Feb. 21, 2021
Re: 17 CFR Part 240 [Release No. 34-90788; File No. S7-25-20] Custody of Digital Asset Securities by Special Purpose Broker-Dealers The SEC's statement has been prefaced with the following: "As an interim step, in addition to the request for comment, the Commission is issuing this statement. The Commission recognizes that the market for digital asset securities is still new and rapidly evolving. The technical requirements for transacting and custodying digital asset securities are different from those involving traditional securities. And traditional securities transactions often involve a variety of intermediaries, infrastructure providers, and counterparties for which there may be no analog in the digital asset securities market. The Commission supports innovation in the digital asset securities market to develop its infrastructure." In my opinion, this statement significantly downplays the differences typically seen between the trade of traditional securities, and the trade of digital assets, including "digital asset securities." This is primarily where I seek to provide input, as the SEC must understand where digital asset securities fit into the bigger picture, before effective policy can be formed. Thanks to technology, secure digital assets can be created, distributed, traded, and capitalized upon by laypeople, without the need for an institutional intermediary. Transparency, or at least a substantial degree of transparency, is typically ensured without breaching privacy or requiring disclosures. Contracts can be written into an asset itself and executed automatically in a trustless manner. Further, because digital asset securities double as currencies, investors can earn interest on digital asset securities just like they would on fiat. And, due to the peer to peer nature of the trade, corporations can use digital asset securities as a means of increasing brand engagement with their customer base; in other words, unlike traditional securities, digital asset securities can be used by enterprise to pursue key marketing objectives, independent of investment objectives. It is also important to recognize that digital assets, including many digital asset securities, are traded across borders as part of a global market that, for the most part, does not operate according to the regulations of any one country. And the trade of digital assets, including digital asset securities, has become a global phenomenon, accounting for a significant and rising impact on the global economy. Therefore, it becomes imperative that any US regulations regarding the sale of digital asset securities are consistent with, or at least compatible with international regulations and attitudes. Otherwise, US citizens may easily find themselves at a disadvantage, relative to the rest of the world. To be clear, I think it is obvious that everyone benefits when the SEC seeks penalties against entities which have deliberately deceived investors in attempts to profit from lies and manipulation. However, there is zero reason why traditional security laws should be blindly and indiscriminately applied to a new paradigm that is anything but traditional. While the proper way to regulate the sale of digital asset securities is up for debate, it is clear that existing laws which currently affect the brokerage of digital asset securities are putting the United States at a disadvantage relative to the rest of the world. US investors seeking to purchase digital asset securities - either as an investment or as a form of gambling - are faced with fewer options, costlier options, and less trustworthy options relative to their international counterparts. This is because the most reputable exchanges - some of which are located in the United States - are afraid of pushback from the SEC. Likewise, US businesses - which for the most part do not yet understand the true benefits of tokenization - are reluctant to even explore the topic for fear of SEC reprisal. And businesses that have issued their own security token are reluctant to register with the SEC not because they are unwilling, but because doing so makes it harder for them to gain cooperation from popular cryptocurrency exchanges - whom they depend on for distribution. For the time being, I urge the SEC to take a deliberately laissez faire stance towards the brokerage of digital asset securities. This will serve immediate benefits to US citizens, and it will allow the SEC to learn from the free market as it begins to determine the framework of future regulations. Sincerely, William Goldblatt