A Fragmented Regulatory System: The Invisible Ceiling on Innovation
The U.S. has long been a cradle of financial innovation — from ETFs and derivatives to online brokerage firms, every wave of change began there. Yet in the age of cryptocurrency, this once-dynamic hub has slowed down unexpectedly.
The problem isn’t technology — it’s regulation. The SEC and CFTC have long disagreed on how to define digital assets:
- •The SEC tends to treat tokens as securities, requiring issuers to comply with the Securities Act’s registration and disclosure rules;
- •The CFTC, meanwhile, views Bitcoin and Ethereum as commodities, asserting that their trading can fall under the futures regulatory framework.
This “dual-track contradiction” has trapped many innovative products in a gray area. Some DeFi projects, for example, involve both token issuance (under the SEC) and leveraged derivatives (under the CFTC). The result: neither agency approves them, and neither wants the liability.
As one commissioner bluntly put it during the meeting: “Over the past decade, this field is littered with the corpses of ‘products that never launched.’” Behind that remark lies the story of countless startups that collapsed in regulatory limbo — not because they broke the law, but because they didn’t know which rules to follow.
Thus, this cooperation isn’t merely a handshake — it’s an attempt to restore order to a disordered market. It marks the most critical step toward modernizing U.S. financial regulation: replacing confrontation with coordination.
The Era of Co-Governance: Cooperation, Not Consolidation
It’s important to note that this SEC–CFTC alliance is not an institutional merger, but rather a model of Regulatory Co-Governance.
SEC Chair Gary Gensler stated: “We’re not restructuring the system — we’re making regulation more coordinated.” CFTC Chair Rostin Behnam added: “Financial innovation should never be an excuse for a regulatory vacuum. Regulators must be interconnected like a network, not isolated like islands.” These two sentences perfectly encapsulate the spirit of the meeting.
Historically, the U.S. financial regulatory system thrived on “checks and balances.” That approach worked well for 20th-century securities and futures markets — but in the Web3 era, it’s become cumbersome. Take Bitcoin ETF approvals: the SEC focuses on investor protection and disclosure, while the CFTC handles market risk controls. Their overlapping reviews and inconsistent standards slow market efficiency.
As one CFTC commissioner admitted, “We’ve spent too much time defining problems, and not enough time solving them.” Hence, the true meaning of this coordination lies in breaking down silos — sharing information, aligning processes, and bridging boundaries.
1. Building an Information-Sharing Mechanism: From Isolation to Interconnection
According to the meeting consensus, the agencies will create a unified risk-information sharing platform, including data on token issuance, on-chain transaction monitoring, and high-risk asset lists.
This means that if the CFTC detects potential manipulation in a crypto derivative, the SEC can immediately access that data and take follow‑up actions — and vice versa. The result: faster regulatory response, fewer duplicate investigations, and less overlap in enforcement.
Gensler remarked: “We can’t keep locking regulatory data in 20th-century filing cabinets. The risks of digital assets are real‑time — our supervision must be, too.” This statement captures the essence of the reform: regulatory information flow will become the new infrastructure of finance.
2. Joint Regulatory Sandbox: Innovation and Compliance in Parallel
Perhaps the most groundbreaking aspect is the planned joint “Digital Asset Regulatory Sandbox”. Within this sandbox, emerging projects can test their products in a controlled environment, with both agencies evaluating risks and guiding compliance paths.
This directly addresses the “innovation anxiety” many startups face. In the past, blockchain founders often didn’t know which agency had jurisdiction — and got trapped in legal uncertainty even before launch. Now, they can enter the sandbox and receive clear, coordinated feedback. This not only reduces entrepreneurial risk but also helps regulators understand new technologies early — preventing policy lag from the outset.
Behnam emphasized: “We can’t wait for innovators to fail before we step in. Preemptive oversight is key to a healthy innovation cycle.” The U.S. is thus experimenting with collaborative regulation — redefining the relationship between innovation and order.
3. From Confrontation to Consensus: A Cultural Shift in Regulation
This “co-governance model” represents more than procedural alignment — it marks a cultural transformation. In the chaotic years of crypto regulation, the SEC and CFTC were often mocked for “fighting their own wars”: the SEC sued issuers for illegal securities offerings, while the CFTC simultaneously approved futures for similar assets. This inconsistency eroded market confidence.
In this meeting, both chairs highlighted the need for regulatory consistency. Gensler said: “Investors shouldn’t face different levels of protection just because an asset is defined differently by two agencies.” Behnam added: “Consistent rules protect not only investors — but also innovators.”
This is a true consensus. It signifies that regulators are shifting from the question of “Who should regulate?” to “How do we regulate well?” This cultural cooling and coordination may prove more historically significant than any policy reform.
4. The Second Phase of Regulation: From “Blurred Boundaries” to “Functional Layers”
If the past decade was about “definitional battles,” the next decade will be about functional stratification. Under the new framework:
- •The SEC will focus on investor protection, disclosure, and asset registration;
- •The CFTC will oversee derivatives, leverage, and risk monitoring systems.
Their data systems will interconnect, creating a layered supervisory structure.
This ensures that every crypto transaction has a clear “chain of accountability” — from issuance (SEC) to trading (CFTC) to cross‑border settlement and clearing.
This is what Gensler calls a shift “from rule‑based to outcome‑based supervision.” In other words, regulation will focus less on defining what a token is and more on ensuring the market is fair, transparent, and safe.
5. The Beginning of a Regulatory Symphony, Not Its Finale
When the market sees the SEC and CFTC sharing a stage, it may not yet feel the immediate effects — but at a macro level, this marks the dawn of Cooperative Governance in U.S. finance.
In the future, this co‑governance model may extend to stablecoin legislation, tokenized real‑world assets (RWA), and even AI‑driven financial models.
Behnam concluded the meeting with a telling metaphor: “Regulators and innovators are in the same river. We shouldn’t block each other’s flow — we should make the current steadier.”
Perhaps that sentence best defines the coming decade of crypto finance: from regulatory discord to institutional harmony — a true coming‑of‑age for U.S. digital finance.
Strategic Shift in Digital Assets: From the Gray Zone to the Mainstream
For the crypto industry, the biggest winners of this “regulatory resonance” will be mainstream assets and institutional players.
1. Compliance Tailwinds for Core Assets Like Bitcoin and Ethereum
- •With the SEC and CFTC reaching consensus, Bitcoin’s commodity status will be further solidified.
- •Ethereum’s PoS compliance controversy may also be clarified under the new framework.
This paves the way for traditional financial institutions — such as pension funds and sovereign wealth funds — to legally allocate into crypto assets.
2. New Definition Window for Stablecoins and Tokenized Securities (RWA)
Once regulation becomes clearer, the legal boundaries for stablecoin issuance and asset tokenization will be more defined. Stablecoins like USDC and PYUSD may soon be subject to both SEC disclosure and CFTC trading review — a challenge, but also a ticket to mainstream payment systems.
3. Institutional Market Liquidity Rebuilt
With clearer division of duties, the derivatives and futures markets (CFTC) can interconnect with the spot markets (SEC). This will enable seamless movement between crypto ETFs, futures contracts, and on‑chain liquidity — laying the foundation for a new Web3 financial credit system.
In short, co‑governance doesn’t restrict — it transforms the “gray zone” into a legitimate channel. Crypto firms can now innovate within clear boundaries, without the constant fear of sudden enforcement.
Conclusion: From the “Walnut Tree to the Blockchain” — A Continuum of Financial Spirit
From Wall Street’s stock exchanges to Silicon Valley’s crypto labs, America’s financial spirit has always been one of innovating to rebuild order.
The SEC–CFTC collaboration is more than a regulatory event — it’s a signal: regulation is no longer a brake, but a compass.
When institutions start making room for innovation, and innovation stops evading institutions — that’s when the true symbiosis of the new financial era begins.
