‘Not for synthetics’ – SEC to limit innovation exemption scope for tokenized stocks
There is strong market interest for RWA perps despite being excluded from SEC's innovation exemption.
The much-awaited innovation exemption for tokenized stocks will likely be limited in scope than previously expected. In a statement on X (formerly Twitter), SEC Commissioner Hester Peirce said the exemption will not cover synthetics.
I’ve always expected that it’d be limited in scope & would facilitate trading only of digital representations of the same underlying equity security that an investor could purchase in the secondary market today, not synthetics.
The innovation exemption was first floated last year. In mid-May, Bloomberg reported that the framework will be temporary and limited. It would have restrictions on volume caps, white-listed sellers and buyers, suggesting some form of KYC (Know Your Customer).
The proposal will also extend to certain decentralized venues without the need for a broker-dealer license. However, it is not yet clear how the KYC requirements will apply to them. If adopted as proposed, the framework would be a bullish catalyst for the booming tokenized assets sector.
Industry reaction to SEC’s ‘limited’ proposal
Based on Peirce’s explicit wording, the proposal will cover only spot tokenized stocks. As such, derivatives, synthetics, or real-world assets (RWA) perpetuals (perps) will not be covered.
Worth noting, however, that it is unclear whether she was responding to the industry’s push for formalized rules for DeFi platforms based on the proposed exemption.
The so-called ‘synthetics’ do not come with shareholder rights like traditional stocks. They only offer price exposure and nothing else, especially for RWA perps.
For Bloomberg ETF analyst Eric Balchunas, the move isn’t exactly a shocker. He said,
Not a shocker and why I am sticking to my take that all that tokenization is going to do (at least short-term) is distribute stocks and ETFs to people on-chain, it’s more of a distributor than disruptor for ETFs.
Even tokenized assets issuers seemed to agree with Peirce. According to Carlos Domingo, CEO of Securitize, the move would help avoid additional risks from RWA derivatives.
This is good, we want to do on-chain trading, but for the right assets, and not to help proliferate those derivatives that are fragmenting the market and introducing additional risks.
He added that tokenization is designed to remove intermediaries and solve access issues, not create new problems and middlemen.
Even so, the market interest in spot tokenized stocks and perp versions is the same at $1.6B each, according to Allium data. In fact, RWA perps are barely six months old and will easily surpass spot products if the momentum remains strong.
Final Summary
- SEC Commissioner Hester Peirce reiterated that the innovation exemption for tokenized stocks will be limited.
- Securitize CEO billed the limited scope as ‘good’ to eliminate new risks that would be created by RWA derivatives.
