U.S. equity markets may be on the cusp of a significant operational change as the Securities and Exchange Commission prepares a policy that would allow crypto firms to offer blockchain-based versions of traditional shares, according to attorneys and market analysts familiar with the matter. Known as tokenized stocks, these blockchain instruments are designed to track existing equities and, proponents say, could enable continuous trading and immediate settlement.
At the center of the shift is an expected regulatory measure being promoted by SEC Chair Paul Atkins, described by industry sources as an "innovation exemption." Atkins has indicated this exemption is intended to let companies experiment with digital asset business models without immediately having to comply with the full suite of SEC disclosure and investor-protection regulations.
The innovation exemption is widely reported to include authority for firms to offer tokenized versions of U.S. exchange-listed stocks. Crypto trading venues have signaled readiness to roll out such products once regulatory permission is granted. Major marketplaces in the crypto sector, including Coinbase, have publicly indicated plans to launch tokenized stocks in the United States when the rules permit. Several crypto platforms, such as Robinhood and Kraken, already offer tokenized stock products outside the United States, and Coinbase recently announced it would extend similar offerings overseas.
Industry lawyers and executives view the exemption as potentially transformative. Ladan Stewart, global head of fintech and partner at White & Case, described the innovation exemption as a "significant win" for the crypto industry. She noted that, if structured as expected, the measure could allow crypto firms to execute multiple market functions - such as trade execution and clearing - without adhering to the full regulatory framework that applies to SEC-registered exchanges and broker-dealers.
Supporters argue that tokenized stocks could bring tangible market-level benefits. By operating on blockchain rails, tokenized instruments could be traded around the clock and settled instantly, features that might increase liquidity and reduce transaction costs for some investors. The combined global value of tokenized public stocks aimed at retail investors has expanded rapidly since late 2024, growing from a market worth only a few million dollars to a market capitalization now estimated at more than $6.4 billion, according to data cited from RWA.xyz and CoinMarketCap.
Despite these potential advantages, not all market stakeholders embrace the change. Several established Wall Street firms and industry groups have expressed concern that allowing tokenized stock trading without a formal, codified rule-change process could produce adverse effects for public markets. Organizations including Citadel Securities and the Securities Industry and Financial Markets Association have argued that major structural reforms should not be implemented on an ad hoc basis and should instead proceed through formal rulemaking.
Those cautioning against a fast-track approach point to several market risks. One concern is that tokenized trading might shift liquidity away from centralized public markets, creating fragmentation that could affect price discovery. Another worry is the potential for inconsistent investor protections, because many tokenized products are issued by third parties and are not uniform in how they map to underlying equity rights and disclosures.
Legal and regulatory experts have highlighted variability among tokenized offerings. Some tokens are backed one-for-one by underlying shares, while others provide exposure through derivative structures. Even though many platforms market these tokens as equivalent to stocks, they do not always confer the same rights, disclosures, or protections that accompany traditional equities.
Within the SEC there appear to be efforts to address at least some of those investor-protection concerns. Commissioner Hester Peirce, in a social media post referenced by market observers, indicated an expectation that the innovation exemption would permit only those tokenized stocks that preserve the same rights and protections as conventional equities. Public comments on the matter from Peirce were not provided.
The innovation exemption is being pursued alongside other regulatory steps that together reflect a broader change in the SEC's posture toward crypto. The agency is reportedly preparing a proposed rule to create a safe harbor allowing certain crypto firms to raise capital without conforming to traditional securities offering rules. Both the exemption and the potential safe-harbor rule have taken on added urgency as opportunities for Congress to enact comprehensive crypto legislation narrow.
Regulators and market participants are split on the proper sequencing and scope of these policy changes. Atkins has said the innovation exemption would be temporary and limited but also indicated that the SEC may pursue a formal rulemaking process in the future. Citadel Securities has previously raised concerns with the SEC that tokenization could divert liquidity from public markets. Citadel Securities and the Securities Industry and Financial Markets Association did not provide comments on these recent developments.
The SEC itself declined to comment on the pending policy. As crypto exchanges prepare to expand tokenized stock offerings, the practical effects on trading venues, brokerages, and market structure will depend heavily on how the exemption is drafted and how firms choose to implement tokenized products. For now, market participants and legal specialists continue to weigh the potential for improved market efficiency against the risks related to investor protections and liquidity fragmentation.
Summary
The SEC is expected to introduce an "innovation exemption" that would allow crypto firms to issue and trade blockchain-based tokenized versions of U.S. stocks. Proponents argue this could enable 24/7 trading and instant settlement, while critics worry about investor protections, regulatory oversight, and liquidity shifts away from public markets. The total market value of tokenized public stocks targeting retail investors has grown to an estimated $6.4 billion.
Key points
- The SEC's proposed "innovation exemption" could let crypto companies experiment with tokenized stocks without full compliance with standard SEC disclosure and investor-protection rules.
- Major crypto exchanges, including Coinbase, plan to launch tokenized stock products in the U.S. once the rules permit; several other platforms already offer such products abroad.
- The rapid growth in the tokenized stock market to more than $6.4 billion signals investor interest, but raises questions for traditional brokerages, market structure, and liquidity distribution.
Risks and uncertainties
- Investor protections may vary across tokenized offerings because some tokens do not guarantee the same rights and disclosures as traditional equities - risk to retail investors and securities markets.
- Liquidity fragmentation is a concern; tokenized trading could divert liquidity from public markets, affecting price discovery and market functioning - risk to exchanges and broker-dealers.
- The exemption's temporary or limited status and potential future rulemaking leave uncertainty about the long-term regulatory framework and whether ad hoc policy changes are appropriate for structural market reforms - risk to regulatory clarity and market participants.