Author: Xiao Bing, ShenChao TechFlow
On May 22nd, according to a Bloomberg report, the U.S. SEC was originally scheduled to formally release the draft of an "innovation exemption" framework this week. The draft was written and had gone through an internal round of review. However, after intensive lobbying by industry groups representing traditional exchanges like Nasdaq, Cboe, and CME Group, the SEC has now decided to postpone the release schedule.
The path to tokenization in the U.S. capital markets is splitting into two incompatible tracks.
What's Stalled Is Not Policy
Let's first clarify what this "innovation exemption" the SEC was planning to release is all about.
The core of this "innovation exemption" is to open a special channel for crypto-native platforms: allowing them to issue and trade tokens that track the prices of U.S. stocks on decentralized trading venues without having to go through the entire traditional securities exchange compliance process. SEC Chairman Paul Atkins, in a previous public appearance, defined this framework as a "regulatory sandbox for stock trading on the blockchain."
It sounds great. But the devil is in a specific clause of the draft: allowing the circulation of "third-party tokens".
So-called third-party tokens are "synthetic versions of stocks" that are issued without the knowledge or authorization of the underlying listed company. A crypto platform could buy and custody Apple stock itself, then issue a token on-chain that is pegged 1:1 to Apple's stock price, and toss it onto Solana or Arbitrum, where any wallet address globally can trade it 24/7. Apple Inc. is not involved, does not sign off, and does not know who the ultimate holders of these tokens are.
This playbook is already running, just not in the U.S. xStocks (backed by Backed Finance, acquired by Kraken in December last year) has issued over 60 tokenized U.S. stocks on Solana, with a cumulative on-chain and exchange trading volume exceeding $10 billion over six months; Robinhood has listed 943 tokenized stocks and ETFs on Arbitrum. Both explicitly use what the industry calls the "Rebasing (Third-Party)" model, meaning they have no legal relationship with the companies whose stocks are being tokenized.
The SEC's original draft was essentially giving this business model, already validated overseas, a visa back to the U.S.
But this visa pokes a hole in a window that everyone sees but no one wants to be the first to break: If Apple doesn't know who holds its "stock tokens," how does it distribute dividends? How does it calculate shareholder votes? How does it handle addresses on sanctions lists?
Financial analyst Austin Campbell puts the question bluntly: When a company doesn't know who the holders are, dividend distribution becomes an unsolvable technical problem; if crypto platforms' KYC is inadequate, sanctioned entities could easily gain economic exposure to U.S. stocks through offshore channels.
Nasdaq's Alternative Path
Something many people missed is that the SEC has actually already approved tokenized stock trading.
In March of this year, Nasdaq's tokenized securities proposal received SEC approval; in April, NYSE followed suit. Both are taking the same path: tokenized stocks and traditional stocks trade side-by-side in the same order book, using DTCC's (Depository Trust & Clearing Corporation) enterprise-grade blockchain as the underlying settlement layer, with tokenized shares retaining a complete correspondence of shareholder rights to the underlying stocks.
This path essentially upgrades the existing clearing and settlement system by one layer, allowing stocks to be traded in a "tokenized form" in a compliant, KYC-complete, and regulatable environment. Voting rights are there, dividends are there, the shareholder registry is in the hands of DTCC—no one gets away.
For Nasdaq, Cboe, and CME, this is the kind of tokenization they can accept—their fee structures, market maker networks, and the value of their regulatory licenses remain intact. The blockchain is just a new gauge of track, but the locomotives are still theirs.
But this isn't what crypto-native platforms want. They want a parallel market that exists entirely on-chain, operates 24/7, is composable, and doesn't rely on DTCC. xStocks' tokens could be used as collateral on Raydium, could be pieced into DeFi legos, and could be bought by any wallet with any amount of USDC. The appeal of this system stems precisely from the fact that it's not on the traditional track.
So what the SEC is facing isn't "whether to allow tokenized stocks"—that's already allowed. It's facing two tokenization proposals with two different underlying architectures, two different compliance assumptions, and two different sets of vested interests, and deciding whether they should coexist within the United States.
If the innovation exemption were issued, it would mean the SEC is tacitly accepting that the U.S. will have two parallel stock markets in the future: a "white market" that goes through DTCC and preserves all traditional rights; and a "grey market" running on public blockchains, propped up by third-party issuers. The same Apple stock might be worth $180 in DTCC's tokenized version and $178 in some pool on Solana due to liquidity reasons. Arbitrageurs would come to flatten the price difference, but the legal definition of an "Apple shareholder" would become unprecedentedly blurred.
The World Federation of Exchanges' Less-Than-Polite Letter
On November 21st, the World Federation of Exchanges (WFE, whose members include Nasdaq, Cboe, CME) sent a letter to the SEC. The letter's contents weren't made public until the 27th, but the events of the following months started here.
The WFE letter's argument can be boiled down to one rather impolite sentence: Opening a regulatory fast lane for crypto companies that traditional exchanges can't access would "dilute" investor protection, "distort" market competition, and is "bound to produce negative, potentially acute consequences."
Translated: Either don't regulate this, or apply the rules evenly. Giving crypto companies a backdoor is unfair to us.
A few notable characteristics of this exchange alliance's lobbying effort:
First, it wasn't a single company but an industry organization taking the lead, indicating a collective decision had been made.
Second, the timing was precise, hitting while the SEC's internal draft was still in the review phase.
Third, even Ondo Finance (the second-largest player by market share among compliant tokenization institutions) and Cboe expressed a desire for delay in their comments on Nasdaq's proposal, citing that DTCC's clearing guidance wasn't yet in place.
In other words, the opposition wasn't just from traditional finance; even players within the compliant tokenization camp wanted the SEC to slow down. The reason isn't hard to understand: If third-party tokens could legally bypass DTCC, then players like Ondo, who are diligently doing compliance, transfer agency, and shareholder rights management, would look like fools dancing in shackles.
In regulatory battles, the hardest opponent is never those who oppose you, but those who are ostensibly on your side but pursuing a different path.
Hester Peirce's Tweet
The SEC is not monolithic on this issue internally.
On May 21st, the day before the draft was suppressed, SEC Commissioner Hester Peirce tweeted. A key sentence in her thread was that her expectation for this exemption "has always been a limited one, covering only the digitized expressions of equity securities already trading on public secondary markets."
Read that twice. The implication of this sentence is: Synthetic tokens (i.e., derivatives that purely replicate price exposure without being backed by real stock) were never intended to be within the scope of the exemption from the start.
Peirce's tweet was almost simultaneously drawing a line. She's telling the market two things: First, the exemption isn't dead, just being handled prudently; Second, even she—the crypto-friendly "Crypto Mom" within the SEC—isn't planning to open the door for purely synthetic products not backed by underlying assets.
Placing Peirce's stance alongside the pressure from the opposing coalition reveals the cleavage lines within the SEC:
- Atkins (Chairman): Inclined to release the exemption quickly, locking in tokenization as part of the U.S.'s fintech competitiveness.
- Peirce: Supports the exemption, but its scope must be strictly narrowed to "true tokenization," excluding any synthetic products not backed by underlying stock.
- Staff Level: Caught between exchange lobbying and corporate governance concerns from listed companies, inclined to wait longer.
- Investor Advisory Committee: Formally recommended advancing a tokenization framework in March, indicating support from the committee level.
This is a typical sandwich structure: "policy will at the top, technical resistance in the middle, compliance concerns externally." Atkins wants speed, Peirce wants strictness, the staff wants stability, and external stakeholders want slowness. The result is the familiar scenario: the draft is finished, but can't be released.
Why This Matters
The story of tokenized stocks has popped up repeatedly in the crypto world over the past two years, but most of the time it was sold as a "narrative," a sub-branch of the RWA narrative, heating up for a bit, prices rising, then fading away.
But this 2026 round is genuine policy chess. There are three reasons:
First, the scale has arrived. xStocks' $10 billion trading volume, Robinhood's nearly $1 billion in on-chain stock assets, Ondo+Backed+Securitize's combined over $600 million in compliant tokenized stock holdings—these numbers aren't huge, but they're large enough to make traditional exchanges feel threatened. When something new is small enough to ignore, no one stops you; when it grows large enough to carve off a piece of order flow, all vested interests appear simultaneously.
Second, the paths have formed. Third-party tokenization has validated its business model overseas and is now knocking on America's door. Nasdaq and NYSE have validated a compliant path domestically and are already building the underlying infrastructure with DTCC. If both paths are permitted, the U.S. could see an unprecedented "dual-track U.S. stock market."
Third, the time window is closing. Peirce has accepted a teaching position at Regent University School of Law and will leave her post by the end of 2026. She is the most crypto-friendly vote within the SEC. Her successor's attitude is unpredictable. While Atkins is Chairman, a Chairman alone cannot push through a complex framework that requires the full Commission and staff's cooperation. This window is open for at most another year.
If the third-party tokenization path is permanently blocked in the U.S., tokenization infrastructure overseas (especially in Singapore, Switzerland, Hong Kong) will become the de facto global standard for asset tokenization. The industry chain represented by Kraken acquiring Backed, xStocks expanding to TON/Tron/Mantle/BNB Chain, will grow around the U.S. If the U.S. ultimately grants the exemption, that chain will be pulled back to America. The story of the dollar stablecoin is repeating itself, only this time the peg isn't to Treasuries, but to stocks.
Finally, a question I haven't fully figured out myself.
If two parallel tokenized U.S. stock markets indeed emerge in the future—the DTCC white market and the public chain grey market—when a listed company announces a dividend, can holders of those third-party tokens on-chain demand treatment equal to that of DTCC holders?
If yes, who enforces it? Smart contracts?
If not, then what exactly are these tokens holding? Economic exposure? Synthetic derivatives? Or some kind of "quasi-stock" that is tacitly allowed by regulators but has no legal status?
This question cannot be answered by the SEC. Atkins can't answer it. Peirce can't answer it. The entire Wall Street legal community hasn't figured it out yet.
And that is the real reason the SEC slammed the brakes at the last minute. They weren't persuaded by Nasdaq's lobbying; they were scared by the draft in their own hands. When the policy you're about to issue would create a class of assets that legally don't exist but trade $10 billion daily in practice, the rational thing to do is to read it one more time.
This "innovation exemption" has been held back. In what form it returns next time is one of the most critical observation windows for judging the direction of U.S. crypto policy over the next two years.
