Coinbase, the leading cryptocurrency exchange in the United States, is reportedly seeking regulatory approval to offer "tokenized equities" on its platform, a move that would put the company in direct competition with retail brokerages such as Robinhood and Charles Schwab. Paul Grewal, chief legal officer at Coinbase, told Reuters that the company was seeking approval from the Securities and Exchange Commission (SEC) for the new product, adding that tokenized equities was a "huge priority." In a social media post, Grewal wrote: "Exciting? Yes. Important? Absolutely. But breaking news? Not exactly. We’ve been saying since earlier this year that @SECGov should enable markets to unlock tokenized securities. Tokenized debt, equity, and investment funds present an opportunity for tailored regulation for securities that are offered and traded via digitally native methods." Grewal also linked to a March response from Coinbase to an SEC inquiry asking for input from the public about how to regulate the crypto space. The company's 41-page response to the SEC focused on the advancement of discussions around tokenized equities, among other things. "Tokenized equities" refers to an investment product in which shares of a publicly-traded company are converted into a digital token that can be traded on a blockchain, as if it were a form of cryptocurrency. This would allow customers to trade these "equities" around the clock, as blockchain transactions can take place at any time of day rather than regular Wall Street trading hours. Coinbase has been a long-time advocate for tokenized equities, having first tried to bring digitized stocks to market in 2021, the same year as its initial public offering, by issuing a tokenized version of its own stock. However, the plan was halted by Biden-era SEC chair Gary Gensler. Under a different presidential administration that has embraced the crypto industry, Coinbase is now renewing its push for tokenized equities. "I now believe that our U.S. regulators are looking for product innovation and looking to move forward," said Alesia Haas, Coinbase's chief financial officer. "I'm now excited that we may be able to re-engage those conversations with the SEC's task force, that we may be able to bring forward security tokens." Most companies that offer securities trading have to be registered as broker-dealers, like Morgan Stanley's E*Trade or Fidelity, which Coinbase is not. One way for Coinbase to receive approval from the SEC to offer tokenized equities is by requesting a "no action letter," Grewal said. This would be a way for the SEC to pledge it would not object to tokenized securities or recommend an enforcement action. It is not clear whether Coinbase is seeking to gain approval for tokenized securities through a "no action letter" or through some other legal means. However, with the support of the current administration and the potential for tailored regulation for securities offered and traded via digitally native methods, it seems likely that Coinbase will soon be able to offer tokenized equities on its platform.
