According to Reuters, Coinbase's Chief Legal Officer Paul Grewal stated that Coinbase is seeking approval from the U.S. Securities and Exchange Commission to offer 'tokenized stocks' to its customers. Tokenization of stocks is expected to enable low-cost, round-the-clock trading and expand investment participation. If approved by the SEC, Coinbase will become a new competitor to platforms like Robinhood.
Tokenized stocks are an important issue for Coinbase
Coinbase's Chief Legal Officer Paul Grewal stated that this concept is 'a top priority.' Stock tokenization refers to the process of converting company shares into digital tokens, similar to the trading of cryptocurrencies. Investors do not directly hold securities but instead hold tokens representing ownership of the securities.
This objective is to integrate traditional financial markets with blockchain technology, achieving more efficient, transparent, and liquid securities trading by providing blockchain-based stock trading services. Tokenized stocks can also reduce transaction costs, shorten settlement times, and enhance global investor accessibility.
Tokenized stocks still require SEC approval
To offer tokenized stocks in the United States, Coinbase needs to obtain a 'no action letter' or exemptive relief from the U.S. Securities and Exchange Commission (SEC).
Typically, companies providing securities trading must register as broker-dealers. The SEC sued the company in 2023 during President Biden's administration, accusing it of operating as a broker-dealer without registering with the SEC. However, with the arrival of President Trump, the SEC withdrew this case this year.
Coinbase acquired a broker-dealer in 2018, gaining permission to offer similar services, but the company has yet to launch any related services.
Grewal did not disclose whether Coinbase has formally requested approval from the U.S. Securities and Exchange Commission or when the product might be launched.
Currently, tokenized stocks have not been traded in the United States, but several companies are attempting this concept. Kraken announced last month that it will launch a U.S. stock token called xStocks, which will be issued in specific markets outside the United States.
Using its own Base blockchain can significantly enhance competitiveness
If approved, this move would allow Coinbase to effectively provide stock trading through blockchain technology, competing with Robinhood and Charles Schwab, and potentially opening a new business sector for Coinbase.
Coinbase had previously proposed to tokenize its own stock (ticker symbol COIN), using its Base blockchain (a Layer 2 solution launched by Coinbase) for trading. Base has been used for other decentralized finance (DeFi) and NFT applications, showing potential to support complex financial products.
Many market analysts and investors believe that Coinbase's tokenized stock plan could fundamentally change the way investments are made. For example, Motley Fool analyst Travis Hoium stated that tokenized stocks could alter the investment model between public and private companies, enabling 24/7 trading, improving trading efficiency, and lowering participation barriers.
Bitwise CEO Hunter Horsley believes that tokenization can create a more inclusive capital market, expanding participation in the U.S. public market to more small and medium-sized enterprises and promoting financial democratization.
However, some critics argue that there are still many issues to be resolved before tokenized stocks can be traded widely. A report from the World Economic Forum last month pointed out that insufficient liquidity in the secondary market and lack of clear global standards are two major challenges faced by the application of tokenized stocks.
This article discusses Coinbase's plan to promote tokenized stocks, becoming a blockchain version of Robinhood, first appearing in Chain News ABMedia.