US SEC Proposes "Innovation Exemption" to Allow Crypto Firms to Trade Tokenized Stocks
N.R. Finch
The SEC is preparing an 'innovation exemption' that would let crypto firms issue and trade tokenized stocks on-chain, **putting them in direct competition with E*Trade, Charles Schwab, and other traditional brokerages.** This means → the rules governing U.S. equity trading — and who gets to play — could be structurally rewritten.
What are tokenized stocks, and why is the SEC opening the door?
Tokenized stocks — blockchain-based instruments that track the price of a traditional share — promise round-the-clock trading and instant settlement.
In plain terms = right now, buying U.S. stocks means waiting for exchange hours and a clearing cycle; tokenization aims to make settlement as fast as sending a message.
Under the exemption, crypto firms could handle trade matching, clearing, and other core equity functions without fully complying with the registration rules that govern traditional exchanges and broker-dealers.
Who is already moving, and how big is the market?
Coinbase, Robinhood, and Kraken already offer tokenized stocks outside the U.S. Coinbase said Tuesday it will launch such products abroad soon and follow up domestically once U.S. rules allow.
The global market cap of tokenized listed equities aimed at retail investors has surged from a few million dollars in late 2024 to over $6.4 billion now, per CoinMarketCap.
This reflects a wave of capital and platforms lining up at the gate — once the exemption lands, new entrants could flood the U.S. market quickly.
Why is Wall Street pushing back?
Citadel Securities and the Securities Industry and Financial Markets Association (SIFMA) oppose using a temporary exemption to drive such a major structural shift, arguing it should go through a formal rulemaking process.
Citadel Securities warned the SEC last year that tokenization could drain liquidity away from public markets. This means → if trading scatters across multiple blockchain platforms, pricing efficiency and depth on traditional exchanges could weaken.
Put simply = the incumbents worry not just about losing business, but about the market being fragmented — making price discovery harder and bid-ask spreads wider.
Where are the investor-protection gaps?
Most tokenized stocks are issued by third parties. Some are backed 1:1 by the underlying shares; others provide exposure only through derivatives — two very different risk profiles.
Despite being marketed like stocks, holders may not receive the same voting rights, disclosures, or legal protections as traditional shareholders.
SEC Commissioner Hester Peirce said last month she expects the exemption to admit only tokens that grant holders the same rights and protections as traditional shares — a statement widely read as an indirect response to these concerns.
Where does this end up?
SEC Chair Paul Atkins has said the exemption will be temporary and limited in scope, but could pave the way for longer-term structural reform of the equity market.
The SEC may also launch a formal rulemaking process in parallel and separately propose a safe-harbor rule allowing some crypto firms to raise capital without fully complying with traditional securities-issuance rules.
This means → the exemption itself is only step one; where the final boundary is drawn will determine whether this reform injects efficiency into the market or opens new risk exposures for investors.
Content is for reference only, not financial advice.