SEC Paves Narrow Path for Tokenized Stocks, Leaving Synthetic Tokens Behind
The SEC's Innovation Exemption has opened a narrow regulatory path for onchain trading of tokenized stocks, and the market's initial verdict was unambiguous. Bitcoin and Ether each climbed more than 10% in the days after the agency unveiled its framework on September 17, while Uniswap's UNI token surged over 30%, according to price data tracked by CoinGecko.
The exemption grants certain venues temporary relief from registering as securities exchanges when they trade tokenized National Market System stocks through permissioned automated market maker liquidity pools. It also contemplates third parties tokenizing stocks, provided they meet conditions laid out by the regulator.
Coinbase and Ondo Finance appear to have the most infrastructure already aligned with the regulator's requirements. Coinbase chief executive Brian Armstrong said on September 14 that the company had set the standard with its tokenized stocks, describing them as real fully backed securities redeemable for underlying shares, with dividends integrated and voting rights coming soon.
Robinhood and Kraken find themselves on the less favorable side of the exemption, at least in their current forms. The SEC's order excludes synthetic exposure, which rules out products like Robinhood's Stock Tokens and Kraken's xStocks in their present forms.