SEC Releases Framework on Tokenized Securities Amidst Robinhood's Tokenization Move

SEC Unveils Tokenized Securities Classification

The US Securities and Exchange Commission has released a detailed framework for the classification of tokenized securities, aligning with Robinhood CEO Vlad Tenev's recent advocacy for stock market tokenization.

The SEC's statement, issued on January 28, categorizes tokenized securities into two main types: issuer-sponsored and third-party-sponsored. Issuer-sponsored securities are directly issued in token form by companies, while third-party-sponsored tokens, further divided into custodial and synthetic models, involve external parties tokenizing existing securities.

Lessons from Mirror Protocol's Collapse

Mirror Protocol, led by Do Kwon, serves as a cautionary tale of synthetic tokenized securities. The platform, part of Terraform Labs, falsely promoted decentralization while secretly manipulating asset prices. Its collapse, alongside UST and LUNA, resulted in $40 billion in investor losses, highlighting regulatory gaps addressed by the SEC's new framework.

Robinhood's Regulated Approach to Stock Tokens

Robinhood offers over 2,000 US stock tokens in Europe, adhering to regulations and transparency, contrasting with Mirror's deceptive practices. The company operates under MiFID II and ensures underlying assets are managed by a US-licensed institution.

Tenev's Vision for Real-Time Settlement

Vlad Tenev has announced plans for 24/7 trading and DeFi integration, aiming to transition Robinhood from synthetic to custodial models, reducing risks associated with insolvency.

The Call for Legislative Support

Tenev commended the SEC's current leadership for supporting tokenization and urged legislative action through the CLARITY Act to secure lasting regulatory progress. The SEC's statement, while not legally binding, aims to prevent exploitation of regulatory loopholes as seen with Mirror Protocol.