Kraken and SEC Edge Closer to Unlocking Tokenized Wall Street

Crypto exchange Kraken and the US SEC (Securities and Exchange Commission) are reportedly advancing the platform’s decision to tokenize traditional assets.

It comes three months after Kraken launched xStocks, a program to tokenize over 50 US stocks and ETFS (exchange-traded funds).

Kraken Meets SEC Task Force for Tokenized Trading Talks

Nate Geraci, President of the ETF Store, revealed the development in a post on X (Twitter). He indicated that the two parties met on Monday, August 25.

On tokenizing traditional assets, Kraken exchange and the SEC’s crypto task force reportedly discussed legal and regulatory frameworks for operating a tokenized trading system in the nation.

As the Kraken exchange looks to advance the idea and trading facility, key considerations include the lifecycle of select types of transactions within the system. It also looks to address potentially relevant provisions under the federal securities laws.

More closely, it sought to establish whether the SEC can provide regulatory clarity and facilitate innovation.

In its push, Kraken advocated for the benefits of tokenization. It cited a technological innovation capable of enhancing capital formation and democratizing access to markets.

“Set forth below is a proposed agenda, which lists the specific topics that Kraken would like to discuss with members of the SEC Crypto Task Force, and a list of proposed meeting attendees,” read an excerpt in the filing.

The meeting comes three months after Kraken introduced xStocks. It flaunted an initiative to tokenize more than 50 US stocks and ETFs.

As BeInCrypto reported, the assets would be hosted on Solana’s blockchain, backed by a corresponding amount of the original stocks.

However, it is worth mentioning that Kraken’s new array of tokenized assets under the xStocks umbrella would only be available in foreign markets.

“xStocks will offer tokenized versions of US-listed equities, available soon to eligible Kraken clients in select non-US markets,” Kraken articulated.

Further, Kraken’s own press release did not specify which stocks will be tokenized on xStocks. However, TradFi media outlets reported on a few of them, citing major tech firms like Apple, Tesla, and Nvidia.

Additionally, xStocks will allow ETFs based on the S&P 500 and the price of gold.

WFE Calls for Tighter Oversight of Tokenized Stocks

The exchange’s move to approach the SEC suggests a tactical maneuver. It comes after the Binance exchange faced regulatory opposition when it attempted a similar initiative in April 2021.  

As it happened, Binance attempted to tokenize Tesla stock, but US regulators quickly shot the proposal down.

Meanwhile, Kraken’s boldness to pursue the initiative can be ascribed to regulatory clarity in the US amid Trump’s pro-crypto stance, which has since empowered the industry.

A key step was creating an SEC crypto task force in January, with Commissioner Hester Peirce as lead. The task force brought together experts to tackle digital asset regulation and compliance.

One fruit of such regulatory leeway is Kraken’s progress with tokenized stocks after Binance’s failed experiment.

However, the exchange still faces challenges after the World Federation of Exchanges (WFE) urged regulators, including the US SEC, ESMA, and IOSCO, to tighten oversight of tokenized stocks.

According to Reuters, WFE warns that these products mimic equities without offering shareholder rights or market safeguards. In their opinion, it threatens investors and undermines market integrity.

Nevertheless, Kraken’s latest move follows its strong year-on-year gains despite a notable cooling in second-quarter (Q2) crypto activity.

The exchange is also among the only two crypto-native entities that recently earned bank charters, meriting them as Fed master account leaders.