Written by: Tiger Research
Translated by AididiaoJP, Foresight News
The U.S. Securities and Exchange Commission (SEC) is preparing to formally announce an "innovation exemption" framework this week, which would allow third parties to tokenize U.S. stocks such as Apple and Tesla without requiring approval from the issuing companies. This move could accelerate the migration of traditional stock markets onto blockchain, while also raising significant concerns among exchanges about liquidity fragmentation and revenue loss.
According to Bloomberg on May 18, this framework stems from the deregulatory vision proposed in February by pro-crypto commissioners Paul Atkins and Hester Peirce. Coinbase and the Blockchain Association had previously submitted formal letters of support, strongly advocating for the authorization of third-party tokenization. However, Peirce’s guidance, issued on May 22, has a narrower scope than market expectations, applying only to on-chain equity instruments that fully preserve shareholder rights and explicitly excluding synthetic stock tokens that lack voting or dividend rights.
Two core threats: liquidity fragmentation and revenue fragmentation
The core impact of tokenized stocks is "fragmentation." While the crypto industry often discusses liquidity aggregation, traditional finance views it as a structural threat.
- Liquidity fragmentation: When the same stock is tokenized across multiple blockchains and decentralized platforms, trading volume and order flow previously concentrated on exchanges like the NYSE or NASDAQ become dispersed across several venues. This leads to price discrepancies between platforms, increased slippage on large orders, and reduced overall market efficiency.
- Revenue fragmentation: As trading activity disperses across multiple platforms, transaction fees and intermediary revenues that previously flowed to domestic exchanges will shift overseas or to competing platforms, directly impacting the nation’s financial competitiveness.
Tiger Research’s report uses South Korea as an example: The 2x leveraged ETF on SK Hynix, launched by Hong Kong asset manager CSOP, has grown into the world’s largest single-stock leveraged ETF, with assets exceeding 11 billion KRW (approximately $8 billion). If South Korea had been the first to launch similar products through a regulatory sandbox, these management fees and financial revenues could have remained within the country.
The supermarket monopoly of traditional exchanges is coming to an end.
The report uses a vivid analogy to describe this change: the traditional stock market is like a dominant supermall where all buyers and sellers gather, with the exchange monopolizing transactions and charging fees. Tokenized stocks, by contrast, are like allowing anyone to open thousands of street-side stalls outside the mall, enabling direct trading without permission.
This fragmentation leads to buyer attrition, thinner inventory across booths, difficulty executing large trades, and fragmented revenue streams. If local exchanges hesitate due to regulatory constraints, competing platforms in other jurisdictions will seize the initiative in capturing global capital flows and intermediary revenues.
Capital fragmentation is already happening.
On the same day the SEC signaled its framework (May 18), open interest in RWA (real-world assets) on the decentralized platform Hyperliquid surpassed $2.6 billion, reaching a new all-time high. Driven by demand for 24/7 on-chain trading of traditional assets, RWA trading volume on perpetual DEXs is expected to surge further.
Traditional financial institutions and regulators face a dilemma: either proactively build tokenized infrastructure through collaboration, as the New York Stock Exchange has done, or lobby regulators to block innovation in order to protect existing revenues. Regulators themselves are torn—既要 control the pace of innovation while preventing domestic revenues from being eroded by offshore platforms.
Even though the framework has been officially announced, potential conflicts have only just begun. The two major focal issues going forward include:
- The second "clarity battle" surrounding shareholder rights;
- How to bring platforms like Hyperliquid, which have grown up in regulatory gray areas, into a regulated framework. If classified as unlicensed exchanges, they could trigger a new wave of liquidity and uncertainty shocks.
In the era of digital assets, financial institutions and jurisdictions that fail to act swiftly will permanently lose their long-standing monopoly on fees and financial leadership, as capital continues to disperse in all directions.