“Tokenization is coming to America,” Robinhood chief executive Vlad Tenev declared after the US Securities and Exchange Commission (SEC) announced its Innovation Exemption — and the markets appeared to look kindly on the development. In the days that followed, Bitcoin (BTC) and Ether (ETH) each rallied more than 10%, while Uniswap’s UNI token — tied to a protocol that looks as if it could become prime real estate for tokenized stock trading — gained more than 30%, according to CoinGecko data.

Yet while the SEC has indeed greenlit tokenized stocks in America, most of the existing stock tokens on the market fall outside the new rules.

The commission’s five-year Innovation Exemption creates a path for certain venues to trade tokenized National Market System (NMS) stocks onchain without registering as a securities exchange, and for third parties to tokenize stocks — but only under a specific set of conditions. Tokens must grant holders the same “rights and privileges” as the underlying shares, and trading venues must permission both users and liquidity pools.

Not all tokenized stocks are created equal. A token can look like a share and track the price of a share without delivering the shareholder rights that come with one. Under the new rules, that structure is classified as a synthetic stock, and it is not compliant.

That distinction means some of the industry’s biggest players may already have a head start, while others will have to play catch-up. As Peter Curley, head of global regulatory affairs at Ondo Finance, tells Cointelegraph Magazine:

“Not everything we do will fit, and that’s fine. What matters is that the SEC acted instead of waiting on Congress to finish the job.”

The SEC’s tokenization lane is narrow

The SEC’s Sept. 17 order gives certain venues temporary relief from having to register as exchanges when they trade tokenized NMS stocks through permissioned automated market maker (AMM) liquidity pools. In other words, the agency has opened a lane for onchain stock trading, but it is a fairly specific one — and the token itself becomes just as important as the venue.

To qualify, a tokenized stock must give holders the same dividends and voting rights as the underlying security. And while a third party can tokenize a stock without being affiliated with the issuer, the issuer gets a chance to nix the token before it can be traded.

That rules out synthetic exposure, which is bad news for Robinhood’s Stock Tokens and Kraken’s xStocks in their current forms.

Commissioner Hester Peirce stressed that the exemption covers one particular model rather than every possible way of trading tokenized securities, although she said the SEC is open to other models outside the TSV structure.

The products closest to the SEC’s model

Coinbase’s stock tokens are in the ballpark. On Sept. 14, chief executive Brian Armstrong said on X that the company had “set the standard” with its tokenized stocks, describing them as neither synthetic nor debt instruments, but “real fully-backed securities, redeemable for the underlying shares, with dividends integrated,” with voting rights “coming soon.”

However, Coinbase’s current tokenized stock offering serves non-US customers, and its exchange infrastructure is built around a central limit order book rather than the permissioned AMM liquidity pools at the heart of the SEC’s exemption. Coinbase does operate the Base network, however, so it has options in that regard.

Ondo launched tokenized US securities in June, with the underlying shares held in traditional custody and the token representing the investor’s entitlement onchain. It also acquired Oasis Pro, which includes an SEC-registered broker-dealer, an alternative trading system (ATS) and a transfer agent, with infrastructure across the traditional and onchain sides of the market.

Curley says the SEC’s exemption favors “exactly the model we’ve already proven out: custodial, entitlement-based, with real shareholder rights and corporate actions passing through to the holder.” Still, he adds, “we’re not assuming anything clears automatically.”

Both Coinbase and Ondo hold pieces of the infrastructure the SEC seems to want. Neither can assume its existing setup qualifies without some finessing, but they may have less to rebuild.

Uniswap’s permissioned pools could open the door

The SEC exemption is specifically designed around permissioned AMM liquidity pools, which looks likely to be good news for Uniswap. The protocol introduced Permissioned Pools for v4 in July, allowing regulated assets to trade through AMMs with compliance enforced directly onchain.

That does not make Uniswap itself a TSV, but its v4 infrastructure could be used by operators building one, since Permissioned Pools let issuers control who can trade or provide liquidity — consistent with the SEC’s requirements. Permissioned access requires Know Your Customer (KYC) verification, record keeping, public notices and transaction transparency.

If that infrastructure can be connected to the shareholder rights and regulatory infrastructure required for US securities trading, Uniswap potentially has a framework that could be adapted to the SEC’s model.

Robinhood has the users, but not the right product

Robinhood already has around 200 stock tokens trading on Robinhood Chain, which Tenev has described as one-to-one backed and fully DeFi composable. But Jaewon Kim, head of research at Four Pillars, pointed out that the SEC’s order excludes synthetic exposure, ruling out products like Stock Tokens and Kraken’s xStocks.

Robinhood’s Stock Tokens are tokenized debt securities issued by Robinhood Assets (Jersey) Limited. They provide economic exposure to the underlying stocks but do not give holders legal or beneficial rights, and they are neither registered under US securities laws nor available to US persons.

Robinhood’s existing product therefore does not fit the SEC’s rules, but its distribution and blockchain infrastructure could give it a major advantage if it can adapt its model to the new requirements.

Kraken’s xStocks are fully backed by underlying equities, but they also do not give holders the same rights as conventional shares — and being backed by shares is not enough to qualify for this exemption.

Bryan Choe, head of research and operations at RWA.xyz, a market intelligence platform for tokenized real-world assets (RWAs), says most existing tokenized equity products are currently third-party sponsored, but he expects that to change over the next 12 months. “We expect most of the products to shift to issuer-sponsored models,” he tells Cointelegraph Magazine, adding that the exemption “aligns the token issuers with the stock issuers” and could bring more balance between the different issuance models.

Five years to prove tokenized stocks are actually better

The SEC describes the exemption as temporary, and Chairman Paul Atkins says the five-year period will allow the market to “develop” while the commission “evaluates future rulemaking.”

Beyond the question of which company gets the first compliant venue, the real test is whether tokenized stocks take off in the first place. As Curley puts it, investors need to end up with something “faster, cheaper, or more useful than a conventional brokerage position.”

The practical questions over the next five years will include whether venues can meet the exemption’s permissioning requirements, whether issuers and custodians can deliver shareholder rights onchain, and whether enough liquidity can gather in compliant pools to support a workable trading experience. Those questions follow directly from the exemption’s structure: compliance is required at both the token and venue level, while the potential benefits depend on users having access to useful markets.

Questions have already been raised over whether fragmented liquidity across stock tokens can deliver good prices or a decent user experience. The exemption could enable 24/7 trading, fractional ownership, faster settlement, onchain composability and genuine shareholder rights. But at the end of the day, those advantages only matter if investors actually care.

Source: Cointelegraph Magazine