Coinbase is seeking permission from the U.S. Securities and Exchange Commission (SEC) to offer tokenized equities. The company’s Chief Legal Officer, Paul Grewal, disclosed the effort in an interview with Reuters.

If the SEC allows it, Coinbase would be able to provide stock trading services through blockchain technology. This could place the crypto exchange in direct competition with platforms like Robinhood and Charles Schwab. It may also allow Coinbase to enter a new line of business.

Tokenized Stocks Face Support and Criticism

Paul Grewal, Chief Legal Officer, Coinbase
Paul Grewal, Chief Legal Officer, Coinbase, Source: LinkedIn

Tokenized equities are digital tokens that represent shares in a company. Investors would not hold the stocks directly but would own the tokens linked to them.

These tokens are traded similarly to cryptocurrencies. Grewal called the initiative a “huge priority” for the company.

Supporters of the idea say tokenized equities could reduce trading costs, speed up settlement, and allow for 24/7 trading. However, critics say major challenges remain.

A recent report from the World Economic Forum cited two main concerns: low liquidity in secondary markets and a lack of global standards. The SEC has not commented publicly on Coinbase’s request.

Tokenized Stock Trading Faces U.S. Hurdles

In the United States, tokenized equities are not currently available for trading. However, some firms are testing the model in international markets. Last month, Kraken said it would offer U.S. equity tokens, called xStocks, outside the country.

To legally offer tokenized equities in the U.S., Coinbase would need a “no action letter” or exemptive relief from the SEC. This would mean the SEC agrees not to take enforcement action if Coinbase proceeds.

You may find it interesting at FinanceMagnates.com: Coinbase Faces Lawsuit over Stock Drop Following Data Breach and FCA Penalty.

Regulatory Uncertainty Slows Tokenized Equity Plans

Coinbase is not registered as a broker-dealer. The SEC sued the company in 2023 under the Biden administration, claiming it acted as a broker-dealer without registration. The case was dropped earlier this year under the Trump administration.

Grewal did not confirm whether Coinbase had filed a formal request or when a product might launch. He explained that a no action letter would offer assurance that the SEC does not object to the offering. According to Grewal, the lack of regulatory clarity has slowed institutional interest in blockchain-based financial products.

Source: Finance Magnates