SEC proposal to repeal Rule 611 and Rule 610(e) could unlock DeFi stock token trading via AMMs

Alex Thorn, head of research at Galaxy Digital, has identified a pivotal regulatory shift where proposed changes to U.S. Securities and Exchange Commission (SEC) market rules could dismantle barriers preventing stock token trading on decentralized finance platforms. In a detailed analysis posted on X, Thorn pinpointed two specific regulatory frameworks, Rule 611 known as the Order Protection Rule and Rule 610(e) which restricts locked and crossed markets, as the primary impediments to utilizing automated market makers for tokenized equities. These regulations were originally architected for traditional order-book-based stock exchanges and lack provisions for decentralized or automated trading mechanisms. Data compiled by Woofun AI indicates that these legacy rules effectively prevent DeFi protocols from efficiently facilitating trades in tokenized stocks because AMMs rely on continuous liquidity pools rather than matched order books. The SEC has now proposed repealing both Rule 611 and Rule 610(e) as part of a broader initiative to modernize market structure, a move that would remove the mandate requiring trades to occur at the best available price across all exchanges, a standard difficult to enforce within a DeFi environment. Thorn argues that this repeal would establish a regulatory framework where AMMs could legally and efficiently handle stock tokens, addressing a long-standing goal for the blockchain sector to tokenize traditional assets. Proponents suggest that stock tokens could deliver faster settlement, 24/7 trading, and broader global access, yet regulatory uncertainty has previously kept most institutional players on the sidelines. Woofun AI notes that the SEC's current proposal, while still in early stages, represents one of the most concrete signals that U.S. regulators may be willing to adapt existing rules to accommodate blockchain-based financial infrastructure. Galaxy Digital, a crypto-focused financial services firm with significant institutional exposure, has been actively involved in the tokenization space, and Thorn's comments suggest the firm views regulatory reform as a catalyst for bringing traditional equities onto blockchain rails. If the SEC moves forward with the repeal, it could fundamentally reshape how tokenized equities are traded, allowing AMMs, which are already widely used for crypto tokens, to become the primary mechanism for stock token trading. This transition would likely reduce reliance on traditional broker-dealers and centralized exchanges, increasing competition in the equity trading space and potentially leading to lower fees and faster execution times for end users.

However, critics caution that removing the Order Protection Rule could fragment liquidity and create pricing inefficiencies, particularly for less liquid stocks. The proposal remains subject to a public comment period and final SEC approval, with industry participants watching closely as the outcome could set a precedent for how other securities regulations are applied to decentralized systems. Woofun AI analysis suggests that the SEC's proposed repeal of Rule 611 and Rule 610(e) marks a notable shift in the conversation around how existing securities laws must evolve to accommodate blockchain-based trading systems, even as the industry awaits the final decision.