SEC NMS Rescission Could Unlock Tokenized Stocks, Galaxy Digital Says

The Securities and Exchange Commission has proposed rescinding Rules 611 and 610(e) of Regulation NMS, a move that Galaxy Digital's head of research Alex Thorn calls "one of the biggest unlocks yet" for tokenized stocks trading on decentralized finance platforms. Rule 611, the so-called trade-through rule, has long prevented onchain execution at prices inferior to protected quotes on national exchanges, effectively barring DeFi protocols from offering competitive tokenized stock markets. Rule 610(e) governs access fees and fair access to quotations. By removing these barriers, the SEC opens the door for DeFi protocols to execute trades at any price, not just the best available on centralized exchanges. The agency has opened a 60-day public comment period on the proposal. This matters now because the rescission will fundamentally reshape how tokenized equities trade, potentially pulling billions of dollars in volume from traditional venues onto blockchain-based order books — but only if the industry can navigate the remaining regulatory thicket.

The invisible moats around centralized equity markets

The SEC's proposal targets two specific rules that have acted as invisible moats around centralized equity markets. Rule 611, adopted in 2005 as part of Regulation NMS, requires trading centers to establish policies ensuring that orders are executed at prices at least as favorable as the best bid or offer displayed on a protected quotation. For DeFi protocols, this creates an impossible standard: onchain liquidity pools cannot guarantee price improvement over every protected quote across dozens of exchanges in real time. Rule 610(e) mandates that trading centers provide fair and non-discriminatory access to their quotations, a requirement designed for centralized market makers that does not translate well to permissionless smart contracts. Together, these rules have forced any protocol attempting to trade tokenized stocks to either operate as a registered securities exchange or face constant legal risk. The SEC's proposal removes both rules entirely, not just for crypto but for all markets. This is not a crypto-specific carve-out; it is a structural rewrite of equity market microstructure that happens to unlock the most value for onchain trading. The 60-day comment period will see intense lobbying from both traditional market makers who benefit from the status quo and DeFi advocates who see the rescission as a once-in-a-decade opportunity. Galaxy Digital's analysis shows that the removal of these rules eliminates the primary legal barrier that has kept tokenized stock volumes below $570 million in total issuance.

How the P&L shifts for tokenized equity issuers

The financial impact flows through three channels: trading volume, issuer revenue, and protocol fees. Tokenized stock issuers like Altura DeFi currently face a structural disadvantage because their tokens cannot trade on the same terms as the underlying equities. With Rules 611 and 610(e) gone, DeFi protocols can offer continuous trading at any price, not just the NBBO. This unlocks arbitrage opportunities that currently require a registered broker-dealer to execute. For issuers, the revenue model shifts from collecting listing fees from a handful of centralized exchanges to earning protocol fees from every onchain swap. Galaxy Digital estimates that tokenized equity volumes will grow 10x within two years of the rule change, based on the trajectory of tokenized treasuries after the SEC's 2024 guidance on fund tokens. The cost side also improves: issuers no longer need to pay for compliance with NMS connectivity, which can run $500,000 annually per venue. On the buyer side, retail investors gain access to tokenized stocks without the friction of KYC checks on every trade, though the SEC still requires exchange registration for the primary issuance. The net effect is a compression of the spread between the cost of issuing tokenized stocks and the revenue they generate, making the unit economics viable for the first time.

Paradigm, Hyperliquid Policy Center, and the competitive reshuffle

While the SEC's NMS rescission opens one door, the Treasury Department is trying to close another. Paradigm and the Hyperliquid Policy Center sent a joint letter to FinCEN and OFAC challenging proposed anti-money laundering and sanctions rules for stablecoin issuers under the GENIUS Act. The firms argue that applying issuer-style AML obligations to secondary market activity would push regulated stablecoins away from permissionless DeFi, creating a bifurcated market where compliant stablecoins only trade on whitelisted venues. This directly threatens the business models of protocols like Hyperliquid that rely on permissionless stablecoin liquidity. The competitive stakes are clear: if stablecoins like USDC and USDT must enforce sanctions screening at the smart contract level, they become de facto permissioned assets, ceding the permissionless stablecoin market to unregulated alternatives. Paradigm and Hyperliquid Policy Center warn of a "chilling effect" and an "avalanche of noisy, false-positive-laden, low-value SARs" that would overwhelm both issuers and regulators.

Matthew Pinnock of the Hyperliquid Policy Center argued in the letter that the proposed rules conflate issuance-level compliance with secondary market execution, a distinction that matters enormously at scale. Stablecoin issuers like Circle already perform rigorous KYC and sanctions screening at the point of minting and redemption. Requiring them to also monitor every secondary swap on Hyperliquid's order book or a Uniswap pool would require tracking millions of transactions per day that neither FinCEN nor OFAC have the capacity to review. The letter proposes an alternative: a risk-based framework where issuers certify compliance at issuance and secondary market participants are treated as equivalent to equity traders under existing broker-dealer rules. This approach would preserve permissionless DeFi for small-value transactions while applying enhanced scrutiny to large transfers above a $50,000 threshold, a structure closer to existing wire transfer reporting requirements.

The GENIUS Act stablecoin rule represents the opposite regulatory philosophy from the NMS rescission: one removes barriers to innovation, the other adds compliance layers that favor incumbents with existing AML infrastructure.

Downstream effects on hyperscalers, fabs, and enterprise buyers

The NMS rescission creates second-order demand for blockchain infrastructure that extends well beyond crypto-native firms. Tokenized stock trading at scale requires high-throughput execution layers, low-latency oracles, and settlement finality measured in seconds rather than minutes. This drives demand for Layer 2 scaling solutions, which in turn require more compute from cloud providers like AWS and Azure. Galaxy Digital's analysis shows that a 10x increase in tokenized equity volumes will require at least 5x more onchain transaction capacity, pushing the entire Ethereum ecosystem toward danksharding and blob space optimization. For hardware suppliers, the demand is less direct but still material: validators running execution clients need faster CPUs and more RAM to handle the order book logic that NMS rescission enables. Enterprise buyers, particularly asset managers exploring onchain capital markets, will need to upgrade their custody and settlement infrastructure to handle the new volume. The stablecoin AML rule under the GENIUS Act cuts in the opposite direction: if stablecoins become permissioned, the compliance burden falls on the issuers, who will need to invest in blockchain analytics tools from firms like Chainalysis and TRM Labs. The net effect is a regulatory tug-of-war that benefits infrastructure providers regardless of which rule prevails.

What the SEC and Treasury signals mean for market structure

The SEC's NMS rescission and Treasury's GENIUS Act stablecoin rule represent two competing visions for U.S. crypto regulation. The SEC, under its current leadership, is signaling that equity market structure rules designed for the era of floor trading and dark pools are obsolete in a world of smart contracts and automated market makers. By removing Rules 611 and 610(e), the agency is effectively admitting that the NMS framework cannot be patched to accommodate DeFi; it must be replaced. Treasury, by contrast, views stablecoins primarily as a sanctions enforcement problem. The GENIUS Act rule reflects a belief that permissionless DeFi is a feature, not a bug, and that the U.S. must prevent stablecoins from becoming a "blind spot for sanctions enforcement." These two signals are not contradictory: they address different layers of the stack. The SEC is liberalizing the trading layer while Treasury tightens the settlement layer. The net effect is a regulatory environment where tokenized stocks can trade freely on DeFi, but only if the stablecoins used to settle those trades are compliant. This creates a natural experiment: will the market prefer permissionless stablecoins that cannot access regulated tokenized stocks, or compliant stablecoins that can? The answer will determine the architecture of onchain capital markets for the next decade.

The NMS rescission is the most consequential U.S. equity market structure change since Reg ATS in 1998, and its impact on crypto will be felt faster than its impact on traditional markets. Tokenized stock issuers should begin preparing for a world where onchain volume exceeds centralized exchange volume within three years. The stablecoin AML rule, if finalized as proposed, will force every DeFi protocol to choose between compliance and permissionless access. The smart money is on a middle ground: compliant stablecoins that use zero-knowledge proofs to verify sanctions screening without revealing transaction details, a solution that Paradigm has been funding through its portfolio companies.

Both rules remain in the comment period, with the 60-day window on the NMS rescission running concurrently with FinCEN's public input phase on the GENIUS Act stablecoin provisions. Galaxy Digital has called on the industry to submit unified comments supporting the rescission while pushing back on the stablecoin AML rule, arguing that the two regulatory tracks must be harmonized rather than left to diverge. Alex Thorn wrote in a research note that "a tokenized stock market that clears in three seconds is meaningless if the stablecoin used to settle it is blocked by a sanctions list discrepancy." The combined outcome of these two rulemakings will define the operating environment for onchain capital markets through at least 2030. The next 12 months will determine whether the U.S. produces a coherent framework or a fragmented patchwork that pushes innovation offshore. Either way, the SEC has fired the starting gun.