SEC's Tokenized Stock Move Risks Market Fragmentation, Says Tiger Research

The US Securities and Exchange Commission’s move to allow third parties to list tokenized stocks could risk two structural disruptions with liquidity and revenue fragmentation, according to Tiger Research.

Liquidity fragmentation may occur as capital disperses from centralized exchanges across multiple blockchain platforms, said Tiger Research director and head of research Ryan Yoon on Friday.

"Traditional finance views the breakup of its previously consolidated, centralized liquidity as a serious structural threat,” said Yoon.

When third parties tokenize the same listed stock across different blockchain networks and decentralized platforms, the trading volume and order flow that should concentrate on a single venue, such as the NYSE or Nasdaq, instead disperses across multiple venues, he explained.

“This creates price discrepancies across platforms, increases slippage on large orders, and ultimately degrades overall market efficiency.”

The research comes five days after the SEC announced its “innovation exemption” on Monday, which would allow third-party exchanges to list tokenized stocks without needing the issuer’s approval.

Revenue fragmentation remains a risk

The second potential structural disruption is revenue fragmentation, which follows directly from market fragmentation.

“As tokenized stocks trade across multiple platforms in disaggregated form, financial revenues that should accrue to domestic exchanges instead flow offshore, with direct implications for national financial competitiveness,” said Yoon.

Capital fragmentation is already underway with real-world asset open interest on the Hyperliquid decentralized exchange hitting an all-time high of $2.6 billion this week.

Related: Tokenized RWA market grows 420% since 2025 on regulatory clarity, access

Yoon concluded that this shift “poses the deepest strategic dilemma for incumbent financial institutions and regulators alike.”

CEO of digital assets at FG Nexus, Maja Vujinovic, also cautioned that markets could be split into “disconnected pools” which can create “dangerous price tracking errors and shadow-shorting vulnerabilities where there aren’t enough localized buyers to stabilize a specific token’s price.”

Tokenized stocks make up just 4.4% of total RWA onchain value. Source: RWA.xyz

Meanwhile, SEC Commissioner Hester Peirce said on Thursday that any exemption would be “limited in scope” by only permitting “digital representations of the same underlying equity security that an investor could purchase in the secondary market today.” The full ruling for what will and won’t be permitted has yet to be finalized.

Many practical market benefits

There are arguments that tokenized stocks provide practical market benefits, such as faster settlement, fractional ownership, lower transaction costs and the potential for round-the-clock trading, according to the Blockchain Council.

Global accessibility lets non-US investors gain exposure to high-demand US stocks without being blocked by local brokerage limitations.

Senior research analyst at Siebert Financial, Brian Vieten, said “We believe this will accelerate the transition of the US financial system from legacy rails to onchain blockchain-based rails.”

“We expect a portion of this flow to eventually flow to high-quality blockchain networks like Bitcoin and Hyperliquid,” he added.