🥛 Crypto gets a hall pass 📝

GM. This is Milk Road, the newsletter that never stalls on crypto, no matter how the Senate votes.

Here’s what we’ve got for you today:

✍️ Crypto gets a hall pass.
🎙️ The Milk Road Show: Less Than 1% Is Onchain: Crypto's Biggest Opportunity Yet.
🍪 S&P Global enters into an agreement to acquire OpenZeppelin.

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Prices as of 2:00 p.m. ET. Powered by CoinGecko.

CRYPTO GETS A HALL PASS 📝

On Wednesday, the Senate stalled CLARITY, but we told you the regulators won’t sit on the sidelines waiting for the legislators to get their act together.

Yesterday, both the SEC and the CFTC announced measures that set the stage for a rule-based crypto regime.

The SEC issued an innovation exemption that lets tokenized U.S. stocks trade onchain through AMMs, or Automated Market Makers.

Source: @SECGov

An AMM is a pool of assets that prices your trade using code rather than a traditional exchange with market makers. Uniswap, Aerodrome, and Raydium are some examples of this.

Until yesterday, trading a tokenized version of your favorite tech stock on any of the above platforms put you in a regulatory gray zone.

Now it doesn’t.

But there are strings attached to this exemption - for starters:

The shares have to be the real thing (carry dividends and voting rights), so they can’t be synthetic (ahem… Robinhood).
Venues have to vet every participant before they’re allowed to trade (aka permissioned, not permissionless).
Smart contracts must be open and auditable, and live on a public blockchain.
A company (issuer) can object to its own stock being tokenized (AMC’s CEO had the same argument against Robinhood tokenizing a synthetic version of its stock).
The initial period of the exemption will be for five years.

The CLARITY cloture failure on Wednesday marked a sell-off across the board. BTC closed -3%, ETH -4.5%, and SOL -5.4%.

But yesterday’s announcement has seen prices rebound fairly quickly - and notice the assets that have risen more than the blue chips:

UNI: +45.1%.
RAY: +26.7%.
AERO: +17.8%.
SOL: +6.3%.
ETH: +2.3%.

Source: TradingView

The top three have one thing in common…

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CRYPTO GETS A HALL PASS (P2) 📝

The top three gainers from the SEC announcement are all AMM-powered decentralized exchanges built on permissionless, open blockchain rails:

Uniswap has processed ~$2.6B in cumulative tokenized stock trading volume on Robinhood over the past two months.
Aerodrome has generated ~$611.4M in trading volume on Base over the past 30 days.
Raydium has processed ~$3.8B in cumulative trading volume on the Solana blockchain over the past 14 months.

The SEC has just backed the architecture these players have been operating for months.

And this was a double whammy.

On the same day, the CFTC issued a memo stating that wallet and app developers can offer derivatives trading without registering as an introducing broker (the licensed middleman who takes your order and passes it to an exchange).

Together, these regulators solved both sides of the puzzle. The SEC took the trading venues and the CFTC took the plumbing. Both of which circumvented the need for 60 senators to align on CLARITY.

Source: Token Terminal

The total market value of onchain tokenized stocks is about $3.4B, with roughly 80% spread across Ethereum, BNB, Solana, Robinhood, and Base.

Most of what’s being traded onchain as tokenized stocks today are ‘Synthetics’, which is exactly what this exemption rules out.

BNB’s version are certificates issued by an Abu Dhabi entity, while Robinhood’s version are debt securities with a stock wrapper. Neither falls under the scope of yesterday’s Innovation Exemption.

So what’s next?

On Wednesday, we said that losing CLARITY cost us permanence, and that remains true. SEC Chair Atkins called this order “a bridge toward a durable rulemaking,” which is regulatory speak for “Job’s not over yet.”

Source: @SECPaulSAtkins

Three things we’re watching from here:

The comment period: If the SEC turns the exemption into formal rulemaking, it will make this exemption harder to undo.
Who bites first: Nobody has registered as a Tokenized Securities Venue (TSV) yet. Whoever goes first builds a live case study for others.
The synthetics: BNB and Robinhood are the two largest onchain venues by tokenized stock volumes. We’ll be tracking what happens to trading volume on those chains once the “REAL” stock tokens arrive under this mandate.

Congress took months to negotiate and still failed to deliver what the regulators did in the last 48 hours.