Tokenization Set to Revolutionize US Stock Access with 24/7 Capital Formation

Tokenization, a process that converts rights to an asset into a digital token on a blockchain, is gaining traction as a means to transform access to US stocks. This technology is seen as a new wrapper with superpowers, offering instant settlement and 24/7 access to capital formation, much like an exchange-traded fund (ETF).

Christopher Perkins, president of a prominent investment firm, highlighted that tokenization could unlock significant capital flows into decentralized finance (DeFi) platforms. He noted that those using stablecoins, which are cryptocurrencies pegged to the value of another asset, will seek yield onchain via money market funds and other alternatives. This shift could have second- and third-order implications for DeFi, as capital that previously flowed to layer-1s or memecoins could migrate to tokenized stocks.

Santiago Santos, founder of a leading crypto investment firm, elaborated on this sentiment during a panel discussion. He argued that crypto has historically tapped into trapped pools of capital around the world due to limited access to the US stock market. For instance, an investor in a region with such limitations might resort to holding ETH to express a long position in technology. However, with tokenized stocks onchain, this capital could migrate to more traditional assets, providing constant access to those companies for anyone with internet access.

Dinari, a company specializing in tokenization, recently secured Financial Industry Regulatory Authority (FINRA) broker-dealer approval for its subsidiary. This approval is significant as it allows Dinari to tokenize publicly traded shares outside the US and now for American customers as well. Dinari Securities expects to start offering tokenized stocks to US users in the third quarter of this year, testing a blockchain ledger system for brokerage clients as it continues discussions with the SEC about a tokenization framework.

Ondo Finance, another player in the tokenization space, plans to launch a platform next month offering exposure to public US stocks, bonds, and ETFs. These highly liquid securities are seen as the low-hanging fruit in the tokenization space. Meanwhile, Apollo Global Management is exploring efforts to tokenize the more illiquid private markets, having already brought its Diversified Credit Fund on-chain in January.

An S&P Global report published this week addressed the evolution of tokenization use cases in three phases. The first phase, from 2025 to 2028, centers around cross-border payments and collateral operations. The ability to instantly swap an asset for a cash payment offers tangible commercial benefits to institutions involved with repo transactions and intraday liquidity management. Phase two, from 2027 to 2033, would include credit expansion as tokenization connects borrowers to lenders. Corporations using tokenization for cross-border payments will also seek onchain loans. In a third phase, from 2031 to 2035, blockchains could support transactions between wallets controlled by AI agents.

The S&P Global analysts conclude that if the adoption of tokenization increases as expected, it will intersect with other megatrends, such as the growth of private credit and AI, to significantly disrupt the future of capital markets over the next five to 10 years. This gradual yet sudden shift could transform how capital is accessed and managed, providing new opportunities for investors and institutions alike.