Does the SEC’s ‘tokenized securities’ exemption really benefit the market?

This article is from Brian Huang
Compiled by Odaily Planet Daily (@OdailyChina); translated by Azuma (@azuma_eth)
Editor’s Note: On September 18, local time, the U.S. Securities and Exchange Commission (SEC) officially released an exemption document regarding tokenized securities. Market participants interpreted this move as the SEC’s policy “opening the gates,” creating an official and legal pathway for the trend of “putting stocks on-chain.” Spurred by this news, the cryptocurrency market also received an effective boost; tokens such as UNI were even seen as direct beneficiaries, surging sharply in the short term.
However, is this exemption document truly as positively received as the market expected? In the early hours of September 22, Brian Huang, co-founder of the DeFi protocol Glider, published a long post on X questioning the actual scope and applicability of this document. Brian even emphasized that “the current exemption model severely lacks market demand, and there is not a single institution in the market that truly meets the exemption requirements.”
Below is Brian’s original text, compiled by Odaily Star Daily.
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Has anyone actually read the SEC exemption letter about tokenized securities? I just read this 60-page document from start to finish today—the scope of the exemption is actually very limited.
Considering everyone’s excitement on X, I originally thought there would be some truly useful things in there, but in my view, the proposed model currently lacks sufficient market demand, and no existing institution actually meets all the requirements in the document.
I haven’t seen anyone actually break down what this document really says, so here I list the most important parts and share my own views on them.
Only permissioned participants
The document states that tokenized securities trading venues (TSVs) can “leverage innovative automated market maker (AMM) mechanisms to facilitate permissioned trading of tokenized National Market System (National Market System, NMS) stocks.”
The key term is “permissioned.” The word appears repeatedly throughout the entire letter. “Permissioned” means a whitelist system—liquidity providers (LPs) and traders must go through identity verification, completing KYC (know your customer) and KYB (know your business) checks.
The liquidity and order-execution experience of on-chain stock AMMs is already very bad even without setting permission constraints. Who would be willing to provide liquidity to such permissioned trading venues?
Anyway, it’s not market making. Professional market makers prefer the Central Limit Order Book (CLOB) because it uses capital more efficiently. Market makers also prefer to do the two-sided trades through a single trading venue platform (what the crypto-native space commonly calls a propAMM).
Permissioned AMMs have extremely limited liquidity on the supply side. Either go with permissionless (permissionless) AMMs, or go with a permissioned architecture outside of AMMs.
What is a tokenized securities trading venue (TSV)?
The TSV is defined as a “venue that matches buy and sell orders for tokenized NMS stocks by the following means.”
Provide one or more AMM liquidity pools for interaction among permissioned participants, so that they can agree on the terms of trades;
Set admission standards for personnel to participate in such AMM liquidity trading.
Under this definition, Hyperliquid’s CLOB model does not fall within the scope of this exemption. Hyperliquid’s spot trading volume (excluding perpetual contracts) is about 50% of Uniswap’s. But it’s worth noting that Hyperliquid currently has only 70 spot trading pairs.
It’s obvious that CLOB models like Hyperliquid can produce tighter bid-ask spreads and better price discovery. 
We need to incorporate a “permissioned CLOB” or “propAMM” architecture into this definition. In fact, the SEC even directly states in the letter that AMMs lack best-execution protections—which are easy to achieve under a CLOB architecture.
What counts as a tokenized NMS stock (Tokenized NMS Stock)?
First, tokenized NMS stocks must have completed registration with the SEC. Second, tokenized NMS stocks “do not include crypto assets issued by third parties that represent their own securities, nor do they include securities that create synthetic exposure to an underlying security through such crypto assets—for example, tokenized linked securities or tokenized security-based swaps.”
To put it plainly, all currently available mapped tokens of unpermitted stocks—products issued by Robinhood, Coinbase, Binance, Ondo, xStocks, etc.—are not SEC-registered securities. That’s why all the exemption provisions in this letter have nothing to do with them. Of course, that doesn’t mean these existing models are disadvantaged (I’d even argue the opposite, but that’s outside the scope of this discussion).
Finally, tokenized NMS stocks can only be traded in trading pairs with the following assets—“another tokenized NMS stock, non-security crypto assets (such as payment stablecoins issued by compliant payment stablecoin issuers), or tokenized money market funds.”
The wording here is somewhat ambiguous: whether “non-security crypto assets” includes Meme tokens is an unresolved question.
Lack of investor protection and inherent risks of AMMs
In the U.S., investors are protected by the “Best Execution” principle. Without these protections, market makers may provide poor order execution, or even manipulate spreads at the expense of investors’ interests. These protections are all part of the U.S. market system rules (Reg NMS).
What’s shocking is that the SEC clearly said that investors in TSVs will not be able to enjoy these protections: “If it does not make material modifications to its trading model, the TSV will not be able to comply with the requirements of Regulation NMS, and this could adversely affect TSV participants.”
Why are we so fixated on the AMM route? Without these protections, who on the demand side would actually place orders? As mentioned earlier, the supply side has been severely strangled, and now we’re being told indirectly that “the spread will be very large”—so we can only count on ourselves.
Do you know what model can easily meet Reg NMS requirements? It’s the CLOB, like Hyperliquid. When both the supply side and demand side are constrained at the same time, this kind of framework (AMM) is destined to be ineffective.
But the document isn’t all positive, either... The SEC finally acknowledged the technical value of blockchain!
The document points out that TSVs “have the potential to deliver tangible benefits to investors, including enabling investor self-custody, 7x24 hour trading, fractional ownership of shares, and nearly instantaneous clearing and settlement... Using such technology can also reduce operating, recordkeeping, and trading costs, and significantly improve efficiency. This part is actually quite positive.”
Becoming a TSV: a long list of prerequisites for entry
Pages 36 to 46 of the document list a long set of compliance requirements that TSVs must publicly carry out, including things like “TSVs must agree that commission staff can review their books and records at any time,” and “at least 30 calendar days prior to正式 operations, TSVs must publish a copy of the Notice prominently on their public website,” and more.
In short, becoming a TSV that qualifies for an exemption isn’t something you can just apply for and start doing right away.
Issuer protection—remember AMC vs Robinhood?!
We all remember the AMC fiasco earlier, and now the SEC has basically handed over the same requirements that AMC demanded back then—whether tokenized securities can exist needs to be approved by the issuer.
The document stipulates that if the issuer (say, AMC) sends a written notice to a TSV expressing its opposition to a particular tokenized NMS stock, then the TSV may not allow that tokenized NMS stock to be traded on its platform.
The following sentence is almost directly written for the AMC incident: “The issuer of the underlying NMS stock may be concerned about risks related to maintaining shareholder registration due to on-chain transfers, or risks that the underlying NMS stock could become mispriced and that such mispricing could adversely affect its price—especially considering that the price published by AMM liquidity pools is likely based solely on the quantity ratios of two assets in that liquidity pool.”
This is yet another reason that leans toward CLOB, because in a CLOB, the price is not determined directly by a single liquidity pool that might misprice.
Tokenized stocks must have equal shareholder rights
Tokenized stocks must have the “right to receive the same dividends and distributions... the right to exercise the same voting rights... and the right to receive, on a pro rata basis, the same remaining assets in the event of corporate bankruptcy and liquidation.”
That’s fantastic! Investors in tokenized assets should receive all the rights they would have in traditional forms, and even more rights.
Very high trading volume limits, as well as other control measures
The SEC’s cap on trading volume is actually very high. The document provides that the trading volume of tokenized NMS stocks must not exceed 0.25% of the average daily stock trading volume of the relevant NMS stock for the previous month, and this data must be disclosed by an effective transaction reporting plan.
In addition, TSVs must also be able to pause trading. For reference, even the current stock tokens that don’t require permission have trading volumes of less than 0.001% of the corresponding stock’s trading volume. Remember: the overall size of the tokenized stock market is only about $3 billion, while the traditional stock market size is $70 trillion.
Based on the multiple issues above, I and Glider expect to submit a formal comment letter to the SEC soon, to try to secure more room for exemptions for the industry.