Tokenization: Our Field Of Dreams? Remarks At The Crypto Task Force Roundtable On Tokenization, CFTC Commissioner Caroline A. Crenshaw, Washington D.C., May 12, 2025

Today’s topic is very broad, perhaps the broadest tackled so far in these Crypto Task Force roundtables: tokenization. I understand that much of the discussion will focus on potential regulatory efforts to facilitate tokenization.

This idea brings to mind a famous line from the movie Field of Dreams – “if you build it, they will come.”[1] As you may remember, this is a movie starring Kevin Costner as Ray Kinsella, a farmer who is inspired by a mysterious voice to plow under his corn field and build a baseball diamond, taking it on faith that great things will follow.

I see a parallel to the current enthusiasm around tokenization. Blockchain technology has been around for a long time.[2] And, although a number of limited use cases have recently been introduced,[3] it has not been widely adopted for issuance and trading of registered securities. There is an argument that if we “build” – or more accurately, “rebuild” – the financial system to accommodate blockchain, “they” – all manner of market participants – “will come” to embrace tokenized securities. Investors will benefit from increased participation and choice, and markets will flourish from blockchain-derived improvements.

To this, I would first ask, what exactly are we trying to build? What is tokenization? It is a term that, even limited to the SEC space, eludes a straightforward definition. Does tokenization mean issuing a security directly on a blockchain? Or does it refer to creating a digital representation of a security on a blockchain? This may seem a subtle distinction, but it likely carries significant consequences from a regulatory perspective. Beyond issuance, does or should tokenization encompass downstream distribution, trading, clearing and settlement? In other words, would the entire securities lifecycle move “on-chain,” or only a part of it?

However we might try to answer these definitional questions, it’s clear that a tokenized financial system is unlike anything we’ve seen before. It’s not something known and understood like the baseball field Ray Kinsella built. The vision many espouse seems to be a fully tokenized system, where any security, including high-volume liquid products like Fortune 500 stocks, can be issued, traded, cleared and settled on the blockchain.

• Is that even technologically possible? If we are talking about public permissionless blockchains, the answer at least as we sit here today seems to be no. The transaction volume limitations and other scalability problems are well understood.[4] The whole concept of public permissionless blockchains – which were designed to provide trust without the need for government oversight[5] – seems an awkward vehicle for something as complex and statutorily regulated as the securities markets.
• If we are talking about private or permissioned blockchains, does that improve the potential for scalability? Even if it does, is this qualitatively different from other types of database technologies already in widespread use?[6] Does it warrant any regulatory adjustments at all?
• No one seems to disagree that the SEC should remain a “tech neutral” regulator. So why is it our place to assess particular forms of blockchain as candidates for industry adoption? Why would we focus on blockchain in particular over other types of distributed ledger technologies? Regulatory efforts to facilitate adoption of blockchain, let alone specific forms of it, seem like the government picking winners and losers. And we seem to be doing so before the technology has even been demonstrated as fit for purpose.

Moving on from the questions around what we are trying to build, why are we trying to build it? Proponents argue tokenization can speed up the settlement of trades and make markets more efficient. Instead of our current settlement cycle of T+1, tokenization could potentially move us to instant settlement or “T+0.” There is also an argument that instant settlement could reduce counterparty risks because trades would be pre-funded. But the settlement cycle, while shorter than it used to be, is a design feature, not a bug. The intentional delay built in between trade execution and settlement provides for core market functionalities and protection mechanisms.

• For example, the settlement cycle facilitates netting. Roughly speaking, netting allows counterparties to settle a day’s worth of trades on a net basis rather than trade-by-trade. The sophisticated, multilateral netting that occurs in our national clearance and settlement system drastically reduces the volume of trades requiring final settlement. On average, 98% of trade obligations are eliminated through netting.[7] This allows the current system to handle tremendous volume. It’s a key reason why our markets withstood sustained, record-breaking trade volume in recent weeks without major failures.
• Netting also facilitates liquidity. Because the vast majority of trades are “netted” and don’t require settlement, they don’t require an exchange of money.[8] If A sells to B, B sells to C, and C sells to A, these trades are paired off and eliminated. A, B, and C can each retain their capital, as compared to a bilateral instant settlement over a blockchain, where each would have given up its cash for at least some period of time.[9]
• Another important consideration is that instant settlement would generally disfavor retail investors, many of whom currently rely on the ability to submit payment after placing orders.[10]
• We must also remember that critical compliance activities take place during the settlement cycle. These include checks designed to identify and prevent fraud and cybercrime.[11] When red flags go up, the ability to pause a transaction and investigate is essential for investor protection and broader concerns like national security and counterterrorism.

For these and other reasons, it is not at all clear that shortening the existing settlement cycle is desirable or feasible.[12] Regulators and major market participants, here and abroad, have persuasively argued otherwise.[13]

I think it is our statutory obligation as a regulator to exercise extreme caution with potential changes of this scale, which historically have been undertaken only to address true market crises. While there are certainly areas to improve in our markets, I am interested in whether the changes discussed today would fix any specific existing dysfunction. In Field of Dreams, putting faith in “if you build it, they will come” worked out pretty well in the end for Ray Kinsella. But Ray was making a choice, and taking a risk, limited to his family and his farm. The SEC is the steward of the U.S. capital markets, and the kinds of systemic changes we are talking about have the potential to affect every market participant from Wall Street to Main Street.

Let’s ensure that what we’re contemplating is appropriately scoped to the portion of the market that participates in crypto – recently estimated to be less than 5% of U.S. households[14] – and not detrimental to the “TradFi” markets on which most Americans depend for their financial well-being.[15]

Thank you all for your ongoing engagement with the Commission on these important issues. I look forward to today’s discussions.