SEC Suspends Tokenized U.S. Stocks Framework Amid Industry Backlash

Article by Xiao Bing, Shenchao TechFlow

On May 22, according to Bloomberg, the U.S. SEC had initially prepared to formally release a draft of its "innovation exemption" framework this week, having completed an internal review; however, following intensive lobbying by industry groups behind traditional exchanges such as Nasdaq, Cboe, and CME Group, the SEC has decided to delay the release schedule.

The tokenization roadmap for U.S. capital markets is splitting into two incompatible tracks.

First, clearly explain what this "innovation exemption" that the SEC is about to issue is.

The core of this "innovation exemption" is to create a special pathway for crypto-native platforms: allowing them to issue and trade tokens that track U.S. stock prices on decentralized exchanges without going through the full regulatory process of traditional stock exchanges. Prior to this, SEC Chairman Paul Atkins publicly defined this framework as a "regulatory sandbox for stock trading on blockchain."

Sounds great. But the devil is in the details of a specific clause in the draft that allows "third-party tokens" to circulate.

Third-party tokens are "synthetic stocks" created without the knowledge or authorization of the underlying publicly traded company. An encrypted platform can purchase Apple stock, hold it in custody, and then issue a token on-chain that is 1:1 pegged to Apple’s stock price, listing it on Solana or Arbitrum so that any wallet address worldwide can trade it 24/7. Apple does not participate, does not sign off, and has no knowledge of who the ultimate holders of these tokens are.

This model is already live, just not in the U.S. xStocks (backed by Backed Finance, acquired by Kraken in December last year) has launched over 60 tokenized U.S. stocks on Solana, with combined on-chain and exchange trading volume exceeding $10 billion in six months; Robinhood is running 943 tokenized stocks and ETFs on Arbitrum. Both have clearly adopted the industry-recognized "Rebasing (Third-Party)" model, with no legal relationship between them and the underlying publicly traded companies.

The SEC's original draft was essentially issuing a visa to return to the U.S. for a business model already proven overseas.

But this visa has pierced the invisible barrier that everyone saw but no one was willing to speak aloud: If Apple doesn’t know who holds its "stock tokens," how can it distribute dividends, calculate shareholder votes, or respond to sanctioned addresses?

Financial analyst Austin Campbell put the question bluntly: when a company doesn’t know who its holders are, dividend distribution becomes an unsolvable technical problem; if crypto platforms lack proper KYC, sanctioned entities could potentially gain economic exposure to U.S. stocks through offshore channels.

One thing many people haven’t noticed is that the SEC has already approved tokenized stock trading.

In March this year, Nasdaq’s tokenized securities solution received SEC approval; in April, the NYSE followed suit. Both adopted the same approach: tokenized stocks and traditional stocks trade side by side on the same order book, using DTCC’s (Depository Trust & Clearing Corporation) enterprise-grade blockchain for underlying settlement, while maintaining a full one-to-one correspondence of shareholder rights between tokens and shares.

This pathway essentially upgrades the existing clearing and settlement system to enable stocks to be traded in "tokenized form" within a compliant, KYC-compliant, and regulatable environment. Voting rights, dividends, and the shareholder registry remain with DTCC—no one can escape.

For Nasdaq, Cboe, and CME, this is the tokenization they can accept—their fee structures, market maker networks, and regulatory license value remain intact. The blockchain is just a new gauge, but the locomotive is still theirs.

But crypto-native platforms don’t want this. They want a fully on-chain, 24/7, composable, DTCC-independent parallel market where xStocks tokens can be used as collateral on Raydium, snapped together like DeFi LEGO, and bought by any wallet with any amount of USDC. The appeal of this system lies precisely in its departure from traditional pathways.

So the SEC is not now facing the question of "whether to allow tokenized stocks"—that has long been permitted. It is facing the question of whether two fundamentally different architectures, two sets of compliance assumptions, and two distinct利益 structures for tokenization should be allowed to coexist within the United States.

If the innovation exemption is granted, it would mean the SEC implicitly accepts the future existence of two parallel U.S. stock markets: a "white market" operating through DTCC and preserving all traditional rights, and a "gray market" running on public blockchains, supported by third-party issuers. The same Apple stock might be worth $180 in a DTCC token and $178 in a Solana liquidity pool due to liquidity differences—arbitrageurs would step in to close the gap—but the legal identity of the "Apple shareholder" would become unprecedentedly ambiguous.

On November 21, the World Federation of Exchanges (WFE), which includes members such as Nasdaq, Cboe, and CME, sent a letter to the SEC. The letter’s contents were not made public until the 27th, but the events that followed over the next several months began here.

The argument in this letter from WFE can be condensed into a blunt statement: giving crypto companies a regulatory fast track unavailable to traditional exchanges will "dilute" investor protection, "distort" market competition, and "inevitably lead to negative, possibly acute consequences."

Either don't get involved at all, or treat everyone equally. Giving special treatment to crypto companies is unfair to us.

This lobbying effort by the exchange alliance has several notable characteristics.

First, it is not a single company—it is an industry organization acting on behalf of the group, meaning a collective decision has been made.

Second, the timing is precise—the SEC's internal draft is still under review.

Third, even Ondo Finance, the second-largest player in compliant tokenized assets, and Cboe expressed support for a delay in their feedback on the Nasdaq proposal, citing the lack of final clearing guidelines from DTCC.

In other words, it’s not just traditional finance that’s pushing back—even players within the compliant camp want the SEC to slow down. The reason is clear: if third-party tokens can legally bypass DTCC, then companies like Ondo, which diligently follow compliance rules, handle transfer agents, and verify shareholder rights, end up looking like fools dancing with chains.

The hardest opponent in the face of regulation has never been those who oppose you, but those who stand by your side yet follow a different path.

The SEC is not unified on this issue.

On May 21, the day before the draft was suppressed, SEC Commissioner Hester Peirce posted a message on Twitter containing a crucial statement: she had always expected the exemption to be narrowly scoped, covering only digital representations of equity securities already trading on public secondary markets.

Read it twice. The implied meaning of this statement is: synthetic tokens (derivatives that replicate price exposure without being backed by actual stocks) were never eligible for exemption from the start.

Peirce’s tweet almost simultaneously draws a line. She is communicating two things to the market: first, the exemption is not dead—just being handled with caution; second, even she, the crypto industry’s most friendly “mom of crypto,” won’t make exceptions for purely synthetic products without underlying asset backing.

When viewed together, Peirce’s statements and the pressure from the opposition reveal the internal divisions within the SEC:

• Atkins (Chair): Tends to favor issuing the exemption as soon as possible to secure tokenization as part of U.S. fintech competitiveness;
• Peirce: Support exemptions, but strictly narrow the scope to "true tokenization," excluding any synthetics not backed by underlying stocks;
• Staff: Tend to wait a bit longer amid lobbying efforts at the exchange and concerns over corporate governance;
• Investor Advisory Committee: In March, it formally recommended advancing the tokenization framework and supports it at the committee level.

This is a classic sandwich structure: policy intent at the top, technical resistance in the middle, and compliance concerns on the outside. Atkins wants speed, Peirce wants strictness, staff want stability, and external stakeholders want slowness. The result is the familiar scenario: the draft is finished, but it can’t be released.

The story of tokenized stocks has been repeatedly mentioned in the crypto space over the past two years, but most often it was sold as a "narrative"—a subset of the RWA narrative—gaining momentum, driving prices up briefly, then fading away.

But this round in 2026 is a true policy showdown. There are three reasons:

First, the scale has been reached. xStocks’ $10 billion trading volume, Robinhood’s nearly $1 billion in on-chain stock assets, and the combined $600 million+ in compliant tokenized stock存量 from Ondo, Backed, and Securitize may not seem large—but they’re already enough to threaten traditional exchanges. When something is small enough to ignore, no one stops you; when it grows large enough to capture a slice of order flow, all incumbent players will appear at once.

Second, the pathways have already been established. Third-party tokenization has successfully implemented its business model overseas and is now knocking on America’s door. Nasdaq and NYSE have validated their compliance pathways domestically and are already collaborating with DTCC to build the underlying infrastructure. If both paths are permitted, the U.S. could see a "dual-track U.S. stock market" with no prior precedent.

Third, the window of opportunity is closing. Peirce has accepted a faculty position at Regent University School of Law and will depart by the end of 2026. She is the most crypto-friendly voice on the SEC, and after her departure, the stance of her successor is uncertain. Although Atkins is the chair, the chair alone cannot drive a complex framework that requires full committee and staff support. This window may remain open for at most one more year.

If third-party tokenization pathways are permanently blocked in the U.S., tokenization infrastructure overseas—particularly in Singapore, Switzerland, and Hong Kong—will become the de facto global standard for asset tokenization. Kraken’s acquisition of Backed and xStocks’ expansion to TON/Tron/Mantle/BNB Chain will enable this产业链 to grow independently of the U.S. If the U.S. eventually grants exemptions, this chain will be pulled back into the U.S., replaying the dollar stablecoin story—except this time, the anchor won’t be Treasuries, but stocks.

Finally, leave a question that I haven't figured out yet.

If two parallel tokenized U.S. stock markets indeed emerge in the future—the DTCC white market and the public chain gray market—when a publicly traded company announces a dividend, can holders of third-party tokens on the chain demand the same treatment as DTCC holders?

If so, who executes it? A smart contract?

If not, then what exactly do these tokens represent? Economic exposure? Synthetic derivatives? Or some form of "quasi-stock" that is tacitly accepted by regulators but has no legal standing?

This is a question the SEC cannot answer. Atkins cannot answer it. Peirce cannot answer it. The entire Wall Street legal community hasn’t figured it out yet.

This is precisely why the SEC hit the brakes at the last minute—they weren’t convinced by Nasdaq’s lobbying; they were alarmed by their own draft. When a policy you’re about to issue could create an asset class that doesn’t exist legally but trades $10 billion daily in practice, the rational thing to do is read it again.

This suppression of the "innovation exemption" is one of the most critical windows for observing the trajectory of U.S. crypto policy over the next two years—how it returns next time will determine its form.