Author: US SEC Chairman Gary Gensler

Translation: Wu said blockchain

The following is the speech of Gary Gensler, chairman of the US SEC, at the Aspen Security Forum, which was published on August 3:

thanks for your introduction. It's a pleasure to join the Aspen Security Forum.

As is customary, I want to point out that my views are my own and I am not speaking on behalf of the committee or the SEC staff.

Some of you may be wondering: what does the SEC have to do with the crypto industry?

Also, why would a group like the Aspen Security Forum invite me to talk about the intersection of the crypto industry and national security?

Let me start from the beginning.

It was Halloween night in 2008, during the financial crisis, and Satoshi Nakamoto published an eight-page paper on the cypherpunk mailing list that had been run by cryptographers since 1992.

Satoshi Nakamoto - we still don't know who she, he or they are - wrote: "I have been working on a new electronic cash system that is completely peer-to-peer, with no trusted third parties."

Satoshi Nakamoto solved two mysteries that have puzzled cryptographers and other technologists for decades: first, how to move something of value across the Internet without a central intermediary; "Double spending" of tokens.

Subsequently, his innovations have driven the development of crypto assets and the underlying blockchain technology.

Based on the innovation of Satoshi Nakamoto, the types of encrypted assets expanded rapidly about ten years later. As of Monday, the asset class was said to be worth about $1.6 trillion, with 77 tokens worth at least $1 billion each and 1,600 tokens with a market capitalization of at least $1 million.

Before joining the SEC, I was fortunate enough to research, write, and teach at the intersection of finance and technology at MIT. This includes courses on crypto finance, blockchain technology and currencies.

in this task,I've come to believe that Satoshi's innovations are real despite all the hype in the crypto space that disguises the truth.Furthermore, it has been and will continue to be a catalyst for change in the financial and monetary sphere.

At its core, Satoshi Nakamoto was an attempt to create a private form of money without a central intermediary, such as a central bank or commercial bank.

We are already living in the era of digital public currencies - dollars, euros, pounds, yen, renminbi. If this wasn't apparent before the pandemic, it has become abundantly clear in the past year in the increasing number of our transactions online.

This public fiat currency fulfills the three functions of money: store of value, unit of account, and medium of exchange.

However, no single crypto-asset can adequately serve all the functions of a currency.

First, cryptoassets provide a digital and scarce vehicle for speculative investing. So, in that sense, they can be said to be highly speculative stores of value.

These assets are not used as a unit of account.

We also don't see encryption used as a medium of exchange. so far as it is so used,It is often done to get around anti-money laundering, sanctions and tax laws.It can also hold ransomware through ransomware, as we recently saw with Colonial Pipeline.

Decades ago, with the dawn of the internet age and the transition from physical to digital currencies, countries around the globe placed various public policy goals above our digital public currency systems.

As far as policy is concerned, I am technology neutral.

Personally, I wouldn't go to MIT if I wasn't interested in how technology can expand access to finance and foster economic growth.

But I am by no means public policy neutral. As new technologies emerge, we need to ensure we are achieving our core public policy goals.

In finance, it's about protecting investors and consumers, preventing illicit activity, and ensuring financial stability.

So how does the SEC fit into all this?

The U.S. Securities and Exchange Commission’s (SEC) mission is three-part — protecting investors, facilitating capital formation, and maintaining fair, orderly, and efficient markets in between. We also care about financial stability. But our core is to protect investors.

It doesn't matter if you want to invest in a digital, scarce, speculative store of value. The value of gold and silver has been guessed by people of good faith for millennia.

Right now, we just don't have enough investor protection when it comes to cryptocurrencies. Frankly, it's more like the Wild West at this point.

This asset class is rife with fraud, scams and abuse in certain applications. There is a lot of hype around how crypto assets work. In many cases, investors do not have access to rigorous, balanced and complete information.

If we don't address these issues, I fear a lot of people will be hurt.

First, many of these tokens are offered and sold as securities.

It's actually pretty clear in that regard. In the 1930s, Congress established the definition of a security, which includes about 20 items such as stocks, bonds and notes. One of these is an investment contract.

Over the next decade, the Supreme Court adopted the definition of an investment contract. The case says an investment contract exists when "a person invests his own money in a common enterprise with the expectation of profiting solely from the efforts of the promoter or a third party." The Supreme Court has reiterated this Howey Test over and over again.

Also, this is just one of many ways we can determine whether a token must comply with federal securities laws.

I think former SEC Chairman Jay Clayton said it well when he testified in 2018: “Insofar as digital assets such as initial coin offerings, or ICOs, are securities — I believe every Every ICO is a security — we have jurisdiction, our federal securities laws apply.”

I find myself agreeing with Chairman Jay Clayton. Generally, people who buy these tokens are expecting a profit, and there is a small group of entrepreneurs and technologists who come out and nurture these projects. I believe we now have a crypto market where many tokens may be unregistered securities without disclosure or market oversight.

This makes prices vulnerable to manipulation. This leaves investors vulnerable.

Over the years, the U.S. Securities and Exchange Commission (SEC) has taken dozens of actions in this regard, prioritizing token-related cases involving fraud or other significant harm to investors. We haven't lost the case yet.

Additionally, many platforms actively offer crypto tokens or other products that are priced against the value of securities and operate like derivatives.

Make no mistake: it doesn’t matter whether it’s an equity token, a stable value token backed by a security, or any other virtual product that provides synthetic exposure to the underlying security. These products are subject to securities laws and must operate within our securities regime.

I have urged employees to continue to protect investors in the event of unregistered securities sales.

Next, I want to discuss crypto exchanges, lending platforms, and other “decentralized finance” (DeFi) platforms.

The world of crypto finance now has platforms where people can trade tokens and other places where people can lend tokens. I believe these platforms can implicate not only securities law; some platforms may also implicate commodities law and banking law.

There are over 50 tokens on a typical exchange. In fact, the number of many tokens is well over 100. While the legal status of each token depends on its own facts and circumstances, with 50 or 100 tokens, there is a very small chance that any given platform will have zero securities.

Also, unlike other exchanges where investors trade through intermediaries like the New York Stock Exchange, people can trade on cryptocurrency trading platforms without a broker — 24 hours a day, 7 days a week, from all around the world.

In addition, while many overseas platforms say they do not allow access to U.S. investors, there have been allegations that some unregulated forex trading facilitates trades by U.S. traders using virtual private networks (VPNs).

The U.S. public buys, sells, and borrows cryptocurrencies on these trading, lending, and DeFi platforms, but there are major gaps in investor protection.

Make no mistake: If there are securities on these trading platforms, under our laws they must register with the Commission unless they qualify for an exemption.

Make no mistake: If a lending platform offers securities, it also falls under the jurisdiction of the SEC.

Next, I want to move to stablecoins, which are cryptographic tokens pegged to the value of fiat currencies.

Many of you have heard of Facebook's efforts to build a stablecoin called Diem (formerly known as Libra).

This has drawn a lot of attention from central bankers and regulators due to the global reach of Facebook's platform. This is not only due to general policy and concerns about crypto, but also because of Diem's ​​potential impact on monetary policy, banking policy, and financial stability.

What viewers may not be aware of, though, is that we have an existing stablecoin market worth $113 billion, which includes the big four stablecoins — some of which have been around for seven years.

These stablecoins are embedded in crypto trading and lending platforms.

How do you trade cryptocurrencies? Usually, there are people using stablecoins.

In July, nearly three quarters of trades across all crypto trading platforms were between stablecoins and other tokens.

As such, the use of stablecoins on these platforms may help those seeking to sidestep a range of public policy objectives associated with our traditional banking and financial systems: anti-money laundering, tax compliance, sanctions, and more. It also affects our national security.

In addition, these StableCoins may also be securities and investment companies. To the extent we will apply to these products the full protections afforded to investors under the Investment Company Act and other federal securities laws.

I look forward to working with my colleagues on the President's Financial Markets Task Force on these issues.

Next, I want to move to investment vehicles that provide exposure to crypto assets. Such investment vehicles already exist, the largest of which has been around for eight years and is worth more than $20 billion. Additionally, there are many mutual funds investing in Bitcoin futures on the Chicago Mercantile Exchange (CME).

I am expected to file for an Exchange Traded Fund (ETF) under the Investment Company Act ('40 Act). When combined with other federal securities laws, the '40 Act provides important investor protections.

Given these important safeguards, I look forward to staff reviewing these applications, especially if they are limited to CME-traded Bitcoin futures.

The final policy area relates to the custody of crypto assets. The U.S. Securities and Exchange Commission (SEC) is seeking comments on broker-dealers’ crypto custody arrangements and those related to investment advisors. Custody protection is key to preventing the theft of investor assets and we will seek to maximize regulatory protection in this regard.

Before I conclude, I would like to say that we have taken and will continue to take our authority.

Certain rules related to crypto-assets have been well-addressed. The test to determine whether a crypto asset is a security is clear.

There are some gaps in this area, though: We need more congressional mandates to prevent transactions, products, and platforms from falling into regulatory loopholes. We also need more resources to protect investors in this growing and volatile industry.

We stand ready to work closely with Congress, the Administration, our regulatory counterparts, and our partners around the world to close some of these gaps.

In my opinion, the focus of legislation should be on crypto trading, lending and DeFi platforms. Regulators would benefit from additional overall powers to set rules and attach guardrails to crypto trading and lending.

Currently, much of the cryptocurrency space operates outside of, rather than within, the regulatory framework that protects investors and consumers, guards against illicit activity, ensures financial stability, and protects national security.

Standing across the middle is not a sustainable place. For those who want to encourage innovation in cryptocurrencies, I would like to point out that throughout history, financial innovation has not flourished outside of our public policy framework.

At the heart of finance is trust. At the heart of market trust is investor protection. If this field is to survive, or fulfill its potential to be a catalyst for change, we better include it in a public policy framework.

Thank you. I look forward to your questions.

Original address: https://www.sec.gov/news/public-statement/gensler-aspen-security-forum-2021-08-03