On May 18th, Bloomberg, citing sources familiar with the matter, reported that the SEC may soon issue an "Innovation Exemption" for tokenized stocks, allowing crypto platforms to trade on-chain versions of publicly traded stocks. These tokens may circulate on decentralized platforms, may not require the consent or endorsement of publicly traded companies, and may not necessarily grant traditional shareholder rights, such as voting rights or dividend rights. Although the SEC decided to postpone this process due to opposition from some Wall Street institutions, it is one of the core actions of "Project Crypto," promoted by SEC Chairman Paul Atkins since taking office. However, it is foreseeable that the road will be difficult, but perseverance will lead to success. Similarly, for the RWA market, this is undoubtedly a highly imaginative signal. 24/7 trading, instant settlement, fragmented ownership, stablecoin payments, and the absence of traditional brokers or banks—a potentially trillion-dollar on-chain US stock market could become a testing ground for the true integration of DeFi and TradFi, acting as a catalyst to ignite the next crypto bull market. However, the closer on-chain US stocks are to real stocks, the less likely they are to be merely an upgrade in trading experience. As long as the underlying layer remains connected to real securities or securities exposure, traditional financial rules such as taxation, rights, custody, inheritance, and information disclosure will not automatically disappear simply because they are "on-chain." In the past, these responsibilities were borne separately by brokerages, custodians, clearinghouses, tax reporting systems, and investor protection frameworks; once stocks become tokens and enter wallets, AMMs, lending protocols, and cross-border liquidity networks, these responsibilities and obligations must be redistributed in the new on-chain structure. One of the most critical issues is taxation. Does on-chain US stock trading circumvent US dividend tax? When non-US users purchase US stock exposure through stablecoins, will they still be subject to cross-border information exchange under CRS or CARF? If the SEC's innovative exemption allows US users to participate, who will bear the responsibilities for 1099-DA, wash sale, cost basis, and IRS reporting? These "hidden ledgers" are precisely what the SEC will really test after granting innovation exemptions. I. On-chain US stocks have historically been "cross-border exposure products for non-US users." Today, most mainstream on-chain US stock products are essentially cross-border exposure products for non-US users, and almost none are open to US users: xStocks (Backed Finance × Kraken) explicitly excludes the US, Canada, and other restricted jurisdictions; Robinhood EU Stock Tokens are only available within the EU; and RWA platforms like Securitize and Ondo primarily use Reg D private placements and are not distributed to retail US users. The reason is not mysterious. Once targeting US users, on-chain US stocks face not just product design issues, but a complete securities market regulatory framework. Whether it's the registration or exemption requirements under the Securities Act of 1933, or the broker-dealer, Reg ATS, Reg NMS, KYC, AML, tax reporting, and investor protection obligations involved in retail distribution, all will significantly increase regulatory, issuance, and distribution costs. Therefore, many products choose to **start from non-US markets** and not directly enter the US retail distribution system. The SEC's innovation exemption aims to reopen this door closed to US users. In a Bloomberg report, three things were simultaneously addressed: third-party tokens can be issued without the issuer's consent, do not need to complete full broker-dealer registration, and are allowed to circulate on DeFi platforms. Hester Peirce is a key driver in this direction, and Paul Atkins has already incorporated it into Project Crypto's overall framework in November 2025. However, this does not mean that tokenized stocks will escape securities regulation. The SEC clearly stated in a joint statement on January 28 that securities, regardless of their form, remain securities. The innovation exemption does not change the legal nature of on-chain US stock assets; the biggest impact will be on the user structure of on-chain US stocks. If US users are included, the tax, compliance, and investor protection frameworks faced by the products will also change accordingly. II. What kind of "on-chain US stocks" are you buying? The term "on-chain US stocks" is easily misleading because it lumps completely different products under the same name. Different products may have significant differences in legal attributes, underlying asset arrangements, user rights, and tax treatment. Some products are closer to on-chain credentials backed by real stocks, such as xStocks, which are 1:1 backed tokenized stocks. The underlying logic is that the issuer or related structure holds real stocks, and then maps the economic rights into tokens. Other products are more like derivative contracts; Robinhood EU Stock Tokens are a representative example. Robinhood's official page explicitly states that Stock Tokens are MiFID II derivatives and do not grant users rights to the underlying stock or ETP. Both of these products can be roughly called "on-chain US stocks" by the market, but their legal structures are completely different, and their tax claims can differ by more than double. If users hold rights closer to real stocks, then issues such as dividends, withholding tax, custody, potential US estate tax, corporate action, and bankruptcy remoteness are difficult to avoid. However, if users hold derivative contracts, then the questions become: Is the return considered capital gain, derivative income, or other contractual income? Does the user have rights to the underlying stock? When the issuer or service provider encounters problems, where is the user's recourse? These cannot be understood in the traditional way of holding shares. Therefore, before discussing "whether trading on-chain US stocks is taxable," we must first ask a more fundamental question: **Are you actually buying stocks?** This will directly affect the subsequent tax treatment. III. CRS and CARF are redefining the tax boundaries of on-chain US stocks for non-US users. Many non-US users have an intuition about on-chain US stocks: since they are not buying through traditional brokerage accounts, but rather using stablecoins to obtain US stock exposure on-chain, does that mean they are bypassing the traditional tax system? The answer is not that simple. Taking Chinese tax residents investing in US stocks through overseas brokerages such as Interactive Brokers and Tiger Brokers as an example, they typically face two layers of taxation: one in the US and one in their tax residency location. In the US, capital gains from the sale of US stocks by ordinary non-US tax residents are generally not directly taxed by the US; however, US stock dividends are usually withheld, with a default tax rate of 30%, which can usually be reduced to 10% if W8BEN is completed and the US-China tax treaty applies. Back in China, resident individuals are generally still obligated to report foreign income. Dividends may be treated as "interest, dividends, and bonuses," and the portion withheld by the US can be credited according to regulations. Gains from the transfer of overseas stocks may also be taxable. For traditional US stock investments, the tax outcome usually depends on the combined effect of the US withholding arrangements and the rules of the tax residency location. If users trade xStocks through KYC platforms like Kraken, the platform still retains control over the user's identity, account, and transaction records. These transaction paths remain within the reach of regulatory and information reporting systems. Compared to completely non-custodial P2P transfers, these platform paths are more likely to be included in CRS, CARF, or local tax information reporting frameworks in the future. Simply put, CRS primarily covers traditional financial accounts, while CARF is gradually covering on-chain asset service providers. With the advancement of CARF, crypto asset service providers are becoming new reporting nodes, with the UK, EU, Japan, and South Korea making rapid progress, and jurisdictions such as Hong Kong, Singapore, Switzerland, and the UAE having entered subsequent exchange schedules. The visibility of on-chain US stocks has not disappeared; it has simply extended from brokerage accounts to platforms, addresses, and transaction paths. Of course, in the short term, there are still enforcement gaps for non-KYC, P2P, and self-custodial paths. Tax authorities cannot cover all on-chain transactions overnight. However, for users accessing on-chain US stocks through KYC platforms, this arbitrage opportunity is narrowing. xStocks' dividend mechanism provides a clear example. Kraken's official FAQ explicitly states that xStocks' rebasing calculation uses net dividends after deducting 30% US withholding tax. In other words, xStocks doesn't circumvent US dividend tax; instead, it first processes the dividend tax and then embeds the after-tax result into the product-level rebasing calculation. Users may not see a tax return directly like with traditional brokerage accounts, but the token adjustment result they see is already the after-tax net amount. This is the first counterintuitive aspect of on-chain US stocks: it doesn't make tax disappear, but rather hides tax processing within the product mechanism and platform structure. For non-US users, the real change in on-chain US stocks lies in the way tax processing and information reporting are presented. Under the traditional US stock path, related obligations are primarily identified through brokerage accounts, tax forms, and CRS; after going on-chain, this relationship will be more reflected in product mechanisms, KYC platforms, CARF reports, and user self-reporting. The tax obligations themselves do not disappear simply because assets are on-chain. Fourth, with the entry of US users: On-chain US stocks will be pulled back into the complete IRS tax system. If non-US users face CRS, CARF, US dividend withholding, and reporting in their country of residence, then US users face a more direct IRS tax system. This is a question that on-chain US stocks must answer after the SEC's innovative exemptions truly change the user structure. First is capital gains tax. In traditional brokerage accounts, when US users buy and sell stocks, the brokerage records the purchase price, selling price, holding period, dividends, and cost basis, and provides the user and the IRS with corresponding tax forms at the end of the year. Short-term capital gains are typically taxed at the ordinary income tax rate, while long-term capital gains are subject to a relatively lower long-term capital gains tax rate. For ordinary stock investors, this system, while complex, is at least supported by mature account and reporting systems. The on-chain environment will further fragment this system. If tokenized stocks are only traded within compliant platforms, tax records are relatively controllable; however, once they enter wallets, AMMs, lending protocols, cross-chain bridges, and yield strategies, cost basis, holding period, and taxable events become rapidly complex. A swap may constitute a disposal, LP inflows and outflows may bring new tax events, and collateralized lending, liquidation, cross-chain packaging, and re-staking can all change a user's tax records. What is automatically processed by the back-end system in traditional brokerage accounts may be scattered across multiple addresses, protocols, and transaction paths on the blockchain. However, the US 1099-DA reporting framework for digital asset transactions is bringing some digital asset transactions into a more explicit information reporting system. For tokenized securities treated as stocks or securities, the IRS form design already includes reporting items such as "wash sale loss disallowed." If a certain type of on-chain US stock is identified as a security or stock, it will not be simply treated as a regular crypto token, but may be pulled back into securities tax rules. This is especially important for DeFi users. In the past, ordinary crypto assets were usually considered property under US tax law, not security, so wash sale rules did not automatically apply. A common practice among crypto users is to sell losing assets, confirm the loss, and then quickly buy them back to reap the tax loss. However, if tokenized stocks are identified as stocks or securities, this practice may fall under the scope of wash sale rules. The tax strategies familiar to DeFi users may not be directly applicable to on-chain US stocks. A deeper issue arises: on-chain US stocks not only affect transaction taxes but also inheritance arrangements. For US users, stock assets are already subject to estate tax. On-chain US stocks, if representing securities interests or related exposures, do not automatically escape estate tax considerations simply because they exist in token form. On the contrary, self-custody introduces new problems not present in traditional brokerage accounts: how are private keys inherited, how are wallet addresses included in estate planning, how heirs prove and receive assets, how is asset valuation determined, and how are related records explained to tax authorities? In the traditional financial system, brokerage accounts, bank accounts, and custodian institutions at least provide relatively clear asset records and inheritance paths; however, in a self-custody environment, if private keys are not properly managed, assets may be technically impossible to inherit. If private keys are included in wills, trusts, or other inheritance arrangements, assets will re-enter the estate declaration and tax processing process. Therefore, self-custody is not about "circumventing estate tax"; it simply complicates the relationship between asset control, inheritance arrangements, and tax reporting. This is also the most pressing issue for on-chain US stocks entering the US market: the trading experience can be simplified on the front end, but tax records and inheritance arrangements cannot be erased. A user can complete a tokenized stock swap in their wallet, but the cost basis, holding period, profit and loss calculations, reporting obligations, and future inheritance path behind this transaction still need to be recorded, explained, and borne by someone. If these issues remain unresolved, on-chain US stocks will struggle to become a truly mainstream product for US users. It can offer 24/7 trading, stablecoin settlement, and AMM liquidity, but as long as tax records, cost basis, reporting obligations, and inheritance arrangements cannot be clearly addressed, it still cannot fully assume the institutional functions of the traditional stock market. With the entry of US users, on-chain US stocks are no longer just a simple matter of "putting stocks on-chain," but rather a story of how IRS, wallets, trading platforms, and DeFi protocols jointly rebuild an on-chain securities tax infrastructure. V. Conclusion: On-chain Doesn't Take Taxes Off-chain Returning to the bigger question behind the SEC's innovation exemption: Will the future financial market still need so many intermediary layers? On-chain US stocks provide the answer: intermediary layers will not disappear, but will reappear in a different form. In the past, stock trading had a mature division of labor: brokerages were responsible for accounts and client relationships, custodians and clearinghouses were responsible for assets and settlement, trading venues were responsible for market rules, tax forms were responsible for recording revenue and cost bases, and investor protection systems were responsible for handling disputes and risk boundaries. What users saw was a simple US stock account, but behind it was actually a complex financial infrastructure. On-chain US stocks dismantle this structure. Accounts may become wallet addresses, transactions may enter AMMs, assets may be held by issuers or custodian structures, and tax records may be scattered across platforms, protocols, and users' own reporting materials. The middle layer hasn't died; it has simply migrated from traditional brokerages and clearing systems to issuers, KYC platforms, CASPs, wallets, front-ends, and reporting frameworks. However, going on-chain doesn't detach it from the real financial system. The closer it gets to real stocks, the more on-chain US stocks need to answer the inherent questions of real stocks: Who collects taxes, who identifies identities, who confirms rights, who bears custody risks, who arranges inheritance paths, and what risk warnings users should see before trading? The SEC's innovation exemption doesn't give on-chain stocks a "tax-free pass"; it will systematically overlay a more complete compliance network on on-chain US stocks for the first time. Tokenized stocks put shares on the blockchain, but not taxes. Behind every future on-chain transfer, there could be an unseen 1099 form and an unprinted estate tax bill.
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