The SEC’s tokenized-stock framework allows permissioned AMM liquidity pools. That creates a new retail question: what happens to spreads, price discovery, slippage and market makers when a stock can trade through infrastructure borrowed from DeFi?
| Research thesis
The SEC has not replaced the stock market with DeFi. It has created a deliberately small, five-year experiment in which real tokenized U.S. shares can trade through permissioned automated market makers outside the normal exchange definition. The most important change for retail investors is not “24/7 stocks.” It is the mechanism of execution: some costs that are visible today as bid-ask spreads and routed quotes can migrate into pool fees, curve slippage, arbitrage and liquidity-provider losses. A deep, well-designed AMM could be cheaper for small trades. A thin pool—especially when the traditional market is closed—could be much more expensive. |
Key findings
| Finding | Why it matters for retail |
| AMMs do not abolish trading costs. | They can replace a quoted spread with pool fees, slippage and arbitrage costs. The execution price—not the fee label—is what matters. |
| Price discovery may split into two markets. | During regular hours, arbitrage should pull AMM prices toward the deeper stock market. Overnight, the onchain venue may discover its own price with less depth. |
| Liquidity depth is the decisive variable. | In a simple constant-product pool, a $100K buy creates about 40 bps of average price impact if total pool value is $50M, before fees. |
| Traditional market makers may not disappear. | They can become pool liquidity providers, arbitrageurs and hedgers; the skill moves from quoting a book to managing capital across venues and chains. |
| The SEC is intentionally limiting systemic impact. | Tier 1 names are capped at 75 symbols and 0.25% of prior-month ADV per stock per venue group; Tier 2 is capped at 250 symbols and 2.5%. |
The SEC did not approve “Uniswap for Apple” — but it opened the door
On September 17, 2026, the Securities and Exchange Commission created a five-year “Innovation Exemption” for a new category called Tokenized Securities Venues, or TSVs. A qualifying TSV can bring together buyers and sellers of tokenized National Market System stocks through permissioned automated market makers and liquidity pools without being treated as an “exchange” under the Exchange Act, provided it meets a long list of conditions. The relief runs through September 17, 2031.
The distinction matters. These are not synthetic tokens that merely track a stock. The tokenized security must preserve the same rights and privileges as the equivalent traditional share, including dividends and voting rights. If an unaffiliated third party tokenizes the share, the underlying issuer must be notified and can object. Smart contracts must be auditable and public, and the venue must coordinate trading halts with the primary listing exchange.
Yet the trading mechanism is deliberately different from the infrastructure that dominates U.S. equities today. The SEC’s order explicitly notes that AMM prices are generally set from the ratio of assets inside a liquidity pool rather than by directly considering prices on external venues. That creates a problem under Regulation NMS: an AMM can execute at a price that would violate the Rule 611 trade-through rule if it were a normal trading center. Because a compliant TSV is exempt from the exchange definition, the usual Regulation NMS framework for exchanges, ATSs, trading centers and market centers does not apply to it in the normal way.
| The experiment is small by design
Tier 1 tokenized stocks—broadly the most heavily traded names and eligible ETPs—are limited to 75 symbols and 0.25% of the underlying stock’s prior-month average daily share volume. Tier 2 is limited to 250 symbols and 2.5%. The SEC says these caps are intended partly to reduce the risk that pool-price dislocations spill into the wider equity market. |
What changes when an order book becomes a liquidity pool?
| Market feature | Traditional U.S. equity venue | Permissioned stock AMM |
| Price formation | Limit orders and dealer quotes create visible bids and offers. | Smart-contract rule prices against pool inventory; design may be constant-product, concentrated-liquidity or another AMM formula. |
| Retail “spread” | Bid-ask spread is directly observable. | May have no conventional bid-ask spread, but the trader pays pool fee plus curve price impact and other execution costs. |
| Best-price linkage | Order protection and routing rules connect venues inside the national market system. | Arbitrage and smart routing become a major link to external stock prices; the TSV exemption is outside normal Reg NMS venue rules. |
| Depth | Displayed and hidden liquidity at multiple price levels. | Liquidity is committed to a curve or price range; effective depth depends on pool capital and AMM design. |
| Market maker economics | Spread capture, rebates, inventory management and hedging. | Pool fees versus adverse selection/LVR, plus hedging and arbitrage across the conventional market. |
| Hours | Increasingly extended, but core liquidity remains concentrated in regular trading hours. | Can be designed for continuous onchain access, including periods when the main exchange is closed. |
| Transparency | Quotes and trades feed regulated market-data systems. | Pool state can be auditable onchain; SEC condition requires transaction data to be public and updated within 10 minutes, but this is not the same as an NBBO. |
Figure 1. The AMM model changes the packaging of execution costs; it does not make liquidity free.
Slippage becomes the retail metric that matters most
In a conventional order book, a retail investor can see a best bid and offer and—depending on order size—may execute close to that quote. In an AMM, the act of buying changes the pool’s inventory and therefore changes the price along the curve. The larger the trade relative to active liquidity, the more the trader pushes the execution price against themselves.
A simple constant-product model makes the intuition clear. Assume a 50/50 pool that starts with a $100 stock price and no protocol fee. If the pool is worth $50 million in total, the cash side contains $25 million. A $100,000 buy is 0.4% of that cash reserve, so the average execution price is roughly 0.4% above the starting price—about 40 basis points—before any explicit fee. If the same trade hits a $1 billion pool, the equivalent price impact is about 2 basis points. This is an illustrative teaching model, not a forecast for any specific TSV; concentrated-liquidity and dynamic AMMs can deploy capital much more efficiently around the current price.
Figure 2. Dave Finances calculation using a fee-free constant-product AMM. Average execution price impact equals trade size divided by the initial cash reserve in this simplified 50/50 setup.
Illustrative constant-product price impact
| Trade size | $10M pool | $50M pool | $200M pool | $1B pool |
| $10K | 20 bps | 4 bps | 1 bp | 0.2 bp |
| $100K | 200 bps | 40 bps | 10 bps | 2 bps |
| $1M | 2,000 bps | 400 bps | 100 bps | 20 bps |
Assumptions: 50/50 constant-product pool; figures show average curve price impact before protocol fees, gas or external arbitrage. A $1M trade in a $10M pool is intentionally extreme to demonstrate convexity.
Price discovery becomes a two-market loop
During normal trading hours, the deepest and fastest price discovery will probably remain in the conventional equity market—at least while TSV volumes are capped at fractions of the underlying stock’s average daily volume. If an AMM price for Apple, Nvidia or another liquid stock drifts away from the price available in the main market, arbitrageurs have an incentive to buy the cheaper representation and sell the richer one, subject to transfer, settlement, borrowing and hedging constraints.
That makes the AMM less like an independent oracle and more like a market that is continuously pulled toward an external reference price. Academic work on crypto AMMs documents exactly this role for arbitrage. A 2025 Journal of Finance study of 95.8 million Uniswap interactions found no long-lived arbitrage opportunities and identified conditions under which AMMs can outperform limit-order markets. A 2026 working paper focused specifically on equities goes further: after calibrating an AMM model to U.S. stocks, Katya Malinova and Andreas Park estimate that optimized AMM trading costs could be 38%–55% below half-spreads. That is a model result—not evidence from live U.S. tokenized-stock pools—but it explains why the SEC experiment is economically interesting rather than merely technological.
Figure 3. During regular hours the AMM is likely to be disciplined by the deeper traditional market; outside those hours, the relationship may partially reverse.
The more interesting period is when the primary stock market is closed. An always-on pool can continue to respond to earnings, geopolitical news or macro shocks while the conventional venue is unavailable. In that window the tokenized share can become a real-time price signal—but one generated from much thinner liquidity. The next morning, the traditional stock could gap toward the onchain price if the information was genuine, or the pool could snap back toward the primary market if overnight trading overreacted.
| A 24/7 price is not automatically a better price
Continuous trading solves the “market is closed” problem, but it does not solve the “who is supplying depth at 3 a.m.?” problem. If liquidity providers pull capital or widen effective fees outside core hours, a continuously quoted token can be more available while still being less efficient. |
Market makers do not disappear — their job changes
The popular DeFi narrative is that an AMM removes the market maker. In practice, it changes the market maker’s interface. The pool contract automates quoting, but somebody still has to supply capital, decide how much inventory to commit, choose the price range or curve, set or accept fee economics, hedge exposure and absorb adverse selection.
The SEC recognized this directly by giving conditional dealer-definition relief to certain liquidity providers that contribute proprietary capital to TSV pools. Those “Covered Firms” can supply tokenized NMS stock and other paired assets and can engage in activities that look dealer-like, but their covered activity is limited to the TSV structure and they must trade for their own account rather than custody customer assets.
For an incumbent electronic market maker, that creates a new three-part strategy. It can provide liquidity to the pool, arbitrage the pool against the conventional stock market, and hedge residual inventory elsewhere. For crypto-native firms, the challenge runs in the other direction: understanding corporate actions, securities lending, trading halts and stock-specific information risk matters more than simply optimizing a smart contract.
The hidden AMM cost is adverse selection
A conventional market maker can cancel or reprice quotes almost instantly when new information arrives. A passive AMM cannot “know” that a company has just issued an earnings warning unless its design or liquidity providers react. If the fair value of the stock moves before the pool adjusts, informed arbitrageurs trade against the stale pool. The arbitrage profit is economically the liquidity provider’s loss.
DeFi researchers often describe this cost as loss-versus-rebalancing, or LVR. It is one reason why a pool can collect substantial fees and still be unattractive to liquidity providers. The faster or more volatile the underlying stock, the more important the problem becomes. A 2026 paper on automated market making finds adverse-selection costs rise with the permanent, information-driven component of price moves; another 2026 study of concentrated-liquidity AMMs examines dynamic fees as a way to mitigate that problem.
For retail traders, the implication is counterintuitive: lower displayed fees do not necessarily mean better execution. If liquidity providers are repeatedly picked off when prices move, they eventually demand compensation through higher fees, less capital, narrower active ranges or withdrawal during volatile periods. The cost can reappear as worse slippage exactly when the investor most needs liquidity.
The biggest structural risk is fragmentation, not blockchain
A tokenized share can now have several economic homes at once: the primary listing exchange, other registered exchanges and ATSs, overnight venues, and one or more tokenized AMM pools. The token may carry the same shareholder rights, but liquidity is not automatically unified. Each pool can have a different paired asset, fee, depth and inventory balance.
The SEC’s framework acknowledges the monitoring problem. TSVs must publish U.S.-dollar transaction data—including price, size, time and direction—and pool information in machine-readable form, updated within ten minutes. That is useful for surveillance and research, but it is not the same thing as placing the AMM inside the consolidated quote-and-routing system. Sophisticated traders will likely read the blockchain state directly and arbitrage in seconds or blocks; retail investors relying on slower interfaces may see a less complete picture.
The order also allows stock tokens to trade against another tokenized NMS stock, a non-security crypto asset such as a permitted payment stablecoin, or a tokenized money-market fund. That design is powerful because it makes equities composable with onchain cash and collateral. It also means the quality of the “cash” leg becomes part of execution quality. A stock/USDC-like pool, a stock/tokenized-money-market-fund pool and a stock/stock pool can each have different liquidity, redemption and settlement behavior.
This is moving from policy paper to market experiment
As of October 5, the framework is no longer purely theoretical. TSV LLC has published notice of an intended 24/7 permissioned venue on Canton, though it says operations have not yet commenced. More significantly, Reuters reported on October 5 that OKXICE—a joint venture between crypto exchange OKX and Intercontinental Exchange—filed with the SEC to launch an around-the-clock tokenized securities platform covering more than 60 U.S.-listed companies. That combination of a crypto exchange and the owner of the New York Stock Exchange is a strong signal that tokenized equities are becoming a market-structure project, not just a crypto product category.
The initial volume caps mean these venues cannot immediately replace conventional equity markets, and the 30-day notice/issuer-objection process slows expansion. But the small scale is precisely what makes the experiment useful. It gives regulators and market participants data on whether AMM execution can coexist with the national market system without importing DeFi’s worst microstructure problems.
Three ways this could play out for retail investors
| Scenario | What happens to spreads | Who wins | Main risk |
| Deep-pool success | All-in cost for small trades falls because continuous pooled liquidity competes with dealer spreads. | Retail takers, efficient LPs, smart routers. | Adverse selection eventually pushes fees higher. |
| Two-tier market | AMMs are competitive in liquid names and core hours but expensive overnight or in thin stocks. | Arbitrageurs and multi-venue market makers. | Retail mistakes 24/7 availability for 24/7 liquidity. |
| Fragmentation dominates | Many pools split capital and prices repeatedly diverge from conventional venues. | Latency-sensitive arbitrageurs. | Slippage and execution uncertainty offset the benefits of tokenization. |
What a retail trader should check before using a tokenized-stock AMM
Pool depth, not just “liquidity.” How much dollar value is actually active near the current price? A large total pool can still have poor usable depth if liquidity is concentrated elsewhere.
All-in quote versus the real stock. Compare the executable AMM price after fees and slippage with the conventional stock price when the market is open.
The paired asset. Is the other side a stablecoin, tokenized money-market fund or another stock? Each adds different redemption and liquidity dependencies.
Time of day. A quote that is competitive at 11 a.m. New York time may be poor at 2 a.m. when arbitrage and LP capital are thinner.
AMM design and fee logic. Constant-product, concentrated-liquidity and dynamic-fee designs have very different price-impact and LP-risk profiles.
Routing and protection. Does the interface compare multiple pools or conventional venues, or does it simply send the order to one pool?
Shareholder rights and corporate actions. The SEC framework requires rights parity, but investors should still understand how dividends, votes, splits, halts and transfers are operationally delivered.
The real test is whether AMMs can make liquidity cheaper without making price discovery worse
Tokenized stocks are often sold as a settlement story: faster transfer, 24/7 access and programmable ownership. The SEC’s Innovation Exemption turns them into a market-microstructure experiment. For the first time in the U.S., real listed shares can be traded in a permissioned environment through AMM liquidity pools under a framework explicitly designed to observe how that model behaves.
For retail investors, the right question is not whether an AMM is “decentralized” or whether the app advertises zero commissions. The question is whether the executable price is better after every layer of cost is included. Deep pools, efficient fee design and aggressive arbitrage could make small trades cheaper than today’s spread-based model. Thin liquidity, fragmented pools and stale off-hours pricing could do the opposite.
That is why the most important number in tokenized equities may not be market capitalization or 24/7 volume. It may be basis points of realized execution cost versus the same share in the traditional market. If AMMs win that test consistently, DeFi mechanics could become part of mainstream equity infrastructure. If they do not, tokenization may still transform settlement and ownership while the limit order book remains the place where price discovery ultimately lives.
Methodology and original calculations
This article uses the SEC’s September 17, 2026 Innovation Exemption and related Commission statements as the primary legal framework, academic research on automated market makers and equity microstructure for the economic analysis, and October 5 reporting on early venue filings for implementation context. The slippage examples are Dave Finances calculations using a simplified 50/50 constant-product AMM (x × y = k) with no explicit protocol fee. For a cash-in buy, the average execution-price premium relative to the starting price equals the cash trade size divided by the initial cash reserve. This intentionally isolates curve price impact; real venues may use concentrated liquidity, dynamic curves, RFQs, smart routers or other mechanisms, and will also have fees and blockchain costs.
The 38%–55% potential cost reduction cited in the article comes from a June 2026 academic working paper calibrated to U.S. equities. It is a model-based result rather than realized execution data from live TSVs. No U.S. tokenized-stock AMM under the exemption has a long operating history as of this research date, so claims about future market quality remain scenarios rather than observed facts.
Sources
1. U.S. Securities and Exchange Commission — SEC Issues “Innovation Exemption” to Facilitate the Trading of Tokenized NMS Stock and Request for Comment (Sept. 17, 2026). Source
2. U.S. Securities and Exchange Commission — Release No. 34-106402 / File No. 4-927 — Innovation Exemption Order (Sept. 17, 2026). Source
3. Commissioner Mark T. Uyeda, SEC — Statement on the Innovation Exemption (Sept. 17, 2026). Source
4. Chairman Paul S. Atkins, SEC — Statement on the Innovation Exemption: A Bridge Toward Durable Rulemaking (Sept. 17, 2026). Source
5. SEC Divisions of Corporation Finance, Investment Management, and Trading and Markets — Statement on Tokenized Securities (Jan. 28, 2026). Source
6. Katya Malinova and Andreas Park, SSRN — Learning from DeFi: Would Automated Market Makers Improve Equity Trading? (Revised June 11, 2026). Source
7. Cesare Fracassi, Thomas J. George and Moazzam Khoja, SSRN — Automated Market Making with Continuity: Liquidity, Price Discovery, and Adverse Selection (Revised July 30, 2026). Source
8. Alfred Lehar and Christine A. Parlour, Journal of Finance — Decentralized Exchange: The Uniswap Automated Market Maker (2025). Source
9. Bank for International Settlements — Trading in the DeFi era: automated market-maker (2021). Source
10. Werner Brönnimann, Pascal Egloff and Thomas Krabichler, Digital Finance — Automated market makers and their implications for liquidity providers (Sept. 5, 2024). Source
11. SIFMA submission to SEC Crypto Task Force — Re: Automated Market Makers and the Consistent Application of Securities Market Regulations (Mar. 30, 2026). Source
12. Galaxy Digital submission to SEC Crypto Task Force — Re: Automated Market Makers, Tokenized Securities, and Technology Neutrality (Apr. 14, 2026). Source
13. TSV LLC — TSV LLC — Tokenized Stocks on Canton / Public Notice (Sept. 23, 2026). Source
14. Reuters — OKX joint venture files with SEC to launch tokenized trading platform (Oct. 5, 2026). Source
15. Sullivan & Cromwell — SEC Issues Innovation Exemption for Tokenized Securities (Sept. 2026). Source
Editorial note: This article is for informational and analytical purposes only and is not investment, legal or tax advice.
Johan Shamshad is a financial markets writer at Dave Finances covering cryptocurrencies, trading platforms, brokers, fintech, financial regulation, and developments across global markets. He previously worked at Gulf News, adding newsroom experience to his coverage of fast-moving financial and digital-asset markets.
His work focuses on identifying market-moving events, company developments, regulatory changes, product launches, and shifts in trading and financial infrastructure.
Johan contributes news and analysis designed to help readers understand not only what happened, but why a development matters and how it may affect the wider financial landscape.