Galaxy Digital, "Allow Trading of Tokenized Securities in DeFi"...Urges SEC

▲ Tokenization, Blockchain, Virtual Asset Regulation/AI Generated Image

Virtual asset financial firm Galaxy Digital has directly challenged the regulatory framework surrounding the trading of tokenized securities. It argues that decentralized finance (DeFi)-based automated market makers (AMMs) should not be considered traditional stock exchanges.

According to crypto media outlet BeInCrypto, Galaxy Digital recently stated in a submission to the U.S. Securities and Exchange Commission (SEC)'s Crypto Task Force that trading of tokenized securities on AMMs should be permitted.

The company emphasized that AMMs meeting certain conditions do not fall under the definition of an 'exchange' as per the Securities Exchange Act of 1934. It cited the automated, transparent, non-discriminatory accessibility, and lack of operator discretionary intervention in the trading process as grounds.

Furthermore, it argued that liquidity providers cannot be considered 'dealers' under existing regulations. This is because they do not deal with customers, do not solicit orders, and participate in trades with their own assets.

Instead, Galaxy Digital proposed the introduction of 'conditional innovation exemptions.' It maintains that new trading structures should be allowed while maintaining market soundness through measures such as whitelist-based participation restrictions, setting trading volume caps, and disclosure obligations.

This submission further highlights the emerging conflict with traditional finance. The Securities Industry and Financial Markets Association (SIFMA), a major Wall Street lobbying group, maintains that tokenized stocks should be traded within existing financial infrastructure. Galaxy Digital countered that this approach is inconsistent with the regulatory direction that has emphasized technological neutrality.

The core of the debate is a structural choice: whether tokenized securities will remain within the existing market structure or move to blockchain-based decentralized protocols.

Meanwhile, the regulatory environment is also showing signs of change. This year, the SEC is pursuing a plan to transition capital markets to a blockchain-based system through 'Project Crypto,' and has also begun establishing a framework for classifying digital assets as tokenized securities, among others.

Consequently, Galaxy Digital's proposal is interpreted not merely as a regulatory recommendation, but as a competition for dominance over the future trading methods of the financial market itself. Market attention is focused on whether tokenized securities will expand into DeFi or remain within the existing financial system.

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