SEC Warns Issuers Tokenized Stocks Face Federal Regulations

SEC Commissioner Hester Peirce has issued a warning to issuers of tokenized stocks, emphasizing that these digital assets are still subject to federal securities regulations. In a statement released on July 9, Peirce acknowledged the potential of tokenized equities but cautioned that the underlying asset's nature does not change due to blockchain technology. She highlighted that token buyers may face counterparty risks if they purchase tokenized equities from unaffiliated third-party issuers who hold custody of the underlying asset. In such cases, distributors of tokenized tokens must consider their disclosure obligations.

Peirce's warning comes amid growing interest in the tokenized stocks narrative, which allows for the trading of equities on-chain, anywhere. The topic gained traction in July after Robinhood launched several tokenized U.S. equities for E.U. users, including tokenized stocks of private firms like OpenAI and SpaceX. Vlad Tenev, CEO of Robinhood, clarified that these on-chain stocks are not technically equity but offer retail investors exposure to private stocks. Another player, Backed Finance, rolled out xStocks, bringing tokenized stocks and ETFs across the Solana ecosystem and exchanges.

Critics argue that the adoption of tokenized stocks could take longer, especially in regions with proper access to capital markets. However, Bitwise CEO Matt Hougan believes that even a fraction of capital market flows going through blockchain rails is enough to boost these networks. Hougan predicts that the tokenized market could grow significantly in the coming years. He suggests that the best way to gain exposure to this projected boom is through Layer 1 tokens or crypto stocks like Robinhood, Coinbase, Circle, etc. Hougan recommends investing in a basket of top Layer 1 blockchains and infrastructure plays, such as Ethereum, Solana, XRP, and Chainlink.