Tokenized stocks and private equity may face several legal challenges, as the emerging real-world asset (RWA) sits in a gray zone that does not grant holders the same legal rights as traditional asset owners, according to industry executives and attorneys.
In an email to Cointelegraph, John Murillo, chief business officer of fintech company B2BROKER, said investors should understand the fundamental attributes of any prospective tokenized equity instruments, including any dividend streams, profit-sharing arrangements, or whether the tokenized RWAs simply provide capital appreciation to the holder. The executive said:
“It is crucial to understand that investors do not own actual shares; they hold tokens issued by intermediaries, which may entitle them to payouts if the underlying shares increase in value or are sold.
“There is no direct claim on company assets, no voting rights, and no access to internal financial information,” Murillo continued.
This important distinction came into sharper focus after the mixed-asset trading platform Robinhood announced offering OpenAI and SpaceX “private equity” tokens to European users, prompting OpenAI to clarify that the tokens are not equity in the company.
“I believe it’s reasonable to expect that incidents like the ‘OpenAI Token’ event will recur, where retail investors are marketed tokenized securities in a way that creates material confusion,” attorney Tyler Yagman of the Ferraro legal firm told Cointelegraph.
Despite the confusion, tokenized equities provide a “compelling” use case, which “integrate multiple functions of a securities marketplace into a single technology,” Yagman added.
The attorney called for clear and comprehensive regulations for tokenized equity instruments, which “democratize” access to previously inaccessible asset classes.
Related: TradFi body urges SEC reject special treatment for tokenized stocks
Crypto firms push for tokenized equities trading in the US to a receptive SEC
Robinhood is far from the only brokerage firm exploring tokenized equities trading; the platform joins a growing list of crypto titans actively pushing for tokenized stock trading or already offering those services.
Tokenized stock trading is already live on crypto exchanges Kraken and Bybit, with over 60 publicly listed companies available for trading across both platforms.
Centrifuge, a blockchain platform that integrates RWAs into decentralized finance (DeFi) applications, announced a partnership with the S&P Dow Jones Indices to tokenize the S&P 500 stock market index.
Crypto exchange giant Coinbase is reportedly seeking approval from the United States Securities and Exchange Commission (SEC) to offer tokenized stock trading to its customers.
The US SEC, under the leadership of chairman Paul Atkins, is reportedly receptive to industry requests pushing for tokenized financial assets.
“Tokenization is an innovation. And we at the SEC should be focused on how we advance innovation in the marketplace,” Atkins told CNBC on Wednesday.
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Cointelegraph by Vince Quill