The debate is no longer whether blockchain technology might someday reach traditional capital markets. The question is how existing markets will incorporate it and what rules will govern that transition.
Andrew Cuomo is the former Governor of New York, and a board member of OKX.
Tokenization does not eliminate financial risk, nor does it make the basic responsibilities of regulators obsolete. Quite the opposite. Markets ultimately function on trust, and new technology succeeds only when investors have confidence that ownership is real, transactions are reliable, markets are fair and bad actors will be held accountable.
I learned that lesson from the other direction.
As New York attorney general during the financial crisis, I saw what can happen when innovation and financial engineering move more quickly than oversight and risk management. Subprime lending and increasingly complex mortgage securities were promoted as innovations that expanded access to credit and distributed risk. Instead, bad underwriting and inadequate safeguards helped transmit risk throughout the financial system.
The lesson wasn’t that financial innovation should stop. It was that innovation and regulation have to develop together.
That appears to be the approach the SEC is taking now.
Its exemption isn’t a free-for-all. All trading venue participants must be permissioned. Tokenized shares traded under the exemption must provide investors the same rights and privileges as the traditional shares of an equivalent class. Trading venues face limits on the number and volume of tokenized securities they can trade. Issuers can object to the trading of their shares when tokenized by unaffiliated third parties. Smart contracts must be auditable and deployed on public blockchains, and trading in a tokenized security must stop when trading in the underlying security is halted.