Tiger Research has warned that the SEC's planned "innovation exemption" for tokenized equities could reshape equity markets with significant risks, particularly by fragmenting liquidity across blockchain ecosystems. The SEC is reportedly preparing rules that would allow third parties to tokenize publicly traded stocks such as Apple and Tesla without requiring issuer approval, enabling tokenized versions of equities to trade across crypto platforms and blockchain networks alongside traditional exchanges like the NYSE and Nasdaq. Tiger Research's primary concern is not tokenization itself, but how the same stock could potentially trade simultaneously on traditional exchanges, decentralized exchanges, multiple crypto platforms, and offshore tokenized trading platforms—dispersing order flow across disconnected liquidity pools and weakening price discovery and market efficiency.
Market Growth Signals Momentum
Despite regulatory concerns, tokenized asset markets are expanding rapidly. According to TradingView, Hyperliquid's tokenized real-world asset (RWA) open interest surged to an all-time high of $2.6 billion, doubling within roughly two months. This growth reflects meaningful scale in tokenized trading infrastructure.
The momentum behind tokenization has gained regulatory attention. Pro-crypto SEC commissioners Paul Atkins and Hester Peirce outlined a new tokenization framework in February, proposing third-party tokenization rights that would allow brokerages and trading platforms to create versions of publicly traded stocks without direct approval from the companies owning the shares. Bloomberg reported that the SEC was open to the idea.
Liquidity Fragmentation and Market Risks
Tiger Research identifies liquidity fragmentation as the framework's biggest threat. Under the proposed structure, the same stock could trade across multiple disconnected venues simultaneously, spreading order flow and potentially weakening market efficiency.
Maja Vujinovic, CEO of digital assets at FG Nexus, cautioned on this risk: "Markets could split into disconnected pools creating dangerous price tracking errors."
Shareholder Rights and Regulatory Considerations
Reports indicate the SEC's proposed exemption may only allow tokenized stocks that preserve traditional shareholder rights, such as dividends and voting access. Synthetic exposure products without underlying ownership rights may reportedly be excluded.
Competitive Pressures and Market Share
Tiger Research pointed to a previous South Korean ETF example where regulatory hesitation allegedly allowed foreign markets to capture significant demand and assets that might otherwise have stayed domestic. The analysis suggests jurisdictions slow to adapt to tokenized finance risk losing market share and financial influence globally.
Regulators and financial institutions are no longer debating whether blockchain will affect capital markets, but how much risk it could bring to the existing market structure.
