The U.S. Securities and Exchange Commission on Sept. 18 released an exemptive document on tokenized securities, a move many in the market took as a formal opening for onchain equities. Crypto prices responded positively, and tokens such as UNI were seen as possible beneficiaries in the near term.
Brian Huang, co-founder of DeFi protocol Glider, pushed back on that reading in a long X post published early Sept. 22. Huang said he read the 60-page document from start to finish and came away with a different conclusion: the exemption is much narrower than the market appears to think, and the model laid out by the SEC lacks both strong demand and any currently operating institution that fully fits the requirements.
Permissioned participants only
Huang said the SEC document allows tokenized securities venues, or TSVs, to use automated market maker mechanisms to facilitate trading in tokenized National Market System, or NMS, stocks, but only on a permissioned basis. In his reading, that phrase is central to the entire framework.
A permissioned market means whitelisting. Liquidity providers and traders would need identity checks, including know-your-customer and know-your-business procedures. Huang argued that onchain equity AMMs already suffer from poor liquidity and weak execution even without those restrictions, raising the question of who would want to provide liquidity under an even more constrained setup.
His answer was blunt. Not market makers, he wrote. Professional market makers tend to prefer central limit order books because they use capital more efficiently. They also like bilateral trading through single-dealer venues, which crypto-native participants often describe as propAMMs. In Huang’s view, supply-side liquidity for a permissioned AMM would be extremely thin, leaving two realistic paths: a permissionless AMM, or a permissioned structure that is not based on AMMs.
How the SEC defines a TSV
Huang highlighted the SEC’s definition of a tokenized securities venue as a place that matches buyers and sellers of tokenized NMS stocks by offering one or more AMM liquidity pools for interaction by permitted participants, while also setting admission standards for those participants.
That definition leaves out Hyperliquid’s central limit order book model, according to Huang. He noted that Hyperliquid’s spot market, excluding perpetual contracts, handles daily trading volume equal to about 50% of Uniswap’s, even though Hyperliquid has only 70 spot pairs.
To Huang, that comparison matters because CLOB-based systems can deliver tighter spreads and stronger price discovery. He argued that the SEC framework needs to include permissioned CLOB structures or propAMM-style venues if it is meant to support viable tokenized stock trading. He also pointed out that the SEC explicitly says AMMs lack best-execution protection, a standard that can be addressed much more easily in a CLOB environment.
What counts as a tokenized NMS stock
Huang said the definition of tokenized NMS stock is also very narrow. First, the tokenized NMS stock must already be registered with the SEC. Second, the term does not include crypto assets issued by a third party that represent that third party’s own securities, and it also does not include securities that create synthetic exposure to an underlying security through such crypto assets, including tokenized linked securities or tokenized security-based swaps.
On that basis, Huang said all permissionless stock-representation tokens currently on the market, including products issued by Robinhood, Coinbase, Binance, Ondo and xStocks, are not SEC-registered securities. For that reason, he said, the relief in this document does not apply to them at all.
He added that this does not mean those existing structures are at a disadvantage, though he said that debate was outside the scope of his post.
The document also says tokenized NMS stocks may trade only against another tokenized NMS stock, a non-security crypto asset, or a tokenized money market fund. The SEC gives payment stablecoins issued by compliant payment stablecoin issuers as an example of a non-security crypto asset. Huang said the wording remains vague on one practical question: whether meme tokens fall within that category is still unresolved.
Consumer protection and the limits of AMMs
Huang devoted a large part of his critique to investor protection. In U.S. securities markets, investors benefit from best-execution rules under Regulation NMS, protections meant to reduce the risk of poor fills or spreads that work against customers.
He said the SEC is unusually direct on this point. The agency states that, without substantial changes to the trading model, a TSV would not be able to comply with Regulation NMS requirements, and that failure could harm TSV participants. Huang read that as a clear warning that users on these venues would not receive the same protections available in traditional market structures.
That problem, in his telling, weakens demand just as permissioning weakens supply. If liquidity providers are limited, and users are told execution may be worse and spreads wider, Huang argued, the AMM route is unlikely to work well. By contrast, he said, a CLOB model like Hyperliquid’s can meet Regulation NMS requirements much more easily.
The SEC does acknowledge the appeal of blockchain rails
Huang did not describe the document as entirely negative. He said one constructive part is the SEC’s explicit recognition that blockchain-based market infrastructure can offer real benefits.
The document says TSVs have the potential to bring meaningful gains to investors, including self-custody, 24/7 trading, fractional share ownership and near-instant clearing and settlement. It also says the technology can reduce operational, recordkeeping and transaction costs while improving efficiency. Huang said that section is encouraging because it shows the SEC is willing to publicly recognize the utility of blockchain in securities markets.
A long compliance checklist
Huang also pointed to the operational burden attached to exemptive relief. Pages 36 through 46 of the document set out a lengthy list of compliance duties for TSVs. Among them, a venue must agree to let SEC staff examine its books and records at any time, and it must publish a copy of its notice in a prominent location on its public website at least 30 calendar days before launch.
His point was simple: even for an operator that wants to fit inside the exemption, approval is not the same as immediate readiness to go live.
Issuer control and the AMC parallel
On issuer protections, Huang said the SEC has effectively handed public companies the power to block tokenized versions of their shares from trading on a TSV. If the issuer of the underlying stock sends written notice objecting to a tokenized NMS stock, the venue cannot allow that token to trade.
He linked that provision to the earlier AMC controversy and quoted the SEC’s reasoning. Issuers of underlying NMS stocks may worry about shareholder-record maintenance risks tied to onchain transfers, or about price dislocations and adverse effects on the price of the underlying stock, especially when AMM pool prices may simply reflect the ratio of two assets sitting in a single liquidity pool.
For Huang, that is another reason the framework leans toward a market structure debate that AMMs struggle to win. A CLOB does not rely on pricing from one possibly mispriced pool.
Equal shareholder rights are required
The document says tokenized stocks must carry the same rights as the traditional shares they represent. That includes equal rights to dividends, equal voting rights, and equal rights to a pro rata share of residual assets in a corporate liquidation or bankruptcy.
Huang praised that provision. Investors in tokenized assets, he said, should receive the full set of rights attached to the traditional form of the security.
Trading limits are high relative to today’s market
Huang said the SEC’s volume cap is, in practice, set at a high level. Under the document, trading in a tokenized NMS stock may not exceed 0.25% of the prior month’s average daily trading volume in the related NMS stock, based on data published by an effective transaction reporting plan.
TSVs must also be able to halt trading.
To put the cap in context, Huang said even existing permissionless stock tokens account for less than 0.001% of the trading volume of their corresponding stocks. He added that the entire tokenized stock market is currently worth about $3 billion, compared with a traditional equity market valued at $70 trillion.
Glider plans to comment
Based on those concerns, Huang said he and Glider expect to submit a formal comment letter to the SEC soon in an effort to push for broader exemptive relief.
The original commentary came from Brian Huang and was translated by Odaily.