In a frank conversation, SEC Commissioner Hester Peirce (aka “Crypto Mom”) outlines the seismic shift in US crypto regulation. The new administration is pivoting from an era of enforcement-first antagonism to a collaborative mission to build a durable, builder-friendly framework for digital assets.
A Regulatory 180
- “We are doing a 180 on crypto in the sense of we're not trying to use enforcement to write regulations and we're not trying to shut down people who are trying to build useful things.”
- “The American people expect us to not fight over jurisdiction, but to do what's best for the markets in the US. And I think we're well on the way to doing that.”
The SEC is hitting the reset button. The previous "regulation by enforcement" strategy, which saw lawsuits filed against major players like Coinbase and Binance, is being dismantled. Peirce confirms that many of these actions were dropped because the underlying legal theories were unsustainable. In its place, the agency is fostering a collaborative environment, signaled by a recent joint statement with the CFTC to work in "lockstep" and end bureaucratic turf wars. The newly formed Crypto Task Force is actively meeting with a wide range of projects—not just the giants—to gather input for crafting clear, workable rules from the ground up.
The Builder’s Mandate
- “This is your moment to build interesting things because if you don't build them now… there's going to be nothing to stop that [next] administration from shutting crypto down if there's nothing good there.”
- “Don't just create a new system of centralized intermediaries.”
Peirce argues that the prior enforcement-heavy regime paradoxically failed to prevent massive frauds like FTX, suggesting it only succeeded in scaring off good-faith actors. The new approach distinguishes between legitimate builders and actual fraudsters. The SEC will now focus its resources on prosecuting clear-cut securities fraud while referring other issues to the appropriate authorities. Peirce issues a direct challenge to the industry: use this window of regulatory clarity to build durable, useful projects that prove crypto’s value. She also warns against recreating the centralized systems of old, noting that the FTX collapse was a failure of centralization, not decentralization.
Navigating New Frontiers: Staking and Tokenization
- “If you're really offering just a technical liquid staking service, that just doesn't make sense to regulate like a securities product.”
In a landmark move for DeFi, the SEC has officially clarified its position that liquid staking tokens are not securities. This removes a massive cloud of uncertainty for protocols in ecosystems like Solana and opens the door for innovative products like staked asset ETFs. On the topic of tokenized stocks, Peirce is more cautious. While her role is to "build the room for people to experiment," she warns that tokenizing a security doesn't magically change its nature. The industry must solve complex questions around investor rights, liquidity fragmentation, and market integrity before tokenized equities can go mainstream.
Key Takeaways:
- The US is shifting from a crypto antagonist to a potential hub for regulated innovation. The SEC's new leadership is focused on creating clear, durable rules rather than litigating its way to policy. This is a pivotal moment for builders and investors.
- Regulation by Enforcement is Over. The SEC has abandoned its strategy of using lawsuits to create policy. The new focus is on providing clear guidance before bringing the hammer down, creating a more predictable environment for builders.
- Liquid Staking Gets the Green Light. In a major win for DeFi, the SEC has confirmed liquid staking tokens are not securities. This clears the path for protocols like Jito and could accelerate the approval of staked ETFs.
- Build Now or Regret It Later. Commissioner Peirce delivered a clear ultimatum to the industry: use this favorable regulatory window to build legitimate products. The long-term survival of crypto in the US depends on proving its utility now.
For further insights, watch the full discussion here: Link
This episode reveals the SEC's strategic pivot from an era of enforcement-driven regulation to a new framework designed to foster crypto innovation, offering critical clarity for investors and builders.
A New Era of Collaboration: SEC and CFTC Join Forces
- SEC Commissioner Hester Peirce begins by discussing a recent joint statement from the SEC and the Commodity Futures Trading Commission (CFTC), signaling a move toward a more collaborative regulatory approach. Historically, the relationship between the two agencies has been strained due to overlapping jurisdictions, creating uncertainty for the crypto industry. Peirce, drawing on her experience since her 2018 appointment, notes that this new alignment aims to eliminate jurisdictional battles and focus on what is best for U.S. markets.
- Peirce highlights past successful collaborations, such as working with former CFTC Commissioner Brian Quintenz on security-based swaps, as a model for the future.
- This shift is significant for investors, as it suggests a more unified and predictable regulatory environment is emerging, reducing the ambiguity that has previously stifled development.
- "What the American people expect is for us to not fight over jurisdiction, but to do what's best for the markets in the U.S.," Peirce states, emphasizing a service-oriented approach.
The Role of an SEC Commissioner
- Commissioner Peirce clarifies her role and the SEC's mission for listeners who may be unfamiliar. The Securities and Exchange Commission (SEC) is the primary regulator for U.S. stock markets, overseeing exchanges, investment advisors, and public company disclosures. Its official mission is to protect investors, facilitate capital formation, and ensure market integrity.
- Peirce explains that she is one of five commissioners who vote on all agency enforcement actions and rule adoptions.
- She now leads the SEC's crypto task force, which is focused on repairing the relationship between the agency and the crypto industry after several years of tension.
- For investors in ecosystems like Solana, the SEC's stance is critical, particularly after the previous administration's lawsuits against Coinbase and Binance alleged that SOL was an unregistered security.
Crypto Twitter, Self-Correction, and Regulatory Pet Peeves
- Peirce shares her perspective on "Crypto Twitter," viewing it as a vibrant community where internal checks and balances often prove more effective and faster than traditional regulation. She appreciates the willingness of participants to call out bad behavior and engage in healthy competition between different blockchain projects, which she sees as a driver for innovation and improvement.
- She contrasts this self-policing with the slower, less direct nature of government regulation.
- However, Peirce expresses a key frustration: "What I really dislike is when people... want the power of the government to come down and shut down [other crypto assets]. Let's at least have the same view of everything."
- Strategic Insight: This reveals Peirce's preference for a level playing field where market forces, rather than regulatory weapons, determine winners and losers.
Regulating Beyond Bitcoin: Perpetual Futures and Prediction Markets
- The conversation broadens to address complex financial instruments emerging on blockchains like Solana, such as perpetual futures (derivative contracts with no expiration date) and prediction markets. Peirce acknowledges that crypto has evolved far beyond its origins as a peer-to-peer cash system.
- From a regulatory standpoint, her role is not to judge the value of these innovations but to determine if they fall under the SEC's jurisdiction.
- She finds prediction markets particularly interesting as a mechanism for aggregating dispersed knowledge, which can provide valuable societal information.
- Actionable Insight: For researchers and builders, this signals that the SEC's new approach is not to stifle complex DeFi products but to carefully assess their legal classification, creating a potential pathway for compliant innovation.
A New Philosophy on Fraud Prevention
- Peirce directly challenges the effectiveness of the previous administration's "regulation by enforcement" strategy. She argues that this aggressive approach ironically failed to prevent major frauds like FTX and may have done more harm than good by driving legitimate builders out of the U.S. while failing to stop actual criminals.
- Her theory is that targeting good-faith projects with enforcement actions misallocates resources and creates an environment where only ephemeral or fraudulent projects can survive.
- The new approach is not an "anything goes" world; the SEC will still vigorously pursue clear-cut securities fraud within its jurisdiction.
- However, the agency will now take a more legally precise view of its authority, referring cases outside its scope (i.e., non-securities fraud) to other authorities like the Department of Justice or the CFTC.
A Call to Action: The Urgency to Build in the U.S.
- Peirce issues a direct and urgent call to action for crypto developers and entrepreneurs. She warns that the current favorable regulatory environment may not last forever and that the industry must capitalize on this moment to build durable, valuable projects in the United States.
- She observes that years of regulatory hostility created a culture of short-term thinking and "decentralization theater," where projects adopted complex offshore structures to avoid U.S. jurisdiction.
- "This is your moment to build interesting things," Peirce urges, arguing that a robust ecosystem of legitimate projects is the best defense against a future return to a more restrictive regulatory regime.
- Strategic Implication: Investors should look for projects that are moving away from convoluted legal structures and are building transparently within the U.S., as these are best positioned to thrive under the new clarity.
Making Regulatory Change Stick: Legislation and the Crypto Task Force
- The discussion turns to ensuring the permanence of this new regulatory approach. Peirce identifies two key pillars: federal legislation and the ongoing work of the SEC's Crypto Task Force.
- Acts like the Genius Act and the upcoming Clarity Act are crucial for codifying market structure rules into law, making them difficult for future administrations to reverse.
- The Crypto Task Force is actively meeting with a wide range of industry participants—from major players to small startups—to understand the practical frictions in the current legal framework.
- The goal is to gather detailed input to craft durable, workable rules that don't stifle innovation, avoiding the creation of a framework that nobody can actually use.
Key Learnings from the Crypto Task Force
- From her extensive meetings, Peirce shares two key observations. First, many projects have not deeply considered the precise legal implications of their designs, particularly in the realm of tokenization. Second, she wonders what the crypto ecosystem would look like if builders had been free to embed more rights (e.g., governance, revenue share) into tokens without fear of immediate regulatory reprisal.
- She uses the example of tokenizing a traditional security, noting the complexity in defining what a buyer actually receives—is it the underlying stock, a share in a special purpose vehicle (SPV), or something else entirely?
- This exploration suggests a future where tokens could become far more functional and economically integrated if a clear regulatory path is established.
Official Clarity on Liquid Staking
- Peirce explains the SEC's recent clarification that liquid staking tokens (LSTs) are generally not considered securities. This was a landmark decision for the DeFi ecosystem, particularly for protocols on proof-of-stake networks like Solana.
- The reasoning is that liquid staking, when structured properly, is fundamentally a technical service rather than an investment contract.
- She emphasizes that facts and circumstances matter—it is still possible to design a liquid staking service that constitutes a securities offering.
- Actionable Insight: This clarification removes a major regulatory overhang for protocols like Jito and Marinade, unlocking significant potential for growth and institutional adoption of staking-related DeFi products.
The Thorny Future of Tokenized Equities
- While optimistic about innovation, Peirce expresses caution regarding the tokenization of traditional securities like stocks. She warns builders and investors not to assume tokenization is "magic" and to think critically about the host of challenges it presents.
- Key Concerns:
- Legal Status: A tokenized security is still a security and may even transform into a different type of financial instrument, like a security-based swap.
- Investor Rights: It must be crystal clear what rights a token holder has to the underlying asset.
- Market Structure: Tokenization could lead to fragmented liquidity, creating pricing disparities between tokenized and non-tokenized versions of the same stock.
- Peirce views this as a healthy moment to re-evaluate existing market rules for everyone, not just for crypto, and encourages anyone working on tokenization to engage with the SEC.
Commissioner Peirce on Her Legacy
- Looking ahead, Peirce states she does not plan to seek another term, viewing her role as temporary and believing in the value of fresh perspectives. When asked about her legacy, she deflects personal credit, focusing instead on the health of the institution and the U.S. capital markets.
- Her primary goal is to help the SEC correct its past mistakes in approaching crypto and fulfill its mandate to create rules that allow capital markets to thrive.
- She concludes, "I really want to see that that regulatory function working well so that the capital markets can can flourish and that would make me happy."
Conclusion
This episode underscores a fundamental shift at the SEC from regulatory hostility to constructive engagement. For investors and researchers, the key takeaway is that a window of opportunity has opened. Monitoring legislative progress and identifying projects building transparently within this new U.S. framework will be critical for capitalizing on emerging opportunities.
