Tokenization stocks slide after legal concerns delay SEC exemption

Tokenization-linked stocks fell as much as 11.2% on Friday after a report said the Securities and Exchange Commission delayed its planned innovation exemption for blockchain-based securities over legal concerns from the White House and Wall Street firms.

The exemption was meant to reduce regulatory barriers for companies issuing and trading tokenized securities on blockchain networks. SEC officials were reportedly ready to disclose part of the plan alongside a meeting on Regulation Crypto before the agency canceled the session late Thursday.

White House officials worried the exemption could complicate congressional negotiations over the Digital Asset Market Clarity Act. SEC staff were also examining whether the agency had sufficient legal authority and economic analysis to grant the relief, the report said.

The Securities Industry and Financial Markets Association, whose members include large broker-dealers and investment banks, raised separate concerns. SIFMA questioned how blockchain venues would comply with existing equity-market rules, including brokers' duty to seek the best available execution for customers.

Bullish led the decline. The stock fell 11.2% to $24.42 by about 2:32 p.m. ET on Friday. It opened at $26.57 and hit an intraday low of $24.36, erasing gains from its second-quarter results.

Figure Technology Solutions traded 1.2% lower at $31.51 after moving between $30.65 and $33.04. The price was about 6.7% below Thursday's session high of $33.78, though the stock had recovered from a steeper decline earlier in the day.

Coinbase (COIN) dropped 3% to $149.30, extending an earlier decline of about 2%. The exchange has been developing tokenized equities and secured regulatory permission for a tokenization hub in Abu Dhabi.

Circle Internet Group (CRCL) fell 4.8% to $71.79, after trading as low as $71.20. Circle issues the USDC stablecoin and operates USYC, a tokenized money-market fund with about $3 billion in assets.

Securitize was down 1% at $5.65 after recovering from a Friday low of $5.17. Its shares had plunged about 27% on Thursday after missing earnings estimates. The company reported second-quarter revenue of $14.4 million, down 5% from a year earlier, and a net loss of $21.7 million. Securitize works with BlackRock on BUIDL, a tokenized Treasury fund, and serves as the transfer agent and tokenization platform supporting the product.

AlphaScala's Alpha Score, a proprietary measure of market strength, rates COIN at 33 out of 100 and CRCL at 28, both in the "Weak" category.

Market participants had been waiting for the innovation exemption to clarify how approved companies could issue and trade tokenized securities under temporary relief. SEC Chair Paul Atkins previously said a proposed structure could allow issuers to work with transfer agents before making securities available through approved blockchain venues. The temporary exemption would give the agency time to consider permanent rules. Investors would pass through a permitting process.

Legal and ownership questions had already delayed the project once. In May, a report covered an earlier delay after exchange officials questioned whether third parties should be allowed to issue stock-linked tokens without consent from the underlying public company.

Part of the debate involves the difference between issuer-backed securities and synthetic products. An issuer-backed token can represent ownership of an actual share and preserve rights such as dividends and voting. A synthetic token may track a stock's price without giving its holder ownership of the underlying security.

Securitize CEO Carlos Domingo supported taking more time when the earlier delay emerged, saying regulators needed to ensure the exemption applied to the correct instruments. Bullish CEO Tom Farley also backed an issuer-led model under which public companies would control the issuance of blockchain-based versions of their shares.

Friday's reported setback introduces additional questions about procedure. Industry sources said that Wall Street firms wanted changes of this size handled through formal notice-and-comment rulemaking instead of an exemption, which could expose the agency to legal challenges over the limits of its statutory authority.

Separate from the tokenization exemption, the SEC canceled its Aug. 14 meeting on a proposed offering framework for certain investment contracts involving crypto assets. The agency said an unforeseen scheduling issue forced the cancellation and did not announce a replacement date. Commissioners had been scheduled to decide whether to publish the Regulation Crypto proposal, which would have opened a public rulemaking process.

Federal regulatory records still list the SEC's crypto-assets proposal as pending review. The Office of Information and Regulatory Affairs received it on Aug. 12, and the proposal has no statutory deadline.

Atkins has previously described three possible routes under Regulation Crypto: a temporary exemption for startups and a safe harbor for investment contracts. The figures he provided included a startup exemption lasting as long as four years with a limit of about $5 million, and another route allowing projects to raise as much as $75 million over 12 months. No published proposal has confirmed those periods or thresholds.

The delay has also brought congressional action back into focus. Senate Majority Leader John Thune filed cloture on the motion to proceed with the CLARITY Act on Aug. 7. The Senate adjourned without voting on the bill. The procedural vote is scheduled to ripen on Sept. 15 after lawmakers return.

Regulatory delays have not stopped traditional exchanges and crypto companies from building systems for blockchain-based securities. NYSE has continued work on onchain settlement infrastructure designed to support round-the-clock trading and immediate settlement. The exchange also participated in a Depository Trust Company pilot that processed production transactions across several asset classes.

Nasdaq received SEC approval in March for a pilot that allows tokenized stocks to trade alongside conventional securities. NYSE is working with Securitize on a separate marketplace for tokenized stocks and exchange-traded funds.

Coinbase and its Base network have also been developing 1:1-backed tokenized equities intended to represent ownership of underlying shares. Coinbase has said its model would include dividend payments and shareholder rights. The company has not provided a launch date or a final list of supported stocks.

Outside the United States, Coinbase's Abu Dhabi authorization allows it to arrange investment transactions and provide custody for tokenized securities within the Abu Dhabi Global Market. The company says eligible holders will retain shareholder rights, including dividends and voting. Transfers will remain subject to sanctions screening.

Crypto.com launched tokenized derivatives tracking 1,500 U.S. stocks and ETFs for eligible customers in the European Economic Area and other approved markets in August. According to the exchange, the instruments offer synthetic price exposure rather than ownership of the underlying shares. Holders do not receive voting rights or direct legal ownership.