Coinbase is seeking approval from the Securities and Exchange Commission (SEC) to offer “tokenized stocks” to its users, according to the company’s chief executive in a Reuters interview.
Paul Grewal, the Chief Legal Officer at Coinbase, indicated that this initiative is a priority for the company.
Tokenized stocks involve converting a company’s shares into digital tokens, somewhat like how cryptocurrency transactions occur. Rather than holding the actual securities, investors would possess tokens that signify ownership of those shares.
Proponents argue that tokenized stocks could lower transaction expenses, provide quicker settlements, and enable around-the-clock trading.
However, critics highlight several challenges that must be addressed for tokenized stocks to gain widespread acceptance. A recent report from the World Economic Forum emphasized issues like inadequate secondary market liquidity and the absence of clear global standards as significant obstacles to adoption.
As of now, tokenized stocks are not available for trading in the US, although some companies, including the rival exchange Kraken, are testing this concept. Last month, Kraken announced its plans to launch a token for US stocks named Xstocks.
For Coinbase to offer tokenized stocks in the US, it needs an “action letter” or exempt relief from the SEC.
Generally, companies facilitating trading in securities must register as broker-dealers. Coinbase is not currently registered in this capacity and faced a lawsuit from the SEC during the Biden administration in 2023 for operating without registration. Interestingly, the SEC dropped the case earlier this year under President Trump.
Upon request, SEC staff can issue action letters to companies like Coinbase, indicating that the SEC opposes certain operations but will not take enforcement action if the company proceeds.
Grewal did not confirm if Coinbase has submitted a formal request to the SEC or if there’s a chance for a product launch in the near future.
If approved, Coinbase would directly compete with retail brokerage firms like Robinhood and Charles Schwab, potentially opening new avenues for its business.
This push from Coinbase happens as Trump aims to reform cryptocurrency regulations following his efforts to draw funding from the industry during his campaign. He has appointed regulators who favor the industry and has engaged with industry leaders at the White House, leading to a positive response from the crypto market, with Bitcoin reaching record highs this year.
Under Trump, the SEC ceased litigation against several cryptocurrency companies, including Coinbase, Binance, and Kraken, and established a task force to develop new regulations for digital assets.
