Comments are rolling in on the SEC’s new innovation exemption for tokenized securities venues, exposing a growing divide over which blockchains should qualify.
Released in September, the exemption allows qualifying firms to trade tokenized U.S. stocks without registering as traditional securities exchanges, subject to certain conditions. Among them, the smart contracts used by these venues must be auditable, public and deployed on a public, permissionless blockchain.
But the SEC’s definition of “public and permissionless” is drawing scrutiny, with some arguing it’s too broad and could allow more centralized networks to qualify, while others are seeking greater clarity or pushing to expand which blockchains are eligible.
As Crypto In America reported this week, three firms have already notified the SEC of their intent to operate TSVs, each pursuing a different approach. TSV LLC plans to use Canton Network, a privacy-focused blockchain whose foundation board includes one of the firm's founders, while OKXICE and Kephas Corp. plan to use Ethereum Layer 2 networks developed by their respective corporate groups.
In a letter submitted Thursday, the Solana Policy Institute urged the SEC to tighten its definition of “permissionless,” arguing regulators should look at who actually controls a blockchain, including who can validate or block transactions and change the network’s rules.
Hedera is pushing in the opposite direction. Its blockchain is public but permissioned, meaning only approved entities can validate transactions. In an October 9 letter, Hedera called on the SEC to expand the exemption to include networks like its own, arguing that restricted validator access shouldn’t disqualify them.
Others warn the SEC could be opening the door to regulatory arbitrage. Columbia Business School’s Omid Malekan, who has written about the benefits of decentralized blockchains, argues that centralized firms could exploit the exemption without giving up control over transactions or offering the transparency and censorship resistance associated with decentralized networks. Gabriel Shapiro, a securities lawyer at MetaLex Labs, raises similar concerns, warning that those controlling the underlying blockchain could have more power to influence or restrict trading than the venues operating on it.
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