SEC Chair Gary Gensler delivered a speech about the current status of cryptocurrency markets at the Penn Law Capital Markets Association Annual Conference. He specifically addressed platforms, stablecoins, and tokens.
Gensler began by discussing platforms and large exchanges, which probably offer unregistered security tokens and unregistered commodity tokens. Accordingly, the SEC and CFTC will collaborate in a joint effort to label tokens as a security, a commodity, or neither.
However, some have wondered if cryptocurrency platforms may qualify for the alternative trading systems (ATS) exemption from traditional registration requirements. The SEC defines an ATS as “a trading system that meets the definition of ‘exchange’ under federal securities laws but is not required to register as a national securities exchange if the ATS operates under the exemption provided under Exchange Act Rule 3a1-1(a).” (ATS List)
Regarding the possibility of an ATS exemption for cryptocurrency platforms, Gensler stated “I’ve asked staff to consider whether and how the protections that are afforded to other investors on exchanges with which retail investors interact should apply to crypto platforms.” (Gensler’s Speech)
The SEC is concerned with three important sets of policy issues relating to stablecoins: (1) financial stability and monetary policy; (2) funding illicit activity; and (3) undermining investor protections. The agency’s focus here is whether the holdings backing a particular stablecoin can actually be converted to dollars one-to-one. A stablecoin that is not redeemable one-to-one is not pegged to the dollar and thus misleads investors.
Finally, Gensler reiterated that tokens marketed “with the expectation that the managers will build an ecosystem where the token is useful and which will draw more users to the project” are probably securities under the Howey Test. Under the Howey test, “an investment contract exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” (Framework for Investment Contract Analysis)