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Highlights
- Coinbase seeks SEC approval to tokenize stocks, aiming to revolutionize trading with blockchain tech and digital tokenized equities.
- Tokenized equities could lower trading costs and enable 24/7 trading, but liquidity challenges remain a key obstacle for Coinbase.
- Coinbase faces SEC hurdles for tokenized stocks, while global players like Kraken experiment with the concept outside the U.S.
Coinbase is seeking approval from the U.S. Securities and Exchange Commission (SEC) to offer tokenized stock trading, a move that could change the landscape of stock trading. The company’s chief legal officer, Paul Grewal, confirmed that Coinbase is pursuing this approval to offer “tokenized equities,” allowing customers to trade stocks using blockchain technology.
Coinbase Push for Tokenized Equities
Coinbase aims to introduce a new form of stock trading that would leverage blockchain technology. The company wants to tokenize equities, converting company shares into digital tokens. Instead of holding traditional stock certificates, investors would hold tokens that represent ownership of the securities.
This would make stock trading similar to cryptocurrency transactions, allowing for easier transfer of ownership.
The company’s efforts to bring this to fruition come with a broader ambition to make Coinbase a leader in the next wave of digital finance. Paul Grewal, the chief legal officer, stressed that gaining approval for tokenized equities is a priority for Coinbase, as it would enable the company to expand into a new business segment.
Challenges and Opportunities for Tokenized Stocks
Despite its potential advantages, the tokenization of stocks faces several challenges. Proponents believe this method could reduce trading costs, enable faster settlement times, and offer the possibility for 24/7 trading.
However, critics argue that the lack of sufficient liquidity in secondary markets could hinder widespread adoption. Additionally, the lack of a clear global standard for tokenized equities remains a significant barrier.
As of now, tokenized equities are not available for trading in the United States. Several firms, including rival crypto exchange Kraken, have begun experimenting with the concept in other countries. Kraken launched its own tokenized equities, called xStocks, which are available in select markets outside of the U.S. However, Coinbase has yet to secure the necessary regulatory approval to offer tokenized stocks domestically.
Regulatory Approval Process and SEC’s Role
In order to offer tokenized equities, Coinbase needs to gain approval from the SEC. The company has not yet submitted an official request but is likely to seek a “no action letter” or exemptive relief from the SEC. A no action letter would indicate that the SEC would not object to Coinbase moving forward with its plans.
However, in order to receive such approval, Coinbase would need to demonstrate that its tokenized equities would comply with U.S. securities laws.
Coinbase is currently not registered as a broker-dealer, which is typically required for companies offering securities trading. The SEC previously sued Coinbase for allegedly operating as a broker-dealer without the necessary registration. This case was dropped earlier this year under the Trump administration, but the company still faces hurdles in securing the SEC’s approval for tokenized stock trading.
Global Developments and Coinbase’s Strategy
Coinbase requests a license at the time when regulators around the world have become increasingly concerned about cryptocurrency and blockchain technologies. Although the U.S. SEC has been an important stakeholder in the regulation of crypto, other nations have taken more initiatives to adopt the blockchain technology.
Coinbase has also lobbied policy makers in the U.K where the company was also recently registered as a VASP (Virtual Asset Service Provider).
The U.K. has now been emerging as a favorable market to crypto firms because of its lighter regulatory environment. Coinbase involvement in the U.K poses the conclusion that the company is strategically racing to gain access to the global market as it awaits SEC approval. In June, Coinbase CEO Brian Armstrong published an optimistic post in which he said that the U.K. holds serious potential as an epicenter of crypto companies.
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