The Crypto Securities Market is Waiting to be Unlocked. But First We Need Workable Rules. | by Coinbase | Jul, 2022

TL;DR:

• Coinbase filed a petition asking the SEC to begin rulemaking on digital asset securities.
• The existing rules for securities just do not work for digital assets.
• Our petition calls on the SEC to develop a workable regulatory framework for digital asset securities guided by formal procedures and a public notice-and-comment process, rather than through arbitrary enforcement or guidance developed behind closed doors.

By Faryar Shirzad, Chief Policy Officer

Today, there is a robust crypto market in the U.S. That market includes thousands of different digital assets, crypto companies, and decentralized financial products, and is regulated at every level of government, including by multiple federal agencies in the United States. Yet despite the growth that has happened in recent years, close examination reveals a glaring deficiency in this market. Even with billions of dollars invested toward crypto innovation, and the passage of more than 13 years since the introduction of Bitcoin, there is still no meaningful crypto securities market in the United States.

Many factors can positively influence how a given market develops, but when it comes to crypto securities there is a significant, foundational hurdle that has prevented that market from maturing. That hurdle is the fact that the securities rules simply do not work for digitally native instruments. They don’t work for tokenized debt. They don’t work for tokenized equity. They don’t work for crypto. And that’s a major problem.

The consequence is that the United States is falling behind in digital asset innovation. Most of the digital assets traded today have the characteristics of commodities, and in many instances, were specifically designed to avoid the securities laws. In other words, as the crypto market develops, it is deliberately steering clear of the securities market — one of the principal financial markets in the United States. At Coinbase, we believe that digital asset innovation offers a number of profound, market-enhancing benefits — like real time settlement, the ability to trade safely without needing to go through costly intermediaries, and a transparent record of all transactions. But the full weight of those benefits will not come to pass if they are excluded from a market as big and impactful as the securities market.

Crypto assets that are securities need an updated rulebook to help guide safe and efficient practices. Crypto assets that are not securities need the certainty of…