Partner at Morgan Creek Blockchain Capital and self-described “crypto capitalist hell-bent on tokenizing the world” Anthony Pompliano has predicted that the United States SEC will mandate the use of tokenized securities.
Pompliano, colloquially known as ‘Pomp,’ explained in a blog post that a tokenized security is what happens when an asset’s ownership structure is managed by a blockchain. Instead of paper share certificates, shareholders own cryptographic tokens.
Pomp goes on to say that the advantages of this system are many--“increased Liquidity , global investor base, 24/7 market, and breaking of capital controls.”
But why would the SEC mandate such a thing? Pomp alleges that “forced adoption is a regulators response to new technology that (1) side-steps current regulations, (2) enhances the data accuracy & transparency for market participants, or (3) creates a more efficient & compliant system.”
NEW POST: The SEC will mandate Security Tokens --> I dig into how and why Security Tokens benefit regulators more than any other market participationhttps://t.co/jz0uckKL0H
— Pomp ? (@APompliano) May 27, 2018
”Tokenized Securities Create More Compliance”
He continued to explain that of all the advantages that blockchain-based asset management systems have over traditional centralized ledger-based systems, the most significant benefit is for regulators. “When you move asset ownership onto a blockchain, you are able to build a more regulatory compliant system,” he wrote. “Yes, tokenized securities actually create more compliance, rather than less.”
According to Pomp, a switch to blockchain technology would mean the end of the “ridiculous amount of time, energy, and resources [spent] to monitor the securities market.” Under the present system, it can take years and millions of dollars to catch, try, and prosecute lawbreakers.
If blockchain-based systems were used instead, “regulators will be able to ensure that current laws are accurately written into the underlying protocols, which then govern all securities activity.”
For example:
”If I am an accredited investor in the US, I can purchase a Reg D security offering but am not allowed to trade it within 12 months of purchase. The new tokenized system, specifically the protocol, knows who I am (my wallet is KYC/AML verified), what security I hold (all properties such as regulation exemption status, jurisdiction & date of issuance, etc is written into the token), and anyone that I am trying to transact with (their wallet is KYC/AML verified).
If I attempted to trade my Reg D security within 12 months or with an unaccredited investor, the protocol would instantaneously identify the trade fails compliance criteria and the trade would be rejected. The security would be returned to my wallet, along with information on why the trade was rejected.”
Pomp concluded that “simply, a tokenized securities market is an improved securities market.”
His claims are certainly plausible--members of the trump administration, certain members of Congress, and even the SEC Chairman himself have expressed their enthusiasm for the power of blockchain technology.
However, a chronic lack of clarity in the regulations surrounding cryptocurrency in the United States could mean that Pomp’s vision of the future is some time from becoming a reality.
