Coinbase is seeking approval from the U.S. Securities and Exchange Commission (SEC) to offer tokenized equities, allowing stock trading on blockchain networks. This move, described as a “huge priority” by Coinbase’s Chief Legal Officer Paul Grewal, aims to enable 24/7 trading, reduce transaction costs, and provide faster settlements compared to traditional markets. If approved, Coinbase would compete with retail brokerages like Robinhood and Charles Schwab, potentially disrupting equity markets with features like fractional ownership and real-time settlement.
To proceed, Coinbase needs a “no-action letter” or exemptive relief from the SEC, as it is not registered as a broker-dealer, a requirement for securities trading. The company owns a dormant broker-dealer license from a 2018 acquisition, which could be leveraged. This follows a 2021 attempt to offer tokenized stocks, halted under former SEC Chair Gary Gensler, but recent regulatory shifts under a crypto-friendly administration and the SEC’s dismissal of a 2023 lawsuit against Coinbase have renewed optimism.
Challenges include insufficient secondary-market liquidity and the lack of global standards, as noted by the World Economic Forum. Rival exchange Kraken launched xStocks for non-U.S. markets, indicating global demand. Approval could set a precedent, pressuring the SEC to formalize tokenized securities frameworks and encouraging traditional brokers to adopt blockchain technology.
Tokenized equities on blockchain could transform stock trading by enabling 24/7 access, fractional ownership, and near-instant settlements, reducing reliance on traditional clearinghouses. This could lower costs for retail investors and challenge established brokerages like Robinhood and Charles Schwab. Fractional ownership via tokens could democratize investing, allowing smaller investors to buy portions of high-value stocks. This aligns with Coinbase’s goal to expand financial inclusion but may raise concerns about speculative trading.
SEC approval would signal a shift toward integrating blockchain in traditional finance. It could force the SEC to clarify rules for tokenized securities, potentially creating a framework for other exchanges. However, regulatory hurdles, like Coinbase’s lack of a broker-dealer registration, remain significant. Approval could push traditional financial institutions to adopt blockchain to stay competitive. Firms like BlackRock, which tokenized a money-market fund on Ethereum, show growing interest, but widespread adoption hinges on liquidity and regulatory clarity.
With Kraken’s xStocks targeting non-U.S. markets, Coinbase’s move could accelerate global demand for tokenized assets. However, inconsistent international regulations may fragment markets, as seen in the World Economic Forum’s concerns about liquidity and standards. Retail investors may benefit from lower costs and accessibility, but institutional players could resist due to entrenched systems and potential loss of control over market infrastructure. This could widen the gap between tech-forward retail platforms and traditional finance.
Coinbase’s initiative bridges crypto and traditional markets, but it deepens the divide between crypto advocates pushing for decentralization and regulators wary of systemic risks. The SEC’s decision will reflect this tension, especially under a crypto-friendly administration. The U.S. lags behind regions like Europe and Asia in tokenized asset adoption. Approval could narrow this gap, but without global standards, U.S. investors may face limited access to international tokenized markets, while non-U.S. platforms like Kraken gain traction.
The crypto industry seeks clear rules, but the SEC’s historical caution, as seen in its 2021 rejection of Coinbase’s tokenized stock plan, highlights a divide between innovation and oversight. A favorable ruling could reduce this friction, but denial risks further uncertainty. Tokenization could empower smaller investors, but without proper safeguards, it might exacerbate speculative bubbles, disproportionately harming less sophisticated traders.
This underscores a divide between financial inclusion and investor protection. Coinbase’s bid could reshape equity markets, but it amplifies tensions between innovation and regulation, retail and institutional interests, and U.S. and global financial systems. The SEC’s response will be pivotal in determining whether these divides narrow or widen.
