The rules of the stock market changed drastically in the last couple of months. Digital currency and stocks are starting to look identical. Shares are moving on to blockchain rails, trading around the clock and across borders instantly. Whoever writes the rules for this new marketplace will shape it for the rest of the world. And right now, the United States risks falling behind this regulatory momentum, forced to follow rules written by foreign competitors.
In January of this year, the NYSE announced a 24/7 trading venue for blockchain-based tokenized assets. Later in March, the Securities and Exchange Commission approved tokenized trading for Russell 1000 stocks & ETFs on Nasdaq.
Two of the largest stock exchanges in the world are racing to adopt blockchain and tokenize markets. But the fundamental question determining the success and durability of this shift is whether American regulators can govern the transition from markets with a weekday rhythm to markets that never go to sleep.
APPEALS COURT UPHOLDS FRAUD CONVICTION OF SAM BANKMAN-FRIED
A tokenized equity is a share where ownership is recorded and transferred on a blockchain. The asset is essentially legally identical to the underlying share, carrying the same rights and protections. For example, Ondo Finance offers tokenized versions of major equities, such as NVIDIA and Intel, that are backed by the same underlying shares.
Despite the identical structure to traditional stocks, the appeal here is that tokenization is transforming how equities can be issued, settled, and owned. It offers fractional ownership opportunities that lower the barrier to entry into historically impenetrable markets, settles instantly, and can be continuously deployed. For the everyday investor, this ecosystem gives greater access to financial products.
But one of the most fundamental benefits of tokenized assets is collateral mobility. Trading firms today post traditional securities as collateral and wait a few business days to retrieve them. On blockchain rails, however, that collateral could move within seconds, releasing liquidity across trillions of dollars in transactions.
The last time U.S. equity markets shifted to this degree, as with decimalization and the rise of electronic trading, U.S. regulators raced to set the global standards first. But tokenization is moving at an unprecedented pace. American regulators need to catch up, crafting purpose-built regulation that provides stability to this emerging market.
The first challenge toward regulating tokenized assets comes down to a matter of price discovery. Price discovery is when buyers and sellers proceed to accept a price of an asset. It’s a core process balancing supply and demand in the broader market. When a tokenized Apple share trades over the weekend at one price, and Nasdaq opens lower during the weekday, where did the real price discovery happen?
The second challenge here concerns the hybrid market model. When various versions of the same stock coexist, some end up carrying voting rights, others carry dividend rights, and some don’t carry anything at all. The matter then becomes how index funds, such as the ones tracking the S&P 500, and custodians account for these differences.
The third challenge is that blockchain venues operate globally, bypassing the securities laws built around domestic trading hours and intermediaries. The SEC has confirmed that tokenized assets are not exempt from existing U.S. securities laws. But where does that come into play when a transaction is passing through jurisdictions across Asia or the Middle East?
Without a deliberate, purpose-built framework designed for these new market conditions, tokenized assets run the risk of operating under a half-built framework that doesn’t completely abide by any one securities law, possibly posing risks to consumers.
Every trade that takes place in a half-built framework raises the chances of some sort of settlement failure that will eventually force restrictive actions on tokenized assets.
The U.S. still has the most liquid equity markets in the world, but that is the result of decades of deliberate rulemaking. The rest of the world is not waiting for us to catch up to their regulatory design on tokenized equities.
The European Union’s DLT Pilot Regime, for example, has operated as a sandbox since 2023 and is on a path toward becoming a permanent regime alongside MiCA. The United Kingdom’s Digital Securities Sandbox already lets firms issue and trade tokenized securities under specified rules.
In the APAC region, Singapore’s Project Guardian has a cross-border production network with over 20 institutions, and Hong Kong’s HKMA Project Ensemble is operating and paired with a tokenized-bond program.
Every major capital market, except the U.S., already has, or is in the process of finalizing, purpose-built regulations for tokenized assets. Because they are global in nature, custodians will route to the jurisdiction offering the clearest guidelines for scaling and governing the infrastructure. If talent and capital begin to flow out of American markets, they won’t come back to us easily.
And each delay will be more disruptive than getting the framework ready from the beginning, rebuilt elsewhere on rails that the U.S. doesn’t control. The cost of inaction would be detrimental to the U.S. dollar. For example, the primacy of dollar-denominated stock trading and the reserve advantages that come from it would gradually dissolve.
TREASURY SANCTIONS MAJOR IRANIAN CRYPTOCURRENCY EXCHANGE
A workable path forward is based on setting a fully integrated identity and compliance framework built for the on-chain ecosystem, and clear standards for “token-to-share fungibility” to guarantee that a token is equivalent to the underlying equity. Disclosures requiring tokenized issuers to meet the same standards and obligations as traditional issuers are also crucial, in addition to global collaboration and supervision to monitor the cross-border nature of these markets.
Because the tokenization wave is moving fast, the chance to craft the regulatory design is getting shorter. If American regulators write the frameworks now, tokenized equities can expand the advantages that have made U.S. markets the most premier and trusted in the world.
Emily Vartuhi Ekshian is a Young Voices contributor based in Washington, D.C. She is a graduate of the Columbia University Graduate School of Journalism MS program. Emily is interested in reporting on the emerging technologies sector, such as digital asset policy, blockchain, AI, and tech use cases for public good.