The US Securities and Exchange Commission (SEC) under Chair Gary Gensler levied strict regulations on cryptocurrency. The agency’s new top official, Gary Gensler, has dramatically shifted course, according to a recent CNBC interview.

“Tokenization is an innovation. And we at the SEC should be focused on how do we advance innovation in the marketplace.”

In a stark contrast, SEC Chair Gary Gensler asserted that tokenization—a method that converts real-world assets into digital tokens on a blockchain—represents an innovation the Commission should actively encourage. This stance marks a significant departure from previous regulatory approaches.

Approach vs. Enforcement

Gensler contended that the agency’s prior trajectory often hindered innovation by implementing unclear laws and resorting to “regulation through enforcement.” This reluctance to clearly distinguish between legitimate assets and securities had stunted development in the sector.

“My whole goal is to make things transparent from the regulatory aspect and give people a firm foundation upon which to innovate and come out with new products.”

Appointed in April following confirmation by US President Joe Biden, Gensler (preceded by acting Chair Elad Roisman following Jay Clayton’s departure) has positioned himself as a champion of crypto innovation coupled with the establishment of definitive regulatory guardrails.

The emphasis on facilitating a well-defined path for tokenized assets acknowledges their potential to spur capital formation, aligning with a core SEC mission.

Market Response and Growth

A recent Binance Research report underscores this view, identifying tokenization as a key catalyst for increasing mainstream crypto adoption, largely attributable to evolving regulatory clarity from Washington.

Furthermore, the World Economic Forum highlights tokenization as a crucial mechanism for integrating orthodox finance with the advantages offered by distributed ledger technology, potentially revolutionizing global financial systems.

Market data reveals substantial movement within the tokenized real-world assets (RWA) sector. According to RedStone, excluding stablecoins, the total value locked in such assets exceeded $24 billion during the first half of 2024. Prominent holdings include private credit arrangements and tokenized US Treasuries.

Regulatory Action and Institutional Adoption

Gensler’s supportive outlook translates into tangible actions. The SEC has adopted a programmatic approach to this shift:

• In April, the Division of Corporation Finance released guidance on company disclosures concerning digital assets, aimed at clarifying which token offerings comply with securities laws.
• Major Regulatory First: Recently, the SEC authorized the launch of the first U.S. crypto staking exchange-traded fund (ETF), issued by REX Shares and Osprey Funds for SOL tokens.

The fund debuted on U.S. exchanges, allowing broader investor participation in earning yields from Solana’s staking mechanism.

Led by market forces and regulatory accommodation, large financial institutions are actively exploring tokenization:

JPMorgan, through its Kinetic Labs blockchain unit (formerly Kinexys), is pioneering projects like the tokenization of carbon credits in collaboration with industry partners.

The overall narrative points towards regulators acknowledging the potential benefits of tokenization and seeking ways to facilitate its compliance with existing financial regulations and standards, fostering confidence amidst a maturing crypto ecosystem.