Interpreting the U.S. SEC Chairman's Detailed Remarks on On-Chain Issuance, Custody, and Trading
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Interpreting the U.S. SEC Chairman's Detailed Remarks on On-Chain Issuance, Custody, and Trading
Rules should be clearly written, not enforced through intimidation.
Navigating Web3 tides with focused insightsAuthors: Liu Honglin, Shao Jiaodian
If you had said over the past two years that the U.S. SEC has had a good relationship with the crypto industry, it would be like saying a tiger has become a Buddhist vegetarian. Most of the time, the SEC’s attitude wasn’t “wait and see,” but rather “you dare to do it, and I’ll sue you.” But now, the tone seems to be shifting.
On May 12, Paul S. Atkins, Chair of the U.S. Securities and Exchange Commission (SEC), delivered a densely packed speech at the “Digital Asset Roundtable.” While appearing to be an industry dialogue, it was in fact a systematic reflection on the SEC’s crypto regulatory approach over the past few years. More importantly, he spent nearly an hour redefining the regulatory logic for “on-chain securities.”
If we were to summarize the tone of his speech in one sentence: Rules should be clearly defined—enforcement shouldn’t be used to scare people.
This marks the first time in recent years that the SEC has explicitly proposed establishing a “dedicated regulatory framework” for the issuance, custody, and trading of digital assets, while acknowledging that current rules are unsuitable for on-chain assets. For the entire Web3 industry, this is a signal that cannot be ignored.
Issuance: It’s Not “You Can’t Issue,” It’s “You Can’t Fill Out These Forms”
Over the past few years, the SEC’s strategy on token issuance has been almost “deemed illegal by default,” without offering a clear legal pathway. Most projects risk litigation as soon as they engage U.S. investors. Even if you want to comply and pursue registration via S-1 or Reg A, you often hit a wall because the forms themselves aren’t applicable.
S-1 is the standard registration form filed by U.S. companies during an IPO, requiring detailed disclosures on executive compensation, fund usage, corporate governance, and more. Reg A (Regulation A) is a lightweight registration exemption mechanism designed for small and medium-sized issuers. However, for most Web3 projects, both tools are overly burdensome or simply incompatible—for example, token projects lack traditional corporate structures, fund use is often executed automatically on-chain, and many core elements cannot be “pre-written.”
Chairman Atkins was very direct: existing disclosure requirements for securities issuance should not be forcibly applied to on-chain assets. He explicitly stated in his speech: “A square peg should not be forced into a round hole.” He proposed advancing registration exemptions, disclosure templates, and safe harbor provisions specifically tailored for digital assets, exploring more practical regulatory pathways.
He also directly criticized the SEC’s past “ostrich-style management”: pretending not to see the industry at first, hoping it would collapse on its own, then diving headfirst into enforcement actions to create deterrence through individual cases—yet never establishing unified rules. Now he made it clear: rules must be established formally by the Commission, not through ad hoc enforcement.
Custody: The Technology Isn’t the Problem—The System Is Blocking the Technology
The custody issue in crypto over the past few years has essentially boiled down to “who gets to hold the assets.” Traditional financial institutions have been scared off by SAB 121, while self-custody lacks legal recognition. As a result, many funds and institutions wanting to allocate to on-chain assets have been blocked at the custody stage.
SAB 121 is an accounting bulletin issued in 2022 by SEC staff, requiring companies to include customer crypto assets they hold in their own balance sheets, sharply increasing regulatory risk. Its intention was to protect user assets, but in practice, it caused most banks and broker-dealers to exit the crypto custody market.
Now SAB 121 has been rescinded, and the Chair explicitly stated the document was “unlawful, unapproved, and severely damaging.” But more importantly, he began discussing how to fix the system going forward.
He pointed out that so long as security standards are met, technical capability can substitute for traditional custodial qualifications. Under certain conditions, self-custody could also be a compliant option. This actually opens up compliance possibilities for DeFi platforms, wallet providers, and even on-chain asset management projects.
In addition, he criticized the failure of the “Special Purpose Broker-Dealer” regime, which only approved two entities with poor results. He hinted that this mechanism needs restructuring—meaning the compliance pathways for custody and trading could potentially be re-integrated and made more accessible in the future.
Trading: From “Trading Equals Violation” to “Limited Exemption Pilots”
The SEC has long maintained a strict regulatory stance on on-chain asset trading, especially around the threshold question of “whether it’s a security,” trapping most token projects in a vicious cycle of “no launch, no compliance, no listing.”
In this speech, Chairman Atkins clearly signaled a loosening of restrictions. He proposed allowing ATS (Alternative Trading Systems) platforms to support mixed trading of securities and non-securities.
ATS is a classification within the U.S. regulatory system for securities trading platforms, essentially functioning as “non-exchange trading venues.” Many digital asset platforms have previously attempted to register as ATS to offer compliant trading services. However, the current ATS framework lacks clear definitions for crypto assets, causing most platforms to hesitate.
The Chair also emphasized the necessity of “exemption mechanisms.” That is, if a project involves technological innovation or unique structure and cannot currently meet all compliance requirements, the SEC might provide a supervised testing environment under specific conditions. This isn’t deregulation—it’s a conditional, monitored, and error-tolerant compliance channel.
Industry Impact: Regulatory Boundaries No Longer Guesswork—Compliance Space Begins to Emerge
The greatest significance of this speech lies in the fact that it is neither a case-specific ruling nor a personal opinion from a commissioner, but the first comprehensive articulation by the SEC Chair—under Commission authority—of what crypto asset regulation should logically look like.
The underlying policy backdrop is also clear: the Trump administration wants the U.S. to become the “global crypto capital,” and the SEC, as a key financial regulator, can no longer treat crypto assets as a peripheral matter.
In the coming years, areas such as on-chain securities, stablecoins, RWA, and token payment platforms may become pilot zones under new SEC rules. Entrepreneurs and project teams will need to shift from the old model of “regulatory avoidance” to one of “built-in compliance design.”
A Web3 Lawyer’s Advice: It’s Not “You Can Do It Now,” But “You Can Do It With Legal Grounding”
From a practical standpoint, our recommendations are:
First, watch for structural changes to issuance pathways like S-1 and Reg A. If the SEC advances crypto-specific disclosure rules, project teams can reasonably choose registration exemptions without having to start issuing tokens offshore to avoid U.S. regulations.
Second, prioritize preparation for custody compliance. Whether using on-chain wallets, self-custody systems, or third-party service providers, promptly assess their compliance boundaries under the new regulatory landscape.
Third, monitor policy adjustments regarding ATS and related trading platforms. If you’re building an exchange or matching product, this may be a window to redesign your structure and return to the table.
Fourth, seriously evaluate whether your project qualifies for the “conditional exemption” mechanism. Some early-stage projects may not suit full registration, but could gain a pathway to operation through rule-based exemptions. This is a compliance route—not a gray-area loophole.
This speech doesn’t declare that the crypto industry “can now proceed.” It means we can finally talk about how to proceed—with rules.
If you’re considering launching a U.S.-targeted token project, structuring RWA products, or exploring compliant trading channels as a Web3 entrepreneur, feel free to reach out to our team. ManQin Law Firm has long focused on bridging Chinese and U.S. crypto regulations, helping projects complete 0-to-1 path designs within legal frameworks.
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