US Lawmakers Debate Tokenized Securities: Innovation vs. Investor Protection

At a congressional hearing on Wednesday (local time), policymakers and industry leaders debated the rise of tokenised securities, a fast-evolving system that promises quicker trades and wider access, but also raises concerns about oversight, transparency and financial stability.

House Committee on Financial Services Chairman French Hill said tokenisation -- using distributed ledger technology to represent financial instruments -- could improve "efficiency, transparency and accessibility" in capital markets.

But he cautioned that the transition raises "very important legal and regulatory policy questions" and must not weaken investor safeguards.

Ranking Member Maxine Waters warned that past financial innovations had failed ordinary Americans, recalling that similar promises ahead of the 2008 crisis "allowed Wall Street to build a process that legitimatised predatory loans."

She questioned whether tokenisation could introduce new costs and risks while benefiting intermediaries.

Industry witnesses broadly agreed that tokenisation could modernise market infrastructure but differed on how far existing laws should adapt.

Kenneth Bentsen, President of the Securities Industry and Financial Markets Association, said "tokenised securities are securities" and should remain subject to current investor protection and market integrity rules.

He stressed that US markets remain the "deepest, most liquid" globally because of strong regulatory frameworks, warning against broad exemptions that could create gaps in oversight.

Summer Mersinger, CEO of the Blockchain Association, argued that tokenisation represents "the next phase in the evolution of capital market infrastructure," enabling faster settlement, reduced costs and broader investor access.

She urged regulators to provide clarity, warning that innovation is already moving to jurisdictions with more predictable rules.

John Zecca of Nasdaq said the technology should be seen as an evolution similar to the shift from paper shares to electronic trading. "A tokenised share is still a share," he said, adding that the goal is to modernise systems without changing ownership rights or weakening regulation.

Salman Banaei of Plume pointed to global competition, noting that most tokenised markets are currently developing outside the United States. He said clearer rules could help channel global capital into US markets and expand investor participation.

Lawmakers across parties raised concerns about risks tied to decentralised trading systems, including gaps in anti-money laundering compliance, potential market manipulation and weaker transparency.

Some warned that faster, near-instant settlement -- a key benefit of tokenisation -- could also accelerate financial stress in volatile markets, increasing the speed of sell-offs or liquidity shocks.

Others flagged the risk of fragmented price discovery if tokenised and traditional versions of the same securities trade on separate platforms.

The debate now centres on whether the United States can modernise its regulatory system fast enough to retain leadership while preserving the safeguards that underpin investor trust.

Tokenisation, lawmakers were told, is not just about technology -- it is about the future structure of capital markets and who sets the rules for them.

- IANS