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SEC’s ‘Crypto Mom’ affirms tokenized securities remain subject to regulations

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Hester Peirce, a Republican commissioner of the U.S. Securities and Exchange Commission (SEC) known as “crypto mom” for her supportive views on cryptocurrencies, emphasized on Wednesday that tokenized securities must comply with existing securities regulations.

Peirce stated, “As powerful as blockchain technology is, it does not have magical abilities to transform the nature of the underlying asset. Tokenized securities are still securities.” Tokenization refers to converting traditional shares into digital tokens traded on blockchain platforms. Investors holding these tokens own a representation of the underlying securities.

She warned that tokens issued by third parties, rather than the original security issuers, carry distinct risks for investors.

The concept of tokenized securities is gaining traction in the crypto and finance industries as a potential way to innovate trading processes. Coinbase recently revealed it is seeking SEC approval to offer blockchain-based stock trading.

SEC Chairman Paul Atkins, also a Republican, voiced support for fostering innovation but stressed regulatory oversight remains important. Critics argue that tokenization could be exploited to bypass SEC rules, putting retail investors at risk.

Morgan Stanley Markets $5 Billion Debt Package for Elon Musk’s xAI Amid Political Tensions

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Morgan Stanley is marketing a $5 billion debt package, including bonds and two loans, for Elon Musk’s artificial intelligence company xAI, according to sources familiar with the matter. The move comes during escalating tensions between Musk and U.S. President Joe Biden, adding complexity to the fundraising efforts.

Last week, Morgan Stanley began discussing a floating-rate term loan B, priced at 97 cents on the dollar, with an interest rate set at 700 basis points above the SOFR benchmark. A second financing option offers a fixed rate of 12%, though both structures are subject to investor demand and may change as discussions progress. Preliminary financial details were shared with investors during a recent meeting.

Unlike prior Musk-related transactions, Morgan Stanley is approaching this deal on a “best efforts” basis, meaning it will not guarantee the full issue volume or commit its own capital. This cautious stance reflects a more conservative lending approach amid uncertain macroeconomic conditions. The bank’s restraint follows its experience with Musk’s $44 billion acquisition of Twitter (now X) in 2022, when seven banks led by Morgan Stanley were left holding $13 billion in debt for over two years after the Federal Reserve raised interest rates.

Banks typically offload such loans to investors soon after deals close, but the X debt remained on their books until early 2024. Improved financial performance at X, bolstered by increased platform traffic and Musk’s proximity to former U.S. President Donald Trump, finally allowed banks to sell the debt. Investor interest was also fueled by growing enthusiasm for artificial intelligence investments and the potential political influence tied to Musk’s ventures.

In parallel with the debt sale, xAI has been in discussions to raise around $20 billion in equity funding. Depending on negotiations, the company’s valuation could range from over $120 billion to as much as $200 billion, according to various sources. An earlier plan to merge xAI with social media platform X was ultimately abandoned.

However, recent political developments have complicated Musk’s fundraising prospects. A public rift between Musk and Trump has emerged, potentially jeopardizing federal contracts or grants to Musk’s private companies. This political uncertainty could dampen investor appetite for xAI’s debt or lead to demands for higher risk premiums.

Morgan Stanley and xAI declined to comment on the ongoing negotiations.