U.S. lawmakers dig into tokenizing securities as Trump ties muddy waters

A U.S. House of Representatives hearing reviewed tokenization, with a broad agreement that securities traded via token need the same treatment as regular trading.

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What to know:

• Though a lot of questions remain about U.S. rules for tokenized securities, putting stock trading on the blockchain seems widely understood by U.S. lawmakers to be an inevitable need for regulation.
• The House Financial Services Committee held a hearing on Wednesday to examine the topic, which is also getting urgent attention from the U.S. Securities and Exchange Commission and from lawmakers working on the Clarity Act.

In the growing policy moment for securities tokenization, the House Financial Services Committee gathered views on the innovation at a Wednesday hearing, though the specter of President Donald Trump's family crypto ties did arise more than once.

The lawmakers broadly agreed that tokenized securities generally need the same regulatory guardrails as traditional securities trading, which matches the position of U.S. Securities and Exchange Commission Chairman Paul Atkins, who has said his agency is on the verge of issuing a formal rule proposal to move forward on such crypto policies.

"We stand at the threshold of a significant transformation in our financial landscape," said committee Chairman French Hill. But as tokenization arises, regulatory gaps and risks need to be explored, he said. "We obviously are going to maintain market integrity, no matter what technology we select."

Both parties have questions on oversight and how tokenization will mesh with traditional markets, which must still be answered by regulators and potentially by crypto legislation. Concerns raised by the panels' Democrats included anonymous wallets that could mask foreign ownership, know-your-customer issues and the management of decentralized finance (DeFi). But the hearing effectively acknowledged the onset of the technology as an inevitability rather than a theoretical future.

The committee's ranking Democrat, Representative Maxine Waters of California, said she's concerned about tokenization further moving toward the gamification of trading.

"This committee has already examined how trading apps use behavioral designs to turn investing into a game," she said. "Tokenization could make those trades faster, always on, and with fewer guardrails."

Speed and efficiency, though, is the foundational advantage of tokenizing stocks. Blockchain Association CEO Summer Mersinger offered that non-custodial, non-discretionary DeFi code brings efficiencies, because "you remove a lot of intermediaries that add expenses to the trade."

"Regulatory approaches should distinguish clearly between entities that perform intermediary functions and infrastructure that enables user-directed activity, ensuring that obligations are calibrated to the presence of custody, control and discretion," she said in her testimony. Mersinger also encouraged an "iterative approach" from the SEC to get policy going quickly on tokenization.

While the Senate is trying to finish the Digital Asset Market Clarity Act that will establish laws to govern such tokenization, Atkins has said his agency is going to provide an "innovation exemption" that lets firms test such new arenas as tokenization without immediate registration hoops. Even before any of that arrives, the crypto industry and wider financial sector are building tokenization platforms.

"Tokenization is just the next iteration of the technology," said Ken Bentsen, who leads the Securities Industry and Financial Markets Association. He said that new entrants should get the same regulations and guardrails as businesses currently involved in stock trading.

Just this week, BlackRock Chairman and CEO Larry Fink argued in his annual shareholder letter that digital assets and tokenization could "update 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 fund of tokenized U.S. Treasuries, USTB.

But committee Democrats also criticized the Trump administration's push on behalf of the crypto sector, which Waters said is paired with "blatant corruption" involving the Trump family's personal involvement in digital assets businesses, which includes a stake in World Liberty Financial Inc. that announced a deal with Securitize last month to tokenize loan revenue tied to hotel projects.

"The Trump family has earned an estimated $1 billion dollars in profit from their crypto ventures," Waters noted. "When officials in the government who are approving the rules also profit from the market those would regulate, the American people rightly ask whose interests truly comes first."

"The ties between the Trump family and this industry has unfortunately created a cloud over the legitimacy of moving forward on this important market structure legislation," said Salman Banaei, the general counsel at tokenization firm Plume who had also worked at the SEC and Commodity Futures Trading Commission.

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