American capital markets are undergoing a structural shift driven by advances in technology and changes in who participates and how. As market access evolves, participants increasingly expect greater agency, continuous availability, and tools that reflect modern mediums of engagement. These expectations are evident in growing demand for extended trading hours, fractional ownership, and digitally native platforms. Together, these developments are reshaping not only how markets are accessed, but how they are designed, regulated, and understood.
Decentralized Finance (DeFi) was developed with these primitives (and others) hard coded. Updating capital markets will depend on the reaction of policymakers to the moment. Current trends point to the adoption of crypto pipes that preserve legacy rents and intermediaries – updating the system but not the markets.
National Market Structure (NMS) – Securities Acts Amendments of 1975
(a)(1) The Congress finds that- (A) The securities markets are an important national asset which must be preserved and strengthened. (B) New data processing and communications techniques create the opportunity for more efficient and effective market operations. (C) It is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure- (i) economically efficient execution of securities transactions; (ii) fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets; (iii) the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities; (iv) the practicability of brokers executing investors orders in the best market; and (v) an opportunity, consistent with the provisions of clauses (i) and (iv) of this subparagraph, for investors' orders to be executed without the participation of a dealer.
Market Dynamics
In a July 2025 speech, “American Leadership in the Digital Finance Revolution”, SEC Chairman Paul Atkins delivered a mandate for the integration of securities and non-securities assets in trading venues:
“Plain and simple: securities intermediaries should be able to offer a broad range of products and services under one roof with a single license. A broker-dealer with an alternative trading system should be able to offer trading in non-security crypto assets alongside crypto asset securities, traditional securities, and other services, like crypto asset staking and lending, without requiring fifty-plus state licenses or multiple federal licenses. Nothing in the federal securities laws prohibits SEC-registered trading venues from listing non-securities on their platforms today.”
The speech follows three trends that are emerging as clear rules for what constitutes a crypto asset security, commodity, ancillary asset, and other inch closer.
First, venues will compete on tradable assets as much as distribution. Intercontinental Exchange (ICE) recently announced a new venue through the NYSE that will, “enable tokenized trading experiences, including 24/7 operations, instant settlement, orders sized in dollar amounts, and stablecoin-based funding. Its design combines the NYSE’s cutting-edge Pillar matching engine with blockchain-based post-trade systems, including the capability to support multiple chains for settlement and custody.”
NASDAQ sees a similar future, as described in their submission to the SEC Crypto Task Force:
“This ecosystem would have several key characteristics. First, it would leverage familiar regulatory frameworks to ensure that markets are fair, secure, and orderly in nature. Second, this ecosystem would be structured to permit all digital assets (other than Financial Securities), regardless of classification, to trade side-by-side in the same venues. (Financial Securities would continue to trade on existing trading venue types, including national securities exchanges and ATSs.). Third, both existing digital assets trading platforms and “traditional” securities market operators (such as national securities exchanges) would be able to own and operate markets that trade the foregoing categories of nonFinancial Security digital assets under a new regulatory framework and on a level competitive playing field. Fourth, it would include hallmarks of regulated markets that are neutral, transparent, and fair. Fifth, for reasons we discuss below, we recommend that such trading venues interact with investors through brokers, but if they employ a direct-to-investor model, then we suggest that the direct-to-investor venues assume best execution and best interest duties on investors’ behalf or otherwise impose investor suitability requirements.”
Second, tokenized securities could fragment DeFi due to regulations (or the lack of) that restrict certain DeFi protocols, interfaces and, even, permissionless networks themselves from touching tokenized securities. Key considerations for tokenized securities include:
- Settlement and finality
- Transaction confidentiality
- Collateral and custody
- Systems compliance and integrity
- Best execution
- Transfer agents
Digital Asset, the company behind the Canton blockchain, questioned whether permissionless systems should be able to trade tokenized securities in their filing with the SEC Crypto Task Force:
“What does this regulatory clarity for tokenization of traditional securities look like? Answering this question requires understanding what tokenizing a security ultimately entails: utilizing a blockchain as the books and records for that security; and a blockchain is nothing more than a better set of electronic books and records, one that synchronizes automatically with the books and records of counterparties. Viewed from this perspective, […] the regulatory treatment of tokenized traditional securities resolve, largely, into questions about what types of blockchain-based books and records are regulatorily appropriate.
Our recommendations below on how to answer these questions are guided by existing regulatory principles. Analogizing to current systems, would paper-based books and records be acceptable if they were on public display? And would existing electronic books and records be acceptable if they were accessible by anyone on the internet or if the ability to update them was dependent on unknown third-party validators?
The answer would of course be: no. The same standards should apply to blockchain-based books and records. Accordingly, so long as existing regulatory principles are met—particularly, considerations around privacy, control, security, and transaction finality—the use of blockchain as electronic books and records should be permissible. This is where the Commission can provide critical regulatory clarity to ensure the development of fair, orderly, and efficient digital capital markets.”
Third, the next wave of adoption could be captured outside of permissionless systems. In practice, this looks like existing DeFi protocols and frontends moving offshore as the US regulatory system writes rules that only well-capitalized legacy firms can comply – where adoption and innovation is decided by compliance, not outcomes for users.
Update the System
Chairman Atkins approached the claim that SEC regulations could force the industry offshore in his July 2025 speech:
“Consistent with the PWG Report, the SEC in concert with other regulators should strive to have the most efficient licensing structure for SEC registrants. They should not be unnecessarily subject to multiple regulators or regulatory regimes. This model has worked well for banks, which are broadly exempted from many duplicative regulatory frameworks, such as broker-dealer and clearing agency registration. Regulators should provide the minimum effective dose of regulation necessary to protect investors while allowing entrepreneurs and businesses to flourish. We should not overburden them with paternalistic regulation that could drive them offshore or make American companies less competitive internationally. Our regulators should unleash the forces of venue and product competition for the benefit of all Americans. We should not artificially constrain business models and impose duplicative regulatory costs on American businesses that favor the largest firms that are better able to bear the regulatory burdens."
The same phrase ‘minimum effective dose’ appeared in new CFTC Chairman Mike Selig’s recent Washington Post oped:
“Arbitrary, cumbersome and opaque rules will not stand the test of time. The CFTC’s approach should be to deliver the minimum effective dose of regulation—nothing more and nothing less.”
Minimum viable regulations do not mean lighter touch. Where regulators reconcile rules for securities and permissionless networks, for national exchanges and DeFi frontends, legacy institutions will argue for the same rules, same activities (same outcomes for same risks).
Self-custody wallets are a good example. Despite clear technological differences in how wallets engage with customers and additional tools touch, route, or aggregate information, legacy institutions see competition and opportunity to stifle it through broker registrations. SIFMA argues:
“It is critical to identify when wallet providers supporting tokenized securities are carrying out services which would require registration as a broker, dealer or other entity. Some wallet providers represent their offerings regulatory submissions as simply providing software that enables users to hold their private and public keys. However, there is the potential for wallet providers to offer additional services in which, if they were to be offered for tokenized securities, would function in a manner very similar to, and in some cases would directly overlap with, core brokerage activities, including, order routing, soliciting trades, providing investment advice, arranging financing, and safekeeping. This combination of services beyond basic functions such as key management is seen among some wallet providers supporting the non-security crypto asset markets.
When tokenized securities are involved, these services require registration as a broker, dealer or other entity authorized to perform a relevant function (e.g. regulated national banks which may provide custody services without being broker dealers).”
Broker-dealers intermediate trading to ensure best execution, suitability, leverage limits, and manage risks and conflicts of interest. Some of these elements can be effectuate by regulation or disclosures. Others, can be automated in DeFi such as execution quality, leverage limits, and market abuse monitoring, achieving the policy outcomes of fair and efficient markets through design rather than intermediation.
The opportunity for crypto to advocate for the dual opportunity to update the system and market structure is not to avoid regulations, but to reform them. Moving financial markets onchain should be first and foremost about fairness and efficiency.
Update the Markets
Updating the system (books and records) without changing the market structure (price formation, trading mechanisms) would be a failure of both policymakers and financial institutions to recognize inefficiencies created by the amalgamation of rules under NMS and the ability for DeFi to solve some of them.
An analysis of NMS reveals, despite some rules achieving some aims, information asymmetries have moved to the edges. This is a symptom of regulators playing market designers rather than letting the technology of markets compete on outcomes that meet the NMS goals. SEC Commissioner Hester Peirce wrote (prior to serving on the Commission):
“More than forty years have passed since Congress embedded the concept of a national market system into the securities laws. In the intervening four decades, the SEC has taken on the role of market designer. That role has brought with it many headaches for the SEC and for the investors and issuers that markets serve. During the same time period, the technology of markets has advanced markedly, so arguments for the government-directed development of the markets are even less compelling now than they might have been in the 1970s. It is time to reconsider the national market system mandate.”
DeFi, permissionless systems and the innovations contained within have the ability to transform the relationship between regulators and markets. DeFi primitives are tools for programmable finance that prioritizes fairness by design. Technology-neutral regulations have, at times, preserved inefficient outcomes; whereas a new market structure could allow new and legacy rails to compete on delivering §11A’s objectives of fair access, efficient execution, resiliency, transparent data.
Regulators and DeFi share the same goals. This alignment presents a unique lens through which to reconsider national market structure.
The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of Flashbots