The New SEC Guidance on Crypto & Tokenization will Change Everything! | Tiffany Smith

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Tiffany welcome, Thank you for having me.

Yeah, Tiffany, it's a great day for us to be talking because we got the draft of the CLARITIAC today. The industry everybody's heads down reading through. But you bring a lot of experience at the table, and I want to pick your brain on securities laws and where you see the future of crypto going and much more. But before we get to all that, tell us about yourself.

Oh well, first of all, thanks for having me. I'm very excited to be here. I've been listening to this podcast for the last couple of years. So I'm from New Jersey. Originally, I grew up near the Shore area in a town called Neptune, which is by Asbury Park. Went to d C for undergrad at George Washington, stayed in DC there for law school, and then I went to my firm, Wilmore Hail right after law school, and

And where along the line at Wilmer Hill did you discover blockchain and crypto and how did you become the co chair of that group?

Yeah, it's been a journey.

So I started off in the firm and the securities broker dealer regulation group when I started back in two thousand and eight, no one knew what a broker dealer was. And I would go to cotail party any place and I would say broker dealer and people would fall asleep. And now I feel like everyone talks about broker dealers, exchanges, transferagious exchanges, transfer agents, and all of those types of

Talks about RWA today, but back in.

Twenty seventeen, it was tokenizing real estate, art, wine, collectible and those are the first types of matters I worked on initially, and over the years I started working on crypto matterage more broadly. But my first forte was a tokenization of real world assets, which is like, come full circle, because everyone's talking about that today.

You were so early twenty seventeen. I don't think I

Yeah, So it's interesting because everyone has a different touch depending where they sit. So because I work at a large law firm, the clients that were coming to us were the clients that were institutional backed, and they were thinking of tokeniza chain as a way to fractionalize real world assets, and so I thought that was super interesting.

So fast forward to twenty twenty six, Tiffany, what a journey that tradfy. The major bangs and institutions are here, and to your point, they're looking to put all these assets on chain. They're now starting with stocks and other equities like money market funds and then commodities, gold as well. Are you blown away by the you know, growth that we've seen.

Absolutely, it's super exciting to see. It's super exciting to see it. Sort of it's interesting it was sort of small mentor backed companies that were experimenting back in twenty seventeen. You know, I was early, really too early, and a lot of the companies that are around that time didn't make it. And so now it's sort of you have both the institutional clients, institutional traditional entities thinking about tokenization

So speaking of traditional companies, you and I were speaking before we started recording. You were just a consensus Miami. You mentioned some of the biggest institutions had setups there. Tell us about who you saw there.

I saw everyone there. There's a lot of suits. So first off, it was very crowded, right, you know, I've been going to consensus. I know, maybe this is my sixth or so consensus and sort of like depending on the price of crypto assets kind of depends on like the vibe at the conference. So there were you know, super crowded. There were both like institutional participants there as

So it's a really good mix.

And I saw like other clients that I know who have been in crypto for years and don't really have like a low profile, but because their major institutions, who are who had people or they didn't have signage because they kind of move sort of under the radar, but they were there.

So the first time I've seen.

Them ever at consensus, So I thought that was pretty fascinating.

That's pretty significant because at one point, Tiffany, this was all taboo, like, don't talk about it, it's a scam.

I will fire anyone who.

Touches this many we may recalled that famous code from Jamie Diamond. But now they've got employees there, they've got people out, they're talking about crypto, blockchain tech, how can we use it in different ways, how can we innovate it.

It's fascinating.

Yeah, so it's it's fascinating.

I think it's also as a result of all of the regulatory clarity that we have, you know clarity. The bill is still pending before Congress, but the SEC and other agencies have done a great job providing clarity with their existing authorities. And so now I sort of think we think of crypto, I kind of think of four different buckets, and so you have you know, assets, like Bitcoin. Then you have like other types of crypto assets like

About all of those assets all together.

And now that we have clarity, you have different institutions who were interested in different parts of that taxonomy I laid out right, And so it could be that some of the large institutions still don't think, still don't want to touch a bit Kanye still don't want to touch crypto assets, but they really believe in tokenization, right. And so because we have this clarity, we have this unlock in different

I should say, pardon the interruption. Hi, I'm Tony. I'm the host of the Thinking Crypto podcast. I wanted to ask you if you can please support the podcast by hitting the like button subscribing. If you haven't as yet, you can leave a comment below as well well. And if you're listening on a podcast platform such as Spotify, Apple or wherever you get your podcasts, please be sure to follow and hit the five star rating. I'll let you get back to the content.

Thank you so much. You made a.

Pretty profound point there where you highlighted at somebody's institutions. They may not care to hold bigcoin or even have a bigcoin product. However, the blockchain rails they're interested in that the actual networks that they can go build on which benefits the tokens, but they don't necessarily have to participate with the token at.

All, exactly exactly. And that's like, you know, sort of going back to my origins in the space. It wasn't that folks were doing icos, at least my clients. It was really using the rails, using tokenization to fractionalize, using tokenization to be able to have quicker settlement, using tokenization or tokenization to enable distribution.

And so it's all of those.

Elements of the technology that firms are looking at using that I think results in a broad subsection.

Of firms who were interested in it.

Now, you testified last year before Congress the Subcommittee on Digital Assets. Tell us about that and what was the conversation. These were the early days in trying to get the clarity.

Active Assue going, yeah, so this is super early. So to kind of set the stage. That was back in April of last year. That was before the House had.

Actually came out with Clarity.

So they were sort of working a little bit around Fit twenty one, taking us way back. And so this was the first hearing on market structure that sort of set the stage for that Congress to introduce what became Clarity. And so in my testimony, I talked about the need for legislation for digital assets, how they were distinct and different from you know, typical securities, which resulted in the

Now it's sitting before Senate banking.

So we owe you thank you because you are certainly one of the folks to help get this.

Small small thank you, small thank you, small thank you.

Obviously, the draft of the bill came out today, everybody's still going through the you know, with a fine tooth comb.

We're recording this on Tuesday, May.

Twelfth, and the markup is going to happen in two days on Thursday, May fourteenth.

So what are you anticipating with this process?

Maybe can tell us about the sausage making here, like, is it going to be a lot of back and forth? Remove this line, put this line in that type of thing.

Yeah.

So during during a markup, both sides have the ability to introduce the amendments, and so we need there to be bipartis and support, Like, you know, the version of the bill that passed Senate ag pass on a parison basis, and in order for the bill to actually pass Senate, we bipartis and support. So I imagine that there's going to be some amendments made by the Democrats to make sure that they have whatever compromise language they need in

Fingers crossed, Tiffany, they can get this done.

It would be so amazing, especially if you get it done by I know July fourth is the two hundred and fiftieth year anniversary of the United States and celebration and all that. All that's going to happen if they can get it done, it'd be pretty momentous.

Yeah, yeah, absolutely.

Another thing I think that not everyone fully appreciates is that getting a bill is really.

Just the first step.

Once you have legislation, then you actually need to go into the rule making phase, and that can be quite significant.

So, Tiffany, as it relates to rule making, the SEC seems to be getting ahead of curve here. They put out a lot of guidance and this is very much in your lane because you have a plethor.

Experience with securities laws.

I would love to start with the SEC's recent guidance on crypto securities with the four categories they put out.

What is your take on that?

So, first, I think the SEC did a wonderful job. It was a huge undertaking to provide that clarity, and I think it's helpful and we're already starting to see the market react to that. And so that is commission level guidance. There's a different there's a number of different types of guidance that can be put out by the SEC. You have staff level guidance. There's been a lot of

Do you think this is comprehensive or there needs to be any additional items or it filled in all the gaps.

I think it's a good start, and so that's why I started to buy applauding them.

It's much more difficult.

To start with something even though that's not going to be perfect. And so because they did, like you know, sort of setting the stage, and Crypto Task Force was started over a year ago and they have been taking tons of meetings. They've provided a foundation for industry to provide input and they kind of took all of that and that result culminated in the in the Commission level guidance,

But I think because we have the.

Commissions the Commission's interpretation as of March, it gives firms the ability when they have additional questions to go in and seek additional guidance.

Yeah, it helps out.

They're more friendly and open to dialogue versus you come in and you get a hit with a law suiter a Wells notice.

Yeah, Like I think.

So you know, during those times, we you know, defended a number of clients Buith publicly and you.

Know, non publicly.

And I think when you're trying to run a company based on looking at a complaint or a settlement, it's very difficult because when you read a complaint, you're trying to compare sort of what that company did to what you did. And it's like, okay, well they mentioned in this complaint against X company that you know this particular asset is a security. Does that automatically mean that I have to delist the asset?

Right?

Or you know this staking program is an investment contract, does that mean mine is?

Like? Right?

And so I think any type of guidance is super helpful because it gives firms some direction and sort of something like a type of north star to sort of aim for. And because the SEC's willing to engage, they've asked for comments even with that interpretation, So it really provides an industry and ability to provide more feedback to kind of get to the right place.

Yeah, that makes sense and that's really great to hear.

Now, Prior to this guidance, pretty much securities lawyers and everybody in industry have to look to how we test.

So how does this fit with the how we test? Or doesn't have to fit.

It could just be this is for digital assets specifically, while it takes some of the how how we test LINGO for token I securities and things.

Like that, so that so I kind of I would separate out token I securities. When I think of token I securities, I think of you know, take you know X ticker which is on uh, this is on the stock exchange, and just having a digital version of that.

And I know the SECI, I think I recall Chair Atkins said they still have to release guidance or rulemaking on tokenization itself, right, I think that's still to come, and they may be in the process working on it.

So there's a couple of different I think types of guidance we're waiting for. So the staff has shoot guidance about tokenization several different models, whether it's issuers driven or third party or synthetic, and then the commission level interpretation sort of reference that guidance to bring that staff level guidance up to the commission level. There are still I think some questions about you know, what additional guidance has

So I do that it's different.

The other thing that we're waiting for is guidance on it's called like reg crypto, which sort of provides a safe harbor for issuers of new crypto assets to be able to offer that asset, you know, with like limited I'll say, like some type of exemption from the feral

Let's double click on the reg because that one's interesting.

Yes, that's my understanding. It's sort of like the safe harbor that Commissioner Purse had been had proposed and reproposed a couple of years ago. So it talks about instances where you're issuing a token to raise capital, the types of disclosures you need to make, and I'm understanding, but have some type of tests that determines when you're no longer essentially a security and required to make those disclosures versus when you're like fully decentralized.

Interesting.

I'm really fascinated by that because that goes back to lawsuits that happened even under.

Jay Clayton yeh, when he was chair.

So that's going to be a big one, and I wonder if you know, I'll just give an example. I'm not picking on them in any way, but Circle just did a pre sale on their arc blockchain token, and black Rock was a participant, Apollo and some big names, So I wonder if folks are going to try to get ahead of this and launch share tokens before that comes out.

So I think the interesting distinction between what's happening now versus twenty seventeen twenty seventeen prior to the Dow report, I don't think firms or projects either they didn't realize they were issuing securities or they took the view that they weren't going to comply with the feral securities laws, like right one of the two things here after you know, years of enforcement in all of the ICO cases, I think it's pretty clear to most projects that offering a

Because we because they have it in the past, would be it's going to be a big unlock.

Yeah, because that was certainly a challenge in the years prior twenty seventeen onward with the icos, where people would send money to their cousin in Germany, Hey buy this coin and then send it back to me via thiss wallet, right because they couldn't access it here.

But how does that dynamic play out?

Do you think where these tokens are on the globally distributing network. The supply can be in different parts of the world, so to speak.

And if people.

Overseas don't have to comply with the US laws and they can have the token, but I can send my uncle, Like, how does that? I don't understand how the SEC would even manage that.

It's tough.

It is tough.

The SEC has very broad jurisdiction when it comes to US persons, and so I think that if you know, there's limited instances where people send money to their cousins and participate in offering, I think that's one thing that's really hard to police. I think it's another thing if it's happening on full scale, that's sort of part of the distribution plan, because then it's like the project or the token issuer is avoiding is like kind of avoiding complying with.

The US securities laws.

Right.

But I think we sort of we want to get past that, right And I think that, as a lot of folks have said, the US has the most liquid capital markets, and so I think that once the SEC provides guidance about how to issue tokens in the US, people are going to sort of around the globe will come here and we're seeing this now, even with respect to crypto projects. Right before, when everyone's sort of looking offshore because of regultory uncertainty, now they're all sort of

Right.

And so I agree that crypto assets are global, but I think because everyone wants to be in the US, once standards are set here that allow people to participate and not just institutions, I think that the you know, people will comply with whatever the standards are and they'll and there'll be lots of token offerings here.

That's a great point.

We have the largest capital markets mostly good as you mentioned, and you know, once the rules are clear, I could see more people coming back because at one point they were like, you know what, screw to US. I don't want to get in trouble there. I'm gonna go do it overseas. But once the rules of the road are clear, it will be a lot easier for them.

Absolutely, And even like air drops like right, that's a great example. Like back in the twenty nineteen SEC guidance, there was language indicating that air drops could even be security as offerings. And with this Commission guidance, we were just talking about you know, there's instances where air drop you can give air drops to us persons like right, So there's just all of these little unlocks that we have as a result of this clarity.

Boy, I can't wait for air drops to come back. Make make air drops it great again. That would be really good. So that's a big one that I think I'm really looking forward to the other thing that the SEC provided was guidance on user interfaces. SEC staff issues broker dealer registration guidance on certain user interfaces tell us about the significance of this.

So it's actually really huge.

So, as I mentioned, I grew up as a broker dealer attorney, and it's sort of you know, you're ingrained as a broker dealer attorney that someone's engaging in a security transaction and they received transaction based compensation that they're a broker, and that's sort of how a lot of the guidance that has been issued over the last couple

Right.

You're allowed to have a wallet that.

Allows a user to direct or messages to a liquidity pool, but it doesn't talk about the status of that liquidity pool, and that's what the innovation exemption is supposed to cover.

So I'm assuming this is very big for self hosted crypto wallets crypto walts in general.

Correct, Yeah, absolutely, yeah.

So if you think back to some of the cases that were brought under the prior administration, I can think of at least two where crypto wallets were alleged to be unregistered brokers. This essentially provides clarity that under these conditions, a crypto wallet is not acting as a broker dealer.

There's something the CFDC also did recently.

I don't know if you're more on the security side, but I don't know if you're aware of this, and I it's escaping my mind right now, but I interviewed that one of the folks from Phantom, the crypto wallet company, and it was pretty big and it was something related to broker dealer as well. So you got both the SEC and CFDC providing the clearance.

Yeah, that one's a little bit different. It talks about introducing brokers and it provided a way for introducing brokers wallet providers essentially to send orders to introducing brokers.

On the CFTC side.

It's a little bit different because, as I mentioned, the SEC guidance permitted orders to be sent to centralized or decentralized protocol that allows it to be sent to centralize and it's on the CFTC side, So it's distinct.

But I think.

Overall, anytime there's guidance that sort of talks about the parameters of when you can comply with the laws, you don't have to comply with the laws that are applicable. I think that's helpful for the industry and for builders because I know they have standards that they can build towards.

I love that these agencies are providing the guidance, and it's like a breath of fresh heir to have them just working together closely.

The Mike c like cheer Atkins.

They had to I remember a joint hearing together and much more saying Hey, we're gonna do this, We're gonna work together Project Crypto and all that jazz.

So it's really great.

Yeah, and it's great for a number of different ways. It's it's great for firms who are in.

The crypto spaces, especially because, as I kind of laid out before, you know, certain crypto assets are digital commodities, certain of them could be securities, and so having the agencies work together is helpful because it allows firms to go in and request one meeting and talk to both agencies at the same time and talk about how their

Absolutely, it's twenty twenty six.

You should make this so easy, right, Digital and these agencies should have some interoperability where they can share information and it could be one platform that they pull the same data from that I don't have to go register here with this guy and that guy. And especially with AI and plus blockchain technology.

Come on, guys, Yeah, no, absolutely, I think that like understanding that you have to be regulated and being regulated should be the easy part, right, because the point of regulation is to protect investors, make sure that people get

Absolutely, tell us a bit about as much as you can, because we know there's NDAs and privacy and so forth. With your clients, you probably can't give names. Well, what type of clients are you working with? How are are they viewing the change in the landscape under the Trump administration as well as the guidance from the SEC.

So I have a very broad client base, So I work with a lot of crypto data firms, from centralized platforms to infrastructure providers, to wallets, to venture capital firms to trade associations, also work with a number of the traditional firms, including you know, the ones who are ogs who have been kind of experimenting with crypto for years, as well as the ones who are sort of newer to crypto, are not even like publicly on the radar,

Yeah, so do you imagine that you know, once clarity is past, President Trump signs it that we're going to see a kickoff of innovation and these companies, especially trad fin institutions, building out their divisions, hiring people, creating jobs, coming up with things we didn't even think of before for blockchain innovation and applications.

Absolutely, I think for so, I think the traditional firms they really need legislation and you know, in some respects like affirmative, the affirmative ability to engage in this this asset class before they invest. And so if I think back twenty twenty twenty twenty twenty twenty one, there were a number of large traditional institutions who sort of came to us. They were investing in crypto, they wanted help trying to figure out, you know, getting.

How to get into this industry.

And then once the price after like you know, various scandals and bankruptcies and then we had the enforcement cloud, they all sort of deinvested. They got rid of those teams, right, And so I think everyone is looking back at history and being very cautious about investing until we have enough like regulatory clarity and really regulatory durability.

So that's why. And this is like.

Cha Atkins has mentioned that, so clarity the bill is important not just be because it provides guidance about the status of assets, but it's important because it provides a

Yeah, that's the key, right, Even if the SEC does all this great work. Another administration can come and say, you know what, Nope, change it, throw it all out yep.

Yeah, and they're super you know, both in public discussions and private discussions. The SEC and staff are fully aware of that. And so just last Friday, Chair Atkins made a speech talking about how the staff and the Commission has put out guidance and statements, but in order to have durability, they need to start engaging in rulemaking.

Oh absolutely, I know this is kind of taking a backseat because all eyes are on the Clarity Act right now, but defiant tax legislation.

Are you in talks with anybody you are you hearing anything there?

Are your client saying, hey, okay, we need clarity, but what about tax?

Yeah?

So tax is I think the next big thing that folks are thinking about just a consensus. Last week, Representative horse For from Nevada was talking about the Parity Act, So I know that there's a draft, there's draft legislation out there.

We just help a.

Group of clients submitted an amicus brief on the Garret case, which is a crypto tax case. So I think people are definitely thinking about it. It's sort of like not the most, not not at the top of the list right now because of all of the back and forth

Yeah, I think the keyword you mentioned there, it's so important for adoption because yes, I'll have clarity, but if I don't know what I can do with my staking rewards or how it can spend my crypto if want to buy something or whatever, uh, it's going to.

Hold me back from exactly exactly.

Boy. So we got to get this Clarity Act done.

Tiffany clarity and then parody then parody.

Right, it's exciting, but you know, look, we got genius done. And that's often to racist, even though some of the banks are pushing back on stable corn yield, but you know, it's it is law. So if we get Clarity done, that would be so impactful for this industry and I can't wait to see the innovation posts that becoming law.

Yeah, and I think that using Genius as an example, that's why we saw all the really innovative products that I've sort of mentioned like right, and so I'm just really excited, Like based on Genius and you're talking about just payment stable coins and all of the innovation and all of the new market participants in entering there, It's been like dramatic because Clarity is so much more broad and captures so much more of the market. I'm excited to see having that legislation, what it unlocks.

What do you have on your road map? Are you

So no plans to testify. This week, I'm going to be speaking at the Kansas City FEDS Innovation Conference. It's a group of community bankers, so that's going to be super interesting and just you know, a lot of travel, a lot a lot of conferences. I think, you know my road map. A lot of my clients are looking forward to making and making sure that all of the great guidance of the SEC put out is durable, and so there's been a lot of guidance out there for

Well, tell the folks of the FED, you know, we need their help as well. All right, get these banks on board. I got some wrap up questions here for you, Tiffany,

Or band Beyonce of course, favorite movie? Don't have one really, not movie person?

Okay, okay, how about favorite book?

That's a hard one too.

The last book I've read was Let Them by Mel Robbins.

But don't really have a favorite book either.

And when you're not working, what do you do for fun?

I like to travel, like to travel, I like to work.

At nice Tiffany, we're gonna have to do a round two, especially when ray crypto guidance comes from the SEC.

You've got a lot of knowledge. But thank you so.

Much for joining me today, thank you for having me.

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