Dissecting the interest game behind this public opinion frenzy and the hidden risks of liquidity fragmentation within.

Written by: 100y

Translated by: Saoirse, Foresight News

Tokenization once painted a bright blueprint for financial markets: anyone could trade various assets seamlessly, anytime and anywhere. But looking at the current state of stock tokenization, the industry has long strayed from this ideal vision; the current process of tokenization is actually accelerating the fragmentation of the stock market.

US SEC plans to introduce innovative exemption policy to allow stock tokenization trading

According to Bloomberg on May 19, the US SEC is drafting new exemption regulations and pilot supervision rules, planning to allow stock tokenization trading to take place, with an official announcement expected this week.

As the core regulatory body for US stocks, the SEC is preparing a pilot framework to relax regulations on on-chain stock tokenization trading. At first glance, this signals that a new era of widespread on-chain stock tokenization trading is about to arrive, which is a significant positive development for the crypto market.

However, contrary to the optimistic sentiment in the market, there has been a significant amount of opposition within the industry. Why is a policy that seems to benefit the industry facing resistance? The crux of all contradictions points to the third-party tokenization model behind the policy.

SEC may relax regulations to allow third parties to initiate stock tokenization

The most significant change in this regulatory update is the potential opening of the compliance door for third-party led tokenization. What is third-party tokenization? In January 2026, the US SEC released the “Tokenized Securities Position Statement,” officially categorizing four types of tokenized securities models:

1. Issuer-led tokenized securities: directly converting existing securities into token form by the issuing company itself or collaborating agents such as transfer agents. On-chain trading data is interoperable with traditional shareholder registries, strictly adhering to US securities law throughout this process, with representative platform: Securitize.
2. Custodial tokenized securities: physical stocks are held by third-party institutions such as the Depository Trust Company (DTCC), which then issues corresponding rights tokens. Token holders only indirectly enjoy stock rights and do not directly hold the underlying stocks, with representative institution: DTCC.
3. Yield-linked securities: third-party institutions independently issue tokenized products where the yield of the tokens is linked to the price fluctuations of the underlying stocks, but token holders do not enjoy voting rights, information access rights, or other shareholder rights corresponding to the underlying stocks, with representative project: Ondo Finance.
4. Securities-linked derivatives: third parties issue tokenized derivative contracts that are bound to the underlying stock prices; investors do not possess stock ownership or shareholder voting rights, with representative platform: Robinhood.

Apart from the issuer-led model, the custodial, yield-linked, and securities-linked derivatives models are all classified as third-party led tokenization, meaning the tokenization is completed by external institutions, not the stock issuers.

According to the SEC’s past regulatory stance, only two of the four models are clearly compliant: the issuer-led tokenized securities fully align with existing securities regulations, merely changing the presentation form of the asset, a model approved earlier this year by regulators; custodial tokenized securities have also received a no-action letter from the SEC for DTCC to operate in a compliant manner within a restricted scope by December 2025.

However, for yield-linked and securities-linked derivatives synthetic token securities, the SEC has maintained a cautious attitude. Regulation has not explicitly prohibited these types of tokens but has made it clear that they lack complete shareholder rights associated with physical stocks and must accept separate regulatory constraints according to their product structures. Due to this limitation, platforms using the yield-linked model like Ondo Finance and xStocks cannot provide services to US domestic users.

This regulatory turnaround, however, indicates that the SEC intends to adjust its stance and plans to introduce innovative exemption provisions to officially open up third-party tokenization business.

Coinbase is making frequent moves to fully promote third-party tokenization

Third-party tokenization is the only way for Coinbase to break the deadlock

For the SEC, continuing the previous regulatory standards and only allowing issuer-led and custodial tokenization is the safest bet. These two models are highly compatible with traditional securities market regulations and trading logic. So, why has regulation suddenly relaxed to accept previously strictly controlled third-party tokenization?

The surface reason is to enrich the innovative paths of the capital market, creating compliant pathways for crypto trading platforms beyond traditional exchanges. However, insiders widely believe that Coinbase's long-term lobbying and pressure have been the core driving force behind the policy shift.

Coinbase has been eyeing the stock tokenization sector for a long time, while its competitor Robinhood has already integrated trading across stocks, cryptocurrencies, and tokenized stocks. Since the second half of last year, Coinbase has also proposed creating a multifunctional trading platform, fully laying out stock tokenization business.

Yet existing regulatory rules have trapped Coinbase: to operate a compliant stock tokenization business aimed at US investors, it must rely on SEC-registered transfer agents, which Coinbase does not qualify as.

If it follows the Robinhood model and establishes a subsidiary to acquire and custody physical stocks, issuing tokens that correlate with stock price yields, it would violate regulatory red lines and cannot be opened to US domestic users.

In desperation, lobbying the SEC to loosen regulations and create a compliant channel for third-party synthetic token securities has become Coinbase's only breakthrough method, which is evident from various industry actions.

The real reason behind Binance founder's opposition to the CLARITY Act draft

In January 2026, Coinbase founder Brian Armstrong openly opposed the CLARITY Act draft, with one of the core reasons being that the act would effectively ban stock tokenization business.

His opposition was based on clause 505 (e)(2) of the act's early draft: even if financial assets are tokenized via blockchain, the traditional financial regulatory regulations applicable to those assets still remain unchanged. Simply put, even if stocks are converted into token form, they must strictly adhere to existing US stock securities regulations.

However, this clause does not completely ban stock tokenization; platforms like Securitize and Superstate, which possess transfer agent qualifications, have already been compliant under this regulation to conduct business. In essence, this rule does not restrict all tokenization business, but specifically limits the third-party unauthorized tokenization model that Coinbase seeks to promote.

Coinbase formally sends a letter to the SEC with clear demands

In March 2026, Coinbase submitted a formal opinion letter to the US SEC titled “Third-party Tokenization of Publicly Traded Securities Does Not Require Issuer Permission.” The core demand is quite straightforward: when third-party institutions use blockchain to complete the tokenization and circulation of publicly traded stocks, they do not need prior consent from the stock issuing company.

Conversely, the issuer-led tokenization model previously recognized by the SEC rigidly requires authorization from the listed company itself or its transfer agents, which is the regulatory barrier Coinbase is eager to break.

The opinion letter outlines three core arguments:

• Mandatory authorization from the issuer contradicts existing legal principles: once listed stocks enter the public circulation market, issuing companies have no rights to control the channels of stock circulation. It is merely a transfer of existing shareholder rights into token form, which does not require additional securities registration or consent from the issuer.
• Issuer authorization systems hinder healthy competition within the industry: adhering to traditional tokenization rules will only allow established exchanges and traditional financial infrastructure providers to maintain market monopolies, stifling industry innovation; also, seeking authorization from listed companies one by one is difficult to create scalable liquidity and industry network effects.
• Third-party tokenization will not create significant financial risks: issues such as decentralized financial risks and liquidity crises cannot rely on issuer authorizations for resolution. Currently, physical stocks already circulate across various channels including on-exchange, alternative trading systems, over-the-counter markets, dark pools, and overseas markets, having formed a multi-faceted trading landscape.

Some points in this opinion letter are reasonable, but the core intention is clear: Coinbase is eager to launch its stock tokenization business and is urgently pushing the SEC to introduce new rules to build a compliant channel for third-party tokenization without issuer authorization.

Behind the relaxation of policies, two profound industry patterns are hidden

On the surface, the SEC's relaxation of third-party tokenization benefits the whole industry, but two significant industry truths lurk beneath.

Behind Coinbase's layout, lies industry competitive anxiety

Stock tokenization is a desirable business track that the whole industry is vying for, but different platforms have vastly different entry methods based on their qualifications and business licenses.

As mentioned earlier, due to licensing restrictions, Coinbase currently lacks a fully compliant operational path for stock tokenization that aligns with traditional securities rules. While it appears to be laying out an industry ecosystem, it actually conceals competitive intentions. A well-known independent research institution, Citron Research, bluntly stated: Coinbase's vigorous lobbying for regulatory relaxation essentially fears the development momentum of compliant tokenization platforms like Securitize and attempts to suppress the development of its competitors through policy means.

Third-party tokenization directly induces a liquidity fragmentation crisis

The greater hidden danger lies in the fragmentation of liquidity. Once various third-party tokenization models are fully relaxed, a single company's stock could give rise to various different forms of token products, scattered across multiple platforms, making it impossible for different products to interchange, thereby directly causing market liquidity to split.

Taking Tesla stock as an example, Tesla's official cooperating transfer agent is Computer Share, which is fully responsible for the core businesses including shareholder registry, stock delivery, dividend distribution, and shareholder meeting preparation. Besides trading on the NASDAQ main board, Tesla stocks also circulate on alternative trading systems, dark pools, and overseas securities markets across multiple channels.

However, third-party tokenization will allow the fragmentation of stocks to extend from the trading channel aspect to the asset form aspect itself. Issuer-led and custodial tokenization merely converts the traditional shareholder bookkeeping model to on-chain token form, retaining the asset's essence unchanged, and completely interoperable with native physical stocks, and does not lead to liquidity fragmentation issues.

But yield-linked and securities-linked derivatives third-party token products are entirely different: these tokens only represent derivative contracts linked to stock price yields, completely severing their regulatory classification and shareholder rights from native physical stocks, with no interchangeability whatsoever.

Currently, Tesla stocks have already given rise to multiple similar tokens: TSLAon issued by Ondo Finance, xTSLA on the xStocks platform, and Tesla stock tokens issued by Robinhood, etc. All products target the same underlying asset, but the regulatory rules and rights structures are vastly different, making them unable to interchange and directly causing liquidity of the underlying asset to be infinitely split.

When stock fragmentation no longer remains limited to the trading market but infiltrates the asset form itself, it easily causes confusion among investors, ultimately diverging completely from the core intention of tokenization to create freely accessible and convenient asset trading.

There are only two ways to resolve the industry deadlock: adhering to original compliance or solving fragmentation issues

Ultimately, to achieve the original industry vision of tokenization – to connect all asset categories for seamless trading around the clock without geographical restrictions, the industry has only two development paths to choose from: First, adhere to the compliance baseline, only allowing issuer-led and custodial tokenization models that fully retain the shareholder rights of physical stocks; Second, completely relax all types of third-party tokenization models while simultaneously building corresponding legal and industry systems to eliminate the liquidity fragmentation issues once and for all.