Coinbase Seeks SEC Approval for Tokenized Stocks, Aims to Compete with Retail Brokerages

Coinbase, a prominent cryptocurrency exchange, is seeking approval from the U.S. Securities and Exchange Commission (SEC) to offer "tokenized stocks" to its clients. This move, if approved, would enable Coinbase to provide stock trading services through blockchain technology, directly competing with retail brokerages such as Robinhood and Charles Schwab. The initiative aims to open new business avenues for Coinbase.

Tokenized stocks involve converting company shares into digital tokens, similar to the way cryptocurrencies are traded. Investors hold tokens that represent ownership of securities rather than the securities themselves. Proponents argue that tokenized stocks can lower transaction costs, speed up settlement times, and enable 24/7 trading. However, critics point out that there are significant challenges to be addressed before tokenized stocks become widely traded, including insufficient secondary market liquidity and a lack of clear global standards.

Currently, tokenized stocks are not tradable in the U.S., but several companies are exploring this concept. Competitor Kraken recently announced plans to launch tokenized U.S. stocks, known as xStocks, which will be available in specific markets outside the U.S. To offer tokenized stocks in the U.S., Coinbase would need to secure a "no-action letter" from the SEC or obtain exemptive relief, which means the regulatory body would promise not to take enforcement action if Coinbase proceeds with the related business.

Typically, companies providing securities trading must register as broker-dealers. Coinbase is not registered as a broker-dealer, and the SEC sued the company in 2023 during the Biden administration for conducting broker-dealer activities without registration. However, the SEC under the Trump administration dropped the case this year. A no-action letter would be issued by SEC staff upon request from companies like Coinbase, indicating that the SEC does not object to the issuance of a specific product and would not recommend enforcement action if the company proceeds with the product.

Coinbase's Chief Legal Officer, Paul Grewal, emphasized the importance of this concept, stating that a no-action letter would provide confidence to issuers of tokenized stocks or platforms hoping to offer secondary market trading of these stocks. He noted that this confidence has been lacking and has hindered the adoption of cryptocurrency and blockchain technology by many institutions. Grewal did not specify whether Coinbase has formally applied to the SEC or the potential product launch date.

Coinbase's move comes as the Trump administration, which has sought funding support from the cryptocurrency industry during the election campaign, aims to comprehensively reform U.S. cryptocurrency policies. The administration has appointed regulators friendly to the industry and hosted industry leaders at the White House. The cryptocurrency market has responded positively, with Bitcoin reaching new all-time highs this year. Under Trump's leadership, the SEC has dropped lawsuits against numerous cryptocurrency companies, including Coinbase, Binance, and Kraken, and established a cryptocurrency task force to develop new rules for digital assets.