On June 16, Coinbase unveiled 21 new products and features at its 'System Update' event, spanning trading, lending, payments, and on-chain infrastructure. The most notable among them was the tokenized stock service, which will launch next month for non-U.S. users. The company claims the tokens are backed 1:1 by underlying shares and entitle holders to full shareholder rights, dividends, and the ability to lend or use the tokens as collateral. However, Alex Thorn, Head of Research at Galaxy Digital, points out in a detailed analysis that Coinbase failed to disclose the legal architecture behind its 'real equity ownership' claim — a critical omission with significant implications for regulatory compliance, user experience, and the competitive landscape.
The Legal Architecture Puzzle: Wrapper Model vs. Issuer-Direct
Alongside the tokenized stock service, Coinbase introduced the B20 token standard on its Base blockchain — a layered, policy-driven compliance toolkit with controls comparable to Uniswap v4 hooks. Yet the exchange did not specify how B20 would be integrated into the tokenized stock framework. Thorn suggests that Coinbase is likely employing a third-party issuer 'wrapper' model, operating offshore and restricted to non-U.S. users for now. This structure closely resembles xStocks: underlying shares are held by a third-party investment vehicle, and the vehicle’s units are tokenized. The resulting tokens can trade on offshore venues or be withdrawn to self-custody wallets for DeFi use. This stands in stark contrast to the issuer-direct model championed by Galaxy and Superstate.
It is precisely this wrapper model that makes the 'real equity ownership' promise contradictory. With an intermediary wrapper, dividends, voting rights, and other shareholder benefits stem not from the listed company but from a service agreement between token holders and the wrapper entity. Token holders have no direct legal relationship with the company issuing the shares. Thorn notes that the industry currently lacks a mature compromise that can bridge the issuer-direct and wrapper approaches, but Coinbase has yet to release the crucial structural details.
SpaceX Incident Highlights Risks of Third-Party Wrappers
The practical risks of the wrapper model have recently become apparent. Last week, Binance Wallet, Bybit, Bitget, and other platforms listed SpaceX IPO allocation slots sourced via xStocks. All orders were canceled and refunded because the underlying shares could not be delivered. Bybit told users that xStocks was unable to deliver the underlying asset, and the platform received no SpaceX shares at all. Kraken and xStocks’ own users received only a minimal allocation. Thorn emphasizes that minting tokens is technically trivial; the real challenge lies in aggregating, custodying, and on-chain verifying the underlying assets. This is the inherent structural risk of all third-party wrapper products: without the cooperation of the listed company, there is no guarantee that the intermediary holds sufficient real shares.
Regulatory Uncertainty Looming
Coinbase’s tokenized stock strategy hinges on two unresolved regulatory matters. The SEC’s planned 'innovation exemption' for tokenized stocks has been delayed, with the core disagreement being whether the exemption should cover third-party wrapper tokens or only issuer-direct digital securities. SEC Commissioner Hester Peirce has publicly stated that she believes the exemption should apply solely to natively digital stock certificates in secondary markets, not synthetic assets. Separately, the CLARITY Act remains stalled in the U.S. Senate with no progress in recent weeks, and the remaining window for congressional consideration is narrowing. The entire value proposition of Coinbase’s tokenized stocks depends on whether third-party wrapper entities can achieve the same compliance status as direct equity holdings — a question regulators have not yet answered.
At the same event, Coinbase also launched Coinbase Advisor, an AI-powered investment tool embedded in the app that has registered as an SEC-regulated investment adviser (RIA) and is initially available only to U.S.-based Coinbase One members. Other announcements included cryptocurrency and stock options trading, perpetual contracts on real-world assets (RWAs) and pre-IPO targets (the first being SpaceX), a Base privacy platform for enterprise compliant on-chain trading, and Bitcoin-backed mortgages in partnership with Better. These moves underscore Coinbase’s accelerating push to merge traditional finance with crypto, but the legal and regulatory uncertainties surrounding its tokenized stock offering remain a significant overhang.