- The recent report suggests that the U.S Securities and Exchange Commission is expected to introduce exemptions for new innovations for tokenized stocks this week or later on.
- This comes after the SEC has approved proposals from Nasdaq and the New York Stock Exchange (NYSE) to allow trading of tokenized stocks on its platform.
- The total value of tokenized stock has surpassed the mark of $1.5 billion.
Amid the impressive progress in the regulatory framework for digital assets, a major report is coming out from the major regulatory agency, the U.S. Securities and Exchange Commission, which is planning to approve a tokenized version of stock and ETF trading with new rules.
According to the recent report, the SEC is expected to introduce exemptions for new innovations for tokenized stocks this week or later on.
In March, the SEC provided a green light to a proposal from Nasdaq that allows trading of tokenized securities on its platform. A month later, in April, similar approval was also given to the New York Stock Exchange (NYSE). These back-to-back approvals will allow investors to trade tokenized versions of real stocks as well as exchange-traded funds (ETFs) on the biggest regulated exchanges. These regulatory approvals will open the door for blockchain technology to enter the traditional stock trading market.
What Are Tokenized Stocks?
Tokenized stocks are blockchain-based digital versions of real company shares, such as Apple, Nvidia, or S&P 500 ETFs. Each and every tokenized version of stock on the blockchain will be backed by real underlying shares that are stored in safe custody.
While its critics are raising questions like why one should trade tokenized stocks, there are numerous benefits that these tokenized stocks have. These tokenized stocks can be executed on the same day instead of the current traditional T+1 system, which takes one whole day to settle the trade.
According to the SEC’s recent clarification regarding the tokenized securities, tokenized stocks will follow the same federal securities laws as traditional stocks.
The SEC stated in the official statement that, “A single class of securities could be issued in multiple formats, including tokenized format. Similarly, an issuer may permit security holders to hold a security in different formats and convert the security from one format to another. The format in which a security is issued or the methods by which holders are recorded (e.g., onchain vs. offchain) does not affect application of the federal securities laws.”
“For example, regardless of its format, the Securities Act requires that every offer and sale of a security must be registered with the Commission unless an exemption from registration is available. Similarly, stock is an “equity security” under the Securities Act and the Exchange Act regardless of its format,” the report added more.
Tokenized Stocks Break $1.5 Billion Mark As Demand Grows
Amid the growing regulatory clarity and adoption of blockchain-based digital assets, the tokenized market has witnessed an impressive growth in the last few months. According to the official data on rwa.xyz, the total distributed value of tokenized stock has soared above $1.5 billion. Last year, in May, the total value of tokenized versions of stocks was revolving around $300 million.
The sharp growth in the tokenized version of stocks came after its growing demand among investors, as it is becoming widely accepted among traditional traders. These tokenized stocks overcome limitations present in the traditional stock trading market, such as time limitations.
According to the leading prediction market, Polymarket’s recent contract, there is around a 75% chance that the total real-world asset market is expected to reach $50 billion by December 31, 2026. This includes tokenized stocks, bonds, and funds.
Along with tokenized stocks, the overall real-world asset tokenization has witnessed a sharp growth in the last few months. According to DeFiLIama, the total real-world asset on-chain market cap is currently around $30 billion after recent growth in demand with institutional adoption from BlackRock, Franklin Templeton, Ondo Finance, and Circle.
Tokenized United States Treasuries is the biggest category in this real-world asset market, as the current data states that the total value of tokenized U.S. Treasuries has soared over $15.49 billion.
Ondo Finance has recently announced that it is launching a bridge to bring popular tokenized stocks to Hyperliquid HyperEVM. These stocks include SPY, Tesla, and Nvidia. Ondo Finance is using LayerZero technology to form this bridge between their platform and Hyperliquid’s ecosystem. This product will allow traders to trade spot tokenized stocks alongside futures contracts on the same blockchain network.
The leading cryptocurrency exchange, Kraken, rolled out the xStocks platform in partnership with Backed. This platform has around 50 major U.S. stocks and ETFs, including TSLAx, AAPLx, and SPYx. The platform is connected with numerous blockchain networks, including Solana, Ethereum, TON, Ink, and others like BNB Chain and TRON through the xStocks Alliance.
Traditional Trading Groups Raise Questions on Tokenized Stocks
The Securities Industry and Financial Markets Association (SIFMA) has raised its support for tokenized stocks after initially raising concerns.
The official letter stated that, “SIFMA members have been reading with significant concern recent reports indicating that certain digital asset firms have submitted requests for immediate no-action or exemptive relief from requirements under the federal securities laws to allow such firms to offer investors the ability to purchase and trade tokenized equities or other digital forms of traditional securities through the firms’ platforms.”
However, in March, SIFMA stated that they are welcoming new tokenization-based innovations. “SIFMA and its members strongly support innovation in the securities markets and believe new technologies such as distributed ledger technology (“DLT”) and tokenization offer many potential benefits for the U.S,” stated in the recent testimony.
Cboe Global Markets has also raised objections and urged bringing clear regulatory clarity for this sector. Cboe has asked the regulators to disclose more details on the role of the Depository Trust Company (DTC) in the tokenization pilot and in the process of settling trades after they are executed.
Earlier, Cboe raised questions about the many uncertainties on how to convert traditional stocks into tokenized versions, as well as how to settle these tokenized stocks.
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