Crypto for Advisors: Wall Street Awaits Congress on Digital Currency Rules
Then, in Ask an Expert, Diego Grassano explains what advisors should look for before trusting a tokenized platform.
Without a federal framework, financial firms would standardize compliance and infrastructure on their own.
When the Senate failed to advance the Transparency Act on Sept. 15, the United States was once again left without a comprehensive federal framework for digital assets, and regulators moved to partially fill the gap. Two days later, the SEC issued an "innovation exemption" that allowed certain venues to trade US-listed tokenized shares on-chain.
But an exemption is not a law and can be limited or withdrawn as easily as it was granted. This leaves financial firms with a practical question: What are you building while you wait? For consultants, the answer is more important than who won or lost in Washington.
The question came up last week at a Crain's New York Business event, whether the topic was tokenization, compliance or cybersecurity. People close to work are not waiting for Congress. They make for the world as it is.
Adam Shuman, OKX's vice president of legal affairs, described the legal problem. American companies respond to federal laws, federal agencies, state laws, and state regulators, and none of them move at the same pace. "You want general consistency, but you don't get uniformity," he said. Companies do the rest on a state-by-state and country-by-country basis, while agencies address the most pressing gaps.
That piece costs money. Aravindaraju, CFO of Uphold, said compliance is now one of the company's biggest divisions as it creates solutions tailored to each state's needs. As the rules become clearer and more harmonized, he expects those sources could change course. For advisors, the bottom line is that compliance is the real cost of doing business on these platforms, and companies that manage it well will have an edge.
You might expect this iteration to drive the industry toward shared infrastructure. Instead, many institutions this year launched private, closed networks for tokenized assets, stablecoins, and securities ledgers that cannot easily talk to each other. The result is that every company ends up rebuilding the same connections, said Louis Toff, CEO of Twilight, which makes settlement and clearing technology.
Risk moves in the opposite direction, towards separation. Early digital currency companies packaged trading, custody and settlement under one roof. Today, traditional custodians own digital assets, and the places that conduct transactions are increasingly separated from the places that protect them. This means that no single entity has to hold every key function or become a breakpoint. Compliance and security are also changing, from annual certifications and periodic reviews to checks that run continuously with every transaction.
None of this required Congress, and that's the point. Without a comprehensive framework, the industry is converging on ways that any future regulation will find hard to understand: approved counterparties, clear lines between business and custody, and compliance that never stops.
Whether these practices become a bridge to legislation or a substitute for it is still an open question, but the direction is clear. Raju made a prediction. In three years, he said, "we'll probably stop using the word 'crypto'" as tokenized treasuries and cryptocurrencies become the norm.
If he's right, the infrastructure being built now, without legislation to guide it, will matter beyond this cycle.
- Eric Sofer, Partner and Head of Advanced Technology, Task Strategy
Q. Regulatory Vulnerability: How risky is it for institutions to invest in infrastructure built on temporary SEC exemptions and state-level remedies?
The main risk is allocating long-term capital to infrastructure that may only have a temporary license to operate. Exemptions can help institutions get started, but they need a valid plan if permits change or expire. I want clear ownership rights, separate custody and a tested exit path that allows investors to recover their assets.
Q. Solving fragmentation: How can institutions bridge private blockchains and silos without compromising security or regulatory isolation?
Organizations must connect networks without losing control over ownership, compliance or privacy. Bridges are improving, but they still pose real security and operational risks. While regulatory standards are fragmented, I maintain legal ownership recognized on the main chain and allow supported and redeemable agents to be broadcast elsewhere, with eligibility and transfer restrictions on both networks.
Q. Advisor Actions: What Criteria Should Financial Advisors Use to Evaluate Token Platforms When Federal Investor Protection Is Still Uncertain?
I start with two questions: What does my client actually have and how will he get his money back? Then check who owns the assets, who independently verifies the numbers, and what happens if the platform goes down. Take a closer look at fees, conflicts and withdrawal limits. Due diligence is not complete if the advisor cannot clearly explain the ownership structure, risks and recovery process to the client.
- Diego Grassano, Business Manager, Shift; Chief product manager of Lumia
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