By Sarah Hammer
Crypto’s Promise: Redefining Finance from the Ground Up
Every trade is a battle for dominance on Wall Street. It was here, starting my career as a derivatives trader in the high-stakes markets for global financial giants, that I saw firsthand the limits of a financial system stressed by outdated processes. T+2 settlement cycles stretched across days, leaving money hanging in limbo and exposing counterparties to needless risk. Clearing processes, which demanded the mediation of specialized entities to act as intermediaries, often faltered under pressure. The result? When trades failed to clear, they failed spectacularly, with monetary losses rippling across balance sheets. In contrast, crypto holds a revolutionary promise: instantaneous settlement. With the potential to bring us to T+0—or even T=0—crypto technology could replace the antiquated clearing model and settle transactions directly, irrevocably, and in real-time.
Crypto’s potential is immense, with markets that continue to expand rapidly, creating opportunities for both crypto-native businesses and established financial institutions, such as banks, asset managers, and private capital firms. Individuals can use crypto to make seamless cross-border payments, dramatically reducing or even eliminating burdensome transaction fees. And for the millions worldwide who lack access to traditional financial services, crypto offers a doorway to an inclusive financial system previously beyond reach. More than a new asset class, crypto has the power to redefine finance at its core. To lead this transformation, America must envision a bold, forward-thinking legislative framework for crypto.
Building a New Market Structure: Clear Jurisdiction for a Stronger Future
The lack of clear regulatory jurisdiction over digital assets has left the crypto market fragmented and messy, overshadowed by the constant threat of shifting regulatory winds. The United States must lead in this important area, establishing a framework that can foster growth while maintaining strong oversight. This leadership begins with building the structural foundation to govern and support the industry.
Clear regulation is not a constraint but an enabler of confidence, giving companies, investors, and innovators a reliable structure within which to launch and grow in the crypto space. A deliberate division of authority between the SEC and the CFTC will allow both agencies to focus on their strengths. With the SEC safeguarding investors and the CFTC overseeing digital commodities, this balanced approach sets the groundwork for trust in the market while allowing agencies to refine their expertise in oversight.
Categorizing Crypto: Defining Assets to Unlock Innovation
Digital assets are distinct from traditional securities or commodities; they occupy a category of their own. To unlock crypto’s full potential, legislation must recognize that not all digital assets fit neatly into existing frameworks. Though historically significant, the Howey Test requires interpretation and adaptation for this new age. Applying nuanced definitions to crypto to delineate when a digital asset should be classified as a security or a commodity will direct the agencies and allow each category to be governed by appropriate rules that best suit it.
Flexible standards are the solution. These standards, rooted in an asset’s function, degree of decentralization, and intended use, can preserve innovation while bringing order to the market. With intelligent categorization, crypto assets are not shackled by rules that don’t apply to them but are guided by a framework that allows them to grow and evolve within a stable regulatory environment. Such flexibility will allow digital assets to flourish while ensuring that protections are tailored, practical, effective, and future-focused.
Setting Standards for Stability: Why Stablecoins Need Smart Regulation
Stablecoins represent one of the most dynamic innovations crypto has to offer. Anchored to the U.S. dollar or other fiat currencies, they provide a digital equivalent of traditional money, blending the efficiency of blockchain with the stability of fiat. Yet this stability depends on a solid foundation: reliable reserves, transparency, and clear operational standards.
Legislation must ensure that stablecoins are worthy of the trust they aim to inspire. Standards for reserve backing, redemption guarantees, and transparency will serve as the pillars of this trust, creating a framework where stablecoins are not only usable but genuinely dependable. In establishing these standards, we provide consumers and businesses with a cryptocurrency they can rely on for transactions, payments, and remittances, supporting the U.S. dollar’s strength in an increasingly digital world. The impact is profound: safe, regulated stablecoins could streamline payments across borders, reduce or eliminate transaction costs, and bring unprecedented efficiency to finance.
Enhancing Trust: Codifying Strong Consumer Protection
Crypto markets thrive on innovation, but trust is the bedrock upon which a financial system stands. Effective consumer protection standards must sit at the heart of crypto legislation, ensuring that innovation proceeds in tandem with security. Robust disclosures, proof of reserves, and transparent advertising are not burdens but necessities, safeguarding consumers from fraud and fostering a market grounded in integrity.
Clear standards build a safe harbor for investors, protecting them from hidden risks while giving them the knowledge they need to make informed decisions. In a world where the market spans borders and participants are often anonymous, anti-money laundering (AML) measures and cybersecurity standards are indispensable. Appropriate legislation will ensure crypto can be both global and secure, drawing investors into a market built on transparency, honesty, and security. By setting strong consumer protections, we will secure more participants in the U.S. crypto market, reinforcing our leadership and making the nation a winner in the global financial landscape.
Building Confidence in Digital Markets: Affirming Registration and Oversight
Exchanges, brokers, and custodians are the public face of the crypto market. They provide access, facilitate trades, and safeguard assets. By requiring registration and proper oversight, Congress can establish standards for fair trading, custodial integrity, and consumer protection.
When digital asset intermediaries are held to rigorous standards, users can trust that their assets are managed responsibly, transparently, and securely. Such regulation is not only prudent but necessary for the market to scale. With high standards in place, these intermediaries will become pillars of a trustworthy crypto ecosystem, inspiring greater participation and confidence from institutions and individuals alike.
Unified Action: Joint Rulemaking and Advisory for Lasting Impact
Crypto regulation cannot be static; it must evolve with the industry it governs. However, with too many complex and often contradictory rules, the current U.S. regulatory environment makes it nearly impossible for businesses to operate confidently. A joint regulatory framework between the SEC and CFTC can harmonize oversight, avoid redundancies, and bring consistency to rulemaking. Establishing an advisory committee, bringing together thought leaders from both within and outside government, will create an agile foundation capable of responding to new developments in crypto technology.
The pace of technological change demands that regulatory bodies not only react but anticipate. A coordinated, adaptable rulemaking process will ensure that crypto legislation doesn’t simply catch up to innovation but facilitates it, guiding the industry forward with clarity and wisdom.
Expanding Agency Power for Impactful Oversight
Regulation is only as strong as the resources and authority behind it. To lead in crypto, the U.S. must provide agencies like the CFTC with the funding, personnel, and technological infrastructure required to oversee digital commodities and emerging digital markets effectively. This isn’t just about expanding jurisdiction; it’s about equipping agencies with the depth of expertise and reach necessary to keep pace with a fast-evolving industry. Significant investment in regulatory resources will lay the groundwork for a resilient, future-focused market, ensuring that the U.S. remains agile and authoritative in its oversight. With expanded resources, agencies will have the capacity to regulate effectively and engage meaningfully with industry, building a framework where innovation and compliance can thrive in tandem.
However, empowering individual agencies is only part of the solution. Effective crypto regulation demands seamless coordination across the U.S.’s complex and fragmented regulatory framework. With two market regulators—the SEC and CFTC—and three banking regulators—the Fed, OCC, and FDIC—implementing a unified strategy requires strong, informed leadership, unparalleled expertise in crypto, finance, regulation, and technology, and strong relationships with industry. By harmonizing efforts and leveraging this expertise across agencies, the U.S. can establish a cohesive framework that will make it a global leader in crypto innovation. This unified approach is essential for American leadership to establish the U.S. as the nexus for the future of finance.
Competing on a Global Scale: U.S. Leadership in the Crypto Race
The world is moving swiftly to establish clear crypto frameworks, with the European Union’s MiCA as an example. Jurisdictions like Singapore, Switzerland, and the UAE have positioned themselves as hubs for crypto innovation, offering clear regulatory schemes that attract talent, capital, and pioneering companies. As other regions embrace digital assets, the U.S. risks losing its long-standing position as a global financial leader. To maintain its edge, the U.S. must act with conviction, crafting a regulatory framework that supports innovation and grounds it in American values of transparency, resilience, and strength.
Crypto represents the next great frontier of financial evolution, with applications extending beyond finance to sectors like healthcare, supply chains, and digital identity. A regulatory environment that fosters crypto will allow the U.S. to shape the standards of these emerging technologies. By setting a high bar for innovation, the U.S. can ensure that these advancements reflect democratic principles and safeguard global financial stability.
The stakes are high. Proactive legislation will anchor the dollar’s influence in digital commerce through regulated stablecoins, solidifying America’s role in the digital economy. But more than economic leadership, this is about America’s ability to define the principles of a transformative industry. The U.S. can either lead the charge, setting the global standard for innovation and integrity or watch as other nations dictate the rules of a new digital era. Now is the time to ensure that the future of crypto and the future of finance is shaped by American leadership.
Conclusion: Seizing America’s Moment to Lead in the Future of Finance
The U.S. pioneers the world’s financial innovation, and crypto presents another historic opportunity. By enacting strong, comprehensive, forward-thinking crypto legislation, Congress can create a market where innovation and protection coexist and the promise of crypto can be realized to its fullest.
Crypto is not simply a new technology; it’s a transformative force that can bring greater efficiency, transparency, and inclusivity to finance. Bold, proactive regulation will secure America’s place at the helm of this new digital era, forging a resilient, efficient, and inclusive financial future that will benefit all. The moment to act is now—to seize this chance and shape the future of finance with clarity, courage, and vision.
Sarah Hammer is Executive Director at the Wharton School.