Donald Trump’s potential SEC chairman could bring sweeping changes to the cryptocurrency landscape. With the promise of a pro-industry approach, the new chair will need to tackle key issues to transform the US into a global crypto leader. This article explores the top five challenges and opportunities that lie ahead for the new SEC leadership, offering insights into the future of cryptocurrency regulations and market dynamics.

Let Ether Funds Start Staking

The introduction of spot Ethereum (ETH) exchange-traded funds (ETFs) on July 23 marked a significant milestone, but the absence of staking — locking ETH as collateral in exchange for rewards — remains a glaring gap.

PRESIDENT TRUMP: “ON DAY ONE I WILL FIRE SEC CHAIR GARY GENSLER…LET ME SAY THAT AGAIN…I WILL FIRE GARY GENSLER!” ‼️

Fixing this issue is not straightforward. The Investment Company Act of 1940 mandates that ETFs and mutual funds must promptly redeem shares for underlying assets on-demand, usually within a day. Staking, however, complicates this due to unpredictable timelines for staked ETH withdrawals, often taking days to complete.

The SEC has previously exempted funds from this rule and should consider doing the same for spot Ether. Crafting a thoughtful carveout will take time, and Trump’s nominee should prioritize this from day one.

Embrace On-Chain Compliance Solutions

The SEC should adopt a flexible approach to core securities market functions such as reporting, clearing, and settlement, where blockchain technology excels. Distributed ledgers automatically record and settle every on-chain transaction, offering high resistance to manipulation or fraud.

The SEC has already recognized on-chain ledgers as valid financial reports in certain instances. Now, regulators should scale this recognition, issuing comprehensive guidance to enable broader adoption of blockchain compliance solutions.

Upgrade KYC and Custody Rules for Web3

Current Know Your Customer (KYC) and custody rules are outdated for the Web3 ecosystem. Self-custody wallets like Ledger and MetaMask are regulatory black holes, off-limits to most security tokens.

Qualified crypto custodians (QCs) in the US, such as Anchorage Digital, BitGo, Coinbase Custody, and Paxos, already hold crypto for users in insured, segregated accounts. Integrating elements of self-custody, like non-upgradable smart contracts and private keys, into existing QC rules would enhance investor protections.

These changes are largely achievable within existing laws. The core goals of SEC oversight remain relevant, and blockchain technology offers new ways to achieve them. Mapping these solutions onto the SEC’s frameworks will unlock new possibilities for Web3.

Bring DEXs Out of the Shadows

Decentralized exchanges (DEXs) like Uniswap and Balancer represent the future of trading, replacing costly intermediaries with transparent, non-custodial smart contracts. Properly implemented, DEXs can reduce costs, mitigate counterparty risk, and facilitate real-time, 24/7 trading.

Despite their potential, DEXs remain largely unregulated due to a jurisdictional tug-of-war between the SEC and the Commodity Futures Trading Commission (CFTC). The SEC should clarify which tokens are securities, set a clear registration path for DEXs, and hand off the rest of the spot crypto market to the CFTC.

DEXs should meet comparable standards to traditional exchanges for risk management, KYC, and disclosures. The SEC should fully embrace on-chain solutions wherever possible.

Dollarize the Digital Economy with RWAs

On-chain dollarization is the holy grail of US crypto policy, and the opportunity is vast. Global demand for tokenized dollars is growing exponentially. Dollar-backed stablecoins like USD Coin (USDC) and Tether (USDT) have already invested billions in US government debt.

Tokenized money market funds and other yield-bearing real-world assets (RWAs) are just beginning to gain traction in Web3. Early entrants like BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) and Franklin OnChain US Government Money Fund (FOBXX) face severe restrictions.

The SEC should foster a robust on-chain market for USD-backed RWAs, ensuring these tokenized securities fully leverage blockchain capabilities. They must be tradable on DEXs, accessible to user-managed wallets, and open to Web3 developers.

A truly America-first crypto policy should prioritize dominating the digital economy for decades. America’s robust financial regulatory framework is an invaluable asset, and Trump should pick an SEC chair who understands this and is ready to act.

The author does not own or have any interest in the securities discussed in the article.