coindesk.com
Happy Thursday, advisors!
In today’s newsletter, Alex Tapscott of CMCC Global Capital Markets on the rules regulators are writing while Congress stalls, and how long that can hold.
Then, in “Ask an Expert,” Leo Mindyuk of ML Tech on what a client owns when they buy a tokenized stock.
Happy reading.
The CLARITY Act failed. Regulatory clarity arrived anyway.
Regulators have provided what Congress could not, providing a short-term boost and creating a longer-term risk.
On Sept. 15, the U.S. Senate had a chance to take a major step toward setting the rules of the road for digital assets and, by extension, the digital economy we are now entering.
It didn’t.
The CLARITY Act failed to advance, meaning a comprehensive legislated framework for digital assets — including tokenized money, stocks, bonds, deeds and other assets — and the exchanges, brokers, issuers and intermediaries that deal in them would have to wait.
CLARITY would have strengthened American leadership, benefited the American consumer and, as I argued in CoinDesk not long ago, given banks and other legacy enterprises a clear path to invest, build, compete — and perhaps even win the future of financial services.
There is nothing so powerful as an idea whose time has come. For now, that time has not arrived. But as Congress closed a door, regulators opened a window.
Both the SEC and CFTC moved with remarkable speed. Just two days after CLARITY failed, the SEC issued an “Innovation Exemption” allowing certain venues to trade tokenized U.S.-listed stocks onchain using automated market makers and liquidity pools. Chairman Paul Atkins called it a “bridge toward durable rulemaking.”
The CFTC has also been stripping away practical barriers, providing relief to certain software providers and updating guidance around tokenized investments and blockchain-based recordkeeping.
Congress declined to build the bridge, so regulators like Atkins have started laying planks themselves.
The question now is whether regulatory clarity can substitute for legislative clarity — and, if so, for how long.
Perhaps regulators recognize something Congress has yet to fully accommodate: the genie is already out of the bottle.
New technologies generally need three things to achieve mass adoption: technology that works, products people want and a regulatory environment that allows companies to build. Crypto increasingly has the first two. Regulators are now attempting to provide the third.
The technology is ready for prime time. Solana, for example, can handle the same transaction volume as the equity, fixed-income and foreign exchange markets combined. Platforms like Hyperliquid, which provide real-time, 24/7/365 trading in virtually any market, are beginning to eat into traditional commodities futures markets.
Advisors should read the documents that set out the client's rights. Check how dividends and votes actually reach the client. Identify whether the token represents direct ownership, an indirect interest in shares held in custody or a contractual claim tied to the stock’s returns. Most important, find out what the client can claim if the tokenization provider fails. Is the client recorded as a shareholder with the transfer agent, or do they hold a claim against a custodian or a special-purpose vehicle?
Q: After verifying the rights, what should advisors test before allocating?
A: I would compare the tokenized share with the conventional share at the client’s actual trade size, including fees and price impact. Check price deviations from the conventional share during stress. In a liquidity pool, the displayed price is only a starting point: an order can move the price by changing the pool’s asset balances. Who supplies that liquidity, and can they keep doing so during volatility?
Then examine custody, transfer restrictions and the documented exit process if a venue closes or the tokenization arrangement ends. Require evidence of a specific benefit. For example, better access, lower total trading costs or settlement that makes funds available sooner. Those benefits should justify the added operational risk and fit the client’s investment objectives.
