SEC's Tokenization Boom Rides on Expiration Date of a Single Order

The SEC's tokenization boom has sparked a broad crypto rally, but experts warn that it may not be sustainable in the long term. The new framework allows qualifying platforms to trade tokenized US stocks without registering as exchanges for up to five years, but this relief is based on exemptive relief rather than law.

This means that a future SEC chair could potentially erase the exemption with a single order, effectively ending the boom. Nathan Dean, senior government analyst at Bloomberg Intelligence, pointed out that the rule was written as guidance rather than formal rulemaking, which makes it easier to reverse.

The exemption is set to expire in five years, and Jamie Cellway, director of the SEC's Division of Trading and Markets, acknowledged that reversal would become increasingly difficult over time. Community banking groups have also expressed concerns about deposit and lending risks tied to tokenization, giving another constituency reason to want the rule gone.