SEC Chair's Nine Discussions on AI and Crypto Innovation: Remember the Mission and Return to the Purpose

Author: Zhang Feng

At the 2025 Fourth Investor Advisory Committee Meeting, Securities and Exchange Commission (SEC) Chair Paul Atkins delivered a highly anticipated speech. This address not only serves as a comprehensive summary of his year but also systematically outlines the future development path of the US capital markets.

In the face of multiple technological waves such as blockchain technology, asset tokenization, and artificial intelligence, Atkins clarified the SEC’s regulatory mission and principles, emphasizing the need to “ensure publicly traded companies remain an attractive choice for more enterprises,” while also laying a compliant pathway for on-chain transformation of financial markets, and avoiding “overregulation” of emerging technologies. We focus on nine core points from his speech to reveal the SEC’s regulatory thinking and strategic direction in the new era.

1. The Primary Task of the SEC Chair: Rebuilding the Appeal of Public Companies

In his opening remarks, Atkins emphasized that one of his core missions is to “ensure publicly traded companies remain an attractive choice for more enterprises.” This statement reflects the SEC’s deep concern about the current structure of the US capital market and its global competitiveness. As the main entities in the capital market, the vitality and health of public companies directly impact resource allocation efficiency, investor confidence, and the nation’s financial competitiveness.

In recent years, with the diversification and convenience of private market financing channels, more and more companies have chosen to delay or forego going public, leading to a shrinking number of public companies. Therefore, the SEC needs to optimize regulatory frameworks, reduce compliance burdens, and enhance market transparency and predictability to rekindle companies’ willingness to list, thereby consolidating the US’s leadership position in the global public markets.

2. Modernizing Rules: Promoting the Evolution of Capital Markets Toward “On-Chain Operation”

Faced with the rapid development of Distributed Ledger Technology (DLT) and asset tokenization, Atkins explicitly stated that the SEC must push for rule modernization to enable “on-chain operation”. Traditional securities issuance, trading, and settlement systems depend on multiple intermediaries, which, while reducing information asymmetry and operational risks to some extent, also result in inefficiencies, high costs, and lack of transparency.

Public blockchain technology has the potential to fundamentally reconstruct this system, achieving full-process on-chain issuance, holding, trading, and services for securities. The SEC’s task is not to hinder this process but to revise outdated rules to provide space for compliant development, ensuring the US maintains an advantage in global on-chain capital market infrastructure.

3. Public Blockchains and Tokenization: Redefining Issuer-Investor Relations

Atkins pointed out that public blockchains and tokenization can not only simplify trading processes but also “streamline the entire issuer-investor relationship”. Under traditional securities holding systems, shareholder identification, voting rights exercise, dividend distribution, and other processes require multiple intermediaries such as custodians and brokers, making the process complex and prone to errors.

Tokenized securities can leverage smart contracts to automate governance functions such as proxy voting, real-time dividends, and shareholder communications, greatly enhancing efficiency and transparency. This technologically driven redefinition of relationships is a core change that the SEC must fully consider when formulating new regulations.

4. Three Main Models of Tokenization

In his speech, Atkins systematically sorted out three current market tokenization models, reflecting the SEC’s high concern for industry practices:

Direct On-Chain Issuance: Companies directly issue equity tokens on a public distributed ledger. These tokens, as programmable assets, can embed compliance conditions, voting rights, and other governance features, enabling investors to hold assets directly with minimal intermediaries.

On-Chain Rights Mapping: Third-party institutions map traditional stock ownership into on-chain rights certificates, allowing investors to indirectly enjoy economic and governance rights of the underlying assets through holding on-chain tokens. This model preserves some traditional legal structures while introducing on-chain liquidity.

Synthetic Products: Issuance of synthetic tokens reflecting the stock price performance of listed companies. Such products are often issued in overseas markets, reflecting strong global investor demand for on-chain financial infrastructure.

The SEC needs to design differentiated regulatory approaches for these different models, encouraging innovation while managing risks.

5. Past Missteps of the SEC: Overexpansion and Suppression of Innovation

Atkins criticized the previous commission’s missteps in regulating on-chain markets, specifically attempting to expand the legal definitions of “trades” and “exchanges” to include on-chain protocols and even fundamental communication protocols within traditional exchange regulation frameworks. This approach “lacked restraint principles,” not only exceeding congressional legislative authority but also creating regulatory uncertainty and stifling technological innovation and market development.

He emphasized that the SEC should not forcibly shoehorn new forms of business into old frameworks through “brute force,” but instead build regulatory logic aligned with the technology’s nature and functional reality.

6. Proper Use of Exemptions: Providing Transition Space for Innovation

Under the Securities Exchange Act of 1934, the SEC is granted broad exemption powers. Atkins proposed that these powers should be “responsibly used” to establish a “limited, time-bound, transparent, and strongly investor-protective” exemption framework, offering a safe testing ground for on-chain financial innovations.

This “regulatory sandbox” mentality allows markets to explore new models in a controlled environment and provides the SEC with time to accumulate regulatory experience and develop long-term rules. Exemptions are not a free pass but a phased, conditional tolerance to promote orderly market evolution.

7. Regulating Decentralized Protocols: Avoiding “Square Peg in a Round Hole”

Atkins explicitly opposes regulating decentralized protocols through centralized intermediaries. He believes that truly decentralized protocols operate based on code rules and community governance, characterized by transparency, censorship resistance, and resilience. Forcing traditional broker-dealer regulations onto such protocols not only hampers effective supervision but also risks stifling innovation.

However, this does not mean on-chain finance can become “lawless.” The SEC must distinguish “truly decentralized finance” from “centralized entities merely disguised with on-chain elements,” to prevent regulatory arbitrage that harms investors. Regulation should be based on “functional reality,” not organizational form.

8. Fundamental Principles for On-Chain Capital Market Regulation

Atkins outlined three basic principles for regulating on-chain capital markets:

Technology Neutrality and Functional Regulation: Rules should be based on the substance of economic activity, not on labels associated with specific technologies.

Inclusive Innovation and Risk Control: While encouraging technological applications, transparency, accountability, and investor protection must not be weakened by technological change.

Global Coordination and Domestic Responsibility: The US should actively lead international regulatory dialogue to prevent fragmentation and arbitrage, while maintaining high standards domestically.

These principles aim at a common goal: to ensure the US remains “the most vibrant, transparent, and trustworthy market” in the on-chain era.

9. Corporate AI Information Disclosure: Upholding Principles and Opposing Checklist Regulation

Discussing the impact of artificial intelligence on enterprises, Atkins demonstrated a clear stance of “principle-based regulation.” He opposed issuing specific disclosure checklists for each new technology and advocated relying on the existing materiality-based information disclosure framework. Companies should independently assess whether AI significantly impacts their business models, financial conditions, or risks, and provide valuable information to investors accordingly. This flexible regulatory approach avoids instability caused by frequent rule revisions and grants companies sufficient discretion to disclose, reflecting the SEC’s trust in market self-regulation.

Conclusion: Returning to Mission, Leading the Future

Atkins’s entire speech sends a clear signal: the SEC is attempting to find a new balance between protecting investors, maintaining market integrity, and encouraging technological innovation. Its core idea is “return to mission”—not expanding power to cope with change, but optimizing rules, clarifying boundaries, and making good use of tools to better serve market development and the public interest.

In today’s dual waves of blockchain and artificial intelligence, this “mission-driven, principle-first, inclusive innovation” regulatory philosophy may be the key to maintaining the long-term competitiveness of the US capital markets. The SEC’s role is not to be a boulder blocking the flood of technology but to guide it through compliant channels—the riverbed that prevents floods but also nourishes the ecosystem.