The Securities and Exchange Commission recently granted a five-year exemption that permits on-chain trading of U.S. equities, provided the digital representation mirrors the dividend, voting and class rights of the underlying share. Tokens that merely give synthetic exposure, such as those offered by Robinhood, fall outside the exemption. The exemption also caps on-chain volume at a fraction of a stock’s average daily trade, aiming to curb extreme price divergence.
The AMC token price spike
During a series of trading sessions in early September, Robinhood’s AMC token generally tracked the NYSE price within a narrow margin. However, after the exchange closed on September 3, the token’s price surged from roughly $2.55 to more than $23 in a single hour, before retreating to $3.26. The activity occurred in the Uniswap v3 pool that handles the majority of the token’s volume, with about $10.5 million exchanged in that hour.
The token’s design involves a single authorized participant that can mint or redeem units against actual AMC shares held off-shore. In the moments of the spike, no new tokens were created; the existing supply simply changed hands. Because there is no mechanism to borrow tokens for short-selling, market participants could not arbitrage the premium in the usual way. Instead, the price movement reflected directional bets by traders who risked their own capital.
Wrapped versus issuer-sponsored tokens
Wrapped tokens, like Robinhood’s AMC, are claims on shares held by an offshore issuer. In theory, a one-to-one backing should keep the token price aligned with the stock, but the two assets trade on separate venues, allowing gaps to appear. Arbitrageurs normally smooth such gaps, but when the underlying market is closed, the ability to acquire or dispose of the underlying shares is limited, raising the cost of hedging.
Issuer-sponsored tokens (ISTs) differ by embedding the actual registered share within the on-chain instrument. The token therefore conveys voting rights and corporate actions, and market makers hold the real security rather than a claim. This eliminates conversion risk but confines the token to jurisdictions where the issuer can legally issue the digital share, reducing its global reach.
Market implications and infrastructure challenges
The AMC episode underscores a structural weakness: the wrapper market depends on a narrow set of participants who can mint or burn tokens, and those participants may be unwilling or unable to act during off-hours. Without a robust borrowing market, the token’s price can detach from the underlying share, exposing holders to significant risk.
Conversely, ISTs could provide continuous price discovery if supported by a broader network of licensed participants able to trade the underlying security around the clock. However, current liquidity for ISTs remains thin, with only a handful of securities available.
A potential path forward involves pairing the two models: using ISTs as collateral for wrapped tokens, thereby granting the latter the security of a true share while preserving the wrapper’s broader distribution. Such a hybrid could supply market makers with a reliable reference price and reduce the arbitrage gap that caused the AMC surge.
Why it matters
The incident illustrates that tokenized equities are still navigating regulatory, technical, and liquidity hurdles. Investors seeking 24/7 exposure to traditional stocks must understand the differences between wrapped claims and fully tokenized shares, as the risk profile can vary dramatically. Regulators’ volume caps and the need for better infrastructure will shape how these digital securities evolve and whether they can deliver the promised seamless access to global markets.
