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Is the Increased Efficiency of Blockchain Worth Weakening Market Protections?

Is the Increased Efficiency of Blockchain Worth Weakening Market Protections?

Bitget-RWA2025/11/27 01:10
By:Bitget-RWA

- WFE warns SEC against crypto exemptions for tokenized stocks, citing risks to market integrity and investor protections. - SEC under Trump proposes "innovation exemption" to let unregistered crypto firms offer blockchain-linked equity tokens. - Traditional exchanges like Nasdaq seek regulated tokenization, while WFE fears reputational harm from unlicensed platforms. - Critics highlight risks of confusing tokenized assets with real equity ownership and potential erosion of compliance standards.

The World Federation of Exchanges (WFE), which counts major exchanges such as Nasdaq and Germany's Deutsche Boerse among its members, has strongly cautioned the U.S. Securities and Exchange Commission (SEC) against providing regulatory waivers to crypto firms aiming to offer tokenized shares. In a letter dated November 21,

that allowing such exceptions could compromise the integrity of financial markets and weaken long-standing investor protections in traditional stock trading. The letter, made public on the SEC’s website, stressed that decades-old regulatory standards should not be set aside, even as the crypto sector pushes for more innovation-friendly policies .

The WFE’s position highlights the increasing friction between established financial institutions and the digital asset industry. While the organization recognizes tokenization as a "logical step forward for capital markets," it maintains that such advancements should be pursued within current regulatory boundaries, not through unregulated entities

. Under President Donald Trump, the SEC has indicated a more favorable stance toward crypto, including the idea of an "innovation exemption" that would let unregistered crypto businesses issue blockchain-based tokens linked to listed stocks . This proposal has found backing among crypto-focused companies, who believe tokenized equities could make trading more efficient and accessible for everyday investors .

Nonetheless, critics point to considerable dangers. James Auliffe, who leads the WFE’s technology working group, remarked that equity markets are already "highly efficient," and that shifting to blockchain-based systems might not justify the associated costs

. The WFE has also expressed worries about potential harm to the reputation of listed firms if their names are used by unauthorized platforms without approval . At the same time, Nasdaq is pursuing a regulated approach to tokenization, having filed a proposal in September to list tokenized shares under the same rules as traditional stocks . This strategy—supporting innovation while opposing unregulated rivals—reflects a wider split within the industry.

The outcome of this debate is crucial for both regulators and investors. Should the SEC approve the exemption, crypto exchanges could go head-to-head with established exchanges and brokers that are subject to more rigorous compliance standards

. At the same time, individual investors might find it difficult to tell the difference between tokenized products and actual stock ownership, a concern highlighted by warnings from companies like OpenAI about the limitations of tokenized equity offerings .

As the SEC considers its decision, the WFE’s letter brings a central issue to the forefront: Do the advantages of blockchain technology outweigh the potential loss of established investor protections? For now, the regulatory environment is unsettled, and the decision will likely have a lasting impact on how equities are traded in the United States.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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