Tokenized Stocks on the Rise, Yet Traditional Market Infrastructure Faces Severe Challenges

Tokenized stocks are entering the real trading era: infrastructure is lagging behind, and fragmentation risks are quietly approaching.

Written by: Mike Cahill, CEO of Douro Labs
Compiled by: AididiaoJP, Foresight News

Tokenized stocks are accelerating from experimental pilots to real trading platforms, but the core infrastructure that supports the orderly operation of traditional stock markets—corporate actions processing, rights allocation, reference data maintenance, and settlement mechanisms—has not been prepared for this new type of asset that trades continuously across multiple venues. Earlier this year, Nasdaq and the New York Stock Exchange received approval from the U.S. Securities and Exchange Commission (SEC) to list tokenized versions of Russell 1000 index components and mainstream index ETFs. Meanwhile, the Depository Trust & Clearing Corporation (DTCC) has also initiated limited-scale production trading, planning for a full commercial launch in October this year. Over 50 institutions participated in this trial, indicating that the underlying technology is essentially mature—however, whether the traditional systems that have long served public markets can keep pace remains a significant question mark.

The Same Stock, Two Different Products May Share a Code

The primary path currently approved by the SEC still firmly anchors tokenized assets to the existing ownership structure. Tokenized shares will use the same uniform securities identification procedure (CUSIP code) as traditional shares, trading on the same order book, and strictly adhering to a T+1 settlement cycle. The DTCC's pilot project also adopts a similar model: the underlying real shares continue to be held in custody by the depository trust company, while the tokens become a new representation of ownership. The legal rights and status of shareholders remain unchanged.

However, another path under review by the SEC is entirely different. According to media reports, a so-called "innovation exemption" may allow crypto-native trading platforms to directly list tokens linked to stock prices without the approval of the listing company itself. Guidance issued by SEC staff in January of this year clearly distinguishes between two categories: tokenized securities issued by the issuer or on behalf of the issuer, and tokens issued by unrelated third parties—the rights attached to the latter may align with the underlying shares or differ. This exemption was close to being released in May, but regulators ultimately chose to delay it. Nevertheless, the core issue it raises has not disappeared: from a legal perspective, a token that simply tracks a company's stock price may fundamentally differ from the rights that truly represent ownership of that company's shares.

This distinction may seem technical, but it directly relates to investor protection and market fairness. If third-party tokens cannot fully replicate all the rights of native shares, potential disputes and transparency risks will significantly increase.

What Truly Defines a Stock Goes Beyond Price

Minting a token that mirrors stock prices in real-time is no longer a technical challenge, but fully replicating all the complex attributes carried by real stocks—far beyond what simple price data feeds can cover—is of a different magnitude in terms of difficulty and importance.

Take dividends as an example; they must be accurately calculated, taxes correctly withheld, and timely paid to the ultimate rights holders; shareholder votes must be accurately delivered to the actual registered owners, not just anyone holding the token at the snapshot moment; major events like stock splits, dividends, or corporate spin-offs must be synchronized and accurately executed across all trading venues, or else the same company could have entirely different capital structures on different ledgers. These intricate mechanisms have maintained a high degree of consistency and predictability in global public markets for decades, designed around a centralized system with fixed opening and closing times. However, tokenized assets may enable continuous trading across dozens of blockchains, posing an unprecedented challenge to existing infrastructure.

Fragmentation: The Most Realistic Systemic Risk in the Tokenized Market

Several industry organizations, including the Securities Industry and Financial Markets Association (SIFMA), have publicly expressed concerns: without unified interoperability standards and price transparency mechanisms, the tokenized market is prone to fragmentation. If multiple unrelated third parties simultaneously issue tokenized versions of the same listed company's stock, this risk will be magnified.

Imagine multiple independent platforms each launching tokenized products tracking the same stock but using different settlement rules, rights arrangements, and trading reporting systems. In that case, the price discovery process for that company will quietly disperse into several incompatible islands. Investors may face issues such as information asymmetry, distorted arbitrage opportunities, and even liquidity fragmentation, ultimately harming the overall efficiency and confidence of the market.

This Transformation Goes Beyond a Single Asset Class

Tokenized stocks are just a microcosm of the comprehensive transformation of infrastructure triggered by the financial system's embrace of blockchain technology. Nasdaq is actively pushing regulators to relax trading hour restrictions, moving towards nearly round-the-clock trading; the New York Stock Exchange is also building dedicated infrastructure designed for 24/7 operation. However, regardless of how trading hours are extended, the market still needs a reference data layer and settlement layer that can keep pace. Without the traditional "closing bell," core processes such as net asset value (NAV) calculation, margin requirements, and index rebalancing will lose the long-standing benchmarks they rely on.

The institutions and enterprises that can truly lead the next phase of development will be those capable of integrating fragmented tokenized trading venues into a single, coherent market system—ensuring that regardless of which "track" the trade settles through, investors receive consistent rights protection, reliable corporate actions processing, and trustworthy settlement experiences.

In this wave of change, technology providers, traditional market participants, and regulators need to collaborate closely to create a new market structure that can both unleash the efficiency dividends of blockchain while upholding the baseline of investor protection. The realization of tokenized stocks not only tests the maturity of technology but also the entire financial system's ability to adapt to the future.