Project Crypto’s Sleeper Storyline: Addressing Public Company Pain Points

By Liz Dunshee and Reid Hooper

The previews are rolling for the SEC’s “Project Crypto”– and it looks like even non-crypto companies may benefit from what’s in store. Recent statements and remarks from SEC commissioners and staff suggest that upcoming rulemaking will be aimed at:

• clarifying boundaries,
• modernizing the plumbing of U.S. capital markets, and
• considering new market structure pilots.

Many of these efforts relate not just to cryptocurrency, but also to the broader concept of tokenization. It’s still early days, but if tokenization delivers the improvements to the trading and custody of securities that it’s promising, it will modernize the public company experience by making trading and settlement of securities transactions more efficient. With appropriate guardrails, it may also give companies better visibility into their ultimate stockholders – which could reduce logistical friction that complicates communication and may even unlock more reliable stockholder support for management teams and boards.

With so much potential, and because the SEC and other market participants are devoting significant attention to it, public companies may find it useful to understand the basics – even if adoption remains uncertain.

Why tokenization is relevant (and helpful) to public companies

As our Cooley colleagues Derek Colla, Rodrigo Seira and Connor Tweardy explained in this February 2026 alert, the staff of the SEC’s Divisions of Corporation Finance, Investment Management, and Trading and Markets recently issued a joint statement to outline the different ways that securities can be tokenized and which securities laws apply to each situation. The staff statement defines “tokenized security” as any instrument within the definition of “security” under federal securities laws that’s formatted or represented as a crypto-asset, where ownership records are maintained – at least in part – on one or more crypto networks.

Don’t let the “tokenization” terminology intimidate you. In plain English, it’s a new digital format for stock and other securities that makes recordkeeping and trading easier – kind of like going from physically transferred paper certificates to electronic transactions. This could meaningfully change how recordkeeping and voting operate, as companies would have more transparency into who owns shares and has the right to vote – plus the ability to count votes securely and automatically.

The staff statement explains that tokenized securities generally fall into two categories: (1) issuer-sponsored tokenization and (2) third-party tokenization, with specific cautions about when third-party structures can morph into different instruments (e.g., a receipt or even a security-based swap, which can create issues under the Exchange Act and other regulations). Today’s blog focuses on issuer-sponsored tokenization, where tokens coexist with traditional off-chain records.

Derek, Rodrigo, and Connor shared these key takeaways from the staff statement:

• Tokenized securities remain “securities.” The SEC staff emphasize that the determination of whether an instrument is a “security” under the Securities Act of 1933 (as amended, the Securities Act) and the Securities Exchange Act of 1934 (as amended, the Exchange Act) depends on the economic substance and legal rights associated with the instrument, not the technology used to represent ownership. A security does not cease to be a security solely because it is tokenized or recorded on a blockchain. This directly tracks Commissioner Hester Peirce’s July 2025 statement that tokenized securities are still securities.
• Existing registration and regulatory requirements apply. Offers and sales of tokenized securities must be registered under the Securities Act unless an exemption is available. Market participants involved in the trading, custody, clearance or settlement of tokenized securities remain subject to applicable broker-dealer, exchange, clearing agency, transfer agent and antifraud requirements under the federal securities laws.
• No new safe harbor or alternative regime. The statement does not establish any new exemptions, safe harbors or modified compliance frameworks for tokenized securities and does not alter existing statutory or regulatory obligations. Although SEC Chair Paul Atkins has hinted at a possible forthcoming “innovation exemption,” the statement does not provide such relief. 

Keep in mind that issuer-sponsored tokenized securities may be referred to informally as a different “class” of securities than their traditional counterparts, but substance is what matters. The staff statement clarifies that tokenized securities may be considered the same class as securities issued in traditional format for purposes of federal securities laws if they have substantially similar characteristics and afford the holders substantially similar rights and privileges.

Because federal securities laws apply identically to tokenized and traditional securities, the primary issues look familiar for a company that adds a tokenized format for its stock: Offers/sales need to be registered or exempt; tokenized common stock is still an “equity security” for purposes of securities regulations; and class determinations turn on rights, not format. Questions likely will center on:

• Conversion mechanisms between formats
• How the ledger interacts with corporate actions, dividends, and proxies across tokenized and non-tokenized formats
• Class analysis if token and non-token variants diverge in rights
• How to reconcile on-chain records with beneficial ownership reporting

‘Project Crypto’ mentality: Improving systems, not wrecking them

For companies interested in these types of infrastructure improvements, it’s good news that crypto-asset reform is a priority for the SEC this year. In a mid-February speech, Corp Fin Director Jim Moloney said the Division is working on advancing rulemakings as quickly as possible, noting:

Two of the Division’s blockbuster recommendations headed to the Commission will focus on crypto assets. Last November, Chairman Atkins outlined the next steps for “Project Crypto,” which he expects will provide a clear taxonomy for crypto assets and guidance on when crypto assets are no longer part of, or subject to, an investment contract. 

The Division is preparing to deliver these recommendations to the Commission in the form of interpretive guidance that provides a taxonomy for crypto assets and describes a framework for determining when crypto assets are subject to an investment contract. For those crypto assets that are subject to an investment contract, we are also working on a proposal that will seek to provide a rational regulatory structure for the offer and sale of those securities.

Following these big releases, the markets will no doubt continue to innovate. You’ve seen that the Division has been willing to jump in and has provided needed market clarity through Division statements and no-action letters. We will continue to monitor the marketplace and provide additional guidance as needed to further facilitate capital formation and accommodate innovation in this space without sacrificing investor protection.

The very next week, SEC Chair Paul Atkins and SEC Commissioner Hester Peirce got more specific in remarks at ETHDenver. Chair Atkins said he expects the Commission and staff to consider a number of crypto-related updates in the coming weeks and months, including:

• An SEC framework to explain how we think about crypto-assets that are subject to an investment contract. How is such an investment contract formed? And how is it terminated?
• An innovation exemption to facilitate limited trading of certain tokenized securities on novel platforms with an eye toward developing a long-term regulatory framework.
• A rulemaking proposal to establish common-sense pathways for people to raise capital in connection with the sale of crypto assets.
• No-action letters and exemptive orders to provide additional clarity, including to address wallets and other user interfaces that are not subject to registration under the Exchange Act.
• A transfer agent modernization rulemaking which will accommodate the role that blockchain can play in recordkeeping.
• Additional guidance and no-action letters to help people understand how existing rules apply to their unique factual circumstances.

These updates would build on efforts the Commission and staff have already made. Among other things, the SEC is providing technical assistance to Congress as it works on crypto legislation, launching an initiative with the Commodity Futures Trading Commission to build a lasting basis for coordination and cooperation in regulating crypto and other areas of joint interest, and providing various forms of guidance.

Importantly, the commissioners took a moment to set expectations for the “innovation exemption.” Commissioner Peirce explained:

It would be an important step toward facilitating the integration of tokenized securities into our existing financial system, but it would not change the entire financial system overnight. We are working incrementally now, as we have always done. The goal is to facilitate the organic incorporation of new technology in a way that enhances the dynamism and resilience of the system so that it can serve investors, companies, and other users of capital effectively. 

And Chair Atkins provided this color:

I would like to consider an innovation exemption to enable TradFi incumbents and crypto-native firms to experiment. For example, people trading certain tokenized securities through automated market makers, even though no one person or group of persons may be controlling that mechanism. In my view, market participants should be able to engage with decentralized applications on public, permissionless blockchains if they desire. But I expect that many Americans will be more comfortable allowing intermediaries to custody and trade on their behalf. Individual investors, not the SEC, should make the decision. I also would like to consider whether there should be a safe harbor for participants who may be facilitating such trading.

Specifically, I would like to consider how issuers that want to tokenize their securities could work with a transfer agent or other tokenization agent to tokenize their securities so that they can be traded onchain in AMMs or other trading systems, environments, or platforms that offer decentralized liquidity. Under this possible approach, the innovation exemption would limit trading volume and could provide relief from some of our rules and certain other requirements that may not be relevant in light of how this technology works. Buyers and sellers of the tokenized securities would go through a white-listing process. The exemption would be temporary but would last long enough for us to consider developing new rules and amending existing rules to allow such trading to continue under appropriate conditions in the future and to enable any parties that need to do so to register. I would certainly welcome feedback on this potential approach.

Smart contracts for streamlined lockups

Blockchain technology isn’t just promising to make stock transfers easier – it could also make them more compliant. Chair Atkins noted in the ETHDenver remarks that a smart contract could embed resale restrictions that apply for a certain period of time.

Anyone who has dealt with restricted shares knows that the current system is broken. Manual oversight and complex release mechanisms result in compliance lapses and liquidity delays when restrictions expire. Smart contracts could, in theory, automate compliance steps. Self-executing restrictions would mean:  

• Automated enforcement
• Reduced administrative cost
• Enhanced liquidity when the restriction expires

Signs of an inflection point

In this 2016 speech – 10 years ago! – Delaware’s Vice Chancellor J. Travis Laster argued that “distributed ledger technologies can provide better accuracy, greater transparency, and superior efficiency for settling securities trades and voting in corporate elections” than the current system. In 2026, near-term progress still isn’t guaranteed – and it’s also important to note that tokenization won’t solve every problem under the sun. But even as it brings its own complexities, it’s an infrastructure improvement that would make the public company experience much smoother. Now, with Project Crypto elevated to a major priority at the SEC, and key market players like Broadridge Financial Solutions, the Depository Trust Company, Nasdaq and the New York Stock Exchange collaborating and investing to bring tokenization to life, the landscape may finally be shifting.

For public companies, these efforts don’t require immediate action, but they do make it worthwhile to monitor developments and assess, over time, whether tokenization could benefit your company – and how securities laws would apply. Getting familiar with the tokenization framework before it goes “prime time” will put you in a better position to make informed decisions when the time is right.

Cooley client teams – within our blockchain technology and tokenization industry group as well as our capital markets practice group and beyond – are tracking pilot projects, exchange proposals and SEC updates. Please reach out to understand how tokenization advancements could affect your company.