What comes next after the three major favourable information bills on encryption?

Written by: Oliver, Mars Finance

In July in Washington, the air is filled with the scent of change. As the crypto world is still digesting the regulatory landscape shifts brought about by the “trio” of the GENIUS Act, the CLARITY Act, and the Anti-CBDC Act, a more explosive signal has emerged from within the U.S. Securities and Exchange Commission (SEC), casting a glaring light on the future direction of the entire industry.

On July 18, SEC Chairman Paul Atkins made remarks at a press conference that were nothing short of a “regulatory earthquake.” He stated that the SEC is actively considering the introduction of an “innovation exemption” to “encourage the market to advance the tokenization process.” He candidly added, “For the past few years, the SEC has been hindering market innovation; the rules have been unclear, and we have been enforcing regulatory oversight. Those days are over.”

This announcement is far more than just a fine-tuning of policies; it marks the end of one era and the beginning of another. If the three major bills laid the foundation and framework for the compliance hall of the cryptocurrency industry, then Atkins’ “innovation exemption” is the gatekeeper holding the key, personally opening the door and loudly declaring: “Welcome, this is the new world of tokenization.”

From “Gatekeeper” to “Guide”: The Transformation of the SEC’s Role

The profound meaning of “innovation exemption” is highlighted by its stark contrast to the SEC’s style of operation in recent years. Under Gary Gensler’s leadership, the SEC’s role resembles that of a strict “gatekeeper,” with a core logic of “enforcement first.” Through a series of lawsuits, it vaguely defines the boundaries of its jurisdiction, casting the entire industry under the shadow of the sword of Damocles. The consequence of this approach is that innovators either flee to other countries or navigate anxiously in the gray areas of the law.

The “innovation exemption” proposed by Atkins is essentially a concept of a “regulatory sandbox.” It allows companies to test their innovative products and services in a real market environment with manageable risks under specific exemption conditions, without the need to immediately comply with all the cumbersome regulations that may no longer be suitable for new technologies. This signifies a shift in the role of the SEC from a passive, adversarial “gatekeeper” to an active, constructive “guide.” The message it conveys is: we not only tolerate innovation, but we also want to help you, guide you, and collaboratively build a compliant and prosperous tokenized securities ecosystem.

This transformation is not a whim, but is built on a solid foundation laid by a series of recent legislative victories. The synergy of the three major bills has created the perfect stage for the SEC’s magnificent turnaround.

First, the “Anti-CBDC Surveillance State Act” ideologically delineates a “safe zone” for innovation in the private sector. By legislating against the Federal Reserve issuing retail central bank digital currency, Congress has effectively removed the largest potential competitor for a privately-led digital dollar—namely, compliant stablecoins. This ensures that future digital financial innovations will be market-driven rather than government-led.

Immediately afterwards, the “GENIUS Act” provides a clear “birth certificate” for this market-driven digital dollar. It paves the way for the issuance and circulation of compliant stablecoins by establishing a parallel licensing system at both federal and state levels, and mandating a 1:1 reserve of high-quality liquid assets. A regulated, trustworthy, and scalable stablecoin system is the lifeblood of all tokenized asset trading and settlement in the future. Without reliable “digital cash”, trading of tokenized stocks and bonds cannot be discussed.

Finally, the “CLARITY Act” (formerly known as FIT21) aims to address the most challenging jurisdictional issues. It attempts to delineate the “spheres of influence” of the SEC and the Commodity Futures Trading Commission (CFTC) through the core standard of the degree of “decentralization.” Although the final form and effectiveness of this bill are still subject to the Senate’s negotiations, it has successfully shifted the discussion from “whether to regulate” to “how to regulate,” significantly reducing the systemic risks across the entire ecosystem.

These three are interconnected, collectively building a brand new regulatory paradigm: the “Anti-CBDC Act” clears the ground, the “GENIUS Act” paves the way, and the “CLARITY Act” sets the rules. It is precisely on this land, which has undergone preliminary organization, that the SEC’s “Innovation Exemption” has transformed from a radical idea into a logical, naturally evolving policy option.

Trillion-level consensus on Wall Street

Once the green light from regulators is on, a torrent of capital will surge in. The SEC’s shift in attitude has created a perfect resonance with the consensus that has long been formed on Wall Street. The views of Larry Fink, CEO of the world’s largest asset management company BlackRock, have become a barometer for the industry: “We believe the next step in finance will be the tokenization of financial assets. This means that every stock and every bond will ultimately exist on a single ledger.”

This is not a vague vision. Behind Fink’s remarks is the entire traditional financial world’s recognition of the enormous potential of tokenization. Tokenization can break down assets that originally have very poor liquidity, such as real estate, private equity, and artworks, into standardized units that can be traded globally 24/7, thereby releasing a massive amount of dormant capital. It can also achieve automated compliance, settlement, and dividends through smart contracts, significantly reducing transaction costs and back-office operational costs.

The market’s forecast data provides an astonishing footnote to this. Boston Consulting Group (BCG) predicted in a widely circulated report that by 2030, the global market size for tokenized illiquid assets will reach $16 trillion. Citibank’s prediction is relatively conservative, but it also provides a figure of $4 trillion to $5 trillion. These figures are no longer fanciful; BlackRock’s own tokenized money market fund BUIDL surpassed $1 billion in asset size in just a few months, eloquently demonstrating the genuine desire of institutional investors for compliant on-chain assets.

Now, the SEC’s “innovation exemption” commitment is equivalent to opening the floodgates for this impending capital surge. It assures pioneers like BlackRock and Franklin Templeton that their explorations will not be penalized for touching outdated regulations, but rather will receive support and guidance from regulators. This will undoubtedly greatly accelerate the tokenization of RWA (real-world assets) from the experimental phase to large-scale application.

The roar of the political engine

The policy direction in Washington will not change without reason. Behind the SEC’s shift from “iron fist” to “handshake” is a textbook-level operation of political influence in the cryptocurrency industry. The Super Political Action Committee (Super PAC) Fairshake, backed by industry giants like Coinbase, Ripple, and a16z, has become a force that no politician can ignore in the 2024 election cycle.

According to statistics, Fairshake and its affiliated organizations have raised over $260 million in massive funds and have precisely invested them in key congressional districts. Their goal is clear: to support candidates who are friendly to crypto innovation while relentlessly attacking those politicians who hold hostile positions. This “crypto cash tsunami” has completely transformed the political calculations in Washington, making “supporting crypto” a choice that is both safe and beneficial for many lawmakers, shifting it from a high-risk political statement.

The “GENIUS Act” has been passed under a high level of consensus between the two parties, which is a concentrated reflection of the results of this political operation. A clear “political-regulatory flywheel” has formed: the industry invests heavily to influence elections, electing more friendly legislators; these legislators promote favorable legislation to legitimize the industry; clear regulations attract traditional capital influx, driving industry growth; the prosperity of the industry brings more profits to participants, enabling them to invest more in the next round of elections. This self-reinforcing cycle perfectly explains why the evolution of crypto policy has suddenly accelerated recently, and it also explains why the leadership of the SEC has made such trend-following statements.

Conclusion: Set sail in the new sea of regulation

Of course, the wide road of RWA tokenization does not mean that the path ahead is smooth sailing. When the spotlight of capital and regulation focuses on relatively easy-to-understand assets being brought on-chain, the real “deep waters” of the crypto world—those decentralized finance (DeFi) protocols and decentralized autonomous organizations (DAOs) composed purely of code—are just beginning to reveal their regulatory challenges. This constitutes the real “unfinished agenda” before lawmakers.

How can a DeFi lending protocol that has no CEO, no board of directors, and is governed collectively by anonymous participants be regulated? When a smart contract has vulnerabilities that result in losses, who should bear the legal responsibility? Is it the developers of the code, the liquidity providers, or the holders of governance tokens? These questions challenge the legal system built over centuries on the foundations of “legal entities” and “responsible parties.” Similarly, the legal status of DAOs, as a completely new organizational form, remains unresolved. They are neither traditional companies nor partnerships, which makes it difficult for them to sign contracts, open bank accounts, or even pay taxes in the real world, and their members may face the enormous risk of unlimited joint liability. Creating a suitable legal framework for these “digital natives” will be the most complex game between legislators and innovators in the next stage.

Nonetheless, we must recognize that a fundamental shift has occurred. The pendulum of policy has swung from containment to guidance, and the torrent of capital has found its compliant entryway. The cryptocurrency industry has successfully transformed itself from a fringe topic into a significant player at the Washington table. Therefore, the question is no longer “Will cryptocurrency be accepted?” but rather “How quickly and to what extent will it be integrated into the global financial system?” As regulators lower their spears and extend olive branches, a trillion-dollar market built on codes and laws, driven by politics and capital, is opening its doors to us in an unprecedented manner.