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Tokenized Mortgage Agreements Could Be Regulated as Securities by the SEC

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Tokenized Mortgage Agreements Could Be Regulated as Securities by the SEC

According to reports, Gary Gensler, chairman of the Securities and Exchange Commission, advised reporters on Wednesday that tokens using mortgage agreements can be considered securities under U.S. law. Gensler said, “The investing public is investing in expected returns, expecting something from these tokens, regardless of whether they are proof of equity tokens. They also want to receive returns from these proof of equity tokens and receive returns of 2%, 4%, and 18%.”

SEC Chairman: Tokens using mortgage agreements can be considered securities

Analysis based on this information:


The Chairman of the Securities and Exchange Commission (SEC), Gary Gensler, has made it clear that tokenized mortgage agreements may be considered securities under U.S. law. As per reports, during a session with reporters on Wednesday, Gensler stated that even if these tokens are proof of equity tokens, the investing public who buys them is doing so with the expectation of receiving some form of return. Based on this, it seems plausible that the SEC would categorize them as securities, depending on the specifics of how the tokens are structured and sold.

Gensler has consistently demonstrated his views on the regulatory treatment of cryptocurrencies and blockchain since taking over the helm of the SEC earlier this year. While acknowledging their potential to enhance capital markets and financial inclusion, he has repeatedly underlined the pressing need for stronger investor protection measures. This new statement provides a glimpse into how the SEC could be viewing the tokenization of traditional assets, such as mortgages.

Tokenizing mortgage agreements refers to the process of converting traditional trust deeds into digital tokens that can be traded, recorded, and managed on a blockchain network. It allows investors to buy a piece of a mortgage, thereby sharing the risk and the profits associated with it. The investor receives a return in proportion to their investment, and the borrower receives funding. Tokenization of mortgages promises to streamline the home buying process, lower transaction costs, and matchmake investors with buyers. However, the regulatory treatment of these tokens remains unclear.

Tokenization of mortgages finds ample takers because of their ability to generate stable returns. According to Gensler, investors expect returns of 2%, 4%, and 18% from proof of equity tokens irrespective of what constitutes proof of equity in the context of tokenization. Hence, the SEC would most likely see these tokens as securities, which require a more robust regulatory framework that includes mandatory disclosures, compliance with anti-money laundering (AML) and Know Your Customer (KYC) requirements, and other investor protection measures.

Thus, it appears that for Gensler, tokenization is indeed the future, but it must come within a regulatory framework that ensures investor protection. As the SEC gains more experience with tokenization, more guidance would be available on tokenization-based offerings, especially of traditional assets like mortgages.

In summary, Gensler’s latest comments signal that tokenized mortgage agreements could be treated as securities by the SEC, undermining traditional banks’ longstanding dominance in this market segment. It also emphasizes the need to strike a balance between innovation and compliance, ensuring that regulatory concerns are adequately addressed.

 

 
 

 
 

 
 

 
 

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