Cryptocurrency exemption fails to take effect in January! US SEC urgently "puts on the brakes," Wall Street erupts

Author: Nancy, PANews

Tokenized assets (RWA) are sparking a wave of on-chain activity worldwide. The influx of capital and asset richness have transformed this on-chain movement from a crypto-native testing ground into a new battleground on Wall Street.

While the RWA track is rapidly developing, there are divergences between TradFi (Traditional Finance) and the crypto industry. On one side, Wall Street is more focused on regulatory arbitrage and systemic risk, emphasizing stability and order; on the other side, the crypto industry pursues innovation speed and decentralization, worried that existing frameworks may limit development. A few months ago, the SEC announced a package of crypto innovation exemption mechanisms, planning to take effect in January this year. However, this pro-crypto aggressive policy naturally faced strong opposition from Wall Street, and due to the legislative pace of the Crypto Market Structure Bill, the originally promised implementation date has been delayed. Wall Street Encircles, Crypto Exemptions May Be Delayed This week, JPMorgan, Citadel, and SIFMA (Securities Industry and Financial Markets Association) held a closed-door meeting with the SEC’s crypto working group. During the meeting, these Wall Street representatives explicitly opposed broad regulatory exemptions for tokenized securities and advocated for the application of existing federal securities law frameworks. The crypto exemption mechanism is a “green channel” tailored by the SEC for tokenized securities and DeFi crypto products, aiming to allow these projects to temporarily avoid cumbersome full securities registration while meeting certain investor protection conditions, enabling rapid launch of innovative products. However, in response to the SEC’s plan to fast-track approvals for tokenized assets, Wall Street institutions issued stern warnings, believing that such moves could harm the overall US economy. They recommended that regulators implement strict, transparent oversight rather than simply granting exemptions. Even any exemptions for innovation must be narrow, based on rigorous economic analysis, and include strict safeguards—absolutely not a substitute for comprehensive rulemaking. They further emphasized that regulatory treatment should be based on economic characteristics, not the technology used or category labels (e.g., DeFi), and advocated for a “same business, same rules” principle. They strongly oppose establishing dual regulatory standards, arguing that any broad exemptions attempting to bypass long-term investor protection frameworks would weaken investor safeguards and lead to market chaos and fragmentation. The meeting also referenced the flash crash event in October 2025 and the collapse of Stream Finance as cautionary examples, emphasizing that if tokenized securities are allowed to operate outside existing securities law protections, the US financial markets could face significant systemic risks. Meanwhile, regarding the SEC’s plan to exclude some DeFi projects from compliance obligations, Wall Street also expressed concerns. SIFMA pointed out that many so-called DeFi protocols actually perform core functions of brokers, exchanges, or clearinghouses but operate in regulatory gaps. DeFi environments have many inherent technical risks, including predatory trading from maximum extractable value (MEV), flaws in automated market maker (AMM) pricing mechanisms, and opaque conflicts of interest. However, DeFi is not the only focus of this meeting; according to Decrypt, the main advocates of DeFi were unaware of this meeting. Additionally, for wallet providers involved in tokenized asset activities, the meeting emphasized that wallets executing core brokerage activities and earning transaction-based revenue must register as broker-dealers, with clear distinctions between non-custodial and custodial wallet models. Ultimately, Wall Street’s stance is very clear: embracing innovation does not mean starting from scratch. Instead of building parallel, independent regulatory systems, it’s better to incorporate tokenized assets into the existing mature compliance frameworks. The highly anticipated crypto exemption mechanism now faces uncertainties. SEC Chairman Paul Atkins has withdrawn the original schedule for launching the crypto exemption policy this month. During a recent joint meeting with the CFTC, Atkins noted that the uncertainties in the progress of the Crypto Market Structure Bill could directly impact the timing of the exemption’s implementation, and decisions should be made cautiously. When asked about a specific timeline, he refused to commit to releasing final rules this month or even next month. Full inclusion under securities law regulation, tokenized products divided into two categories Beyond regulatory issues, the legal classification and applicable regulation of tokenized securities remain unclear. To address this, Paul Atkins announced plans last November to establish a token classification framework based on the Howey test to clarify which crypto assets constitute securities, aiming to create a clear regulatory structure for crypto assets. On January 28, the SEC officially released guidance on tokenized securities, aligning with the US legislative efforts on the Market Structure Bill, providing market participants with a clearer regulatory pathway for compliant operations. The document explicitly states that whether a security is regulated depends on its legal nature and economic substance, not on whether it is tokenized. Tokenization itself does not change the scope of securities law. In other words, merely putting assets on-chain or tokenizing them does not alter the applicability of federal securities laws. According to the SEC, tokenized securities are financial instruments presented in the form of crypto assets, with ownership records maintained wholly or partly via blockchain networks. The document categorizes tokenized securities in the market into two main types: issuer-sponsored and third-party-sponsored, with specific regulatory requirements outlined for each. The first type is direct issuer-sponsored tokenization: where the issuer (or its agent) directly uses blockchain technology to issue and record holder information, whether on-chain or off-chain. These tokenized securities must comply with the same registration, disclosure, and legal obligations as traditional securities. The second type is third-party sponsored tokenization: divided into custodial, where token holders indirectly own the underlying securities through tokens; and synthetic, which only tracks the price performance of the underlying securities without transferring any actual ownership or voting rights. These products may constitute securities swaps. The document highlights the potential risks of third-party tokenized products, noting that this model introduces additional counterparty and bankruptcy risks, with some products subject to stricter securities swap regulations. The SEC also stated that “the door is open” and is ready to actively communicate with market participants on specific compliance pathways to help companies innovate within the federal securities law framework. As the SEC implements more detailed regulation of RWAs, the risk of regulatory arbitrage will be significantly reduced, paving the way for more traditional institutions to enter the space.