Tokenized Trading Moves Closer as SEC Weighs Kraken Plan

Kraken’s argument

In its presentation to the SEC’s Crypto Task Force, Kraken outlined how tokenized versions of traditional assets could operate in compliance with U.S. rules. The exchange focused on three areas: the technical architecture of tokenized markets, the transaction lifecycle from order to settlement, and the regulatory fit within current securities law.

Kraken’s argument is direct: tokenization enables faster settlement, lower costs, and 24/7 access, while also allowing investors to hold fractions of shares.

The proposal follows Kraken’s May launch of “xStocks,” which offers non-U.S. clients digital shares of more than 50 American companies and ETFs. These instruments are backed by actual equities and trade across public blockchains such as Solana, Binance Smart Chain, and Tron.

The SEC’s willingness to engage with Kraken indicates growing recognition that tokenized products can no longer be sidelined, even if their legal status remains unsettled.

Tokenization has already advanced well beyond theory. Industry trackers report that over $26 billion in assets are now tokenized, with U.S. Treasuries representing about $7 billion.

Stablecoins and bond tokens dominate, proving blockchain’s utility in replicating traditional instruments. Tokenized equities, however, remain small at roughly $360 million outstanding, with volumes slipping in recent months. Advocates argue the potential is far greater, pointing to tokenization’s ability to broaden access and open new channels for liquidity, especially in markets where traditional brokerage services remain costly or restricted.

Global watchdogs are monitoring closely. The World Federation of Exchanges has warned that unregulated tokenized markets could weaken investor protections. U.S. consumer advocates add that parallel markets outside mainstream oversight risk undermining confidence in fair pricing. These concerns frame the SEC’s talks with Kraken as a test of whether tokenization can coexist with decades of safeguards in U.S. markets.

The legal challenge

The legal challenge is, however, significant. The U.S. securities framework was designed in the 1930s for paper certificates and centralized clearing. Later reforms allowed for electronic trading, but no statute directly addresses assets recorded on distributed ledgers. Questions around custody, settlement finality, reporting, and broker-dealer responsibilities remain unresolved. Kraken’s pitch asks regulators to interpret current law in ways that can accommodate blockchain systems.

This marks a shift from earlier years when the SEC leaned heavily on enforcement to handle crypto activity. Under current leadership, the Commission appears more open to structured dialogue. Initiatives like Project Crypto, which set clearer categories for digital assets, suggest a desire to reduce uncertainty and encourage responsible innovation.

History offers perspective. In the 1970s, U.S. markets moved from paper stock certificates to electronic clearing through the Depository Trust Company. That transition brought efficiency but demanded new custodial systems and legislation. Tokenization could represent a similar leap. Without clear rules, however, there is risk of fragmentation between regulated exchanges and blockchain-based markets operating in parallel.

Other jurisdictions are moving ahead. Europe’s MiCA framework provides detailed rules for asset-referenced tokens, while Singapore’s Monetary Authority has authorized pilots for tokenized bonds and funds. Japan’s regulator has tested tokenized green bonds with domestic banks. These moves put pressure on U.S. regulators to clarify their own stance or risk falling behind in shaping global standards.

The benefits of tokenized trading are clear: faster settlement, fractional ownership, and round-the-clock markets. Yet the risks are equally significant. Smart contracts remain vulnerable to exploits, and interoperability across blockchains raises operational concerns. Investor protection is paramount, and regulators will demand assurance that tokenized markets can deliver transparency and enforceability equal to current systems.

Kraken stresses that its tokens are asset-backed through special-purpose vehicles holding real stocks. That model is designed to prevent markets from drifting into synthetic products with no collateral. Still, critics argue that scaling such systems would require legal recognition of blockchain records and coordinated oversight among global regulators.

Moving Forward

The SEC has not disclosed how it will proceed, but the fact that a meeting took place is notable in itself. Analysts expect further consultations and possibly public comment before any framework emerges. For Kraken, the talks position the exchange as a frontrunner willing to work directly with regulators. For the SEC, the case could define how flexible U.S. law is in adapting to blockchain-based markets. The outcome will shape not only Kraken’s ambitions but also how quickly tokenized trading moves from the margins into mainstream finance.