CFTC’s Pham says US ready for pragmatic approach to tokenisation

The US has made progress in its understanding of the multifaceted opportunities presented by tokenisation according to Caroline D. Pham, a commissioner at the Commodity Futures Trading Commission (CTFC), the country’s derivatives regulator.

“I do think we are beginning to come to a realisation that there’s a distinction between unbacked crypto assets on the one hand and tokenised real-world assets on the other. So that’s an important distinction [and] a sign of progress,” Pham, who is on President-elect Donald Trump’s list for CFTC chair, said at the City & Financial Tokenisation Summit in London.

She was hopeful that an appreciation of the different types and use-cases would lead to a more pragmatic approach to the technology, saying: “I think that there’s greater distinction and understanding between the tokenisation of financial instruments, or the use of blockchain technology for payments, versus Bitcoin and Ether.”

Pham called this “an important development in the US understanding”, adding: “I do think there will be, hopefully, a more technology-neutral approach going forward, and a way to recognise the potential of blockchain as financial market infrastructure technology, and to distinguish it from some of the risks associated with unbacked crypto assets.”

Pham joined the CFTC in April 2022, and last year she led the re-establishment of its global markets advisory group, which has since put forward 13 recommendations. This included “the first ever US digital asset taxonomy to help to guide regulators and policymakers in the US for greater alignment with international standards”, she said.

Rulemaking by enforcement

Much of the US’s regulatory developments in the digital assets space had occurred via enforcement actions, Pham said. This was in sharp contrast to Europe where lawmakers and regulators had, or were in the process of, implementing rules, she noted. The Markets in Crypto Assets Regulation (MiCA) requires all crypto asset service providers to apply for a licence to operate in the European Union from January 1, 2025.

US regulators’ enforcement agendas had expanded beyond sanctioning unregistered trading platforms into more “creative interpretations of the law”, she said, adding she did not always agree with the CFTC’s enforcement actions, however.

Most recently in September, for instance, she issued a dissenting statement in the Uniswap Labs enforcement action, in which the company was fined $175,000 by the CFTC and required to cease offering leveraged or marginal retail commodity transactions via its decentralised digital trading protocol.

In her dissenting statement, Pham said the enforcement action “may very well be a regulatory allergic reaction to new technology”.

“It is imperative that regulators fully understand and holistically address these significant shifts in market structure through a carefully considered and forward-looking approach that appropriately balances robust protections and guardrails, while enabling innovations and technological advancements that promote economic growth and access to markets,” she added.