Real stocks are finally coming on blockchain. Here’s how the SEC wants it to work

Traditional exchanges generally match buyers and sellers through order books. That's a high regulatory bar for a company that simply wants to test whether stocks can trade through blockchain infrastructure.

Under the SEC's experiment, a qualifying venue can instead let investors trade tokenized stocks through blockchain-based liquidity pools governed by smart contracts. That could give banks, brokers and crypto firms room to experiment with a different market structure; instead of relying exclusively on an exchange order book, tokenized shares could trade against pools of assets managed by smart contracts or pre-set algorithms.

Simply put, the SEC is letting the industry borrow some of crypto's trading machinery and test it on regulated U.S. stocks.

The way to look at it is this: Today, a trader places a stock order through a broker, and that order ultimately interacts with the traditional market infrastructure.

Under the exemption, an eligible investor could trade a token representing the same stock through a regulated blockchain venue, potentially interacting directly with a pool of tokenized assets, in a regulated and controlled manner.

But the bigger promise goes beyond simply changing where the trade happens. Once a security exists on blockchain rails, proponents argue it could become easier to settle, move between compatible financial platforms or eventually use as collateral in other transactions. However, this SEC exemption itself does not permit leverage or lending on the TSV.