SEC’s “Crypto Mom” Warns Tokenized Securities Must Follow Existing Rules

A senior U.S. securities regulator known for her crypto-friendly approach emphasized on Wednesday that new trading models involving “tokenization” must still comply with existing securities laws.

Hester Peirce, a Republican commissioner at the Securities and Exchange Commission (SEC) who is often called “crypto mom,” said in a statement: “As powerful as blockchain technology is, it does not have magical abilities to transform the nature of the underlying asset. Tokenized securities are still securities.”

Tokenization involves converting traditional company shares into digital tokens, making them tradable much like cryptocurrencies. Instead of directly holding the shares, investors hold tokens that represent ownership. Peirce noted that these tokens could be issued either by the security’s original issuer or by unrelated third parties. She warned that “anyone who buys a third-party token could face unique risks.”

The concept of tokenizing securities has been gaining traction among crypto firms and other financial players as a novel way to streamline trading. For example, Coinbase recently told Reuters it is seeking SEC approval to offer blockchain-based stocks.

SEC Chairman Paul Atkins, also a Republican, signaled a generally supportive stance on innovation in a CNBC interview last week, saying the agency should “encourage innovation” when asked about the idea of tokenized securities.

However, critics argue that this new technology could become a loophole to avoid SEC oversight and potentially expose retail investors to new kinds of risks.