Coinbase applies for SEC approval for tokenized stocks

Publicly traded cryptocurrency exchange Coinbase has been making moves to secure approval from the US Securities and Exchange Commission (SEC) to introduce tokenised equities for its users. This new development could potentially give Coinbase the ability to provide stock trading services using blockchain technology, allowing it to step into the ring with traditional retail brokerages and tap into a fresh revenue stream. Representatives from Coinbase have highlighted that this venture stands as a top priority for the company. Despite this, the SEC has refrained from offering any additional insights on the matter, leaving the official status of Coinbase’s application and the timeline for a potential launch up in the air.

Tokenised equity is at the core of this proposed initiative. In essence, tokenised equities involve the tokenisation of shares from a company, akin to the existing practices in cryptocurrency trading. However, instead of owning the securities outright, investors would possess tokens that denote ownership of these securities. Proponents of this concept have argued that tokenised equities could lead to reduced costs, speedier settlement processes, and the facilitation of round-the-clock trading. On the other end of the spectrum, critics have pointed out that there are significant gaps in this model that need to be ironed out. The World Economic Forum flagged in a report that adequate secondary-market liquidity and the establishment of a clear global standard are crucial prerequisites for the widespread adoption of tokenised equities.

While the US does not currently allow for the trading of tokenised equities on a large scale, numerous companies, including competitors, are delving into experimenting with this notion. For instance, popular crypto exchange Kraken recently unveiled a project called xStocks in collaboration with Backed and the Solana Foundation. xStocks function as tokens representing US equities and are set to be accessible in specific international markets, outside the US jurisdiction.

For Coinbase to roll out this new feature, it will need to secure a no-action letter or exemptive relief from the SEC. This would essentially indicate that the regulator does not intend to pursue any enforcement actions against Coinbase should it move forward with its plans. Typically, enterprises dealing in securities trading are mandated to register as broker-dealers. However, Coinbase currently lacks this registration, prompting the SEC to file a lawsuit against the company in 2023 for conducting activities that require such registration. This case was dropped in the current year during President Donald Trump’s administration.

These developments are occurring against the backdrop of a larger movement by the US government to reconsider its cryptocurrency policies under Trump’s push to court support from the industry. With the appointment of industry-friendly regulators and active engagement with cryptocurrency stakeholders, there has been a positive surge in the market, demonstrated by bitcoin hitting record highs. This confluence of factors sets the stage for an intriguing trajectory for both Coinbase and the crypto industry at large.