Tokenized Stocks Face Legal Challenges Amid Regulatory Gray Zone

Tokenized stocks and private equity are facing several legal challenges as they exist in a regulatory gray zone. This zone does not grant holders the same legal rights as traditional asset owners, according to industry executives and attorneys. John Murillo, chief business officer of a fintech company, emphasized the importance of understanding the fundamental attributes of any prospective tokenized equity instruments. These attributes include dividend streams, profit-sharing arrangements, or whether the tokenized real-world assets (RWAs) simply provide capital appreciation to the holder. Murillo clarified that investors do not own actual shares; they hold tokens issued by intermediaries, which may entitle them to payouts if the underlying shares increase in value or are sold. He further explained that there is no direct claim on company assets, no voting rights, and no access to internal financial information.

This distinction became more apparent after a mixed-asset trading platform announced offering "private equity" tokens for OpenAI and SpaceX to European users. OpenAI had to clarify that the tokens are not equity in the company. Attorney Tyler Yagman of a legal firm commented that incidents like the 'OpenAI Token' event are likely to recur, where retail investors are marketed tokenized securities in a way that creates material confusion. Despite the confusion, Yagman noted that tokenized equities provide a compelling use case by integrating multiple functions of a securities marketplace into a single technology. He called for clear and comprehensive regulations for tokenized equity instruments, which democratize access to previously inaccessible asset classes.

Several brokerage firms are exploring tokenized equities trading. The platform joins a growing list of crypto titans actively pushing for tokenized stock trading or already offering those services. Tokenized stock trading is already live on crypto exchanges, with over 60 publicly listed companies available for trading across both platforms. A blockchain platform that integrates RWAs into decentralized finance (DeFi) applications announced a partnership to tokenize the S&P 500 stock market index. A crypto exchange giant is reportedly seeking approval from the United States Securities and Exchange Commission (SEC) to offer tokenized stock trading to its customers. The SEC, under the leadership of chairman, is reportedly receptive to industry requests pushing for tokenized financial assets. The chairman stated that tokenization is an innovation and that the SEC should be focused on how to advance innovation in the marketplace.