Coinbase, a prominent cryptocurrency exchange, is pushing to obtain approval from the U.S. Securities and Exchange Commission (SEC) to offer “tokenized equities” to its users. This move could enable the company to provide stock trading through blockchain technology, positioning it in direct competition with traditional retail brokerages such as Robinhood and Charles Schwab.
What are Tokenized Equities?
Tokenized equities involve converting shares of a company into digital tokens, similar to how cryptocurrencies are traded. Instead of directly holding securities, investors would hold tokens representing ownership of these securities. Proponents argue that this approach could reduce trading costs, facilitate faster settlement, and enable around-the-clock trading.
Challenges and Criticisms
Despite the potential benefits, critics point out several gaps that need addressing before tokenized equities can become commonly traded. The World Economic Forum recently highlighted two significant challenges: a lack of sufficient secondary-market liquidity and the absence of a clear global standard. An SEC representative did not immediately respond to a request for comment on the matter.
Regulatory Hurdles
To offer tokenized equities in the United States, Coinbase would need to secure either a “no-action letter” or exemptive relief from the SEC. This would require the SEC to pledge not to pursue enforcement action if Coinbase proceeds with the plan. Typically, companies offering securities trading must register as broker-dealers, a status Coinbase has experience with due to its 2018 acquisition of a broker-dealer, although the affiliate has remained inactive.
Industry Context
The development comes as former President Donald Trump has sought to overhaul U.S. cryptocurrency policy, appointing industry-friendly regulators and hosting industry leaders at the White House. This shift has been favorable for cryptocurrencies, with Bitcoin reaching all-time highs this year. The SEC under Trump’s administration has dropped lawsuits against several crypto companies, including Coinbase, and established a crypto task force to devise new rules for digital assets.
Coinbase’s Position
Paul Grewal, Coinbase’s chief legal officer, described tokenized equities as a “huge priority” for the company. He noted that a no-action letter would provide confidence that the SEC has adopted Coinbase’s view on why the product is compliant. “It’s that confidence that has been lacking so far, and I think really held back a lot of the institutional adoption” of crypto and blockchain technology, Grewal added.
