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Guest essays by former SEC executive John Reed Stark and Duke University lecturer Lee Reiners suggest that the Securities and Exchange Commission’s changing attitude towards digital assets can replicate the conditions that precede the 2008 financial crisis.
According to In New York Times The pair warns that easing surveillance in the token market and that traditional banks simultaneously expand to token services could establish opaque connections between financial institutions that are not subject to regulatory stress testing.
This essay identifies the SEC rollback of crypto-specific enforcement efforts as a central catalyst. Stark and Reiners argue that these changes will dismantle the legal separation between speculative digital asset markets and federal insurance banking activities, particularly as token issuers and lenders gain broader access to traditional financial rail.
Reducing regulations and expanding industry
Since January, the SEC and federal banking agencies have implemented a series of deregulation measures. The SEC has folded its crypto assets and cyber units into a broader group focusing on emerging technologies, downsizing staff and excludes explicit missions of token monitoring.
In early March, the committee issued internal guidance treating memokine as a collection item and removed them from the securities registration requirements, noting that it may be possible fraud liability.
The SEC is also about to withdraw from the well-known enforcement action. The agency moved to dismiss the case against Coinbase and requested a suspension of the case against Binance. At the same time, banking regulators expanded the scope of token activity that is permitted.
On March 7, the office of the Secretary of Currency eliminated the previous review process and confirmed that the banks could stabilize, issue custody and operate the blockchain verification node without the need for special approval.
The Federal Deposit Insurance Corporation has cancelled prior notice of token-related activities by insurance banks as it continued with FIL-7-2025.
Alongside these regulatory rollbacks, crypto-related funding has intensified across federal politics. Bipartisan code donations surpassed $100 million in the 2024 election cycle, with Pro Trump’s Super PAC gaining the largest share. The president’s family involvement in publishing Memecoins, World Liberty Finance, HUT8 Mining, and ETF Token via Crypto.com has created policymaking and even more industry impact.
Congress is also heading towards formal rules creation. The Senate Banking Committee proceeded with the Genius Act in mid-March. The bipartisan bill divides oversight responsibilities between state and federal agencies and proposes a double surveillance structure for payment stability coins. It also allows state-characteristic entities to issue tokens that have won dollars under national guidelines.
Liquidity risks due to market integration
Stark’s discussion focuses on structural exposure. According to the essay, the combination of growing token lender operations, stable holdings of US financial assets, and the interconnection of money market funds and repo markets can cause liquidity events during redemption.
In this scenario, redemption of the entire token issuer forces the sale of assets into thin markets, drawing in broker dealers and funds that maintain overlapping collateral bases. The essay argues that, just as the integration of digital assets and financial systems is accelerated, the SEC’s traditional role as an early warning mechanism has been undermined.
Stark’s perspective is based on his opinion on FTX bankruptcy. He petitioned the court to appoint an independent examiner to investigate the company’s internal financial practices.
The 3rd Circuit granted its request in January 2024. Stark argues that similar issues with non-transparent token reserves and insider financing that helped FTX collapse remained denounced across much of the industry.
Forward perspective and legislative inflection points
The SEC leadership argues that the current regulatory approach will move from litigation to formal rulemaking, but the new proposal has not been published. Trade groups representing the banks claim that bringing custody of tokens to insurance agencies reduces the risk of counterparties. Stark Contest claims, citing FTX misrepresentation and lack of forced audits as a systematic vulnerability.
Congressional deliberations regarding the oversight of Stablecoin can determine whether disclosure by the issuer will be mandatory or based on voluntary proof. The Genius Act hearing will resume next month, with preliminary findings from the FTX Independent Examiner expected this summer.
Stark positions these upcoming events as key indicators of the ability to self-regulate the broader market. Without statutory protection, this essay suggests that future losses from token failure could be sent to pension funds and deposit accounts, expanding the outcome beyond the crypto-native platform.
This essay essentially assumes that policy resolution may arrive through flashpoint events that force institutional interventions rather than staged regulations. The scenario reflects the debate that has been active since Bitcoin emerged more than a decade ago, and the unresolved debate on Crypto’s systematic financial integration.
