Financial firms are moving closer to a system in which stocks and other assets trade as digital tokens. Nasdaq CEO Adena Friedman said tokenization could unlock tens of billions of dollars currently tied up as collateral — cash and securities pledged to back trades and loans — across the financial system.

Friedman spoke at the TOKEN2049 conference in Singapore this week. She said converting Treasurys, equities, and money market funds into blockchain-based tokens could allow collateral to move more freely between institutions.

“If you tokenize all those instruments along with the flow of money, then the collateral becomes very fluid,” Friedman said.

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What Tokenization Means

Tokenization represents a financial asset, such as a stock or bond, as a digital token on a blockchain. The token can be transferred without passing through the traditional chain of brokers and clearinghouses.

Friedman cited the Genius Act, a U.S. law that established rules for stablecoins, as one reason institutional interest in tokenization has increased over the past year. Stablecoins are tokens designed to maintain a value tied to the U.S. dollar.

She also said retail investors have wanted round-the-clock trading for years. “The retail ecosystem has been about 10 years ahead,” Friedman said.

A fully 24/7 market would require significant operational changes. Banks currently pause trading to update systems and manage risk, while nonstop markets would require those tasks to be performed in real time. Friedman said artificial intelligence will play a role in that transition. Nasdaq has already launched AI tools within its risk platform that provide recommendations to staff.

Kraken co-CEO Arjun Sethi said companies outside the United States are also examining tokenization. He cited a company with approximately $25 million in revenue that is exploring access to American capital markets through the method.

Regulators and Financial Firms Advance Tokenization Projects

The Depository Trust & Clearing Corp., known as DTCC, plans to launch a platform this month that will allow customers to tokenize stocks, exchange-traded funds, and other securities.

Dozens of large institutions tested the system during a one-day trial this summer. Participants included JPMorgan Chase, Goldman Sachs, BlackRock, and the New York Stock Exchange.

Nadine Chakar, global head of DTCC Digital Assets, said the trial represented a shift from years of small pilot programs. “Honestly, for the past 10 years we’ve had innovation by press release,” she said.

Nasdaq estimates that large financial institutions could earn up to $340 million a year in additional interest by freeing up collateral. The company also plans to launch Nasdaq Equity Tokens representing shares of public companies next year.

The Securities and Exchange Commission issued an exemption allowing new trading venues to operate without some rules that apply to traditional exchanges. SEC Chairman Paul Atkins said the purpose was to let the market evolve while regulators learn from it.

For individual investors, one potential benefit would be faster transfers between brokerages. Moving accounts through the current system, known as ACATS, can take several days.

However, Mark Hays of Americans for Financial Reform said faster trading could make markets more vulnerable to sudden crashes if appropriate safeguards are not in place.

Robinhood and Coinbase already offer tokenized stock products to investors outside the United States. Both companies have said they want to expand those offerings to U.S. investors as regulations become clearer. Near-term milestones to watch include the DTCC platform launch this month and the planned Nasdaq Equity Tokens rollout next year.

Citigroup researchers estimated in June that the tokenized-asset market could reach $5.5 trillion by 2030, compared with approximately $17 billion today.

Source: CoinCentral. Related report: CNBC.