Tokenization: Real, Important, and Not For You

In 2021 I argued that to truly modernize markets, we needed to "Throw Out The Playbook" because "the IP is what matters—the implementation is just friction." By late 2021, I suggested the Financial Innovation Complex would "Tokenize Everything." I argued that tokenized "Exposure Tokens" would eventually have a dedicated legal and well-regulated back office run by our "good friends at the DTCC." At the time, folks accused me of drinking the DeFi Kool-Ade.

With all the recent market volatility, it's worth stepping back and noticing that over on the ETF side of things, there's already been plenty of action on tokenized funds ("ETF" and even "Fund" in this case, being a term of art). BlackRock's BUIDL, Franklin Templeton's BENJI, WisdomTree's digital funds via WisdomTree Prime, Ondo Finance's tokenized Treasuries, and F/m Investments' proposed on-chain TBIL are all live or in the pipeline. So far the story has been mostly about money market funds used mostly for collateral — but the infrastructure is building fast. (And, it's worth noting that over on the crypto-native side, folks like Robinhood have been working their own version of non-legal- ownership "tokenized stocks" that track prices and/or total return metrics without any legal ownership. Whether the scare-quotes are appropriate I'll let you decide, but in general, I'm skeptical.)

Last week had plenty of anti-crypto folks chortling that the recent volatility meant the big crypto experiment was over. But having some of the speculative air let out of the Crypto tires actually makes me more bullish for real-world tokenization than I was 5 years ago. 

The Hot ETF-Adjacent Headlines

Last month, the New York Stock Exchange announced it was building a 24/7 tokenized trading platform. A month earlier, the SEC issued a landmark no-action letter to the DTCC (which garnered little notice outside crypto circles), allowing the backbone of the U.S. financial system to tokenize the Russell 1000, Treasuries and major ETFs. Meanwhile, BlackRock's BUIDL fund (a tokenized money market fund that was a mere pilot two years ago) crossed $1 billion in assets last year and we now have a raft of "projects" in the works along similar lines. 

I'm super skeptical of crypto hype headlines, and it needs to be said that these aren't hype. As ChatGPT might write (and no, I didn't ask): Tokenization isn't a bet anymore. It's plumbing. (cringe).

Quiet Cooption.

While most of the hype in crypto has been about stablecoins, yield generation, digital asset treasury companies and YOLO trading, I think these three headlines really matter.

The DTCC No-Action Letter (Dec 2025): I mean, this is essentially "it" for the "tokenize everything" crowd, and while some defi purists may not like it, I do. The SEC effectively blessed the tokenization of the most important assets in the world (U.S. Treasuries) and opened the door for everything else (we all know what you can wedge into an ETF these days). Importantly though, it's not a PR stunt. It's a proposal by the DTCC to actually use a (unspecified, which is good!) blockchain to both mint tokens, and use as the primary record of who-owns-what, allowing actual wallet-to-wallet transactions directly.

The how is cool: right now, modern markets work because when I buy SPY on Schwab, someone else at Schwab is probably selling, and all the DTCC tracks is whether Schwab owes or is owed shares of SPY when all Schwab's trades net out. It's called "continuous net settlement" and it means that instead of millions of transactions a day, DTCC has to manage a single net position per security, per company. The DTCC literally never has to worry about the little guy's transaction.

In their current proposal, they'd monitor the blockchain (and its approved participant wallet addresses) to note security movement, and simply use that as the basis for settlement true up at DTCC. It's simple, and honestly pretty elegant: DTC acts as both the factory and the ledger. It doesn't solve all the problems: some investment manager (or really, some Authorized Participant) still has to manage the Russell 1000 token by buying and selling the underlying equities, thus marrying state-of-the art 2026 tech with 1973-era equity rails, but it's a good start.

NYSE's 24/7 Platform (Jan 2026): While the DTCC proposal (and SEC no action letter) provides a deep, backend ops system for tracking ownership records, NYSE is building an actual trading venue. You can think of it as the front-end interface for the DTCCs back-end. How it will all actually work is still a bit amorphous, but it seems to me that DTCC is the one actually manufacturing the tokens (much like ETF shares are technically minted through the creation process), NYSE (and other vendors) create the trading layer, and BNY (part of the NYSE deal), acts as the custodian of the tokens.

If that sounds familiar, it's because it's essentially the same roles and responsibilities that exist right now for an ETF like SPY or AGG.

The BUIDL $1B Milestone: Like many ETF issuers, BlackRock has been testing the tokenization waters for a while now, and BUIDL is their big win. Technically, BUIDL is a Virgin-Islands-registered Reg-D-exempt fund that invests in treasuries, which is kind of boring. But, the fund issues ERC-20 tokens (the smart contract standard behind stablecoins, memecoins, utility tokens, governance tokens, etc...) that, because it's a smart contract, can only be traded between whitelisted addresses. They crossed $1 billion last March, and are currently hovering just under $2 billion in assets.

So who's buying? At the moment, it's mostly crypto-native institutions who want the ability to both earn yield on capital, and be able to pledge that capital as collateral. While you and I may not engage in the business of pledged-borrowing that often, in corporate finance, it's extremely common to manage short term liquidity by pledging an asset to borrow cash against it. Need $20mm tomorrow to pay some bills but don't have that lying in literal cash? Well, you can pledge other assets in your corporate treasury to a lender, who will gladly loan you that overnight cash. Wanna make some crypto trades at FalconX? They take BUIDL tokens. Binance? Same.

Recordkeeping Bridges: Meanwhile, short of a unified open system, firms like WisdomTree and F/m are building pragmatic bridges. WisdomTree's Prime offering creates a native blockchain ecosystem for mutual funds, where the chain itself is the primary record of ownership. F/m, for its part, has filed to use a blockchain as the transfer agency record for a traditional ETF. Both are interesting, practical bridges to a fully tokenized future.

Does This Matter To Normal Investors?

Honestly, that's the real question, and it's important to strip away the hype.

As someone in the token ecosystem—someone really using that DTCC wallet system or hoarding BUIDL—you do actually get a few benefits over the traditional rails:

1. 24/7 trading: While I have no desire to trade stocks at 3AM, an investor in Asia probably feels differently. NYSE is building this because the demand is real, even if it's irrelevant to me, as an everyday U.S. person.
2. Instant settlement: This is indeed real. Tokens transfer in seconds. We successfully moved to T+1 settlement in 2024, but tokenization gets us to T+0 (instant). This eliminates counterparty risk during the settlement window. This sounds great, but it also removes the safety nets of things like the "clearly erroneous trade" rule and single stock circuit breakers (although any given trading venue could replicate them).
3. Collateral mobility: As mentioned, this seems to be the killer app—for the product manufacturers and big on-chain institutions at least. But again, as an everyday person, this is probably irrelevant.
4. Programmability: Theoretically, all sorts of cool stuff can be enabled in a smart contract at the code level, from compliance (as with BUIDL) to automated corporate actions, voting, dividend distribution and M&A activity. Which all sounds good and is, again, largely irrelevant to any normal investor.

Why You Don't Care Yet (And That's Fine)

While tokenization is coming, is inevitable, and will likely sunset tradfi trading in my lifetime, for the moment, none of this matters. There is no real benefit to trading TSLA shares at Interactive Brokers vs. trading a TSLA token through NYSE (when that goes live). By the end of this year, I suspect most tradfi brokers allow most crypto trading (some already do), and most crypto venues will have deals with Apex or another clearing firm for stocks and ETFs (some already do). And that's just fine. The US tradfi markets are outrageously efficient. There aren't giant middlemen to be squeezed out, there are pennies and fractions of pennies.

Those pennies matter at scale, but literally won't move the line on your personal performance chart. If you are an institutional treasurer moving collateral at 2am, tokenization is amazing.

But if you are a retail investor rebalancing your 401(k)? You shouldn't care.

The Catch: Why Your Broker Still Hates This

If tokenization is so efficient, why hasn't it taken over everything yet? Because efficiency has a price: Liquidity. In the traditional world, the DTCC's clearing arm (the NSCC) is mostly concerned with net settlement. They take trillions of dollars in daily trades and net them down to a fraction of that in actual settlement obligations.

Tokenization (at it's most extreme and purest) is gross settlement. If you buy $1M of an ETF, you need $1M in your wallet right now to settle that trade. You lose the ability to net that against the $900k you're planning to sell at the end of the day. For a large bank, losing netting efficiency is a multibillion-dollar capital hit.

I suspect that's why the DTCC's tokenization services focus on a hybrid model. They're trying to build a bridge that keeps the netting benefits of the old model while gaining the 24/7 mobility of new tech.

The Counterintuitive Bit: Cheap Crypto Helps

"If crypto is crashing, doesn't that prove DeFi and tokens are all hype?" (I imagine you asking).

Honestly, I feel like the opposite may be true. For the DeFi blockchains (primarily Ethereum and Solana) to be successful at this grand switchover, those native tokens (ETH, SOL) don't need to be super expensive, they need to be super functional. If a blockchain is just a database with certain properties, then the price of the native token is like the price of electricity—a cost of doing business.

Cheaper crypto means lower transaction costs, which makes adoption easier. When gas fees spiked in 2021, tokenizing a $100 trade was stupid. Now, with Layer 2s and lower base fees, it's negligible. (And, it should be noted, many tokenization projects use private blockchains where the "gas-fee" issue doesn't really exist.)

Tokenization is real—for stocks, for ETFs, for pretty much anything we can create a legal ownership chain for. But instead of coming on the back of hyperbolic Twitter rants, it's going to slide in from the most boring of avenues. Like a DTCC press release.

If you want to bet on the Tokenized future, sure, the native-tokens should be valuable, and I won't convince you not to own a little ETH, or a little SOL (I do). But even being invested, I'm not rooting for them to moon. 

I'm rooting for them to stabilize.

Editor's Note: Tokenization — both of exposure and of ETFs — is one of the topics at the Conversation Pit at the ETF Beach House. Come join us at Citywide.

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