Wall Street Races to Tokenize the Entire Stock Market: What’s Next?

by

Here is why Wall Street is racing to tokenize the entire stock marketFinance

What to know:

  • Tokenization is moving from experimental “wrappers” toward blockchain-native securities, as shown by Bullish’s $4.2 billion deal for transfer agent Equiniti to issue and record shares directly on-chain.
  • Index providers and large asset managers are wrestling with how to treat tokenized shares in measures such as float-adjusted market capitalization, given custody limits, multiple token versions of the same stock, and 24/7 trading.
  • Proponents say true onchain issuance could unlock faster settlement, more efficient collateral use and richer ownership data for issuers, but it also creates new challenges around pricing, benchmarks and market structure as traditional and tokenized markets converge.

As a researcher in the crypto space, I’m seeing a lot of excitement around tokenization. Essentially, it’s about bringing traditional assets – things like stocks, bonds, and funds – onto blockchains. This would allow them to be traded and managed 24/7, which is a huge potential benefit.

Supporters say the result could reshape financial markets. Trading could happen 24/7.

As an analyst, I’m seeing a real potential for dramatically faster settlements – we’re talking potentially near-instant instead of the current days-long process. This would allow investors to move their collateral much more quickly across different markets. Importantly, it also offers firms a chance to significantly reduce costs associated with their older, decades-old back-office systems.

Around-the-clock trading of digital securities offers investors greater freedom to use their shares as collateral for loans or other purposes. It also gives companies a clearer picture of who owns and trades their stock. This increased transparency can boost demand for shares and lower the cost of raising capital in public markets.

Converting traditional investments like stocks into blockchain-based assets is more complex than just making digital copies of them. This difference is gaining significant attention on Wall Street.

Last week, Bullish, the company that owns CoinDesk, announced it was buying Equiniti for $4.2 billion. Equiniti handles a critical but often unseen part of the financial system – keeping track of who owns stock in companies.

As a crypto investor, I’ve been learning more about how traditional markets work, and it’s interesting to see how ownership of stock is actually managed. Basically, there are companies – transfer agents – that keep the official record of who owns shares in a company. They’re responsible for everything from tracking ownership and issuing new stock, to making sure everyone gets their dividends and handling things like stock splits. It’s a crucial part of keeping the stock market running smoothly.

During Thursday’s earnings call, CEO Tom Farley explained that a lot of the current market for tokenized stocks isn’t based on true blockchain technology. He said many tokens are essentially promises to deliver stock later – like IOUs – rather than being actual digital securities built on the blockchain.

Many recently created stock tokens aren’t actual shares of the company. Instead, they’re designed to follow the price of traditional stocks held in other places. This means investors benefit from price changes, but the token itself isn’t a legally registered share of stock according to the company’s official records.

As a researcher, I found Farley’s point about owning the transfer-agent layer particularly interesting. He believes it would enable companies to issue tokenized shares directly into existing shareholder records from the beginning. This is a significant change because it could foster greater transparency and connection between shareholders and company executives, allowing both sides to better understand each other.

During the call, Farley explained that this new system lets companies see how frequently their stock is being traded, identify the traders involved, and understand how many investors are holding onto their shares for the long term.

Throughout my career working with investor relations and CFOs of public companies, the biggest complaint I consistently hear is a lack of visibility. The existing infrastructure, built over centuries, severely limits the information they receive. We experience this firsthand as a public company – it’s actually quite surprising how little we know about who our own shareholders are. That’s why the potential of tokenization to provide more detailed shareholder information is so appealing.

Tokenized stocks allow for trading around the clock, even on weekends or when U.S. markets are closed, which benefits investors in places like Asia who want to trade U.S. securities at any time, according to one expert.

Accounting for tokenized stocks

However, established financial companies, crypto firms, and index providers are now facing fundamental questions, such as how tokenized stocks will interact with traditional stock markets.

FTSE Russell is now actively dealing with the practical implications of tokenized stocks. Kristine Mierzwa, who leads their digital asset efforts, explains that these tokens are prompting discussions about how to accurately measure things like trading activity, a company’s total value, and whether or not to include them in market indexes.

In a CoinDesk interview, Mierzwa questioned how to factor shares issued as tokens by companies like Galaxy into the overall market capitalization. Specifically, he asked whether these tokenized shares should be included when calculating the total number of shares available for trading.

That question cuts to the center of how modern equity indexes work.

Indexes like the Russell 3000 use a company’s market value – specifically, the value of shares available to the public – to determine rankings. As companies explore issuing shares both through standard stock exchanges and as digital tokens on blockchains, index providers face a question: should these tokenized shares be counted when calculating a company’s official market value and index ranking?

It’s not straightforward to handle new digital assets. Many established investment firms currently lack the ability to directly hold tokenized securities. Large investors like pension and mutual funds usually depend on trusted custodians and established financial systems, which weren’t built to support these blockchain-based assets.

Mierzwa explained that some of FTSE Russell’s expert panels are hesitant about tokenized shares because of practical concerns. She stated that large investment firms won’t include shares in their calculations if they can’t securely hold and manage them.

This position might not hold for much longer. Over the last two years, large financial institutions and banks have been rapidly developing blockchain technology, moving beyond simply testing digital tokens to building a wider-reaching infrastructure.

Mierzwa believes that eventually, all custodians will be handling tokens.

Talk about tokenization has really picked up lately, with both cryptocurrency companies and traditional financial institutions making a lot of announcements about it.

Major financial firms like BlackRock, Franklin Templeton, and Apollo are increasingly offering investment funds as tokens. Platforms such as Robinhood and Kraken are testing tokenized stocks, while Coinbase is supporting projects that aim to integrate stablecoins and blockchain technology further into traditional financial markets.

As a researcher in this space, I’ve noticed a clear distinction being made between what some call ‘true native issuance’ and what others view as simply tokenized versions of existing assets. Mark Wendland, the CEO of Digital Asset Holdings – the company behind Canton Network – really highlighted this difference, suggesting it’s a fundamental split in how we approach digital asset creation.

As Wendland explained to CoinDesk, regulators in the U.S. believe tokenized securities should follow the same rules as traditional investments, and ‘a security is a security,’ regardless of its form.

The distinction matters because blockchain settlement changes how ownership moves through markets.

Currently, buying and selling stocks often involves multiple steps and takes a couple of days to finalize because of how securities and payments are transferred. Using digital tokens for securities could significantly speed up this process, potentially making trades settle almost instantly.

‘Much faster’

According to Wendland, the most significant potential benefit isn’t necessarily around-the-clock trading. He believes that improvements in how collateral is used and how efficiently capital is managed offer even greater opportunities.

Traditional financial systems require large firms to frequently transfer assets between different parties like brokers and clearinghouses. These transfers can be slow, which means money is temporarily unavailable for other investments.

According to Wendland, if collateral typically takes one or two days to move, but now moves almost instantly, the speed at which it can be transferred significantly increases.

That means firms could potentially deploy the same capital more efficiently across markets.

Currently, if a trading firm uses Treasury securities as collateral, it can take days to get any extra collateral back. Using blockchain technology, that process could potentially happen in just hours or even minutes.

Proponents argue that these improvements could ultimately save companies billions of dollars in areas like stock trading, short-term borrowing, and complex financial agreements.

Price discovery

Still, tokenization creates entirely new market structure problems. One issue involves pricing.

Unlike traditional stock markets which are closed overnight and on weekends, tokenized assets can be traded continuously. For example, imagine Apple stock being traded on a blockchain over the weekend. If the price on that blockchain differs significantly from the price when the Nasdaq opens on Monday, companies will need to determine which price truly reflects the asset’s value.

She thought the discount seemed surprisingly large, and she was curious to understand what was driving the price changes.

It gets even trickier when a stock has several different digital representations at the same time.

Certain digital tokens representing company shares might come with dividend payments, while others won’t. Some versions could be managed by a traditional, regulated financial institution, while others will trade openly on a decentralized network. This could lead to the creation of different types of shares for the same company, all existing on the blockchain. According to Mierzwa, this could result in varying prices and how easily they can be bought or sold.

Index providers might eventually have to develop methods for tracking securities that are available in multiple tokenized forms, similar to how they currently handle different share classes like Class A or Class B stocks. This would involve combining the trading activity from all those different versions to get an accurate overall picture.

Timing also creates operational headaches.

Traditional financial benchmarks depend on market data being consistent across different types of investments, like stocks, bonds, and currencies. However, new digital markets that operate 24/7 might not fit easily with these standard trading times.

Currently, foreign exchange hedging markets are mostly closed on weekends. If stocks represented as digital tokens trade continuously, but currency hedging stops, companies that track market indexes might need to use estimates to determine accurate values during those periods when hedging isn’t available.

Even stablecoins introduce related challenges.

Many companies that issue stablecoins hold U.S. Treasury bonds as reserves. However, these bond markets aren’t open 24/7. This creates a potential problem: if a lot of stablecoin users try to cash out on a weekend, issuers might not have enough readily available funds, because traditional financial systems aren’t always operating at the same time as the crypto markets.

These worries are a key reason banks are now focusing on creating their own private blockchain networks instead of linking up with public, decentralized finance systems.

Mierzwa explained that many big financial companies are building closed systems – like secure, self-contained environments – where digital assets can be traded while still meeting regulatory requirements, verifying identities, and maintaining strong security.

Look, I get that some in the crypto space are all about being anti-establishment, but honestly, this feels like how things *always* happen with new tech and finance. Banks aren’t going to just hand over control. They see the potential for blockchain to make things faster and cheaper, but they still want the safety nets they’re used to – things like insurance and dealing with regulated companies. Meanwhile, the real crypto innovators are still moving at lightning speed, building things way faster than most banks ever thought possible. It’s a bit of a clash of cultures, but it’s also kind of exciting to watch.

Mierzwa believes significant progress toward compatibility will happen much sooner than a decade. He predicts we’ll see more systems working together within the next two or three years.

Read More

2026-05-14 23:48