SEC plans to allow tokenized stocks to be traded on DeFi platforms: The era of on-chain securities begins

In May 2026, the U.S. Securities and Exchange Commission (SEC) is expected to introduce the earliest "Innovation Exemption" policy targeting tokenized stocks this week. The core breakthrough of this regulatory framework is: allowing third parties to issue digital tokens tracking their stock prices without the authorization of the listed companies, and to freely circulate on decentralized finance (DeFi) platforms. These "third-party tokens" are essentially synthetic instruments tracking stock prices, not necessarily carrying voting rights or dividend rights.

The SEC explicitly classifies tokenized securities into two categories: the first led by issuers or their agents, extending traditional securities issuance processes on-chain; the second created by third parties with no direct relation to the issuer, which is precisely the category covered by this exemption. This exemption is designed as a temporary arrangement lasting 12 to 36 months, with platforms on the exemption list required to comply with risk exposure limits, whitelist access, and periodic reporting to the SEC.

It is noteworthy that there are still disagreements within the SEC regarding the trading of third-party tokenized stocks. Commissioner Hester Peirce, a key proponent, advocates for the exemption alongside Chair Paul Atkins, but some officials have explicitly opposed it. Industry giants such as the Securities Industry and Financial Markets Association (SIFMA) and Citadel Securities have also issued warnings, believing that this could weaken investor protection measures like KYC and anti-money laundering, and lead to market fragmentation.

Why the Logic of RWA Market Growth in 2026 Has Changed

In 2026, the market landscape for tokenized real-world assets (RWA) underwent a structural leap. According to CoinGecko reports, the size of the tokenized RWA market has more than doubled since 2025, reaching $19.3 billion by the end of Q1 2026, a growth of 256.7% in just 15 months. Data from on-chain analysis platform RWA.xyz shows that by the end of April 2026, the total market value of tokenized RWAs exceeded $30.2 billion, a year-over-year increase of about 420%.

The drivers behind this growth have shifted significantly. Tokenized government bonds remain the largest asset class, with a market cap increasing by $9 billion, crossing the $10 billion mark for the first time in February 2026. Tokenized commodities have shown even stronger growth, increasing from $1.43 billion to $5.55 billion, a 289% rise, with gold-backed tokens dominating. Among all RWA categories, the most explosive growth has been in perpetual contracts: in Q1 2026, the total trading volume of tokenized RWA perpetual contracts reached $524.8 billion, surpassing the total for all of 2025.

However, the real structural change was triggered by the launch of tokenized stocks. Since mid-2025, this category’s market cap expanded from just $2 million to approximately $486 million in less than a year. In Q1 2026, spot trading volume reached $15.1 billion, exceeding the total for the second half of 2025.

How Tokenized Stocks Became a New Growth Pole in the RWA Sector

The explosive growth of tokenized stocks is the most noteworthy trend in the 2026 RWA sector. According to RWA.xyz data, the market for tokenized stocks approached about $960 million by the end of Q1 2026. Calculated on an annual growth basis, this market grew from less than $300 million at the start of the year to about $1.5 billion, far outpacing other asset classes.

In terms of market structure, Circle has become the largest market cap for tokenized stocks, followed by Tesla, Nvidia, and Alphabet. Notably, the spot trading activity of tokenized stocks far exceeds their locked-up value—Q1 2026 saw $15.1 billion in spot trading volume, while the locked-up market cap was about $486M, demonstrating high liquidity and turnover.

Ondo Global Markets is a representative case in this sector. After launching in September 2025, the platform surpassed $1 billion in locked-up assets in less than eight months, accounting for over 70% of the market share among tokenized stock issuers, with cumulative trading exceeding $18 billion. Currently, it offers over 260 tokenized US stocks and ETFs on Solana, Ethereum, and BNB Chain. Following the news of the SEC’s innovation exemption, ONDO’s share price surged about 16% in a single day, reflecting market enthusiasm for the policy.

Why DeFi Protocols Need to Introduce On-Chain Securities Assets

In 2026, the TVL (Total Value Locked) in the DeFi sector is experiencing a structural decline. Data shows that DeFi TVL has retraced approximately 49% from its peak in October 2025, falling to about $38 billion by May 2026. The main reasons include the overall decline in crypto asset prices, but more fundamentally, the DeFi ecosystem lacks new high-quality assets capable of continuously attracting institutional capital inflows. Against this backdrop, tokenized stocks provide DeFi protocols with a new source of collateral assets.

Once integrated into DeFi, tokenized stocks can bring trillions of dollars of traditional stock market value onto the chain. For example, high-growth tech stocks like Nvidia that do not pay dividends can be pledged as collateral in DeFi protocols, allowing investors to borrow stablecoins at around 5% interest without selling the stocks and triggering capital gains taxes. It is estimated that U.S. retail stock holdings alone amount to about $25 trillion; even a 1% penetration would more than double the overall DeFi market size and increase baseline lending yields by several basis points.

The introduction of on-chain securities will also reshape DeFi’s economic model. Traditional crypto assets like ETH and SOL, used as collateral, are influenced by independent crypto market factors; in contrast, tokenized stocks are anchored to the fundamentals of listed companies and have lower correlation with crypto markets, providing effective risk hedging tools and diversified asset allocation options for DeFi protocols.

How the 24/7 On-Chain Finance Narrative Will Land at the Infrastructure Level

The regulatory easing of tokenized stocks is accelerating the simultaneous deployment by traditional financial institutions and crypto platforms. In March 2026, the SEC approved Nasdaq’s tokenized stock rules, followed by similar approvals for NYSE in April. Both traditional exchanges now allow tokenized versions of blue-chip stocks and ETFs to be listed simultaneously within existing market structures, with custody and settlement relying on DTCC pilot programs, following Reg NMS and current self-regulatory rules. This innovation exemption targets native crypto venues, DeFi protocols, and cross-chain settlement scenarios, forming a "dual-track" alongside exchange pathways.

Beyond traditional exchanges, crypto infrastructure is also rapidly maturing. Earlier this month, Tom Farley, former NYSE President, led Bullish, a crypto exchange, to acquire transfer agent Equiniti for $4.2 billion, marking a move of crypto platforms into critical traditional securities infrastructure. The NYSE is building a new platform for trading tokenized stocks and ETFs using blockchain technology, while Nasdaq is developing a token design scheme to give listed companies greater control over their tokenized stocks.

These infrastructure developments directly respond to the need for the "24/7 finance" narrative to materialize. Traditional stock markets are limited by trading hours and T+2 settlement cycles, whereas on-chain securities can enable continuous 24/7 trading, instant settlement, and automated financial operations like lending and pledging within DeFi protocols—key conditions turning this narrative from concept to reality.

How the Competition Between On-Chain Securities and Traditional Securities Will Evolve

The most controversial aspect of the SEC’s innovation exemption is that it essentially creates a blockchain-based parallel market for publicly traded stocks. Regulators are initiating a multi-year experiment to verify whether a parallel market for listed stocks can operate normally outside the regulatory framework designed to ensure fair pricing, transparency, and investor protection.

This experiment will likely follow two competitive evolution paths. The first is a "layered" approach: on-chain securities as a supplementary channel to traditional markets, focusing on serving investors who prefer 24/7 trading and low-threshold access. Since tokenized stocks are synthetic instruments tracking stock prices rather than ownership rights, they can coexist with traditional stocks across different trading venues and clearing systems. The second is an "alternative" approach: if liquidity depth and trading efficiency of on-chain securities significantly outperform traditional markets, it could trigger a continuous capital migration from traditional exchanges to crypto platforms.

Currently, trading volume for tokenized stocks remains far below that of traditional stocks—Q1 2026 spot trading volume for tokenized stocks was about $15.1 billion, while the daily average trading volume of traditional stocks is approximately $524.8 billion. Tokenized stocks account for less than 1% of total traditional stock market trading volume. In the short term, on-chain securities are more likely to serve as a "parallel supplement" to traditional finance rather than a complete replacement.

How Risks and Disagreements Will Affect the Long-Term Trajectory of Tokenized Stocks

Although the SEC’s innovation exemption marks a significant regulatory breakthrough, the policy itself still faces multiple risks and disagreements that will profoundly influence the long-term development of the tokenized stock sector.

First, internal regulatory disagreements. Democrat Caroline Crenshaw has expressed clear reservations about the exemption framework. Such disagreements mean that the implementation process will need to balance different policy orientations, and any deviation could lead to adjustments or delays.

Second, market structure risks. Unregulated third-party tokenization could result in multiple tokenized versions of the same company trading on different crypto platforms, causing pricing confusion and ownership fragmentation. Securitize’s president has openly stated that this scenario could make it difficult for investors to determine the actual value of stocks at any given moment.

Third, liquidity fragmentation risks. Industry giants like BlackRock have pointed out that the trend of issuing proprietary tokens on different blockchains could lead to dispersed liquidity. Achieving seamless value transfer across multiple chains remains a critical infrastructure challenge.

Fourth, investor protection gaps. Opponents such as Citadel Securities and SIFMA focus on the lack of core safeguards, including KYC, AML requirements, and price discovery mechanisms in traditional markets. If the exemption framework has significant gaps in these areas, it could lead to tighter regulations or policy reversals.

Summary

The SEC’s proposed tokenized stock innovation exemption is bringing on-chain securities from concept into substantive implementation. This policy allows third parties to issue and trade tokenized stocks on DeFi platforms without the consent of listed companies, providing regulatory justification for the 24/7 on-chain finance narrative. The tokenized RWA market has already surpassed $30.9 billion, with tokenized stocks representing the most promising new asset class for growth. Meanwhile, DeFi protocols face a structural retracement of TVL, and introducing tokenized stocks as new collateral assets could be key to activating on-chain lending markets and attracting institutional capital. Despite ongoing regulatory disagreements, liquidity fragmentation, and investor protection concerns, substantial infrastructure progress—such as DTCC pilot programs and traditional exchange on-chain initiatives—indicates that the tokenized stock sector has entered an accelerated growth phase.

FAQ

Q: What assets does the SEC’s innovation exemption allow to be traded on DeFi platforms?

A: The exemption covers two types of tokenized securities, mainly focusing on third-party issued tokenized stocks. These tokens track the stock prices of listed companies and can be traded on DeFi platforms but do not necessarily include voting or dividend rights. Tokenized stocks issued via traditional exchanges follow existing rules like Reg NMS and are not covered by the exemption.

Q: What is the market size of RWA in 2026?

A: By the end of Q1 2026, the tokenized RWA market was approximately $19.3 billion, growing 256.7% in 15 months. As of April, it exceeded $30.2 billion. The largest segment is tokenized government bonds, with commodities growing fastest, and tokenized stocks being one of the fastest-growing subcategories.

Q: What is the current total locked value (TVL) in DeFi?

A: According to DeFiLlama data, as of early May 2026, the total TVL across all chains is about $86 billion, higher than the low point of approximately $38 billion, which does not include Layer 2 and cross-chain ecosystems.

Q: How does tokenized stock enable 24/7 on-chain finance?

A: Tokenized stocks map traditional stocks to on-chain tokens, enabling 7×24 trading, instant settlement, and on-chain lending and pledging within DeFi protocols. Unlike traditional markets that rely on brokers and DTCC for settlement, on-chain securities are settled and cleared automatically via smart contracts, without being limited by trading hours or holidays.

Q: Which institutions are deploying infrastructure for tokenized stocks?

A: Nasdaq and NYSE have received SEC approval for tokenized stock trading, and DTCC is conducting related pilots. On the crypto side, Bullish, led by former NYSE President Tom Farley, acquired transfer agent Equiniti for $4.2 billion. Ondo Global Markets offers over 260 tokenized US stocks and ETFs.

Q: What are the main risks associated with tokenized stocks?

A: Key risks include internal regulatory disputes that may cause policy reversals, unregulated third-party issuance leading to multiple versions and market fragmentation, cross-chain liquidity dispersion, and potential gaps in investor protections like KYC and AML, which could result in tighter regulations or policy reversals.