Key Takeaways
The U.S. Securities and Exchange Commission is set to fire the starting gun on a multi-year battle for the soul of the stock market, pitting crypto-native firms against financial incumbents.
The Securities and Exchange Commission will release an “innovation exemption” in the next month allowing firms to temporarily issue and trade tokenized stocks without full brokerage registration, according to public statements from Chairman Paul Atkins.
"We should be paying attention to any efforts, either through exemptive relief or no-action relief, that would create very material exemptions under the securities laws,” Ken Bentsen, CEO of the Securities Industry and Financial Markets Association (Sifma), said at a House Financial Services Committee hearing last week.
The proposal, which is awaiting clearance from the Office of Information and Regulatory Affairs (OIRA), would create a time-limited regulatory sandbox with asset caps. This would allow firms like Coinbase Global to test on-chain stock trading as a "proof of concept" before needing to fully comply with existing rules that separate the roles of broker, exchange, and custodian.
At stake is the structure of the U.S. stock market, with crypto firms arguing that moving to a blockchain-based system could enable 24/7 trading and instant settlement, threatening the profit models of traditional exchanges and clearinghouses.
While the crypto industry sees the exemption as a key first step, some participants argue the approach is misguided and destined to fail in its current form. Plume General Counsel B. Salman Banaei testified before Congress that the SEC should move concurrently toward full rulemaking for Alternative Trading Systems (ATS) that use DeFi protocols, rather than focusing only on a temporary sandbox.
The core concern is that large institutions will not allocate significant resources to build infrastructure for a pilot program with volume limits that may not exist in a few years. Banaei pointed to the European Union’s DLT Pilot Regime, which, after three years, has authorized only three market infrastructures with “extremely limited” trading activity, according to a June 2025 report from the European Securities and Markets Authority (ESMA).
The SEC's plan comes as U.S. lawmakers broadly agree that tokenization is an inevitable evolution of capital markets, but remain split on the regulatory path forward. At a recent hearing, House Financial Services Committee Chair French Hill acknowledged tokenization's potential to streamline markets but stressed that "existing securities laws must be equipped to govern these modern, emerging technologies."
Ranking member Maxine Waters, however, cautioned that "innovation should strengthen, not weaken, investor protections," citing the Trump family's crypto investments as a potential conflict of interest. The debate highlights a central tension: crypto advocates like Blockchain Association CEO Summer Mersinger are pushing for an "iterative approach" to get policy moving, while traditional finance and some Democrats are demanding stronger guardrails before unleashing the technology.
The SEC's incremental step, which Commissioner Hester Peirce has emphasized is not a cure-all, marks the formal start of a regulatory process rather than a final answer. The success of the U.S. experiment will depend on whether the sandbox's limitations deter the very institutional participation needed to generate meaningful data, a key concern raised by critics watching the slow progress of Europe's own pilot program.
This article is for informational purposes only and does not constitute investment advice.
