Earlier this week, Chairman Atkins delivered a speech at the Federal Reserve Bank of Philadelphia where he provided more details on the SEC’s “Project Crypto.” He offered these core principles underlying Project Crypto:

Before I walk through how I view the securities laws as applied to crypto tokens and transactions, let me state two basic principles that guide my thinking.

First, that a stock is still a stock whether it is a paper certificate, an entry in a DTCC account, or represented by a token on a public blockchain. A bond does not stop being a bond because its payment streams are tracked using smart contracts. Securities, however represented, remain securities. That is the easy part.

Second, that economic reality trumps labels. Calling something a “token” or an “NFT” does not exempt it from the current securities laws if it in substance represents a claim on the profits of an enterprise and is offered with the sorts of promises based on the essential efforts of others. Conversely, the fact that a token was once a part of a capital-raising transaction does not magically convert that token into a stock of an operating company.

These principles are hardly novel. They are embedded in the Supreme Court’s repeated insistence that we look to the “substance” of a transaction, not its “form,” when deciding whether the securities laws apply. What is new is the scale and speed at which asset types evolve in these new markets. This pace requires us to be nimble in response to market participants’ urgent requests for guidance.

Chairman Atkins noted that, in the coming months, he hopes that the Commission will consider “a package of exemptions to create a tailored offering regime for crypto assets that are part of or subject to an investment contract.”

– Dave Lynn