Grayscale: SEC innovation exemption. First critical step in monetizing stocks.

Author:Zach PandlGrayscale Research Manager; compiled: Shaw, Gold Bank

The growth in the size of currency-based stock exchanges (figure 1) has continued.The value of block-chain infrastructure in capital markets was demonstrated.The vast majority of previous related transactions took place in overseas markets, using “packaged assets” similar to derivatives. The recent resolution of the United States Securities and Exchange Commission on innovative exemptions, which aims at integrating chain-to-chain transactions of monetized shares into the regulated US financial system, would provide full voting rights and dividends to holders.

In particular,This directive temporarily eases two types of registration requirements: (1) a platform for a transaction that meets the qualifications does not need to be registered as an exchange; and (2) a liquid provider that meets the qualifications does not need to be registered as a dealer. The exemption mechanism is designed to facilitate transactions in monetized securities, which are subject to US securities law.For example, most transactions currently take place in an unlicensed environment and under the new regulations, white list addresses can be converted between monetized shares and stable currencies through a licensed version of the Uniswap pool.

The Directive is accompanied by extensive access conditions and restrictions:Transactions must be carried out in the public chain; participants should adopt an access system; and public disclosure of information must take place before the trading platform is fully operationalAll the rules of control, such as anti-fraud, market manipulation, AML/CFT and OFAC screening, are still applicable.The exemption is valid for five years, with a maximum number of listed criteria.The volume of transactions is also capped.

This is not the final form of a monetized securities market, but rather a crucial first step in driving it to maturity. The directive has been described as an interim measure by SEC Chairman Paul Atkins as “a follow-up that requires long-term regulatory rules”.

We anticipate that the innovation waiver policy will further promote the development of a monetized stock market and demonstrate that a block-chain-based trading infrastructure is fully compliant, while achieving investor protectionIf the pilot is successful, the scope of future policy is expected to expand and Congress is expected to introduce legislation that will be jointly supported by both parties.

Core point: The SEC innovation exemption policy will help to leverage stock market development and verify that the blockchain trading infrastructure is able to balance compliance requirements with investor protection.

Figure 1: Currencyized stock transactions have previously shown an upward trend