Tokenized stocks could reshape who can own U.S. securities

The next major change in how U.S. stocks trade may already be underway, as tokenization creates digital representations of securities that can move on blockchain infrastructure, CNBC reported.

The Securities and Exchange Commission cleared a path forward in September by allowing certain platforms to trade tokenized stocks under specific conditions. The pathway is temporary while the agency considers more durable rules, but it gave the technology a regulatory foothold that it previously lacked, as CNBC detailed. The DTCC, the depository that settles U.S. stock trades, launched its own tokenization service in October with 34 securities available to tokenize, including select large-cap stocks, exchange-traded funds, and U.S. Treasurys.

The U.S. equity market has repeatedly changed its underlying mechanics while the asset itself has remained the same. Trading moved from floors and phone calls to electronic venues. Settlement cycles compressed from five days to one. Commissions fell to zero. Fractional shares and online brokerages expanded retail participation. Tokenization is the next step in that progression, and it could change not only how and when a security trades, but who can access it and what investors can do with it once they own it.

For U.S. investors, buying shares of Nvidia or Apple is already cheap and simple, so tokenization offers relatively little additional value. The more consequential use cases emerge where the existing system is constrained. The clearest example is global access. Robinhood’s tokenized-equity offering is available across more than 120 countries outside the United States, and the company said much of the demand has come from investors who previously needed more complicated structures to gain exposure to U.S. securities. Broadridge separately said the largest source of demand it currently sees for tokenized equities is global investors seeking access to U.S. shares, including during their own local market hours.

The comparison is stablecoins. Just as stablecoins made it easier for investors around the world to access U.S. dollars without a U.S. bank account, tokenized stocks could make it easier to access U.S. capital markets without a U.S. brokerage. A investor in Lagos or Mumbai who wants to own a piece of the S&P 500 can do it through a tokenized wrapper rather than navigating the legal and custodial requirements of opening a U.S. account. That is the use case that could drive adoption at scale.

Private market access is the second use case. Public investing has gone through several rounds of democratization: online brokerages, zero commissions, fractional shares. Private markets remain much harder to access. Individual investors often do not gain exposure to fast-growing companies until an initial public offering, and private investments can require large minimum commitments, complex legal structures, and accredited-investor status. Tokenization could divide a large private-market position into smaller units and distribute them through digital platforms, reducing minimum investment sizes and making access easier for a broader set of investors.

The most significant change may be in what happens after an investor owns a stock. Today, owning a stock is a static experience: buy it, hold it, eventually sell it. Tokenized assets can interact with smart contracts and other blockchain-based financial applications. A tokenized Treasury can be pledged as collateral in a lending transaction without leaving the blockchain. A tokenized stock can be transferred across networks or incorporated into another financial transaction. Broadridge’s distributed-ledger repo platform already allows banks to move tokenized representations of collateral between entities, keeping the underlying securities immobilized while the digital representation moves.

The transition is likely to be additive rather than substitutive. Ondo Finance, a decentralized platform set up by former Goldman Sachs executives, issues tokenized notes backed by shares held through traditional market infrastructure. Investors can hold and transfer those instruments on-chain, but the underlying shares remain inside the existing financial system. The DTCC’s service similarly allows securities held at the depository to be represented in tokenized form while remaining connected to the existing custody and recordkeeping system. The tokenized market is being built on top of the traditional market, not beside it.

What I think

The global access argument is the one that will drive adoption. U.S. capital markets are the deepest and most liquid in the world, and investors everywhere want access to them. The current system for providing that access is slow, expensive, and legally complex. Tokenization can bypass much of that complexity by letting investors hold a digital representation of a U.S. security on a blockchain, without a U.S. brokerage account or a U.S. custodian. Robinhood’s 120-country offering is the proof of concept, and the demand is real. This is the use case that matters most in the short term.

The private market argument is more speculative. Tokenization can reduce minimum investment sizes and simplify distribution, but it does not solve the problems that keep private markets private. Accreditation requirements still exist. Disclosure and due diligence still matter. Putting an illiquid asset on a blockchain does not create liquidity; it just makes it easier to transfer. The real barrier to private market access is not the mechanics of buying and selling. It is the information asymmetry between the company and the investor, and tokenization does not address that. Private market tokenization will happen, but it will be slower than the global access use case.

The programmable stock argument is the most interesting and the hardest to evaluate. The idea that a stock can be pledged as collateral, incorporated into a lending transaction, or moved across financial applications without leaving the blockchain is powerful. Broadridge’s repo platform is an early institutional example, and it shows that the concept works. But the institutional use case is very different from the retail use case. A bank moving tokenized collateral between entities is not the same as a retail investor using a tokenized stock in a DeFi protocol. The institutional case will grow because it solves real problems in the plumbing of the financial system. The retail case will grow more slowly because the risks are harder to manage and the regulatory framework is still taking shape.

The SEC’s temporary pathway is the right approach. Tokenization is too new for permanent rules, and the technology is evolving too quickly for a rigid framework. The temporary pathway lets the market develop while the SEC watches and learns. The risk is that the pathway is withdrawn if something goes wrong, and something will go wrong eventually. A tokenized stock that breaks, a smart contract that fails, or a custody arrangement that collapses will test the SEC’s commitment to the experiment. But the direction is clear. The market has been evolving for centuries, and tokenization is the next step. The question is not whether it happens but how long it takes and who benefits.