourselves in now, and the future we shape should be worthy of the legacy we inherit.

From Sycamore Trees to Blockchain: The Evolution of Capital Markets

The winds of innovation have 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, signed an agreement, and founded the predecessor of the New York Stock Exchange. That handwritten agreement on parchment, less than a hundred words, opened up an elegant system that has dominated the order of capital flow for generations.

For centuries, our markets have never stagnated. They expand, evolve, and reshape with contemporary ideas and technologies. The vibrancy of the market is due to human participation. Markets direct human creativity towards society's most challenging problems and reward those who develop the most valuable and popular solutions through incentive mechanisms. This is precisely the mechanism of Adam Smith's "invisible hand": even when 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 skill to benefit society. Throughout its history, the SEC has both fostered innovation and, regrettably, stifled it. Fortunately, the forces of progress will ultimately prevail. When our regulatory posture can embrace innovation with caution rather than fear, America's leadership will always rise to a higher level.

In the 1960s, 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. Piles of paper stock certificates had to be transported by staff using carts, making trips 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 struggling to handle the rapidly growing transaction volume. Delays in one company can drag down the entire chain; cases of lost or stolen securities are frequent; transaction failures have significantly increased; 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 process the mountain of paper certificates.

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

From then on, there was no need for paper certificates to circulate between customers and brokers, or between brokers. Securities ownership began to be recorded in an electronic ledger. The certificates themselves were "frozen" and securely stored in a vault, while ownership was transferred through computer systems, laying the groundwork for today's clearing and settlement systems.

By the late 1990s, electronic trading systems became popular, shaking many assumptions of traditional market structures. The then-chairman of the SEC also believed that the SEC had a responsibility to provide regulatory flexibility for innovations in electronic markets. Therefore, the Alternative Trading System Rule (Reg ATS) launched 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 fixed in the analog 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 merely catch up with the pace of the digital asset revolution; we must lead it.

Pioneering the Future: America's Leadership in the Financial Gold Era

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 realize the vision of making the U.S. a global crypto capital, the SEC must consider the potential benefits and risks of moving our market 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," which is a comprehensive initiative covering the entire SEC aimed at modernizing securities regulations to enable a full transition of the U.S. financial markets onto the blockchain.

Just a few weeks ago, a new bill established a gold regulatory standard for stablecoins in the global payment sector. After its signing, there was public support for Congress to pass legislation on crypto market structure within the year. I appreciate the bipartisan support demonstrated by the House of Representatives in this process and look forward to the Senate further refining the relevant laws on this basis, establishing a structural framework to guard against regulatory overreach and consolidating 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 crypto asset market. This report serves as a blueprint designed to ensure that the United States remains at the forefront of blockchain and cryptocurrency technology.

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 suitable country in the world for entrepreneurship, developing cutting-edge technology, and participating in capital markets. We will bring back crypto companies that had left the U.S. due to the previous administration's "enforcement instead of regulation" policy and "second version channeling action." Whether they are established companies or newcomers, the SEC welcomes market participants eager for innovation.

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

The cryptocurrency plan will cover 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 company structures, pseudo-decentralized performances, and the confusion over whether crypto assets are considered securities will become a thing of the past.

According to the recommendations of the "PWG Report", one of my top priorities is to establish a regulatory framework for crypto asset issuance in the United States as soon as possible. Capital formation is one of the core missions of the SEC, but for a long time, the SEC has ignored the market's demand for choice and has suppressed crypto-based financing models. This has led the crypto market to gradually distance itself 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 and its "shoot first, ask questions later" approach should become a thing of the past.

Although the SEC's past position has been to regard 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 are treating all crypto assets as securities just to be safe. Entrepreneurs in the United States are leveraging blockchain technology to modernize various traditional systems and tools.

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 crypto asset is a security or constitutes an investment contract. Our goal is to help them classify crypto assets based on 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, thereby assessing whether the asset constitutes an investment contract.

Moreover, being classified as securities should not be the original sin of development. We need a regulatory framework that adapts to crypto securities so that these products can thrive in the U.S. market. Many issuers will be inclined to take advantage of the product design flexibility provided by securities laws, and investors will benefit from securities attributes such as dividends and voting rights. Project teams should not be forced to establish DAOs, 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 crypto asset transactions that indeed fall under the scope of securities law, I have requested staff to propose specific disclosure regulations, exemptions, and a "safe harbor" system, including for so-called "Initial Coin Offerings (ICOs)", "airdrops", and network reward programs. Our goal is to allow issuers to include U.S. users in their issuance plans instead of excluding them due to legal risks, so they can 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 interests, or securities issued by others. Due to regulatory hurdles in the United States, most of this innovation occurs overseas. At the same time, our policy department has received many applications from companies seeking 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 Diversified 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 America's core values. 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 broker-dealers 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 Custodial Obligations for Registered Intermediaries" will be a priority. The "Special Purpose Broker-Dealer Framework," the SAB 121 document, and the "Channeling Action 2.0" initiated by the previous administration have resulted in almost no compliant custodial service providers for crypto assets in the market today. The existing custodial regulations do not take into account the characteristics of crypto assets. I have instructed staff to explore how to adapt the current system, including providing exemptions or modifying rules as necessary to facilitate the development of custodial services for crypto assets.

The "PWG Report" also suggests that market participants should be allowed to conduct multi-line business under the most effective licensing structure. We cannot force them to be embedded in an outdated regulatory framework. I support allowing them to freely choose the regulatory path that best suits their business, provided that investor interests are safeguarded.

Promoting Super Applications: Achieving Horizontal Integration of Products and Services

Thirdly, another important goal of my chairmanship is to allow market participants to innovate within the "Super-Apps" framework. Many people ask me: "What is a Super-App?" It’s simple: securities intermediaries should be able to provide a diverse range of products and services on a single platform and under one license. A brokerage firm with an Alternative Trading System (ATS) should be able to simultaneously offer trading in non-securities crypto assets, trading in securities crypto assets, traditional securities services, as well as services like staking and lending, without needing to apply for licenses in over fifty states or multiple federal licenses.

Currently, federal securities laws do not prohibit registered trading platforms from listing non-securities assets. I have instructed the committee staff to