Nasdaq Reveals its Plan to Launch Tokenized Stocks
Nasdaq, a renowned Wall Street exchange, has recently submitted a filing with the intention of introducing tokenized stocks. Experts have marked this move as a significant step in Wall Street’s history but also issued caution about the potential challenges the exchange may face while adjusting to the US settlement and regulatory systems within a blockchain-based trading context. If the US Securities and Exchange Commission (SEC) gives the green light, this move will set a precedent by allowing tokenized securities to list on a major US exchange for the first time.
The Challenge of Integrating Blockchain
However, integrating blockchain-based settlements comes with its fair share of hurdles. Consider that the Depository Trust & Clearing Corporation (DTCC) currently oversees billions of daily equity trades. Experts predict that the process of incorporating a blockchain-based settlement could be both intricate and expensive. For instance, on April 9th, the National Securities Clearing Corporation (NSCC), a DTCC subdivision, processed a new record amount of $5.55 trillion in transactions. Given such volume, it is clear that integrating blockchain would require a completely novel trade settlement layer for tokenized equities.
A New Settlement System and Regulatory Adaptation
In this regard, some experts find it unusual that Nasdaq appears to rely on DTCC for the creation of this novel system. According to Eli Cohen, who serves as the General Counsel at Centrifuge, establishing a new settlement system would be an exorbitant endeavor for DTCC. Moreover, it would not necessarily yield a significant financial benefit for them. After all, DTCC already takes care of 100% of on-exchange equities trades within the US market.
Another hurdle in this initiative is the requirement for the SEC to adjust and amend regulations particularly for tokenization. The bright side is that the SEC has shown a willingness to implement such changes. The projected timeframe for the third quarter of 2026 likely reflects ongoing discussions between Nasdaq and the SEC on this matter.
Connectivity and Regulatory Framework Challenges
Despite the challenges, experts agree that this filing can be a game-changer despite potential issues. There are considerable uncertainties in connecting traditional financial systems with blockchain networks. Such challenges could potentially postpone the rollout. Ensuring the seamless integration of Nasdaq’s tokenized assets with its legacy infrastructure while maintaining the decentralized nature of the blockchain being used will be a tough task. The industry also needs clarity regarding the regulatory framework, particularly as regards market structure. In the absence of such a framework, there’s a greater risk factor, Karia Samaroo, the founder, and CEO of xTAO points out.
Clarity Act: A Framework for Digital Assets
However, it appears that legislation on market structure will pass in the forthcoming months, considering the Clarity Act’s successful progress. The Clarity Act, which has been approved by the House of Representatives and now awaits Senate and President approval, aims to provide a clearer US regulatory framework for digital assets. This includes defining the qualifications for digital commodities.
Effects on Existing Equities and Market Interoperability
The shares in question will functionally operate like a traditional share class, said Mike Maloney, CEO and founder of Incyt. Rather than a cross-chain transfer, these represent new issuances and hence, dilution of existing equity. Their control will remain centralized with the Depository Trust Company (DTC), a DTCC’s subsidiary, and central securities depository.
However, Kevin Rusher, founder of real-world asset borrowing and lending protocol RAAC, thinks that Nasdaq’s choice of blockchain could pose another challenge. If Nasdaq uses a public blockchain, it would require a high-throughout Layer 2 solution to deal with its order book. Alternatively, Nasdaq might choose a permissioned chain to have more control over potential risks. In any case, several questions regarding infrastructure and interoperability need to be addressed.
A Breakthrough for Blockchains
In spite of these potential issues, other experts view Nasdaq’s move as a breakthrough for blockchain’s credibility and the growing engagement from institutions. Morgan Krupetsky, VP of Onchain Finance at Ava Labs, explains that it’s encouraging to see tokenized offerings tapping into traditional distribution channels, as they already have individuals and businesses utilizing their infrastructure.
Tokenization and the Road Forward
Other industry experts, such as Marcin Kazmierczak, co-founder of RedStone, views Nasdaq’s move as an indication of how far tokenization has come. The tokenization trend is gaining traction with more supportive regulations, maturing blockchain technology, and increasing participation from major institutions. This contributes not only to legitimacy but also to capital and quicker adoption. It’s clear that tokenized equities are no longer emerging; they are becoming valuable assets for institutions with a boost of public trust and institutional engagement for the crypto industry, courtesy of Nasdaq’s recognition.
A Race for Tokenized Equities
Nasdaq’s move shows the ongoing competition for tokenized equities among several crypto-native firms. Tokenized stocks exchanges such as xStocks, Gemini, and Robinhood already offer variations of these tokenized shares, indicating that tokenized stocks traded on the US exchange could potentially provide shareholders with identical rights as owning a traditional stock in a company. As such, Nasdaq’s move is not just a potential game-changer but a move that furthers accessibility and compliance to retail investors and provides legitimacy.
A Fresh Approach to Tokenized Stocks
Charlyn Ho, founder and managing member of Rikka, noted that unlike other platforms trading separate tokenized versions of stocks, Nasdaq’s approach allows investors to buy shares through either traditional or tokenized settlement while preserving standard investor protections. Furthermore, the regulatory environment in which Nasdaq operates is clearer and more established than new DeFi entrants, given its long history as a regulated exchange working directly with the SEC, DTC, and FINRA.
