News AnalysisThe U.S. Securities and Exchange Commission's (SEC) forthcoming "innovation exemption" related to tokenization is anticipated to lack the robust durability of a comprehensive regulatory rule, despite the long-standing demand from the cryptocurrency sector for stable U.S. regulations.
Former SEC officials express concerns over the strength of the proposed exemption
By Jesse Hamilton|Edited by Nikhilesh De Jun 14, 2026, 2:00 p.m. 5 min read
The SEC is gearing up to introduce one of Chairman Paul Atkins' key policies for the cryptocurrency space, aiming to provide some regulatory flexibility for those involved in tokenizing securities, including company stocks. However, this initiative does not meet the crypto industry's demand for a permanent regulatory framework, which may still be a distant goal.
The SEC could pursue formal rulemaking for tokenization, which would represent a more permanent solution involving several rounds of public feedback. Instead, the agency has indicated that it plans to utilize its existing authority to exempt businesses from securities regulations, allowing temporary access to blockchain technology to explore innovative financial products.
SEC Commissioner Hester Peirce noted, "It doesn't have to be done as a rulemaking," emphasizing that the SEC has the ability to grant exemptions without formal rule changes. "We can do it as a rule, but we don't have to do it as a rule."
In March, Chairman Paul Atkins characterized the forthcoming policy as "an innovation exemption to facilitate limited trading of certain tokenized securities with an eye toward developing a long-term regulatory framework." He clarified that it would be "limited in time and scope, but long enough so that we can craft more durable rules that harness the full potential of these new technologies."
In a subsequent statement in May, he added: "I also think we should consider what a future-proofed framework may look like, which would take the form of notice-and-comment rulemaking and would address the 'exchange' definition as applied to on-chain trading systems."
CoinDesk consulted several former SEC lawyers regarding the decision to defer formal rulemaking and the potential longevity of this interim measure. Most concurred that while the approach may not carry the full weight of SEC authority, it would be challenging to reverse if a future administration were to adopt a different stance.
Charles Riely, a former assistant regional director at the SEC and now a partner at Jenner & Block, stated, "The end goal is ultimately a statute or rule that provides certainty. The question is whether the innovation exemption can be a step toward that."
He added, "Given the increasing participation in digital asset markets, it will be very hard for a future administration to undo this work and bring cases where investor harm is absent."
Uncertain future for crypto regulations
Despite the absence of a new Digital Asset Market Clarity Act from Congress, the SEC has been actively pursuing its interpretation of crypto regulation, particularly concerning tokenization. However, many of the agency's positions on various topics — including memecoins, mining, and the treatment of software for investor wallets — have relied on interim staff-level decisions rather than formal commission authority, which could be more easily overturned by future leadership.
Exemptions like those anticipated in the upcoming tokenization policy are decisions made by the commission that carry more weight than mere staff opinions.
Thoreau Bartmann, a lawyer at K&L Gates and former co-chief counsel of the SEC's Division of Investment Management, explained that the SEC's preference for exemptions might stem from the lack of explicit rulemaking authority regarding crypto in existing legislation. "The exemptive route might actually make more sense for the commission, because it's basically saying you — crypto — don't have to follow these rules until we get some sort of durable grant of rulemaking authority," he said.
Future rules derived from any new legislation would be even more complex to implement and challenging to amend once established.
Timeframe for rulemaking
Patrick Daugherty, a former SEC lawyer now representing crypto interests at Foley & Lardner, noted that formal rulemaking typically requires at least 12 to 18 months. Though rules can be rescinded, doing so involves a lengthy process of public notices and comments, as evidenced by the SEC's current efforts to retract its Biden-era climate change regulations.
The SEC might be considering the difficulties faced by the industry while awaiting rulemaking, believing that temporary exemptions could be robust enough to withstand challenges. Daugherty suggested that reversing policies that create economic value from new products and services would be a tough sell for any future commission.
Tokenization, which involves converting traditional assets into blockchain-compatible tokens, is currently a focal point of momentum within the crypto sphere. Advocates argue that it could revolutionize trading by providing continuous access, reducing reliance on intermediaries, and enabling instant transactions.
As the SEC prepares its innovation exemption, which has been in the works for several months, it must also clarify its position on tokens created by third parties, the identification of purchasers in secondary sales, and how tokens that represent securities will handle shareholder voting and dividend rights.
Proponents of blockchain technology hope that the SEC's regulatory initiative will encourage traditional financial institutions and investors to engage with these new products, potentially unlocking significant market opportunities. However, some believe that mere agency actions, without legislative support like the Clarity Act, may not suffice to instill the needed confidence.
Ashley Ebersole, chief legal officer of Sologenic and former senior counsel at the SEC, remarked, "It depends on the risk tolerance of the entity involved. Legislation is the only way of obtaining the permanence demanded by some players to enter the crypto space or offer certain products in the U.S."
Despite Chairman Atkins' proactive stance on crypto policies, he has acknowledged the necessity for congressional action to ensure lasting regulations. "We really need to have Congress speak to this area," he stated at an industry event in April, asserting that the SEC's legal framework is still based on outdated laws from the 1930s, making it essential to establish a statute that future-proofs the industry's evolution.
Read More: Citi opens new route into private markets with tokenized share offering