Former US SEC Chairman: Digital Assets Will Change Global Financial Infrastructure

Jay Clayton said cryptocurrencies’ ability to eliminate friction in the global system will be hard to resist.


key takeaways

key takeaways

  • There are a number of paths forward for the industry, according to Clayton
  • “This asset class, in my view, is here to stay in one form or another. Whether it’s stablecoins or something else,” Clayton said

Former US Securities and Exchange Commission (SEC) Chairman Jay Clayton said digital assets will change the global financial infrastructure, but it’s unclear which types of assets will be most transformative. 

“I see digital assets, whether [they are] in the form of a tokenized traditional security, a stablecoin or a new type of asset, being part of our global infrastructure,” he said in an interview with Blockworks.

Exactly what form those digital assets will take is yet to be determined. “You need to distinguish tokenization and crypto technology from cryptocurrencies,” Clayton said. “If you look at the prospects for the combination of tokenization and smart contracts in our financial infrastructure, two things stand out,” he noted. The first is efficiency gains that are available in the existing infrastructure and the second is the opportunity that efficiency brings to reach additional markets and create new ones, he added. 

Clayton said the impact crypto technology has had on cross-border payments could provide a guide to future developments. 

“The ability to eliminate the frictions that exist in the current global banking system, particularly in emerging markets — as has been demonstrated by the volume of 24/7 global trading in bitcoin — is going to be hard to resist,” he said. 

Clayton, who became notorious in the crypto industry during late 2020 after charging Ripple and two of its executives for allegedly conducting an unregistered securities offering, has more recently become an advocate

After departing from the SEC at the end of 2020, he began two roles during 2021 as an advisory board member for crypto companies, Fireblocks and One River Digital Asset Management and subsequently wrote an op-ed in the Wall Street Journal in December 2021 about how America’s future depends on the blockchain and time is of the essence for the US to adopt this technology.

“This asset class, in my view, is here to stay in one form or another. Whether it’s stablecoins or something else,” Clayton said. 

Industry paths

There are a number of paths forward for the industry, in Clayton’s estimation. One of those paths is for stablecoins to map to our current system, where there is a government stablecoin that is used for the regulated banking system and then regulated stablecoins that are used for institutional or consumer purposes, he said. 

The current SEC and Federal Reserve leadership have raised some concerns over stablecoins, however. Chairman Gary Gensler compared them to poker chips in September 2021, Blockworks previously reported.

Separately, in July 2021, US Federal Reserve Chairman Jerome Powell said that stablecoins pose a threat and exist within an “underdeveloped regulatory framework,” but later reassured market players that he doesn’t intend to ban the digital tokens. 

Regulation is key

Whichever path is taken, the transition will be difficult, Clayton said, unless the key aspects of the US time-tested financial regulatory system, including anti-money laundering, know-your-customer and investor protection, are respected, he said. 

Gensler has also said that digital assets have potential, but aren’t immune to regulatory oversight. 

“I believe in the fundamentals of our regulatory structure and I don’t think they should change,” Clayton said. “[These technologies] can perform the regulatory functions, at least as well as the existing technology. Its incorporation in our financial infrastructure should be facilitated, but we should not be relaxing our regulatory principles and objectives to facilitate this technology,” he added.

Cryptocurrency markets have shown uncertainty recently as the global crypto market capitalization fell 2.95% over the last 24 hours to $1.93 trillion, but the total value of crypto traded increased 37.14% to $101.96 billion during that time frame, according to data by CoinMarketCap.

The two largest cryptocurrencies, bitcoin and ether, were down 12.63% and 18.53% year-to-date, respectively, on Monday at 5:40 pm ET.

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