Statement Summary
In a recent address at Princeton University, SEC Commissioner Hester Peirce reflected on the importance of the Blockchain Camp and the talent present in the room. She emphasized her commitment to fostering a regulatory environment that supports innovation in the cryptocurrency space, while also acknowledging her limitations in technical expertise. Peirce advocated for clear regulatory boundaries that empower developers to solve real-world problems without excessive legal entanglements. She highlighted the challenges regulators face in adapting traditional securities laws to address decentralization in the crypto space and noted the SEC’s careful approach to rulemaking. Peirce encouraged industry stakeholders to proactively tackle issues within their domain, emphasizing the need for common-sense solutions and industry standards. Overall, she called for an ongoing dialogue about how regulation can effectively balance innovation with the protection of investors.
Original Statement
Thank you, Jim, and thanks to the Initiative for Cryptocurrencies and Contracts. Before I begin, I must remind you that my views are my own as a Commissioner and not necessarily those of the SEC or my fellow Commissioners. I am happy to be here at Princeton University, the place where my parents’ romance began. My mother, hoping that I too would meet a wonderful husband here, urged me to apply to Princeton for graduate school in economics. Economics was my first love, and Princeton would have been a good place to pursue it and perhaps also to find my second love. Though I knew that I did not have the math scores to get into Princeton’s excellent PhD program, applying was the least I could do for my long-suffering mother. The admissions committee—cruelly indifferent to the maternal plan—agreed with my self-assessment. Reviewing the agenda for this Blockchain Camp, which includes topics such as cryptography, privacy, and distributed systems, resurrected that thirty-year-old rejection letter. Reminded once again that I do not belong here on the Princeton campus, I am grateful that you admitted me despite my obvious deficits.
The fresh reminder of my own limitations only makes me more keenly grateful for the talent that those of you in this room possess. I delight to see others excel in areas in which I do not. You have the raw intelligence and the training to design and build things that make it easier, safer, and cheaper for humans to communicate, interact, and transact. Events like this one, which bring together so many smart people, enable you to critique, refine, and build upon one another’s work and, importantly, to encourage one another to create good things that solve real problems. Thank you for the work that you are doing to improve the lives of other people and contribute to human flourishing.
Regulatory Environment
What can I—a regulator—do to enable you to use your talents for good? I already have made clear that I will not be of any use on the technical side. My job is to work with Congress and other regulators to establish a sensible legal framework within which you can work on solving technical and commercial problems. The regulatory boundary lines need to be clear enough that you do not have to spend precious time and money working with lawyers to discern where those lines are, but not so prescriptive that they cannot accommodate technological change. Laws and regulations have a role to play, but they should be designed to encourage, not dissuade, you to invest your time and talent to build useful things.
Before I share my thoughts on what the SEC ought to do with respect to crypto, a reminder is in order. Law should be the first place you look to solve problems. Statutes and rules take a long time to draft and, once they are on the books, they are hard to change. Moreover, governments do not have access to the expertise that is available to industry. Industry-devised solutions can be more effective and more responsive to technological changes. Tackle problems that you see instead of waiting for regulatory fixes. You can take common-sense steps to prevent future hacks of DeFi protocols, for example. Fight AI hackers with AI. Consider whether you should build delays into your protocols to impede bad actors’ attempts to steal assets. Plan for human failure by incorporating safeguards in your protocols. Establish industry standards for key management. Test and audit code before deploying it for customers to use. Make tools available that empower your users to see what is happening onchain and offchain. Figure out what the right balance of centralization and decentralization is for your project and be transparent with the public about the trade-offs you have made and the resulting risks to users. And, more generally, be honest.
Challenges in Regulation
The challenge permeating many of the issues under consideration by the SEC’s Crypto Task Force is deciding where regulation should apply. In a 2024 article, Professor Reyes chided regulators and the law itself for their “overreliance on intermediaries” which results in a lack of workable rules and undermines law’s legitimacy. The law’s focus on intermediaries, Reyes explains, has led regulators confronted with decentralization in the crypto world to “pretend that an intermediary existed” when one did not.
Regulators tend to look at everything through the eyes of their particular hobbyhorse. The SEC’s rulebook is full of intermediaries: brokers, dealers, exchanges, clearinghouses, transfer agents, investment advisers, and investment companies. As a result, we see the crypto world teaming with brokers, dealers, exchanges, clearinghouses, transfer agents, investment advisers, and investment companies. In some cases, the blockchain is used to perform functions similar to those performed by these intermediaries, but it is not clear that our rules should apply to the blockchain itself, given that blockchains are used to do many things other than transact in securities.
Even where a tool has been designed to replicate the functions performed by a regulated intermediary, however, applying our traditional categories to the activities and actors we see is difficult. Accordingly, we are proceeding carefully (and more slowly than many people would like). We are trying to watch and learn as we go. Recently, for example, the Commission staff issued a staff statement on user interfaces that enable people to engage in crypto asset securities transactions. The statement is a temporary measure as the Commission considers whether and how to regulate in this area. Similarly, the planned innovation exemption to permit onchain trading of NMS stock will enable us to consider how such trading should be regulated.
More generally, Chairman Atkins and I have called on the Commission to reconsider key definitions, including exchange and broker definitions, to appropriately capture activity that should be regulated while carving out of those definitions activity that should not be subject to regulation.
Conclusion
Some basic principles guide my thinking as I seek to apply securities regulation where it belongs and keep it away from activities that are not properly within our mandate. These basic principles are meant to be a conversation starter or, more accurately, a conversation continuer. Am I on the right track? Should the Commission engage in an interpretive rulemaking to expressly adopt any of these principles, or should they simply be reflected in our approach to rulemaking and enforcement? Professor Reyes has pointed out “emerging technology is law’s magic mirror” in that it can “reflect various flaws or gaps in existing legal regimes.” Crypto offers us the opportunity to think carefully about when, why, and how the securities laws should apply, and I welcome your participation in that undertaking—one that, even after all these years, I find to be fascinating. Thank you for listening. I look forward to the discussion ahead.
