The Tokenization Memo: The battle for equity tokenization (2/n)

Research evidence excerpt

The Tokenization Memo: The battle for equity tokenization (2/n)

pilot and approved NYSE’s and NASDAQ’s proposal to permit trading of tokenized

securities on the exchanges. The industry still awaits regulatory clarity for securities tokenization including potential expectation of an

‘innovation exemption’ that could allow trading of tokenized US stocks onshore.

We are seeing the tokenization industry broadly evolving across two business models - neutral infrastructure positioning (enabling

tokenization for traditional financial market participants like exchanges, asset managers, loan originators) and trading model (using

tokenization to offer multi-asset class exposure on a single trading venue).

• Tokenized Securities - Trading Infrastructure: In the current model, regulated broker-dealer platforms offer trading services

in tokenized stocks, allowing global investors to access bluechip regional equities (like Robinhood offering tokenized US stocks to

EU investors). The third party sponsor buys underlying shares, custodies them in a secured account and issues a blockchain token

against them. The tokens can be traded on blockchain 24x7 with real time settlement, allowing platforms to earn incremental trading

commission. However, these trading tokens operate only on blockchain rails with no reconciliation with the actual shareholder registry.

The third-party sponsor (and not the tokenholder) is the registered owner of the underlying shares. Hence, tokenholders are not entitled

to rights associated with ownership of the shares, such as dividend, voting, etc.

• Tokenized Securities - Settlement and Exchange Infrastructure: The issuer-sponsored tokenization model uses blockchain as

the settlement layer for actual company issued shares.