The U.S. Securities and Exchange Commission's tokenization exemption is drawing scrutiny over which blockchains can support trading of tokenized stocks. Comments from crypto advocacy groups, financial industry representatives, and legal experts are challenging the framework's definition of “public and permissionless,” and the debate arrives just as three firms prepare tokenized securities venues under the temporary regime introduced in September.

At the center of the dispute is a threshold question: which networks count as sufficiently open to host tokenized equities under the exemption. The answer effectively sets the boundaries for where tokenized versions of publicly listed shares — blockchain-based representations of equity — can trade under the regime.

Solana and Hedera Clash Over Blockchain Eligibility

Under the exemption, tokenized securities venues are required to use auditable smart contracts deployed on public, permissionless blockchains. However, the SEC's broad definition of those terms has prompted competing requests for clarification from different corners of the market.

In a Thursday letter, the Solana Policy Institute urged the SEC to adopt clearer tests centered on who controls validators, transaction approvals, and network rules. Hedera took a different tack, asking the regulator on October 9 to include public but permissioned networks, in which approved entities validate transactions.

Columbia Business's Omid Malekan and securities lawyer Gabriel Shapiro warned that centralized operators could retain control while still benefiting from the exemption. SIFMA also requested clarification and questioned whether issuers should have to opt out of tokenization. Better Markets went further, calling on the SEC to withdraw the exemption and pursue formal rulemaking.

SEC Reviews Comments as Stock Issuers Object

Three firms have notified the SEC of plans to operate tokenized securities venues. TSV LLC intends to use the Canton Network, OKXICE plans to use X Layer, and Kephas Corp. intends to operate on Kronos X Public, an Ethereum-compatible Layer 2 network.

An SEC official told Crypto In America that firms can begin operating 30 days after filing notices, provided they meet the exemption's conditions. The agency does not approve each blockchain individually before launch, and its staff may issue additional frequently asked questions to clarify how the framework applies. Any broader changes would require action by the Commission and potential formal rulemaking.

Objections to tokenized shares are meanwhile mounting among listed companies. As of Friday, 22 of the 62 companies on OKXICE's original list had objected — more than a third — and Reuters reported six additional objections, including from Wells Fargo, Arm Holdings, and Intuit. That growing resistance speaks directly to SIFMA's question about whether issuers should have to opt out of tokenization.

The SEC's temporary exemption runs for five years, through September 17, 2031. The agency says the feedback could inform future formal rulemaking while firms continue preparing their proposed trading venues.