The U.S. Securities and Exchange Commission (SEC) has moved quickly to lower expectations surrounding its highly anticipated regulatory framework for tokenized equity.
Previously, a Reuters report detailed the potential introduction of a new "innovation exemption" policy that could pave the way for a blockchain-based stock market.
Adjust expectations
Hester Pierce, Commissioner of the U.S. Securities and Exchange Commission and head of the cryptocurrency task force, pointed out that there is widespread exaggeration surrounding the possibility of the SEC exempting on-chain trading of tokenized stocks.
Peirce emphasized that the much-anticipated regulatory safe harbor will have a very limited scope.
She wrote: "Please remember: I have always believed its scope would be limited to facilitating the trading of digital representations of the same underlying equity securities that investors can already purchase on secondary markets today, not synthetic securities."
Issues with synthetic materials
Currently, most tokenized stock markets are based on what is known as the "synthetic" model. Third-party cryptocurrency companies use financial engineering to mint tokens that merely mimic or track the price movements of traditional stocks (such as Apple or Tesla).
The underlying company does not issue these synthetic tokens, so purchasers do not have traditional shareholder rights (such as voting rights or dividend payments).
According to Pierce's comments, it is clear that the U.S. Securities and Exchange Commission will take a strict regulatory approach toward synthetic tokens.
The U.S. Securities and Exchange Commission's innovation exemption applies only to genuine digital representations of equity. Decentralized trading platforms will be required to facilitate the transfer of the aforementioned interests.
The framework developed by the U.S. Securities and Exchange Commission is designed to test whether cryptocurrency infrastructure can handle traditional stocks.
The U.S. Securities and Exchange Commission has not yet fully authorized such markets to operate in the United States. Nevertheless, companies such as Backed Finance, Swarm Markets, and Dinari have pioneered tokenized stock offerings globally.