Written by: Lacie Zhang, Bitget Wallet Researcher

On May 18, Bloomberg cited informed sources reporting that the SEC might soon issue an "Innovation Exemption" for tokenized stocks, allowing crypto platforms to trade on-chain versions of publicly traded company stocks. These tokens may circulate on decentralized platforms, may not require the consent or endorsement of the listed companies, and may not necessarily confer traditional shareholder rights, such as voting rights or dividend rights.

However, due to opposition from certain Wall Street institutions, the SEC decided to postpone the advancement. But this is one of the core actions promoted under "Project Crypto" since the appointment of SEC Chair Paul Atkins. However, the road is expected to be arduous and the journey, although long, will eventually arrive. Similarly, for the RWA market, this is undoubtedly a sufficiently imaginative signal. 24/7 trading, instant settlement, fractional ownership, stablecoin payments, and the absence of traditional brokers or banks could make on-chain US stocks, potentially worth trillions, a true testing ground for bridging DeFi and TradFi, serving as a catalyst for the next round of the crypto bull market.

But the closer the on-chain US stocks come to real stocks, the less likely they can be just an upgraded trading experience. As long as the underlying assets still connect to real securities or securities exposures, traditional financial rules regarding taxes, rights, custody, inheritance, and information disclosure will not naturally disappear by "going on-chain." In the past, these responsibilities were borne separately by brokers, custodians, clearing institutions, tax reporting systems, and investor protection frameworks; once stocks become tokens and enter wallets, AMMs, lending protocols, and cross-border liquidity networks, responsibilities and duties must be reassigned within the new on-chain structure.

One of the core issues is taxation. Do on-chain US stocks really circumvent US dividend taxes? Will non-US users purchasing US stock exposure via stablecoins still enter CRS or CARF's cross-border information exchange? If the SEC's Innovation Exemption allows domestic US users to participate, who will bear the responsibilities for 1099-DA, wash sales, cost basis, and IRS reporting?

These "invisible ledgers" are precisely what the SEC's Innovation Exemption aims to test post-implementation.

1. On-chain US stocks have always been "cross-border exposure products for non-US users"

Today's mainstream on-chain US stock products are essentially cross-border exposure products aimed at non-US users and are almost entirely not available to domestic US users:

• xStocks (Backed Finance × Kraken), explicitly excludes the United States, Canada, and other restricted jurisdictions
• Robinhood EU Stock Tokens, only offered within the EU
• RWA platforms such as Securitize and Ondo, mainly operate under Reg D private placements and do not distribute to retail US users

The reasons are not mysterious. Once aimed at domestic US users, on-chain US stocks face not only product design issues but also the complete regulatory framework of the securities market. Whether it's the registration or exemption requirements under the 1933 Securities Act or the broker-dealer, Reg ATS, Reg NMS, KYC, AML, tax reporting, and investor protection obligations involved in retail distribution, regulations, issuance, and distribution costs will significantly increase. Therefore, many products choose to start from non-US markets and do not directly enter the US retail distribution system.

The aim of the SEC's Innovation Exemption is to reopen this door that has been closed to US users. In Bloomberg's report, three things are laid out at once: third-party tokens can circulate without the issuer's consent, do not need to complete full broker-dealer registration, and can circulate on DeFi platforms. Hester Peirce is a crucial advocate for this direction, and Paul Atkins has incorporated it into the overall framework of Project Crypto by 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 how expressed, remain securities. The Innovation Exemption does not change the legal nature of on-chain US stock assets; the most significant impact will change the user structure of on-chain US stocks. If domestic US users begin to be included, the taxation, compliance, and investor protection framework that products face will also change accordingly.

2. What kind of "on-chain US stock" are you buying?

The term "on-chain US stock" can easily mislead users because it lumps entirely 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 certificates backed by real stocks, such as xStocks as a 1:1 backed tokenized stock, where the underlying logic is that the issuer or related structure holds real stocks and maps the economic rights in token form. Other products resemble derivative contracts, with Robinhood EU Stock Tokens being a typical case. The Robinhood official page clearly states that Stock Tokens are derivatives under MiFID II and do not grant users rights to the underlying stocks or ETFs.

Both products may be roughly called "on-chain US stocks" by the market, but their legal structures are entirely different, and the tax implications may differ by more than a factor of one. If users hold rights that are closer to real stocks, then issues such as dividends, withholding taxes, custody, potential US estate taxes, corporate actions, and bankruptcy isolation are difficult to avoid. But if users hold derivative contracts, the questions shift to: Are the earnings counted as capital gains, derivative earnings, or other contractual earnings? Do users have rights to the underlying stocks? If the issuer or service provider faces issues, where is the user's recourse? None of this can be understood in terms of traditional stockholding.

Therefore, before discussing "whether to pay taxes for trading on-chain US stocks," a more fundamental question must be asked: Are you actually buying stocks? This will directly affect subsequent tax treatment methods.

3. CRS and CARF are redefining the tax boundaries for non-US users in on-chain US stocks

Many non-US users have an intuition about on-chain US stocks: since they are not buying through traditional broker accounts but instead obtaining US stock exposure on-chain with stablecoins, does this mean they have circumvented the traditional tax system?

The answer is not so simple.

Take Chinese tax residents investing in US stocks through offshore brokers like Interactive Brokers or Tiger Brokers as an example. Typically, they face two levels of tax obligations, one in the US and one at their tax residency location. In the US, capital gains realized from the sale of US stocks by non-US tax residents are generally not subject to tax; however, US stock dividends are usually withheld at a default tax rate of 30%, which may be reduced to 10% if a W-8BEN form is completed and a US-China tax treaty is applied. Back in China, individual residents are generally still obligated to report foreign income, and dividends may be treated as "interest, dividends, and bonus income," with previously withheld amounts eligible for credit under applicable rules. Moreover, the transfer of foreign stock gains may also fall under taxable categories. For traditional US stock investments, the tax outcome usually depends on the combined effects of US withholding arrangements and the rules in the taxpayer's residence jurisdiction.

If users trade xStocks through KYC platforms like Kraken, the platform still holds user identity, accounts, and transaction records, and this trading path remains within the oversight and reporting system bounds. Compared to completely non-custodial P2P transfers, this platform path is more likely to enter CRS, CARF, or local tax information reporting frameworks in the future. It can be simply understood that while CRS mainly covers traditional financial accounts, CARF is gradually covering on-chain asset service providers. As CARF advances, crypto asset service providers are becoming new reporting nodes, with rapid progress in regions like the UK, EU, Japan, and South Korea, and areas such as Hong Kong, Singapore, Switzerland, and the UAE also entering later exchange timelines. The visibility of on-chain US stocks has not disappeared; it has merely extended from brokerage accounts to platforms, addresses, and transaction pathways.

Of course, in the short term, non-KYC, P2P, and self-custody paths still have execution gaps. Tax authorities cannot cover all on-chain trades overnight. However, for users entering on-chain US stocks through KYC platforms, this arbitrage opportunity is narrowing.

The dividend mechanism of xStocks also provides a very intuitive example. The Kraken official FAQ clearly states that the rebasing calculation for xStocks uses the net dividend after the 30% US withholding tax has been deducted. This means that xStocks does not bypass US dividend taxes; rather, it first processes the dividend tax and then embeds the after-tax result in the product-level rebasing calculations. Users may not see the tax forms as they would with traditional broker accounts, but the token adjustment outcome they observe is already the after-tax net amount.

This is the first counterintuitive aspect of on-chain US stocks:

It hasn’t made taxes disappear; instead, it has hidden tax processing within the product mechanism and platform structure.

For non-US users, what has truly changed about on-chain US stocks is how tax treatment and information reporting are presented. Under traditional US stock pathways, related obligations are identified more through brokerage accounts, tax forms, and CRS; once it enters on-chain, this relationship reflects more within product mechanisms, KYC platforms, CARF reports, and user self-reporting, and the tax obligations themselves have not evaporated simply because assets are on-chain.

4. After domestic US users enter: On-chain US stocks will be brought back into the complete IRS tax system

If non-US users deal with CRS, CARF, US dividend withholding, and residence country reporting, then domestic US users face a much more direct IRS tax system. This is also the question that on-chain US stocks must address once the user structure is genuinely altered by the SEC's Innovation Exemption.

First, there’s capital gains tax. In traditional brokerage accounts, when a US user buys and sells stocks, the broker will record the purchase price, selling price, holding period, dividends, and cost basis, and provide the corresponding tax form to both the user and the IRS at year-end. Short-term capital gains are usually taxed at ordinary income tax rates, while long-term capital gains benefit from relatively lower long-term capital gains tax rates. For regular stock investors, while this system is complex, at least there are mature account and reporting systems supporting it.

The on-chain environment will fragment this system further. If tokenized stocks trade only internally on compliant platforms, tax records may remain relatively controllable; but once they enter wallets, AMMs, lending protocols, cross-chain bridges, and yield strategies, cost basis, holding periods, and taxable events can quickly become more complicated. A single swap might constitute a disposal, entering and exiting LP might trigger new tax events, and collateralization, liquidation, cross-chain wrapping, and re-staking could all alter the user's tax records. What is automatically organized in traditional brokerage accounts by back-end systems might be dispersed across multiple addresses, protocols, and transaction paths on-chain.

However, the 1099-DA reporting framework targeted at digital asset transactions in the US is gradually incorporating some digital asset trades into a clearer information reporting system. For tokenized securities viewed as stocks or securities, IRS form designs have already included reportable items such as wash sale loss disallowed; if a particular class of on-chain US stocks is determined to possess characteristics of securities or stock assets, they will not be simply treated as regular crypto tokens but may be pulled back into the securities tax rules.

This is particularly important for DeFi users. In the past, ordinary crypto assets under US tax law were generally considered property rather than securities, thus wash sale rules do not automatically apply. Many crypto users are familiar with a practice of selling loss-making assets to realize losses and quickly buying them back to harvest tax losses. However, if tokenized stocks are recognized as stocks or securities, such practices may fall within the applicability of wash sale rules; tax strategies familiar to DeFi users may not necessarily carry over to on-chain US stocks.

A deeper issue is that on-chain US stocks not only affect transaction taxes but also impact inheritance arrangements.

For domestic US users, stock assets already enter the estate tax system. If on-chain US stocks represent securities rights or related exposures, their existence in token form does not exempt them from discussions of estate taxes. In fact, self-custody may introduce new challenges absent in traditional brokerage accounts: how to inherit private keys, how to incorporate wallet addresses into estate planning, how heirs can prove and receive the assets, how asset valuation is ascertained, and how related records are explained to tax authorities.

In the traditional financial system, broker accounts, bank accounts, and custodial institutions at least provide a relatively clear asset recording and inheritance pathway; but in a self-custody environment, if private keys are not appropriately managed, the assets may technically become un-inheritable. If private keys are included in wills, trusts, or other inheritance arrangements, assets will re-enter estate declaration and tax processing flows. Thus, self-custody does not equate to "evading estate taxes"; it merely complicates the relationships between asset control, inheritance arrangements, and tax reporting.

This is also the most realistic question about on-chain US stocks after entering the US domestic market: transaction experiences can be simplified at the front end, but tax records and inheritance arrangements cannot be erased by the front end. A user may perform a tokenized stock swap in their wallet, but the underlying cost basis, holding period, gain/loss calculations, reporting obligations, and future inheritance paths behind this transaction still require someone to record, explain, and bear responsibility.

If these questions remain unanswered, on-chain US stocks will struggle to become a popular product genuinely targeted at domestic US users. It may facilitate 24/7 trading, offer stablecoin settlement, and present AMM liquidity, but as long as tax records, cost bases, reporting obligations, and inheritance arrangements cannot be processed clearly, it will still fail to fully assume the systematic functions of the traditional stock market.

With the participation of domestic US users, on-chain US stocks are no longer just a simple "stock going on-chain"; it is a narrative about how the IRS, wallets, trading platforms, and DeFi protocols will collaboratively rebuild an on-chain securities tax infrastructure.

5. Conclusion: Going on-chain has not removed the tax burden

Returning to the larger question behind the SEC's Innovation Exemption: Will future financial markets still require so many intermediaries?

The answer from on-chain US stocks is that intermediaries will not disappear; they will merely reappear in a different form.

In the past, behind stock trading, there was a complete set of mature divisions of labor: brokers dealt with accounts and client relationships, custodians and clearing institutions were responsible for assets and settlements, exchanges dictated market rules, tax forms were in charge of recording profits and cost bases, and investor protection systems handled disputes and risk boundaries. Users saw a simple US stock account, but behind that was a complex financial infrastructure.

On-chain US stocks have dismantled this structure. Accounts may transform into wallet addresses, trades may enter AMMs, assets may be held by issuers or custodial structures, and tax records may spread across platforms, protocols, and users' self-reporting materials. The intermediaries are not gone; they have merely migrated from traditional brokerage and clearing systems into issuers, KYC platforms, CASP, wallets, front ends, and reporting frameworks.

However, going on-chain has not detached from the real financial system; the closer on-chain US stocks come to real stocks, the more they need to answer the existing questions about real stocks: who collects the taxes, who recognizes 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 is not giving on-chain stocks a "tax exemption pass"; it will systematically envelop the on-chain US stocks in a more complete compliance net for the first time. Tokenized stocks have gone on-chain, but taxes have not gone off-chain. In the future, behind every on-chain transfer, there may still be an invisible 1099 form and an unprinted estate tax form.

Note: This article is a market research and product structure analysis; it does not constitute legal, tax, or investment advice. Specific tax treatment depends on the user's tax residency status, product legal structure, trading paths, and local laws.