Coinbase Seeks SEC Approval to Offer Tokenized Stock Trading

Crypto Exchange Coinbase is actively seeking regulatory authorization from the U.S. Securities and Exchange Commission (SEC) to introduce “tokenized equities” to its customer base.

This ambitious initiative, if approved, would effectively enable Coinbase to provide stock trading functionality through blockchain technology, positioning it as a direct competitor to established retail brokerage firms such as Robinhood and Charles Schwab and potentially unlocking a significant new revenue stream for the cryptocurrency platform.

Tokenized Stock Trading

Paul Grewal, the Chief Legal Officer of Coinbase, emphasized that the concept of tokenized equities represents a “huge priority” for Coinbase, highlighting the company’s commitment to exploring innovative applications of blockchain technology within the financial markets.

Additionally, Grewal noted that converting company shares into digital tokens is similar to how cryptocurrencies are traded. Instead of owning the actual shares, investors would own tokens that represent their ownership of a portion of those shares.

According to a Reuters report, there is insufficient trading activity in the market for these tokens, and there are no clear, worldwide rules.

Notably, tokenized shares are not tradable in the United States; however, some companies are experimenting with this approach. Kraken, another cryptocurrency exchange, recently announced the launch of xStocks, which are tokens representing U.S. shares. These will be available in select markets outside the U.S. This indicates a growing interest in tokenized assets within the financial world.

To legally offer tokenized shares in the United States, Coinbase requires permission from the SEC. This could take the form of a “no-action letter,” in which the SEC promises not to take action against Coinbase, or an exemption from the current rules.

Typically, companies that facilitate share trading must register as broker-dealers. Coinbase isn’t registered as a broker-dealer. The SEC sued Coinbase in 2023, claiming it was acting as an unregistered broker-dealer. However, the SEC dropped the case this year.

Coinbase Launches Wrapped XRP on Base

Earlier this month, CoinTab reported that Coinbase has released cbDOGE and cbXRP on Base, its Ethereum Layer 2 network. These are versions of Dogecoin (DOGE) and XRP that can be used on Base. These tokens are like DOGE and XRP, and Coinbase holds the actual DOGE and XRP to back them up. This enables people to use DOGE and XRP in decentralized finance (DeFi) applications on the Ethereum network.

According to the report, users can move DOGE and XRP from their Coinbase accounts to Base. When they do, the DOGE and XRP are changed into cbDOGE and cbXRP.