Regulatory Battle Over Tokenized U.S. Stocks Escalates, HSBC Says

Core Viewpoint - The debate on regulating tokenized equities in the U.S. is intensifying, with traditional finance firms and crypto executives clashing over the treatment of decentralized trading infrastructure compared to traditional exchanges [1][2]. Group 1: Tokenization and Regulation - Tokenization involves converting ownership of real-world assets into digital tokens on a blockchain, encompassing various asset types such as stocks, bonds, and real estate [2]. - The SEC's Investor Advisory Committee has seen diverging opinions on the supervision of on-chain equities trading [2]. Group 2: Industry Perspectives - Citadel Securities has faced criticism from the crypto sector for advocating a stricter regulatory approach towards decentralized finance (DeFi) [3]. - Coinbase's regulatory policy vice president has called for rules specifically designed for decentralized exchange models [3]. Group 3: Regulatory Stance - SEC Chair Paul Atkins emphasized the need for compliant pathways that foster innovation, while Commissioner Caroline Crenshaw raised concerns about risks associated with tokenized equities [4]. - Citadel's letter to the SEC argued that many DeFi protocols should be classified as exchanges and regulated accordingly, highlighting the ongoing regulatory debate [4][5]. Group 4: Regulatory Tools and Future Outlook - A potential regulatory tool could be a "sandbox" approach, allowing tokenized equity platforms to operate under specific conditions while regulators assess the landscape [6]. - HSBC anticipates that regulatory pressure may lead to the growth of tokenized equities trading on fully regulated blockchains [6]. Group 5: Industry Consensus - There is a general agreement among TradFi, DeFi, and regulators that tokenization is expected to expand from a small base, with the current regulatory debate indicating rising stakes in the market [7].