Is the SEC pushing tokenized stocks, causing traditional finance to start getting anxious?

Article by: Tiger Research

Translated by: AididiaoJP, Foresight News

The U.S. Securities and Exchange Commission (SEC) is preparing to officially announce the "Innovation Exemption" framework within this week, which will allow third parties to tokenize U.S. stocks such as Apple and Tesla without the approval of the listed companies. This move could accelerate the migration of traditional stock markets to blockchain, while also raising deep concerns among exchanges about liquidity fragmentation and revenue loss.

According to Bloomberg on May 18, this framework originates from the de-regulation vision proposed in February this year by pro-cryptocurrency commissioners Paul Atkins and Hester Peirce. Coinbase and the Blockchain Association have previously submitted support letters, strongly urging to grant third-party tokenization rights. However, the guidance issued by Peirce on May 22 has a narrower scope than market expectations, only applicable to on-chain stock instruments that fully retain shareholder rights, explicitly excluding synthetic stock tokens without voting or dividend rights.

Two Major Threats: Liquidity Fragmentation and Revenue Fragmentation

The core impact of tokenized stocks lies in "fragmentation." While the crypto industry often discusses liquidity aggregation, traditional finance views it as a structural threat.

Liquidity Fragmentation: When the same stock is tokenized across different blockchains and decentralized platforms, the trading volume and order flow originally concentrated on NYSE or NASDAQ will disperse across multiple venues. This can lead to price discrepancies between platforms, increased slippage for large orders, and reduced overall market efficiency.

Revenue Fragmentation: After trading venues become dispersed, transaction fees and intermediary income that traditionally belonged to domestic exchanges will flow to overseas or competing platforms, directly impacting national financial competitiveness.

Tiger Research reports using South Korea as an example: Hong Kong asset management firm CSOP's leveraged ETF on SK Hynix, which doubles the exposure, has grown to become the world's largest single-stock leveraged ETF, with assets exceeding 11 billion Korean won (about $8 billion). If South Korea can lead the way by launching similar products through regulatory sandboxes, these management fees and financial revenues could have remained within the country.

The Monopoly of Traditional Exchanges’ "Supermarket" Faces End

The report vividly describes this change with an analogy: traditional stock markets are like a monopolized supermall, where all buyers and sellers gather, and exchanges monopolize trading and charge fees. Tokenized stocks are akin to allowing anyone to open thousands of street stalls without permission, trading directly outside the mall.

This decentralization will lead to loss of buyers, thinner inventories at each stall, difficulty in large trades, and fragmented revenue sources. If domestic exchanges hesitate due to regulatory restrictions, competing platforms in other jurisdictions will seize the opportunity to capture global capital flows and intermediary income.

Capital Fragmentation Is Already Happening

On the very day the SEC signaled the framework (May 18), decentralized platform Hyperliquid’s interest in unclosed RWA (Real-World Assets) surpassed $2.6 billion, hitting a record high. Driven by demand for traditional assets on 24/7 on-chain trading, RWA trading volume on perpetual DEXs is expected to further surge.

Traditional financial institutions and regulators face a dilemma: one, proactively building tokenization infrastructure through cooperation, like the NYSE; two, lobbying regulators to block innovation to protect existing revenues. Regulators are also conflicted—they want to control the pace of innovation while preventing domestic income from being drained by offshore platforms.

Even if the framework is officially announced, potential conflicts are just beginning. Future key issues include:

The second "clarity battle" around shareholder rights;

How to incorporate platforms like Hyperliquid, which are growing in regulatory gray areas, into the regulatory system. If deemed unlicensed exchanges, it could trigger a new wave of liquidity and uncertainty shocks.

In the era of digital assets, if financial institutions and jurisdictions cannot act quickly, they will permanently lose long-term monopoly rights to fees and financial leadership, and capital will continue to disperse in all directions.