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What are tokenized stocks? Explained
Tokenized stocks “will very much lead to a similar innovation in asset management and brokerage” as stablecoins did for payments.
Tokenization takes traditional assets — like cash or equities — and represents them as digital tokens on blockchain rails.
Tokenized stocks follow the same three‑step process as stablecoins.
First, the underlying stock is placed in a custodian or clearing broker account and immobilized. Second, a token is issued on a blockchain to represent that share. Third, the token can move freely on‑chain, granting holders a digital claim on the locked stock.
Explained: What is tokenization?
How tokenized stocks work
Stablecoins work by having cash held in reserve and issuing tokens redeemable for the underlying value. Tokenizing stocks applies the same model. Stocks are held at a custodian or via the DTCC, then tokens are minted one‑for‑one. These tokens can be distributed globally — especially to non‑US investors — and settle instantly.
Because blockchain rails run 24‑7, tokens move at any hour without traditional trading‑hour limits. Billions of people lack easy access to U.S. markets. Tokenized stocks and ETFs open those markets by eliminating high minimum balances and fees.
“Just like the stablecoin gave global access to the U.S. dollar, tokenizing stocks and ETFs can give global access to U.S. capital markets,” he said.
Explained: What are memecoins?
Global access and DeFi integration
Beyond access, tokenized stocks are programmable. They integrate with smart contracts — self‑executing code on blockchains — that automate functions such as lending or collateralization. In DeFi, users could pledge tokenized stocks as collateral for margin loans without manual intervention. With tokens, investors enjoy consistent, algorithm‑driven terms and can move collateral freely.
Crypto exchanges and brokerages are expected to adopt tokenized stocks to offer U.S. equities to their global customers.
To ensure tokens track their underlying, instant minting and burning will be supported. Large market makers can arbitrage any on‑chain price divergence, maintaining stability. Tokens will carry a small collateral buffer and be fully backed by the underlying stock or ETF, plus yield dividends reinvested in custody.
Ondo Global Markets
Ondo Global Markets is an upcoming platform for tokenized U.S. stocks and ETFs. “The platform will tokenize publicly listed equities, so U.S. stocks and ETFs that trade with sufficient liquidity 24‑5,” he said.
“These stocks are going to be issued in a stablecoin‑like structure, but to non-US investors. The token on-chain is always backed one for one with a stock or a corresponding stock or ETF sitting at the clearing broker account, plus a small collateral buffer on top to make sure that everything is always over collateralized.”
The platform will support instant minting and burning so global holders can trade 24‑7 with full economic exposure.
Investor protections and U.S. rollout
Tokens are issued as debt instruments, giving holders a senior secured claim on collateral. This structure ensures token holders can redeem at par value and are protected if the issuer defaults.
Transparency around reserves and legal rights are critical for investor confidence. Currently, tokens are offered only to non‑US investors under a continuous‑registration exemption.
Engagement with the SEC is ongoing, with plans to acquire a regulated broker‑dealer to serve U.S. investors. Discussions with the SEC on providing relief for tokenized equities are positive.
By mirroring stablecoin innovation, tokenized stocks promise to transform asset management and brokerage for a global audience — offering 24‑7 access, seamless programmability, and robust protections for the next era of digital finance.
This article has been published in TheStreet via Yahoo News.
