SEC’s Hester Peirce Pushes Zero-Knowledge Privacy as Staff Clarifies Token Buybacks and Liquid Staking

SEC Commissioner Hester Peirce urged financial regulators to adopt privacy-preserving cryptography that can verify customer eligibility without requiring institutions to repeatedly collect names, addresses and other sensitive personal information.

Speaking at the SIFMA Digital Assets Conference in New York on September 23, Peirce argued that zero-knowledge proofs could allow a counterparty to verify that a customer meets requirements such as age, citizenship, accredited investor status or sanctions screening without seeing the underlying personal data. She called for regulators to move from prescriptive data collection toward attribute-based verification where technology makes that possible.

Peirce criticized existing KYC and anti-money-laundering frameworks for producing increasingly large stores of customer information across financial institutions. Customer Identification Programs can require names, birth dates, addresses and identification numbers, while ongoing monitoring and regulatory reports add further transactional data. She argued that duplicating those records across multiple institutions increases exposure to accidental or deliberate data breaches without necessarily improving enforcement outcomes.

Zero-Knowledge Systems Move Into Financial Compliance

Peirce’s proposal would allow institutions to verify specific facts rather than automatically collecting the documents and personal information used to establish them. A customer could prove eligibility for a financial product, for example, without disclosing an income figure, home address or full identity record to every platform involved.

The approach overlaps with growing use of zero-knowledge cryptography inside blockchain privacy systems. A Shielded Bitcoin proposal published this week uses encrypted notes, nullifiers and zero-knowledge proofs to validate private Bitcoin-denominated transfers while concealing amounts and counterparties. Bitcoin would still order the underlying protocol data without changing its consensus rules.

Peirce also connected privacy technology with permissionless networks, arguing that regulation should not require an intermediary merely to create a convenient point for collecting customer data. Public blockchains already create permanent transaction records that can be analyzed while cryptographic systems can restrict unnecessary disclosure of information tied to individual users.

SEC Staff Clarifies Token Buybacks and Staking Receipts

Separate SEC staff guidance issued September 25 also narrowed several securities-law questions around crypto assets.

For a functional crypto system, announcing a buyback of a non-security crypto asset does not constitute a promise to undertake the “essential managerial efforts” considered under the Howey investment-contract analysis. A different analysis can apply before a system becomes functional when an issuer promotes the buyback as generating yield or returns for token holders.

The same FAQ classifies a staking receipt representing a digital commodity that is not subject to an investment contract as a digital tool because it evidences ownership of the underlying asset. A staking receipt issued by a protocol-based liquid staking provider may instead qualify as a digital commodity when its value derives from the programmatic operation of a functional crypto system and market supply and demand.

The guidance represents the views of the SEC’s Division of Corporation Finance staff rather than a new Commission rule. It has no independent legal force and does not create additional obligations.

Peirce Prepares to Leave the SEC

The privacy remarks came less than a week after the SEC introduced its Innovation Exemption for qualifying onchain trading of tokenized U.S. stocks, another area Peirce addressed during her SIFMA appearance.