Coinbase is seeking approval from the US Securities and Exchange Commission (SEC) to offer tokenized equities, according to the company’s chief legal officer, Paul Grewal.

This initiative could enable Coinbase to facilitate stock trading using blockchain technology.

If approved, this move could position Coinbase to compete with retail brokerages like Robinhood and Charles Schwab by offering faster, potentially cheaper trading through digital tokens.

Supporters of tokenized equities highlight benefits like 24/7 trading, but critics warn of challenges including poor liquidity and lack of international standards.

While tokenized equities aren’t yet allowed in the US, companies like Kraken have launched similar efforts abroad, such as its xStocks platform which operates outside the US.

To launch in the US, Coinbase would need SEC exemptive relief, but the company has not confirmed a formal request or timeline.

As of now, the SEC has not commented on Coinbase’s intentions.

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🔗 Source: Reuters

🧠 Food for thought

1️⃣ Convergence of traditional finance and crypto creates new competitive landscape

Coinbase’s pursuit of tokenized equities represents a significant expansion beyond cryptocurrency into traditional securities markets.

If approved, this move would place Coinbase in direct competition with established retail brokerages like Robinhood and Charles Schwab, fundamentally altering the competitive dynamics in the securities trading industry1.

This development continues the trend of boundary blurring between traditional finance and crypto, similar to how traditional payment providers previously expanded into crypto services.

While Coinbase currently generates revenue primarily from cryptocurrency trading fees, tokenized equities would create an entirely new revenue stream that could help diversify its business model beyond crypto market cycles.

The fact that rival exchange Kraken has already launched tokenized U.S. equities (xStocks) in international markets demonstrates that competition is already developing in this emerging sector1.

2️⃣ Blockchain-based trading promises market structure innovation

Tokenized equities could fundamentally change how stocks are traded by addressing longstanding inefficiencies in traditional market infrastructure.

The technology potentially enables 24/7 trading, significantly faster settlement times, and reduced transaction costs compared to conventional equity trading systems that typically operate only during market hours with T+1 settlement1.

However, the World Economic Forum has identified serious adoption challenges, including insufficient secondary-market liquidity and the absence of clear global standards, indicating that real-world implementation faces substantial hurdles1.

For institutional investors specifically, Coinbase’s Chief Legal Officer noted that regulatory uncertainty has been a primary barrier preventing their participation in blockchain-based securities trading1.

The tokenization approach represents a strategic middle ground that maintains the regulated security status of traditional equities while leveraging blockchain technology for operational improvements.

3️⃣ Regulatory pendulum swing creates opening for crypto innovation

The timing of Coinbase’s regulatory push aligns with a significant shift in the U.S. regulatory environment for cryptocurrencies.

The SEC has recently withdrawn lawsuits against major crypto exchanges including Coinbase, Binance, and Kraken, signaling a more accommodating regulatory stance toward the industry1.

Coinbase’s request for a “no action letter” from the SEC represents a formal pathway to innovation that would provide regulatory clarity not just for Coinbase but potentially for the entire blockchain-based securities market.

Recent Coinbase developments

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