Digital Assets Are Here to Stay. Washington Should Get on Board. — Barrons.com

By Samara Epstein CohenWhen the Securities and Exchange Commission approved the first exchange-traded fund in 1993, regulators opened access to a new market structure whose mechanics, liquidity model, and market-making conventions weren't yet proven at scale. Skeptics questioned whether investors would embrace it, whether sufficient liquidity would develop, and whether its market price would reliably track the value of the underlying securities.Few would argue today that ETFs became anything other than one of the most transformative market technologies of the past generation.We are in a similar moment now with tokenization. Digital tokens, which offer traders faster settlement, more continuous trading, and more flexible ways to access markets, are exploding in popularity. More than $30 billion of real-world assets, including government bonds, private credit, and investment funds, have already been brought onto public blockchains.Investors are clearly on board. It's time regulators and policymakers join them.The standards they set — or fail to set — will determine whether the shift to digital assets expands market access and opportunity or creates a new layer of risk for individual investors.The Clarity Act, if passed by the Senate, could help create the foundation for responsible digital-asset innovation by requiring trading platforms and brokers to follow federal rules governing disclosures and market conduct. It will also make create a much clearer regulatory framework for the Securities and Exchange Commission and the Commodity Futures Trading Commission to deliver market quality and investor protections.If regulated markets don't create this framework, offshore venues will. We could end up with a product that looks like a stock or fund but trades like a crypto token: a tokenized version of a familiar asset, such as a government bond, trades around the clock and, under stress, its price breaks away from the underlying asset. Withdrawals are frozen, and investors learn too late that they don't have the same rights, disclosures, or protections they assumed they had.So the risk isn't necessarily that these new market structures will fail to work. Rather, it is that they will shift enormous new risks onto individual investors. When incentives reward volume, leverage and constant activity rather than investor outcomes, tokenized markets can become what critics already fear: faster extraction machines than the ones they replaced.If regulation is done correctly, however, tokenization can do what the ETF did for average investors — and more. It can broaden access to hard-to-reach markets, make ownership and rights more transparent, and create more efficient ways for capital to move across assets and venues. For investors, that means more choice. For institutions, it means broader distribution, more efficient funding, and new ways to connect capital with opportunity.Legislation alone won't answer every regulatory question being raised by emerging market technologies. Other new forms of trading, from prediction markets to perpetual futures on crypto platforms, demonstrate growing investor demand for continuous price discovery and round-the-clock access. 24/7 trading expands market access, but it also amplifies stress. The challenge for regulators is figuring out how to allow these investing innovations to continue within a framework that supports transparency, accountability, and investor confidence.Here again we should look to the ETF. That playbook showed us what good market structure looks like at scale: open and competitive market making, transparent pricing, reliable custody, efficient creation and redemption, and resilience rules that work across venues, not just within them. The lesson to draw isn't that every innovation deserves fast approval. It is that policymakers and regulators can and should make space for market innovation, while insisting that investor protection, transparency, and resilience develop alongside it.Guest commentaries like this one are written by authors outside the Barron's newsroom. They reflect the perspective and opinions of the authors. Submit feedback and commentary pitches to [email protected] .Samara Epstein Cohen is global head of market development at BlackRock.This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.