Tokenized Stocks Face New Risks Amid SEC Modernization Push

- Crypto executives warn against compounded volatility and regulatory gaps in tokenized stocks. - SEC and Nasdaq target 24/7 blockchain-based trading, raising concerns over investor protection. On October 4, 2025, Cointelegraph reported that crypto industry executives raised concerns about the risks of tokenizing company stocks through digital asset treasuries (DATs). Kadan Stadelmann, CTO of the Komodo decentralized exchange, and Kanny Lee, CEO of SecondSwap, highlighted several potential pitfalls, including compounded volatility, price discrepancies from 24/7 trading, smart contract vulnerabilities, and regulatory uncertainty. This debate underscores the tension between financial innovation and investor protection as U.S. regulators push forward with market modernization. These developments come as the U.S. Securities and Exchange Commission (SEC) investigates blockchain-based stock trading to advance financial markets. Companies like Nasdaq are leading the charge to expand trading hours for tokenized stocks, aiming to align them more closely with the always-open crypto market. In a sign of this shift, Nasdaq has filed with the SEC for approval to begin trading tokenized securities by the second half of 2026. Executives flagged compounded volatility as a major risk to investors. Tokenized company shares expose holders to both the price swings of crypto assets and the complexities of traditional equities, such as governance and securities law compliance. The 24/7 trading model further complicates matters, as it allows for drastic price movements outside standard market hours. Legacy systems are ill-equipped to handle these shifts, which could disrupt financial stability. In addition, security vulnerabilities present a significant concern, as the smart contracts that power tokenized stocks remain susceptible to hacking or code exploits, potentially jeopardizing both crypto treasuries and the tokenized assets. Legal uncertainty is another critical issue. Without clear regulatory guidelines, businesses and investors face confusion about how tokenized stocks fit into existing frameworks for compliance, investor protections, and enforcement. As a result, bodies such as the World Federation of Exchanges are advocating for regulators to fill these gaps to ensure market stability and trust. Despite these risks, the tokenized stock market continues to grow, recently surpassing $1.3 billion in value. Advocates argue that blockchain technology can revolutionize financial markets by enhancing efficiency, reducing settlement times, and increasing accessibility. The SEC’s exploration of blockchain-enabled trading and Nasdaq’s drive for tokenized securities reflect the sector’s commitment to addressing challenges while pursuing innovation. This dynamic environment is reflected in the broader cryptocurrency market. According to CoinMarketCap, as of October 4 at 12:00 UTC, Bitcoin (BTC) was trading at $27,653, with a 4.2% increase in 24-hour trading volume. Over the same period, Ethereum (ETH) stood at $1,825, up 3.7%. These fluctuations emphasize the volatile nature of the digital asset space, underscoring both the opportunities and risks ahead for the tokenization market.