Commissioner Peirce’s comments on crypto regulation were praised by Cathy Yoon, though apprehension was expressed regarding the concept of a regulatory sandbox proposed by Peirce.
A significant shift in crypto policy has been undertaken by the Securities and Exchange Commission, elevating the prominence of voices like that of Commissioner Hester M. Peirce. Nevertheless, it is believed by some that her supportive stance on crypto carries notable limitations.
Remarks made by Commissioner Peirce were recently addressed by Cathy Yoon, General Counsel at Wormhole Foundation. While a degree of agreement was expressed regarding the need for regulatory exemptions in the crypto space, criticism was directed by Yoon toward Peirce’s proposal of a regulatory sandbox.
Importantly, the discussion has been focused on tokenized securities, which are regulated under the authority of the SEC. Strict compliance with regulatory standards must be met by any form of security before approval is granted by the agency. Nonetheless, considerable challenges are anticipated moving forward.
Yoon Cautions Against Regulatory Sandboxes Despite Theoretical Appeal
Ongoing technical limitations have been highlighted by Peirce as a major barrier, with particular emphasis placed on the insufficient development of technical infrastructure. This point was acknowledged by Yoon, who regarded it as a persuasive justification for granting regulatory exemptions to projects involving tokenized securities.
“The infrastructure needed to support tokenized securities is still rather undeveloped and expensive to implement,” Yoon, Wormhole.
Nevertheless, it was noted by Yoon that she holds a differing view on Peirce’s longstanding advocacy for a regulatory sandbox. This concept involves granting startups the ability to experiment with products that currently operate within an uncertain regulatory framework.
These companies are subjected to regulatory oversight while benefiting from reduced compliance obligations and facing fewer penalties. However, Yoon contends that although regulatory sandboxes may appear beneficial in concept, they carry potential risks, including inconsistent enforcement and preferential treatment.
“A sandbox is only as good as the leeway and support a regulator offers to the sandbox participants. There is also a concern that regulators may favor sandbox participants, leading to biased oversight or even weakened enforcement in the long term,” Yoon, Wormhole.
Rather than endorsing a regulatory sandbox, a limited-duration regulatory exemption was proposed by Yoon. This approach would permit companies to trial their products in real-world settings, enabling better adaptation to practical conditions and more efficient scaling.
