The Buzz Around a Blockchain-Powered Wall Street
A bold idea is captivating Wall Street this summer: moving the entire market for stocks and bonds onto the blockchain. This concept, known as tokenization, involves creating digital versions of traditional securities that can be traded, transferred, and tracked with the same technology that powers cryptocurrencies.
Proponents argue this shift could fundamentally reshape financial markets, making them more efficient by enabling near-instantaneous transactions, reducing costs, and opening access to investors worldwide. The excitement is palpable, fueled in part by recent moves from regulators. Last month, SEC Chair Paul Atkins announced a new crypto agenda aimed at modernizing securities rules “to enable America’s financial markets to move on-chain.”
This regulatory tailwind has some crypto evangelists convinced that the transition is imminent. “I would say definitely within the next five years—probably sooner, closer to two—I think large financial players will end up tokenizing [stocks and bonds],” said Thomas Cowan, head of tokenization at crypto financial-services firm Galaxy.
However, a chorus of legal and financial experts cautions that a complete overhaul of the financial system is a long way off. “A widespread shift from the current trading system to an exclusive blockchain-based system would be a real paradigm shift,” noted Marc Rotter, a capital-markets counsel at the law firm Ropes & Gray. He explained that such a change would require a top-to-bottom transformation affecting issuers, intermediaries, and investors, a process that could take a great deal of time to develop.
Trish O’Donnell, a partner at law firm Reed Smith, agrees, calling it “a generational switch” that could take decades as market participants gradually adapt from the traditional system.
Today’s “Stock Tokens”: A Glimpse, Not the Revolution
While firms like Robinhood, Kraken, and Bybit have launched stock tokens for investors outside the U.S., these are not the direct, on-chain assets envisioned by purists. Instead, they are “wrapped” versions. In this model, an exchange buys real shares from a broker-dealer and holds them in custody, issuing a token that represents ownership. When an investor sells the token, the exchange sells the underlying share.
According to Rob Hadick, general partner at Dragonfly, a crypto venture-capital firm, these products come with significant drawbacks, including low liquidity during off-market hours, a lack of shareholder rights, and the risk of the token’s value “depegging” from the actual stock price.
The Hurdles to True Tokenization
For stocks and bonds to primarily exist and operate on a blockchain, experts identify three major areas that need a complete overhaul.
1. The Regulatory Maze
The current regulatory framework was not designed for a decentralized, blockchain-based market. “A number of SEC rules, in particular, don’t contemplate transactions on a blockchain,” said Justin Browder, a partner at law firm Simpson Thacher. “They assume the existing market structure, which is an intermediated system where transactions flow through a central clearinghouse.”
A prime example is Regulation National Market System (Reg NMS), a set of rules from 2005 designed to ensure fair pricing across different trading venues. These rules rely on intermediaries like broker-dealers to route trades and publish price data. In a peer-to-peer blockchain system where investors can trade directly, it’s unclear how these transparency and fairness rules would apply.
Furthermore, the blockchain is not yet legally recognized as the official record of ownership. Seoyoung Kim, a finance professor at Santa Clara University, explains that a company’s transfer agent—its official recordkeeper—must still maintain the primary ledger off-chain, creating a duplicate, and less authoritative, version on the blockchain. “In the longer term, what we really hope to have happen is the blockchain itself become that source of truth,” said Galaxy’s Cowan.
2. Upgrading the “Digital Rails”
Even when assets are tokenized today by major players like BlackRock and Apollo, the underlying settlement processes still rely on traditional infrastructure. Louis LaValle, CEO of crypto investment manager Frontier Investments, argues that this misses the point.
“You have to have on-chain clearing and settlement if you want to have tokenized securities. Otherwise it’s like having a brand new wrapper on old rails—it just doesn’t work,” LaValle stated.
The true benefits of blockchain, such as near-instant settlement (compared to the current one-day standard), can only be realized if the core infrastructure is upgraded. This requires clearinghouses and exchanges to build and adopt new systems capable of handling on-chain transactions from start to finish.
3. The Widespread Adoption Challenge
Finally, a fully on-chain market requires near-universal participation. “It’s not necessarily the case that every one of the over 4,000 publicly listed companies out there today… are going to have an interest in having their securities represented in tokenized form,” Browder noted.
Even if issuers get on board, there must be enough liquidity in the secondary market to make trading efficient. Without a critical mass of buyers and sellers, tokenized assets could become illiquid and unattractive to investors. For this reason, Julian Sawyer, CEO of digital-asset platform Zodia Custody, emphasized that tokenization firms must demonstrate “clear, tangible advantages” over the traditional system to win over the entire market.
While the path forward is complex, the conversation around tokenizing Wall Street has clearly moved from a theoretical debate to a strategic objective for some of the biggest names in finance. The journey will be long, but the destination could redefine investing for generations to come.
