- Hester Peirce compared U.S. crypto regulation to playing “the floor is lava” in total darkness, calling for clear, structured rules.
- She warned that unclear laws force firms into risky legal maneuvers, stifling innovation and market trust.
- Mark Uyeda supported allowing state-chartered trusts to serve as qualified crypto custodians.
SEC Commissioner and head of the crypto task force, Hester Peirce, compared the current U.S. regulatory environment around digital assets to playing a dangerous game of “the floor is lava” but in total darkness.
Speaking at the SEC’s “Know Your Custodian” roundtable on April 25, Peirce said financial firms are navigating crypto markets as if they’re hopping from one piece of furniture to another, desperately avoiding direct contact with digital assets, which regulators treat as molten hot lava.
“It is time that we find a way to end this game,” Peirce urged. “We need to turn on the lights and build some walkways over the lava pit.”
Peirce explained that under the SEC’s existing regulatory framework, firms must engage in elaborate legal gymnastics to interact with crypto assets without running afoul of unclear or outdated rules. Companies that want to participate in crypto-related activities are often forced to tiptoe through ambiguously defined regulations, avoiding any direct custody of crypto assets to prevent regulatory violations.
“A D.C. version of this game is our regulatory approach to crypto assets and crypto asset custody in particular,” Peirce said.
The commissioner emphasized the confusion surrounding whether certain digital assets qualify as securities, which entities can legally serve as custodians, and whether standard practices like staking or exercising voting rights could inadvertently trigger custody obligations under existing law.
“The twist in the regulatory version is that it is largely played in the dark: burning legal lava and no lamps to illuminate the way,” she said.
Peirce warned that without clear guidance, investment advisers, brokers, and alternative trading systems (ATS) are struggling to offer crypto services, hampering innovation and making it unlikely for a robust, trustworthy digital asset market to flourish.
SEC Pushes for Clear Crypto Custody Rules
Commissioner Mark Uyeda echoed these concerns, stressing that as more SEC-registered firms work with crypto assets, it’s critical to ensure they have access to custodians that meet federal legal standards. Uyeda suggested that state-chartered, limited-purpose trust companies should be permitted to act as qualified custodians for crypto holdings, a move that could offer firms a practical path forward.
Meanwhile, new SEC Chair Paul Atkins struck a hopeful tone, promising a regulatory reset. Atkins, recently appointed under President Trump’s administration, emphasized the potential of blockchain technology to deliver major benefits, including greater efficiency, reduced risk, enhanced transparency, and lower costs.
Atkins also took a veiled swipe at the previous administration under Gary Gensler, suggesting that a lack of clear regulatory guidance had fueled confusion and stifled industry growth.
“I look forward to engaging with market participants and working with colleagues in President Trump’s administration and Congress to establish a rational, fit-for-purpose framework for crypto assets,” Atkins said.
With top voices at the SEC now openly calling for regulatory clarity, market participants hope that the era of playing “crypto floor is lava” in the dark may soon come to an end.
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