Tokenized Equities: A Blockchain Revolution for Wall Street

What Are Tokenized Equities?

Since Bitcoin (BTC +1.39%) was first launched over 16 years ago, the cryptocurrency market has grown substantially. 

Over this period, the multi-trillion-dollar industry has seen several innovations that promise to reshape the traditional financial system. Now, the latest target of blockchain tech is equity markets, where all the fun happens. 

This meeting point for issuers and buyers of stocks provides investment opportunities to investors. Besides allowing companies to raise capital to grow their businesses, it provides liquidity, price discovery, and economic growth.

The $100 trillion global equity market, however, faces limitations such as slow settlement, high costs, limited transparency, and restricted access, making it a prime candidate for disruption. 

A promising force driving this disruption is blockchain technology, which can make it widely accessible while offering instant settlement, lower costs, full transparency, and round-the-clock availability, completely transforming the stock market for the better.

To make this happen, assets in the stock market are being digitized through a process called tokenization, which simply means putting an asset on the blockchain. Instead of a brokerage account, one needs a digital wallet here to hold their tokens.

Tokenized equities, also called digital securities, involve the conversion of a traditional stock into digital tokens that represent ownership rights to the underlying share.

This process of converting real-world assets, ranging from commodities, real estate, art, bonds, and debt to stocks, into digital tokens is projected to be a massive market. Tokenization could be worth north of $10 trillion per one estimate.

As BlackRock’s (BLK +0.67%) CEO, Larry Fink, said in January 2024:

“We believe the next step going forward will be the tokenization of financial assets, and that means every stock, every bond … will be on one general ledger.”

The same year, the asset manager giant launched its first tokenized investment fund, called the BUIDL, on the Ethereum (ETH +0.63%) blockchain. This fund seeks to maintain a stable value of $1 per token and pays daily accrued dividends as new tokens are issued each month.

This year, Fink reiterated his view when he wrote “Every stock, every bond, every fund — every asset — can be tokenized,” in his 2025 annual shareholder letter.

Unlocking the Full Potential of Tokenized Equities

When it comes to equities, they offer a truly delectable opportunity for tokenization. In general, buying shares of a company gives a shareholder part-ownership in that company, providing them with certain rights.

Shares, after all, are portions of a company’s equity capital that investors can acquire in the open market. Tokenizing these shares removes the need for them to be held at a central securities registry. 

Traditional equity markets, while liquid, operate through centralized exchanges, broker-dealers, custodians, and clearinghouses. By putting shares on the blockchain, all these different middlemen can be removed and their cost of issuance reduced. Also, it makes the transfer of shares from one investor to another far more straightforward.

Currently, most financial settlements take two business days once the trade is executed. However, tokenization enables instant settlements, which means significant savings for financial firms that can then be passed on to the user.

24/7 availability of the on-chain world and asset programmability, meanwhile, reduces errors. Firms can embed critical functions, such as terms and conditions of voting rights and dividends, into the smart contract of the token and automate them, thereby requiring less human involvement.

Smart contracts, which are coded instructions that self-execute under specific conditions, not only save cost but also improve speed and enhance transparency and security.

Notably, the digital representations of traditional stocks on a blockchain offer a new way to access and trade shares. Not only are they tradable 24/7, but they can also be accessed globally by everyone. In fact, one share can be fractionalized into many digital tokens, enabling a wide spectrum of investors to engage in the market without requiring large capital commitments.

This is particularly attractive to younger investors who hold little capital, making investments previously inaccessible available with a modest amount.

Moreover, tokenized equity is compatible with decentralized finance platforms, opening up a whole new world of liquidity, interoperability, and innovative products that can operate beyond the constraints of traditional markets.

The Growing Interest in Tokenized Equities

Tokenized equities have clear technological advantages, but they aren’t without challenges, especially regulatory barriers that prevent the seamless integration of traditional stocks into blockchain.

The regulatory landscape for digital securities is still evolving, unlike traditional stocks, which are subject to well-established securities regulations. However, the sector is finally getting friendly regulations under the Donald Trump administration.

Already, the Trump administration is endorsing a stablecoin bill, encouraging lawful access to public blockchain networks, and has repealed SAB 121 to enable institutions to provide custody solutions for tokenized securities without unnecessary financial risk.

Besides regulatory uncertainty, digital securities pose distinct risks, including technical vulnerabilities, limited secondary markets, issuer reliability concerns, and custody challenges.

Despite the challenges, both native and non-crypto native giants are working on putting financial assets on-chain. From hedge funds to asset managers and high-net-worth individuals, institutional investors are showing significant interest in tokenized equities.

A survey from EY shows particularly strong interest among institutional investors. 57% of its participants indicated an interest in investing in tokenized assets, with hedge funds being the most bullish. Public funds, securities, and private funds hold the most interest, driven by factors such as access to new asset types, increased liquidity, and enhanced transparency.

In light of this interest, financial institutions like BlackRock, WisdomTree, and Franklin Templeton have already begun exploring tokenized money market funds.

As a result, the total tokenized market currently stands at $23.9 billion, up from just $6.75 billion two years ago. When it comes to digital securities specifically, the segment is still small but growing. Currently, the total value of tokenized equities is about $350 million, up from almost $4.8 million a year ago.

While digital securities are gaining a lot of traction lately, the efforts to bring stocks on-chain aren’t new. They have been going on for many years.

Some of the early projects that actively explored digital securities include tZERO, Polymath, Securitize, Mirror Protocol, and Synthetix.

Now, two major cryptocurrency companies, Coinbase and Kraken, are entering this space in an effort to accelerate the movement toward tokenized equities. This move will put these companies in direct competition with mainstream retail brokerages, such as Robinhood and Charles Schwab.

Coinbase’s Push to Pioneer Tokenized Stock Trading in the US

Coinbase (COIN -2.22%), the largest cryptocurrency exchange in the US, is reportedly looking to get regulatory approval to offer “tokenized equities” on its platform. 

Its chief legal officer, Paul Grewal, told Reuters the company’s plan of seeking approval from the Securities and Exchange Commission (SEC) for the new product, calling it a “huge priority.”

Grewal also took to X (formerly Twitter) to confirm the company’s plans. “Exciting?  Yes. Important? Absolutely,” said the former vice president and deputy general counsel at Facebook, who’s also a former U.S. magistrate judge for the United States District Court for the Northern District of California.

Usually, companies have to be registered as broker-dealers in order to offer securities trading, as the likes of Fidelity do. Coinbase, however, is not registered as such. 

One of the ways Coinbase can get approval from the SEC to offer digital securities to its millions of users is by obtaining a “no action letter,” which means the SEC pledges to not take enforcement action against the company, or be granted an exemption relief, which allows it to engage in the activity.

“With a no-action letter, an issuer of a tokenized equity or a platform that wishes to offer secondary trading in those equities can have some confidence, some comfort, that the SEC has adopted its view of why this product is compliant. It's that confidence that has been lacking so far, and I think really held back a lot of the institutional adoption.” 

– Grewal

It is, however, not clear yet if the exchange is taking either of these routes or will go through another legal way altogether.

While that’s to be seen, Coinbase venturing beyond crypto into traditional markets isn’t exactly a new development. As Grewal noted, they’ve been saying since earlier this year that the regulatory agency should enable markets to unlock tokenized securities.

“Tokenized debt, equity, and investment funds present an opportunity for tailored regulation for securities that are offered and traded via digitally native methods,” said Grewal.

Back in March, in response to an SEC inquiry about how to regulate the digital asset space, Coinbase shared a blueprint. In its 41-page response to the regulator, Coinbase made a total of 36 recommendations, including establishing a clear taxonomy to distinguish digital commodities from securities, clarifying that secondary market sales of digital commodities are not securities transactions, and deferring to Congress to define the appropriate regulatory treatment for crypto activities.

Coinbase’s response also recommended that the Commission focus on enabling markets to unlock the potential of tokenized securities by implementing targeted relief that recognizes the opportunity that blockchain technology offers in removing unnecessary market complexity.

The SEC, it noted, can open a new market for the issuance and trading of tokenized securities. 

With tokenized debt, equity, and investment funds presenting untapped potential, the US should utilize this opportunity for tailored regulation for digital securities, it argued. Clarity and targeted relief on asset transfers, real-time settlement, and self-custody, according to Coinbase, will enable this space to develop safely under the SEC's purview.

Coinbase’s plans to tokenize equities didn’t start this year either, but rather have been in the works for a few years now. 

It first tried to bring stocks on-chain during the last bull market in 2021. It was around that time that Coinbase went public through its initial public offering (IPO). As of writing, COIN shares are trading at $295.3, still 31% off the peak but up about 822% since hitting its low in early Jan. 2023.

At the time, the trading platform planned to issue a tokenized version of its own stock, but was stopped by the then-SEC Chair Gary Gensler. A couple of years after that, the agency sued Coinbase during former President Joe Biden's administration, claiming that it was operating as a broker-dealer without registering with it as such. The case was dropped by the SEC under Trump's administration this year.

“I now believe that our U.S. regulators are looking for product innovation and looking to move forward. I’m now excited that we may be able to re-engage those conversations with the SEC’s task force, that we may be able to bring forward security tokens.”

– Coinbase’s chief financial officer (CFO) Alesia Haas, earlier this year. 

Coinbase is poised to enter the world of tokenized equities, potentially opening a new business division for the exchange, which has been actively pursuing initiatives to diversify its revenue streams. In regard to that, it is looking to acquire crypto options exchange Deribit for $2.9 billion. 

Expanding beyond crypto and into stock trading via blockchain technology is yet another attempt in that direction, a move that will also strengthen Coinbase’s market position.

Kraken’s Global Vision for Tokenized Equities

Coinbase rival Kraken is yet another prominent name that has already taken several strong steps toward tokenizing equities. Crypto is a disruptive force, says Kraken, and believes it can solve real-world financial problems with tokenized equities being “the next frontier.”

Just last month, the cryptocurrency exchange announced that it is set to offer tokenized versions of US equities, called xStocks, which will be made available in select markets outside the United States. So, only customers in Asia, Africa, Latin America, and Europe will be able to access the product.

With xStocks, the exchange is targeting the overlooked demographic of retail investors in emerging and underserved markets, where limited brokerage services or capital controls prevent them from investing in US stocks. 

The goal of Kraken is to eliminate the barriers of high fees and bureaucratic issues with the help of blockchain’s decentralized nature. According to Mark Greenberg, Kraken Global Head of Consumer:

“We’re reimagining equities investing and ushering in a new wave of demand from clients seeking better alternatives to the status quo. Access to traditional U.S. equities remains slow, costly, and restricted. With xStocks, we’re using blockchain technology to deliver something better – open, instant, accessible, and borderless exposure to some of America’s most iconic companies. This is what the future of investing looks like.”

More than 50 stocks of high-profile companies will be tokenized by Kraken. This includes Nvidia, Tesla, and Apple as well as exchange-traded funds (ETFs), which will be issued as SLP tokens and will be tradeable on the popular Solana blockchain, a faster and cheaper L1.

For this, the exchange has partnered with Swiss-based Backed Finance, which will hold actual shares backing each xStock. Investors will be able to redeem the tokens for the cash equivalent of the underlying shares to ensure price parity.

A month before this, Kraken had also announced its expansion beyond crypto for its millions of American clients, who can trade over 11,000 US-listed stocks and ETFs, that too commission-free. The equities offering is powered by its FINRA-regulated division, Kraken Securities.

With this move, the exchange brings both equities and digital assets under one roof, allowing users to manage cash, crypto, stocks, and stablecoins, all in one place. The offering will soon be extended to other markets, including the U.K., Europe, and Australia.

“Expanding into equities is a natural step for us, and paves the way for the tokenization of assets.”

– Co-CEO Arjun Sethi

To accelerate its multi-asset-class ambitions, Kraken also acquired CFTC-registered Futures Commission Merchant NinjaTrader in a historic $1.5 billion deal. This transition actually marked the largest-ever deal combining traditional finance (TradFi) and crypto.

The acquisition allows Kraken to offer crypto futures and derivatives in the U.S. and seamless multi-asset trading. Its users also get access to deep futures liquidity, pro-grade analytics, and highly-efficient execution engines.

In addition to it all, the leading exchange launched Kraken Pay for instant, borderless payments across 300+ crypto and fiat currencies, and a new Kraken app as a wealth-building tool that supports different asset classes for its broad range of clients.

Besides these developments, Kraken also received a regulatory reprieve this year. Much like Coinbase and other entities (e.g., Binance), the SEC under Trump has also dropped its lawsuit against Kraken with prejudice. Kraken was sued in Nov. 2023 for operating illegally as an unregistered securities exchange, as part of Gensler's push to bring the crypto sector under the agency’s scope.

The civil lawsuit has been dismissed, which Kraken called a turning point for crypto. It is currently looking to go public, which could come as early as next year. 

Final Thoughts: Tokenized Equities and the Future of Finance

Overall, we’re rushing towards the next era of finance, which is open to all regardless of their gender, political affiliation, or socio-economic background. This open, decentralized, trustless, and transparent finance offers several compelling advantages over traditional investment vehicles. 

From fractional ownership, faster settlement, and reduced intermediaries to round-the-clock trading, enhanced liquidity, and global accessibility, tokenized equities represent a foundational shift in capital markets.

Here, major crypto-native platforms, Coinbase and Kraken, stand to play a key role in bringing tokenized equities to the market and the masses.

This journey toward a tokenized financial future is not without its hurdles, though, of course. However, with both regulatory clarity and institutional appetite growing, the next few years are going to be pivotal in taking blockchain technology mainstream, transforming the financial world, and helping the broader world gain access to lucrative opportunities.