SEC Grants Five‑Year Tokenized‑Stock Exemption, Opening New Path for On‑Chain Equity Trading

The U.S. Securities and Exchange Commission announced a five‑year Innovation Exemption that permits tokenized U.S. stocks to be traded through permissioned automated market makers (AMMs). The relief is limited to tokenized securities that convey the same shareholder rights as the underlying shares and excludes synthetic products.

Key Features of the Exemption

• Applies to tokenized National Market System (NMS) stocks.
• Requires tokens to provide identical interest, dividends, voting and liquidation rights as traditional shares.
• Primary offerings are excluded; secondary trading must still meet registration or other exemption requirements.
• Third‑party tokenizers must notify the underlying issuer and wait 30 days for any objection.
• Tier 1 tokens (S&P 500, Russell 1000, major ETFs) are limited to 75 symbols and 0.25% of the prior‑month average daily share volume; Tier 2 tokens have higher caps (250 symbols, 2.5% volume).
• Smart contracts must be public, auditable, and run on permissionless ledgers, while access to the venue remains permissioned.
• Trading must halt if the underlying stock is halted on its primary exchange.

Potential Beneficiaries

Analysts at Goldman Sachs and Citizens identified three firms that could benefit if regulated on‑chain equity trading expands:

• Coinbase – Already offers one‑for‑one backed stock tokens on its Base layer, with dividend rights and pending voting functionality. Its infrastructure spans tokenization, custody, stablecoins and blockchain services, positioning it to support AMM‑based venues.
• Robinhood – Operates overseas stock tokens that currently provide only economic exposure without full shareholder rights. To qualify under the exemption, Robinhood would need to add redemption and voting features.
• Circle – Could see increased demand for USDC as a settlement and collateral asset in tokenized‑stock pairs, since the exemption permits stablecoins to be used alongside qualified tokenized equities.

Current Market Activity

Coinbase’s Base‑based stock tokens (initially Apple, Nvidia, Meta and Alphabet) have generated notable decentralized exchange (DEX) volume, with $730.9 million reported over a 30‑day period, primarily on Aerodrome. Morpho has launched lending markets for five Coinbase‑issued tokens, with $104,401 posted as collateral and $54,652 borrowed in USDC.

Regulatory Constraints and Outlook

The volume and symbol caps are intended to limit price dislocations between AMM‑traded tokens and traditional markets. Analysts do not expect the exemption to divert substantial trading volume from major exchanges in its early phase. The SEC also requires venues to cease token trading if the underlying stock is halted, and repeated breaches of volume limits trigger a three‑month trading suspension for the affected token.

Traditional market participants are pursuing parallel tokenization efforts. The Depository Trust & Clearing Corporation (DTCC) plans to launch a tokenization service for DTC‑custodied assets by October 2026, with involvement from Circle, Coinbase, Goldman Sachs, BlackRock and other major firms.