How Biden threatens Wall Street’s $16tn tokenisation push

How Biden threatens Wall Street’s $16tn tokenisation push
President Joe Biden vetoed a resolution to scrap crypto custody guidance. Credit: Darren Joseph
  • President Biden has vetoed an attempt to scrap SEC guidance on crypto custody.
  • SAB 121 also impacts on chain versions of regulated securities, lawmakers say

President Joe Biden’s veto of a bill that would scrap an obscure piece of accounting guidance barely made headlines outside crypto circles.

But on Wall Street, experts say, Biden’s move halts momentum on an industry that could dwarf the crypto sector: the $16 trillion opportunity to tokenise assets like stocks and bonds.

The bill would have repealed a piece of Securities and Exchange Commission guidance called SAB 121, which critics say makes safeguarding large amounts of crypto — a business known as custody — financially impossible for big banks.

That matters for cryptocurrencies like Bitcoin, especially as Wall Street is seizing on crypto to win new customers.

But it also matters for Wall Street’s tokenisation efforts.

SEC Chair Gary Gensler “is holding back tokenisation technology with SAB 121,” North Carolina Democrat Wiley Nickel told Congress this week during a hearing convened by the House’s digital assets subcommittee.

“He’s putting President Biden in a very difficult position on this issue.”

Election issue

Nickel’s comments come as crypto emerges as a hot-button election issue.

Join the community to get our latest stories and updates

The industry has amassed a $85 million warchest to sway voters before November’s election.

The industry is attracting increasingly bipartisan support — the bill to repeal SAB 121, for instance, passed both chambers of the House.

SAB 121

SAB 121 is an oddly obscure topic to rally politicians.

It’s a short piece of accounting guidance put out by SEC staff in 2021 notifying firms they should record crypto assets as liabilities on their balance sheets.

The issue is that big banks must hold capital against risky on-balance sheet items. Essentially, SAB 121 makes it prohibitively expensive for custody banks like BNY Mellon or JPMorgan to hold crypto.

Crypto backers see Biden’s unwillingness to budge on this issue as an indicator of his administration’s lingering hostility toward the industry.

Risk profile

The issue is that SAB 121 is so vague, its definition of crypto asset could encompass digital versions of traditional securities purely because they’re recorded on blockchain ledgers, Lilya Tessler, a partner at law firm Sidley Austin, said during the hearing.

If Wall Street’s custodians won’t hold tokenised securities, that’s a problem for their issuers, which must have somewhere to store the underlying asset.

Tessler said that regulated securities don’t change their risk profile merely because they’re recorded on a blockchain.

“A tokenised stock or a bond is still a stock or a bond, whether it’s on a traditional ledger or a blockchain ledger,” she said.

New risks

Sceptics, however, warn that tokenisation does present new risks.

Hilary Allen, a professor at American University Washington College of Law, said during the hearing that tokenisation is increasingly done on public blockchains, which present security, scalability, and governance concerns.

They “suffer from inescapable inefficiencies and operational fragilities that make them unsuitable as supporting infrastructure for real-world assets,” she said.

Reach out to the author at