Securities and Exchange Commission (SEC) Chair Gary Gensler, who has been at odds with the crypto industry over what many describe as “regulation by enforcement,” now has a new benchmark for compliant crypto operations: Utah-based tZero. On Tuesday, tZero became only the second firm to receive a special-purpose broker-dealer license from both the SEC and the Financial Industry Regulatory Authority (FINRA), enabling it to custody digital asset securities.
The SEC introduced this specialized license in December 2020 to oversee the expanding crypto market, delegating approval authority to the semi-independent FINRA. It took over two years for the first license to be granted, with Prometheum receiving approval in early 2023. Prometheum, however, has faced skepticism within the crypto community, largely due to its controversial stance that many digital assets, including Ethereum, should be classified as securities.
tZero’s recent approval signals a potential shift in the regulatory landscape, allowing the company to custody digital asset securities and offer trading through an affiliated alternative trading system (ATS), akin to Prometheum’s model. tZero Executive Vice President Alan Konevsky welcomed the license, stating, “We are at the very avant-garde of regulatory innovation in the United States as one of only two broker-dealers entrusted by the regulators to custody digital asset securities.” He expressed optimism that this regulatory clarity would foster innovation in the digital asset sector.
The ongoing debate between crypto firms and regulators centers on whether digital assets like Ethereum and Solana should be classified as securities, under SEC jurisdiction, or as commodities, regulated by the Commodity Futures Trading Commission (CFTC). This ambiguity has restricted the traditional services crypto companies can offer, including custody and trading.
Prometheum, which has drawn criticism for aligning with Gensler’s view that most digital assets are securities, has yet to fully implement its custody and trading services despite its license. The skepticism surrounding Prometheum is partly due to its claim that Ethereum is a security, a position at odds with much of the crypto industry and the SEC’s fluctuating stance.
With tZero’s recent approval, there is cautious optimism that the special-purpose broker-dealer license might become more common, despite the company’s relatively modest industry presence. Like Prometheum, tZero operates an SEC-regulated ATS and plans to custody a variety of digital asset securities, including equities, funds, and securitized assets. tZero has indicated its readiness to comply with regulatory developments and support lawful paths for trading and custody of various digital assets, including those under dispute like Ethereum and Solana.
FINRA confirmed the approval but declined further comment, while the SEC has refrained from discussing specific entities.
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