Coinbase Looks to SEC for Approval of Tokenized Equities

NEW YORK, NY — Coinbase is seeking approval from the U.S. Securities and Exchange Commission (SEC) to offer “tokenized equities” to its users, according to Paul Grewal, the company’s chief legal officer.

If approved, this initiative would allow Coinbase to provide stock trading through blockchain technology, which could position the crypto exchange against retail brokerages like Robinhood and Charles Schwab, and potentially create a new business segment for the platform.

Tokenized equities refer to the process of converting company shares into digital tokens. Unlike traditional stocks, investors would hold tokens that symbolize ownership of the shares, mirroring the trading of cryptocurrencies. Grewal emphasized that this idea is a “huge priority” for Coinbase.

Advocates for tokenized equities argue that this could lead to reduced trading costs, faster settlements, and the ability for around-the-clock trading. However, critics point out several challenges that need resolution. A recent report from the World Economic Forum highlighted concerns about insufficient secondary-market liquidity and the lack of a clear global standard.

No immediate comment was received from an SEC representative regarding Coinbase’s request. Tokenized equities are not currently available for trading in the U.S., although some companies, including rival exchange Kraken, are exploring the concept abroad with products like xStocks.

In order to legally offer tokenized equities in the United States, Coinbase would need to obtain a “no action letter” or exemptive relief from the SEC. This would allow the regulator to confirm that it would not pursue enforcement action if Coinbase proceeds with its plans.

Generally, firms that provide trading in securities must be registered as broker-dealers. Although Coinbase is not currently registered, it did acquire a broker-dealer license in 2018. However, that affiliate has not been active.

The SEC previously sued Coinbase in 2023 under the Biden administration for allegedly operating as a broker-dealer without registration, but that case was dismissed earlier this year under the Trump administration.

Grewal did not specify whether Coinbase has submitted an official request to the SEC or when a product launch might occur. He stated, “With a no action letter, an issuer of a tokenized equity…can have some confidence that the SEC views the product as compliant. This confidence has been lacking and has hindered institutional interest in crypto and blockchain technology.”

This development comes as the cryptocurrency sector has seen favorable reactions, with Bitcoin reaching new highs this year. The SEC has also dropped lawsuits against several crypto firms, including Coinbase, Binance, and Kraken, aiming to streamline the regulatory framework for digital assets.