In early 2021, a surge of retail investors made significant investments in meme stocks, leading to a temporary market disruption. The trading volume escalated to such an extent that the popular brokerage, Robinhood, had to suspend buy orders for stocks like GameStop for several days to avert a liquidity crisis. Although this incident sparked allegations of a conspiracy, the underlying cause was more straightforward: the outdated infrastructure of Wall Street was incapable of settling trades quickly enough.
In response, Robinhood’s CEO Vlad Tenev and other industry leaders advocated for a comprehensive overhaul of the system. Since that time, improvements have been made, allowing stock trades to settle a day earlier than in 2021. However, the financial sector is also exploring a more transformative approach: converting stocks into digital assets that can be exchanged and settled instantaneously on a blockchain.
This initiative is not solely driven by crypto companies and fintech innovators; major financial institutions, including J.P. Morgan, are utilizing blockchain technology to facilitate transactions in specific assets, thereby transforming the broader financial landscape. Tokenization — a concept Tenev has likened to a “freight train” ready to disrupt Wall Street — is already reshaping the trading of stocks and other assets.
While the advantages of tokenization are substantial, it raises critical questions regarding its implementation. There is concern that the impending changes might erode protections for individual retail investors and potentially destabilize a U.S. equity market that has been regarded as a model of reliability for decades.
Historical Context of Wall Street Reforms
The current push for tokenization is not the first effort to reform the operational backbone of Wall Street. In the 1970s, traders faced what was termed the “paperwork crisis,” where an overwhelming volume of orders led to the temporary suspension of stock markets to manage record-keeping. Ongoing work stoppages ultimately resulted in a transition to a computerized system.
“In the past, ownership of stocks was recorded in leather-bound journals,” explains Robert Leshner, a former economist who now heads the tokenization firm Superstate. “Eventually, the process became too cumbersome, leading to the establishment of a legal framework that assigned ownership of stocks to the Depository Trust & Clearing Corporation (DTCC).”
The DTCC has operated under this regime for decades, eliminating the need to document each share transfer. Instead, the clearinghouse keeps a record of the stocks held by various brokerages on behalf of their clients, settling transactions the following business day.
In this system, brokerages technically own the stocks, but all associated rights—such as dividends and voting rights—remain with the actual shareholders. This framework has functioned effectively over the years, providing an option for traditionalists who prefer physical stock certificates, a choice that has gained traction among “GameStop truthers” who believe reverting to paper would thwart perceived Wall Street conspiracies against retail investors.
However, the existing DTCC model of “T+1,” which finalizes trades the next business day, seems antiquated in an era where transactions occur in real-time around the clock. This realization has prompted companies like Superstate to offer a more rapid alternative. The startup is collaborating with firms to issue blockchain-based versions of their shares, enabling them to bypass intermediaries in stock holding and tracking. This approach allows for instantaneous trade settlements and fosters direct engagement between companies and their shareholders.
Globally, tokenized assets are already aiding investors in avoiding substantial trading fees and enabling investments in private companies such as SpaceX.
Diverse Approaches to Tokenization
Different firms are pursuing tokenization through various methods. For instance, while Robinhood does not assist companies in tokenizing their stocks, it repackages publicly traded stocks in a blockchain “wrapper” as a form of derivative. Currently, these offerings are available exclusively in Europe, where stockholders can trade “Stock Tokens” alongside cryptocurrencies like Bitcoin.
Retail investors who are unfamiliar with tokenization may find it surprising—and potentially concerning—to learn that their shares are being traded in the cryptocurrency market. However, at this stage, there is no immediate cause for alarm.
Even proponents of tokenization acknowledge that the new blockchain-based system is likely to coexist with the traditional model rather than replace it. So, what drives this shift? For casual investors who trade infrequently, the introduction of tokenized assets may not bring significant changes. However, active traders are expected to benefit from the blockchain transition, as it allows for extended trading hours, including evenings and weekends. This new framework will also appeal to institutional investors, freeing up collateral that would otherwise be tied up during the settlement process.
“Imagine a hedge fund wanting to purchase $1 million of Tesla stock,” suggests Johann Kerbrat, SVP of Robinhood Crypto. “If they buy it on Friday, their funds are allocated, but they won’t receive the shares until Monday. This creates a three-day window where they cannot engage in any further trading.” Tokenization is not limited to equities; for example, BlackRock’s BUIDL fund, in partnership with Securitize, provides access to money-market funds and U.S. Treasuries via blockchain, boasting $2 billion in assets under management. Additionally, J.P. Morgan is offering tokenized versions of private equity assets through its proprietary Kinexys blockchain, streamlining capital calls and management.
Future Prospects and Challenges
This development may just mark the beginning. Rob Hadick, a partner at venture capital firm Dragonfly Capital, points out that other areas of finance, including credit and fixed income, still largely rely on outdated methods, with some transactions even being confirmed via fax. Transitioning to tokenization has the potential to expedite these processes and enhance reliability. Hadick also notes that it could lead to cost savings for banks and brokerages by reducing back-office staffing needs and disrupting intermediary roles involved in tasks like loan origination and servicing fees. For traders, tokenized assets will be easier to transfer across brokerages or use as collateral.
Despite the promising outlook, the U.S. remains in a nascent phase, with the Securities and Exchange Commission yet to approve tokenized equities. As of mid-November, the global valuation of such assets stood at approximately $660 million, with popular offerings including tokenized index-tracking ETFs and major tech stocks like Tesla, Nvidia, and Alphabet.
Nonetheless, this early stage has not deterred brokerages from advancing their efforts, including crypto exchange Kraken, which has seen robust trading activity with tokenized versions of U.S. stocks in markets like Brazil and South Africa, where traders often face high commissions exceeding 10%. Robinhood has also secured shares of private companies like OpenAI and SpaceX, distributing tokenized versions to its European clientele.
Interestingly, one might assume that the DTCC would oppose the tokenization trend. However, sources indicate that the clearinghouse is enthusiastic about blockchain technology, viewing it as a means to expand into private markets. When asked for comment, the DTCC highlighted its commitment to embracing the potential of tokenization to modernize market infrastructure.
Despite this optimism, some firms are advocating for a cautious approach to tokenization. Citadel Securities, for instance, has urged the SEC to adopt a methodical strategy, fearing that certain crypto-oriented companies may exploit the regulatory process to evade established consumer protection standards. There is also concern that a hasty transition could jeopardize the trust that has been built in the U.S. equities market, recognized as the largest and most refined globally.
This caution may be warranted. There have already been notable discrepancies between the prices of traditional shares and their tokenized counterparts offered by platforms like Kraken. Additionally, questions remain about the adequacy of safeguards implemented by firms providing tokenized equities, particularly in the event of a crypto firm’s bankruptcy affecting the custody of tokenized shares.
While financial institutions universally acknowledge blockchain as a forward-looking technology, there is no consensus on which blockchain to adopt. Robinhood is leveraging the open-source Ethereum network for its tokenization initiatives, whereas J.P. Morgan is committed to its proprietary chain. This divergence could hinder broader adoption, as firms may be reluctant to rely on a blockchain managed by a competitor. However, Hadick believes that any stalemate is unlikely to persist, as “one of the strengths of blockchains is their ability to foster trust.”
This article appears in the December 2025/January 2026 issue of Fortune with the headline: “Get ready to own a tokenized portfolio.”
