Securities and Exchange Commission Chair Gary Gensler has spent his tenure locked in a feud with the crypto industry, whose leaders argue the agency has pursued an approach of ‘regulation by enforcement’ with its torrent of lawsuits and settlements.

Now, Gensler will have a new company to point to as an example of a crypto firm operating by the rules: the Utah-based tZero, which on Tuesday became just the second firm to receive a special purpose broker-dealer license from the SEC and Financial Industry Regulatory Authority, allowing it to custody digital asset securities.

The SEC first established the license in December 2020 to supervise the burgeoning crypto industry, granting the semi-independent FINRA the authority to dole out the approvals. Despite the new designation, it took over two years for the body to issue a license. It finally granted approval in early 2023 to Prometheum, a controversial firm held in low regard by much of the crypto sector.

Now, tZero’s approval opens the door to another company custodying digital asset securities for its clients under SEC supervision, as well as a plan to offer trading through an affiliated Alternative Trading System, similar to Prometheum’s model.

“We are at the very avant-garde of regulatory innovation in the United States as one of only two broker-dealers entrusted by the regulators to custody digital asset securities,” tZero executive vice president Alan Konevsky said in a statement. “We will leverage this unique opportunity, on behalf of the digital asset industry at large, to illustrate how positive regulatory clarity can produce real-world innovation.”

Regulatory clarity

The ongoing debate between crypto companies and regulators is whether digital assets like Ethereum and Solana are securities like stocks and bonds, and under the jurisdiction of the SEC, or commodities like gold and oil, and under the jurisdiction of the CFTC. Because of a lack of clear guardrails, crypto companies have been limited in the traditional services they can offer, from custody to trading, at least with SEC approval.

Prometheum has drawn criticism among crypto leaders by agreeing with Gensler’s assessment that the vast majority of digital assets are securities, especially as the company received the only special-purpose broker-dealer license from FINRA. Prometheum went even further, declaring Ethereum to be a security by launching custody services for the second-biggest cryptocurrency. That designation is broadly opposed by the rest of the crypto industry, and is one that SEC itself has appeared to waffle on. Prometheum has yet to launch full custody services or trading, drawing further skepticism from other crypto industry leaders, though it has previously announced its plans to debut its full platform by the end of the year.

Because no other company has received the special license, including more prominent ones such as Robinhood, some have doubted whether the SEC designation represents a meaningful option for operating under compliance. tZero’s approval on Tuesday, however, is the first indication that the license could become more widespread, though tZero has little industry presence.

Like Prometheum, tZero operates an SEC-regulated ATS, meaning that with the special-purpose broker-dealer license, it will be able to offer full trading services. “We plan on custodying a range of digital asset securities that can be lawfully traded under current US law – including equity, funds, securitized real-world assets and revenues for real estate, sports and entertainment, and other digital assets that are lawful securities in the US – and the first to begin with our own preferred shares (TZROP) that have been trading on our unique regulated private marketplace since 2019,” Konevsky told Fortune over email.

Spokespeople from the SEC and FINRA did not immediately respond to a request for comment.



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