SEC Paves Temporary Path for Tokenized US Equities Through Innovation Exemption

The US Securities and Exchange Commission (SEC) has introduced a five-year temporary path for tokenized US equities through an innovation exemption. This allows permissioned Automated Market Makers (AMMs) and liquidity pools to enable on-chain trading of tokenized US stocks.

However, this is just the beginning - the real challenge lies in verifying wallets, supplying shares and cash, and keeping prices pegged amid market fluctuations. The SEC's exemption requires tokens to carry normal shareholder rights, with companies behind the stock notified and given the right to object.

The process involves Uniswap permissioned pools, Superstate/Securitize registry layers, oracles, PropAMMs, and financing. Standard stock exchanges match buyers and sellers, but AMMs provide a pool for both parties to trade against. Liquidity providers earn a cut of the trading fees, but impermanent loss occurs when prices fluctuate.

The SEC views tokenized stock liquidity as three problems: verifying wallets, supplying shares and cash, and providing enough capital to keep the pool running. Uniswap's permissioned pools tackle the first problem by checking wallets before allowing trades, while Superstate's Pro registry layer provides compliance checks for wallets.