Author｜Azuma, Odaily Planet Daily

Early morning of May 23, Beijing time, Bloomberg, citing sources familiar with the matter, reported that the U.S. Securities and Exchange Commission (SEC) has postponed its planned "innovation exemption" program. This program was originally intended to give the green light to tokenized U.S. stocks, but the SEC decided to suspend it due to numerous concerns raised by market participants.

Affected by this negative news, the cryptocurrency market experienced a sharp short-term decline, with BTC falling below 76,000 USDT and ETH also falling below 2,100 USDT. The impact on the "tokenization of US stocks" concept was even greater, with ONDO directly giving back the short-term gains indirectly stimulated by the "CSRC's punishment of brokerages such as Tiger Brokers, Futu Securities, and Changqiao Securities." As of the time of writing, it is temporarily trading at 0.382 USDT, a 24-hour drop of 6.4%.

Innovation exemption, the last step was abruptly halted.

Since Paul Atkins took office as chairman, the SEC has changed its previous hardline stance of "using enforcement instead of regulation" and is now inclined to provide a compliance testing ground for the crypto industry.

Earlier this week, news circulated that the SEC might release an exemption proposal as early as this week, potentially allowing trading platforms to offer on-chain token trading services for listed securities (such as NVDA, AAPL, and TSLA) under more lenient regulatory conditions. This exemption, spearheaded by SEC Chairman Paul Atkins and Commissioner Hester Peirce, aims to provide a legal testing ground for tokenized securities, which the market interprets as a significant signal of further support for tokenized securities from US regulators.

However, this innovation exemption, which was originally scheduled to be officially announced to the public as early as this week, was abruptly halted at the last minute. Sources familiar with the matter revealed that the SEC has now returned the draft and resumed intensive consultations with securities exchanges and other market participants.

From giving the green light to putting it on the brakes, what kind of resistance did the SEC face? In this epic battle over "putting US stocks on the blockchain," who is the most vehemently opposed?

The main opposition group is Wall Street.

Similar to the CLARITY bill, which also faces resistance (see "CLARITY Deliberations Delayed: Why is There Such Divide in the Industry?"), at the forefront of the camp vehemently opposing the exemption proposal are traditional Wall Street forces represented by Citadel Securities and the Securities Industry and Financial Markets Association (SIFMA).

Months ago, when the policy was still in its conceptual stage, these traditional financial giants had already submitted strongly worded letters of objection to the SEC. In summary, Wall Street's core arguments against the policy mainly focus on the following three aspects.

One concern is the potential for market liquidity fragmentation. Institutions like Citadel Securities warn that allowing various third parties to issue "synthetic US stocks" arbitrarily, bypassing the issuer, would fragment US stock assets and scatter them across numerous interconnected, shallow, and highly opaque DeFi platforms. This would not only fail to improve efficiency but would also prevent investors from determining the true value of the tokenized shares they hold at any given time.

Secondly, there are concerns that US stock tokens may threaten traditional compliance defenses. On anonymous or pseudo-anonymous public blockchain networks, how can we ensure that the trading of these third-party tokens does not become a breeding ground for money laundering? Wall Street giants believe that the current technical means of decentralized platforms are simply insufficient to rigorously implement core investor protection mechanisms such as AML and KYC.

Thirdly, there are still gaps in technology and law. Institutional sources, citing legal experts, point out that allowing a third-party crypto platform, unauthorized by companies like Apple and Microsoft, to implement "giving token holders voting rights and dividend distributions" on-chain remains uncertain within the current legal framework and technical framework.

There are also reservations within the SEC.

It is worth noting that this wave of opposition came not only from the "vested interest groups" on Wall Street, but also from cautious reservations within the SEC itself.

Hester Peirce, a long-time ally of the crypto community and affectionately known as "Crypto Mom" by the community, publicly stated on X yesterday that he had "defected," and that the scope of this exemption should be strictly limited .

Peirce stated that the SEC should allow attempts by "the issuer itself or its affiliates" to digitize or tokenize their own stock on-chain, rather than allowing a plethora of synthetic assets issued by third parties and operating outside of regulatory control. In other words, Peirce hopes to see "US stock tokens" led, authorized, or endorsed by specific listed companies (i.e., the issuer), and that investors be assured of the same rights (such as dividends and voting rights) as ordinary shareholders, rather than the more prevalent derivative synthetic tokens issued by third-party entities that track the price performance of the underlying stock.

Even Peirce, a staunch supporter of crypto innovation, has chosen to side with the "narrowing of the exemptions" approach, demonstrating the significant legal and compliance obstacles the proposal faces.

What will the future hold for cryptocurrency stocks?

This week's "suspension of progress" is undoubtedly a blow to the RWA (Real-World Assets) sector, which is on the verge of explosive growth. The short-term plunge of related tokens such as ONDO also reflects that the market's previous expectations for "full on-chain compliance of US stocks" were somewhat overly optimistic. However, it is undeniable that regardless of the regulators' wavering attitude, the trend of combining US stock assets with blockchain technology is already irreversible. Under the shadow of this regulatory game, native crypto forces and mainstream Wall Street institutions are actually racing fiercely in their respective tracks.

On one hand, crypto-native forces are breaking through from the bottom up. Crypto-native projects such as Ondo, xStocks, and MSX are actively bringing US stock assets onto the blockchain, while Hyperliquid, Trade.xyz, and major centralized exchanges are indirectly providing global crypto users with a window to invest in US stocks through perpetual contracts. This demand for innovation from the ground up is constantly forcing regulators to provide clear answers.
On the other hand, Wall Street is also accelerating its efforts to develop related businesses. The Depository Trust and Clearing Corporation (DTCC) plans to officially launch limited production trading of tokenized assets in July this year, and expand its promotion in October; Nasdaq is also working intensively to develop a blockchain-based stock issuance framework; and the Intercontinental Exchange (ICE) has chosen to cooperate with OKX, a leading cryptocurrency exchange, to jointly promote the research and development of tokenized stocks and crypto-related products.

In essence, this postponement of the exemption is a fierce clash between innovative attempts by emerging forces and defensive mechanisms of traditional powers. Based on current developments, the SEC has not yet made a final decision on the draft amendment, meaning the "innovation exemption" is not entirely dead. However, it is foreseeable that, given the fierce backlash from Wall Street giants and internal revisions within the SEC, even if the exemption is reinstated in the future, its radical nature and scope of application may be somewhat "discounted."

The dream of fully opening up "crypto-stock" trading may still have a long way to go in the regulatory tug-of-war, but the door to asset tokenization has been opened and is destined not to be closed again.

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