The U.S. Securities and Exchange Commission’s recent move to allow third-party exchanges to list tokenized stocks without issuer approval has sparked concerns about potential market fragmentation, according to research from Tiger Research. The regulatory shift, announced Monday through an “innovation exemption,” could create structural disruptions in both liquidity and revenue flows that traditional finance views as a serious threat to market stability.
Tiger Research director Ryan Yoon warned that when the same listed stock gets tokenized across multiple blockchain networks and decentralized platforms, trading volume and order flow that should concentrate on centralized venues like the NYSE or Nasdaq instead disperses across numerous venues. This fragmentation creates price discrepancies across platforms, increases slippage on large orders, and ultimately degrades overall market efficiency, according to the research.
The concern reflects a fundamental tension in crypto markets. Capital fragmentation is already underway, with real-world asset open interest on the Hyperliquid decentralized exchange hitting an all-time high of $2.6 billion this week. This follows a pattern seen in related coverage of emerging decentralized trading platforms that are drawing significant capital flows away from traditional venues.
Beyond liquidity concerns, Yoon highlighted revenue fragmentation as a second structural disruption. As tokenized stocks trade across multiple platforms in disaggregated form, financial revenues that should accrue to domestic exchanges instead flow offshore, with direct implications for national financial competitiveness. This shift, according to Yoon, poses “the deepest strategic dilemma for incumbent financial institutions and regulators alike.”
See also: Silvergate’s Former Chief Risk Officer Breaks Silence on SEC Settlement After Gag Rule Lifted
Maja Vujinovic, CEO of digital assets at FG Nexus, cautioned that markets could be split into “disconnected pools” which can create “dangerous price tracking errors and shadow-shorting vulnerabilities where there aren’t enough localized buyers to stabilize a specific token’s price.” Such fragmentation could expose investors to unforeseen risks in a nascent market still developing proper infrastructure and safeguards.
SEC Commissioner Hester Peirce attempted to address these concerns on Thursday, stating that any exemption would be “limited in scope” by only permitting “digital representations of the same underlying equity security that an investor could purchase in the secondary market today.” However, the full ruling for what will and won’t be permitted has yet to be finalized, leaving market participants in a state of uncertainty.
Despite the fragmentation risks, proponents argue that tokenized stocks offer substantial practical benefits. According to the Blockchain Council, these advantages include faster settlement times, fractional ownership opportunities, lower transaction costs, and the potential for round-the-clock trading. Global accessibility is another key benefit, allowing non-U.S. investors to gain exposure to high-demand American stocks without being blocked by local brokerage limitations.
Brian Vieten, senior research analyst at Siebert Financial, expressed optimism about the long-term trajectory. “We believe this will accelerate the transition of the U.S. financial system from legacy rails to onchain blockchain-based rails,” Vieten said. “We expect a portion of this flow to eventually flow to high-quality blockchain networks like Bitcoin and Hyperliquid,” he added, suggesting that regulatory clarity could drive meaningful adoption.
The debate reflects broader tensions in crypto regulation. Policymakers must balance innovation incentives against market stability concerns, according to SEC guidance. Tokenized stocks currently make up just 4.4% of total real-world asset value onchain, suggesting the market remains in early stages despite recent growth.
The SEC’s innovation exemption represents a significant regulatory shift that could reshape how equities trade in the digital age. Whether the benefits of faster settlement and global accessibility will outweigh fragmentation risks remains to be seen as the market develops and regulators finalize their framework for tokenized securities oversight.
More Reads:
HYPE Token Surges 15% as Hyperliquid ETFs Attract $25.5M in Fresh Inflows
Tech Jobs: Graphic Designer – $40/hr
If you’re reading this, you’re already ahead. Stay there, by joining the…
Discover more from Dipprofit
Subscribe to get the latest posts sent to your email.
