SEC Announces Innovation Exemption: Which Assets Are in Focus

The SEC's "innovation exemption" has ignited market expectations for a new round of regulatory dividends, sending DeFi tokens soaring.

On Sept. 17, the SEC issued a notice allowing eligible tokenized securities trading venues to trade certain stocks through AMM liquidity pools, granting a temporary, conditional exemption from the exchange definition; some institutions providing liquidity for stock tokens may also receive an exemption from the dealer definition. The exemption period is five years from the date of the notice.

But the market tends to interpret "the U.S. allows experimentation with a new on-chain stock market" as "all these projects doing on-chain stocks can now enter the U.S."

However, there is still a long way to go between the two.

Robinhood's stock tokens, Ondo and xStocks' stock-linked products, and stock perpetual contracts on Hyperliquid are precisely excluded from the exemption. The businesses that the crypto market has been actively pursuing are fundamentally different from what the SEC is willing to permit this time.

Stock Price On-Chain vs. Equity On-Chain

"Stock tokenization" is a name that easily leads to misunderstanding.

In a trading interface, a token bearing the name of a listed company, with its price tracking U.S. stocks, and even claiming to be backed by sufficient stock reserves, is naturally understood by traders as "U.S. stocks in a wallet." But holding such a token does not necessarily mean the holder has the same legal rights as a company shareholder.

For example, a contract can stipulate settlement to investors based on the price of a certain stock. If the stock rises, the contract value rises; if the stock falls, investors bear the loss. The issuer can also hold real stocks to support its payment obligations. The entire process is merely a contractual relationship between the investor and the product issuer, with no connection to the company itself. These are "synthetics," which replicate the economic exposure of stocks, and holders receive rights specified by the particular product.

The SEC's order explicitly excludes models where third parties issue their own securities to provide synthetic exposure to underlying securities, including stock-linked securities and security-based swaps. Stock tokens that qualify for the exemption must provide the same rights as comparable traditional stocks.

When a company holds a shareholder meeting, the relevant rights should be conveyed to token holders; when a company pays dividends, holders should enjoy corresponding rights.

Compared with current mainstream stock token products, the difference is clear.

Robinhood's related stock tokens use a debt security structure; Ondo and xStocks' related products only provide stock price exposure, and investors are not shareholders of the underlying company.

Trading Still Has Thresholds

So, is DeFi's excitement entirely unfounded? Not exactly.

The exemption's recognition of the technical approach is quite clear. The SEC requires that relevant smart contracts be public, auditable, and deployed on public, permissionless distributed ledgers. Securitize's Carlos Domingo particularly favors this: public chains like Ethereum, Solana, and Avalanche have the opportunity to host compliant tokenized securities trading venues.

This means securities trading can use infrastructure already developed by the crypto industry. AMMs complete trades through algorithms and liquidity pools, where liquidity providers deposit assets into pools and traders exchange assets with pools. Applying this mechanism to stocks is a commendable part of this innovation exemption.

But "permissionless" modifies only the underlying public chain.

Traders and liquidity providers entering these stock pools still need permission. Venues must set access standards (such as KYC via Uniswap V4 hooks before access) and fulfill corresponding compliance obligations. The user experience of any wallet connecting at any time and anyone adding liquidity at any time has not been permitted.

The exemption also retains restrictions on the number of securities, trading volume, and trading halt linkage. If the underlying stock is halted on the primary listing exchange, the corresponding on-chain stock trading must also be suspended. So-called 24/7 trading does not mean escaping the constraints of the underlying securities market.

Wintermute CEO Evgeny Gaevoy gave a fitting assessment: getting the exemption is good, but those cheering may not realize it likely does not apply to almost all existing products. This is still just the first step.

AMC Gains the Right to Say No

This "innovation exemption" has settled a recent dispute.

AMC CEO Adam Aron had demanded that Robinhood stop offering tokens linked to AMC stock and threatened to report to the SEC. He worried that investors would confuse the rights they purchased and opposed the emergence of a synthetic stock market using the AMC name without the company's participation.

Robinhood CEO Vlad Tenev argued that companies should control the rights attached to shares but should not have a general veto over independent financial products linked to publicly traded stocks. He emphasized that Robinhood's on-chain AMC tokens do not add holders to the company's shareholder register and do not alter the rights of the underlying shares.

What the two sides debated is essentially the relationship between synthetics and real equity. Vlad defended the product's legal structure as independent of the underlying stock, and this very independence makes current products unable to directly apply for this stock token exemption.

The SEC explicitly stated in the document: "The trading venue must notify the issuer of the underlying stock in advance and wait at least 30 days from the issuer's receipt of the notice; if the issuer objects in writing within the specified period, the venue cannot conduct the corresponding trading under this exemption."

Under this innovation exemption framework, AMC's CEO is right: they have the right to block the circulation of their tokenized stock (with shareholder rights) through "written objection."

Limited Goodwill, Real Opportunity

The value of this document lies in giving U.S. on-chain stock trading a market form that can be concretely discussed and built upon.

Tokenized stocks that fully preserve shareholder rights can attempt to enter AMMs on public chains; related companies can redesign products around assets, custody, access, and trading. There is also a clearer direction for cooperation between technology companies and securities service providers.

But for existing crypto projects, there is still a long way to go. The past approach of quickly replicating stock price exposure through synthetics bypassed much of the work of engaging issuers one by one and handling shareholder rights; entering the market covered by this exemption requires confronting these issues anew.

The SEC has taken a step forward. But the revolution is far from won.