In the growing political momentum for tokenizing securities, the House Financial Services Committee gathered views on the innovation at a hearing Wednesday, although the specter of President Donald Trump’s family crypto ties came up more than once.
Lawmakers broadly agreed that tokenized securities generally need the same regulatory barriers as traditional securities trading, which is consistent with the position of U.S. Securities and Exchange Commission Chairman Paul Atkins, who has said his agency is close to issuing a formal rule proposal to advance such crypto policies.
“We are on the threshold of a significant transformation in our financial landscape,” said committee chair French Hill. But as tokenization emerges, regulatory loopholes and risks need to be explored, he said. “Obviously we’re going to maintain the integrity of the market, no matter what technology we select.”
Both sides have questions about oversight and how tokenization will integrate with traditional markets, which still need to be answered by regulators and potentially cryptocurrency legislation. Concerns raised by panel Democrats included anonymous wallets that could mask foreign ownership, know-your-customer issues, and the management of decentralized finance (DeFi). But the audience effectively recognized that the emergence of technology was an inevitability rather than a theoretical future.
The committee’s ranking Democrat, Rep. Maxine Waters of California, said she is concerned that tokenization will move further toward the gamification of commerce.
“This committee has already examined how trading applications use behavioral designs to turn investing into a game,” he said. “Tokenization could make those transactions faster, always-on, and with fewer barriers.”
However, speed and efficiency are the fundamental advantage of tokenizing stocks. Summer Mersinger, CEO of the Blockchain Association, offered that non-custodial, non-discretionary DeFi code brings efficiency because it “eliminates a lot of middlemen that add expense to trading.”
“Regulatory approaches must clearly distinguish between entities that perform intermediary functions and the infrastructure that enables user-directed activity, ensuring that obligations are calibrated with the presence of custody, control and discretion,” he said in his testimony. Mersinger also encouraged an “iterative approach” by the SEC to quickly implement policy on tokenization.
As the Senate attempts to finalize the Digital Asset Market Clarity Act that will establish laws governing such tokenization, Atkins has said his agency will provide an “innovation waiver” that will allow companies to try new areas like tokenization without immediate registration hurdles. Even before that arrives, the crypto industry and the financial sector in general are building tokenization platforms.
“Tokenization is just the next version of technology,” said Ken Bentsen, who heads the Securities Industry and Financial Markets Association. He said new entrants should be given the same regulations and guardrails as companies currently involved in stock trading.
Just this week, BlackRock Chairman and CEO Larry Fink argued in his annual letter to shareholders that digital assets and tokenization could “refresh the plumbing of the financial system.” News also emerged that investment giant Franklin Templeton secured a tokenization partnership with Ondo Finance and that $2.2 trillion asset manager Invesco had taken over management of Superstate’s $900 million tokenized US Treasury bond fund, USTB.
But Democrats on the committee also criticized the Trump administration’s push on behalf of the crypto sector, which Waters said is combined with “blatant corruption” involving the Trump family’s personal involvement in digital asset businesses, including a stake in World Liberty Financial Inc. which announced a deal with Securitize last month to tokenize loan proceeds tied to hotel projects.
“The Trump family has made approximately $1 billion in profits from their crypto ventures,” Waters noted. “When the government officials who approve the rules also benefit from the market they would regulate, the American people rightly ask whose interests really come first.”
“Unfortunately, the ties between the Trump family and this industry have created a cloud over the legitimacy of advancing this important market structure legislation,” said Salman Banaei, general counsel at tokenization firm Plume, who also worked at the SEC and the Commodity Futures Trading Commission.
