Positive Outlook for Tokenization
Ondo Finance announced on Monday a positive outlook for the future of tokenization in the United States, following the closure of a prolonged investigation by the Securities and Exchange Commission (SEC). This inquiry focused on the company’s Ethereum-based decentralized finance platform and its ONDO token, examining whether it constituted a security.
SEC Investigation Closure
The SEC, which had been scrutinizing Ondo’s practices since 2020, ultimately decided not to bring any charges against the firm. The company noted that this investigation began during the administration of President Biden, a time marked by increased regulatory scrutiny of digital financial services. In their blog post, Ondo expressed relief at the closure, asserting that they were never a justified target and emphasized their commitment to developing regulated financial products featuring highly secure traditional assets.
“We are committed to developing regulated financial products featuring highly secure traditional assets.”
In parallel, Decrypt attempted to obtain confirmation from the SEC regarding the closure of the investigation but had not received a response at the time of reporting.
Tokenization and Regulatory Landscape
At the forefront of tokenizing equities at scale when the SEC inquiry commenced, Ondo had already developed a platform for creating digital tokens representing U.S. Treasuries. During this period, the agency was led by Gary Gensler, who notably remarked in 2021 that cryptocurrencies which act as synthetic representations of traditional stocks fell under the jurisdiction of securities law. Gensler’s tenure was punctuated by various lawsuits against multiple firms, including Coinbase and Ripple, related to securities violations.
Ondo’s ONDO token, which empowers holders to vote on corporate decisions, was trading at approximately $0.47 on Monday, showing a modest daily gain of 3.7%. However, over the past year, the token plummeted by 77% from its height of $214 last December. As of today, Ondo manages over 100 tokenized assets with its short-term U.S. debt fund being the largest, valued at $774 million.
Future of Tokenization
In the wake of Gensler’s resignation and the recent shift in the SEC’s approach, the regulatory landscape for tokenization appears to be evolving. SEC Chair Paul Atkins recently indicated on Fox Business that financial markets might transition to entirely blockchain-based infrastructures within the next few years. He critiqued the SEC’s historical tendency to lag behind in fostering financial innovations.
Additionally, in September, Nasdaq petitioned the SEC for permission to record stocks in a tokenized format, with SEC Commissioner Hester Peirce stressing the need for legal clarity in tokenization to unlock its complete potential. This reflects an emerging recognition of the importance of tokenization within the financial regulatory framework, signaling a transformational shift in how assets may be managed and traded in the future.
