SEC Blockchain Rules Risk Recreating Wall Street's Paperwork Crisis

The Securities and Exchange Commission (SEC) has proposed new rules for blockchain-based stock records, but some in the industry are warning that this could recreate a crisis from Wall Street's past.

Fairmint's CEO supports the SEC's approach of bringing blockchain records under existing regulations rather than creating a separate license. However, they warn that fragmented ownership records could lead to similar problems as those experienced during the Paperwork Crisis of the late 1960s.

The crisis, which led the New York Stock Exchange (NYSE) to close on Wednesdays for six months in 1971, was caused by a rapid increase in share trading volume that overwhelmed paper-based recordkeeping and settlement systems. The absence of a single authoritative record showing who owned what contributed to the chaos.

Fairmint's CEO advocates for a shared, open standard for ownership data to prevent similar confusion in the blockchain era. They also recommend distinguishing official records maintained directly on-chain from third-party token models, allowing digital identity and cryptographic information for investor verification, and automating compliance checks through supervised smart contracts.