Two Competing Futures: The Strategic Dilemma of Tokenizing US Securities

On December 11, 2025, the SEC issued a No-Action Letter to DTCC, formally authorizing it to begin tokenizing custody assets on blockchain. With $99 trillion in securities under management poised to enter digital infrastructure, the move appeared to signal the long-awaited revolution in American stock market architecture. Yet beneath the optimism lies a crucial technical detail that reveals a fundamental divide: DTCC is tokenizing “security entitlements”—contractual claims within the existing system—not the underlying shares themselves. This distinction exposes two divergent visions for how financial markets should evolve, each with its own logic, constituencies, and trade-offs. Understanding this divide is essential for anyone tracking the future of securities infrastructure and the technology reshaping finance.

The Accidental Monopoly: Why Cede & Co. Still Owns Your Stocks

To grasp what’s at stake in this tokenization debate, we first need to understand an uncomfortable truth: when you hold stock in your brokerage account, you don’t actually own the shares. Legally, someone else does. The story begins in the late 1960s, when Wall Street faced what bankers called the “Paperwork Crisis.” As daily trading volume exploded from 3-4 million to over 10 million shares, the system collapsed under the weight of physical certificates. Brokerages’ back offices became warehouses of paper awaiting processing, with countless shares lost, stolen, or forged in transit. The solution invented in 1973 was deceptively simple: instead of moving physical certificates, why not move the ledger? The DTC (Depository Trust Company, now part of DTCC) centralized all certificates in a vault and created a nominee entity called Cede & Co. to hold them legally. Companies registered their shares in Cede & Co.‘s name, not individual investors’ names. By 1998, official data revealed that Cede & Co. held legal title to 83% of outstanding U.S. public stocks. What you call “ownership” in your account is actually a nested chain of contractual claims: you own a claim against your broker, who owns a claim against a clearing broker, who owns a claim against DTCC. The issuer’s official shareholder register lists Cede & Co.—not you. This indirect holding system eliminated the paper crisis and enabled the clearing of trillions in daily transactions, but the cost was permanent separation between shareholders and their shares.

DTCC’s Incremental Path: Tokenizing Rights, Preserving Structure

Given this architecture, DTCC’s recent approval makes more strategic sense. The tokenization service targets institutional participants—the few hundred clearinghouses and banks that directly interface with DTCC. Retail investors cannot access it directly. Under this model, DTCC is tokenizing the contractual claims (the “rights”), not converting them into direct ownership. The underlying shares remain registered under Cede & Co.'s name indefinitely. This is infrastructure improvement, not structural transformation. DTCC outlined three concrete benefits in its SEC filing: first, participants can achieve near-instantaneous transfer of collateral, with capital locked in settlement no longer frozen during T+2 cycles. Second, on-chain ledgers can replace the daily reconciliation work that now consumes institutional operations, creating a shared “single source of truth.” Third, future innovations become possible—dividend payments in stablecoins, or security tokens serving as DeFi collateral, pending additional regulatory approval. Notably, DTCC has stated explicitly that these tokens will not interface with open DeFi protocols, will not bypass existing institutional participants, and will not alter the shareholder register. The logic is sound from a systemic perspective. Multilateral netting—DTCC’s core advantage—only functions under centralized clearing. With trillions traded daily, the NSCC’s netting mechanism ensures that only tens of billions in actual cash transfer to complete settlement. Decentralized settlement would require full capital backing for every transaction, dramatically increasing capital requirements industry-wide. As a systemically critical financial utility, DTCC’s mandate is stability, not disruption. The incremental path makes this hierarchy explicit.

The Direct Ownership Revolution: From Galaxy Digital to Blockchain-Native Trading

Meanwhile, a parallel path has emerged at the periphery. On September 3, 2025, Galaxy Digital became the first Nasdaq-listed company to tokenize SEC-registered shares on a major public blockchain—Solana. Working with Superstate, an SEC-registered transfer agent, Galaxy’s shares now trade as tokens on-chain. The critical difference: these tokens represent actual shares, not claims to shares. As transfers occur on-chain, Superstate updates the official shareholder register in real time. Galaxy’s new shareholders appear directly on the company’s books—Cede & Co. is bypassed entirely. This is legal direct ownership. In December 2025, Securitize announced plans to launch a tokenized stock platform in early 2026, emphasizing that its tokens will be “real, regulated shares issued on-chain and recorded directly on the issuer’s register.” Securitize pushes further by enabling on-chain trading: during NYSE hours, prices anchor to the National Best Bid-Offer (NBBO); after hours and weekends, Automated Market Makers establish prices based on on-chain supply and demand. The practical implication is a theoretical 24/7 trading window. This path treats blockchain as a native securities layer, not an upgrade to existing plumbing.

The Calculus: Efficiency vs Autonomy in Market Evolution

These two approaches embody competing institutional logics. DTCC’s model acknowledges the genuine merits of the existing system—the capital efficiency of netting, the risk mitigation of central counterparties, the maturity of compliance frameworks—and uses blockchain to make it faster and more transparent. Intermediaries persist but adopt new accounting methods. The direct ownership model challenges the underlying premise: if blockchain creates an immutable ownership record, why preserve intermediary chains? If investors can self-custody, why surrender legal title to Cede & Co.? Each path carries distinct trade-offs. Direct ownership enables peer-to-peer transfers, self-custody, and composability with DeFi protocols. The cost is dispersed liquidity and lost netting efficiency. Every on-chain transaction requires full settlement without centralized clearing, increasing capital demands substantially. Investors also absorb operational risks—lost private keys, wallet compromises—that intermediaries traditionally managed. Indirect holding preserves institutional efficiency and a mature compliance ecosystem. The cost is that ownership remains a series of contractual claims. Voting rights, shareholder proposals, issuer communications—theoretically shareholder prerogatives—require navigating multiple intermediary layers. Significantly, SEC regulators have signaled openness to both paths. Commissioner Hester Peirce stated in December that “the DTCC model is a promising step, but other market participants are exploring different experimental paths. Some issuers have already begun tokenizing their own securities, which could make it easier for investors to hold and trade securities directly, rather than through intermediaries.” The regulator is not mandating a single path. Instead, it’s permitting market differentiation: different models for different use cases.

Market Players at the Crossroads: How Brokers, Custodians, and Transfer Agents Adapt

This fork in the road poses existential questions for market intermediaries. Clearing brokers and custodians must assess: does direct institutional tokenization through DTCC create a moat, or does it accelerate commoditization? The firms adopting DTCC’s service first may gain temporary competitive advantage, but the service itself could become standardized. Retail brokerages face more acute pressure. Under DTCC’s model, their gatekeeping role is secured—ordinary investors still access markets through brokers. But if the direct holding model proliferates, their moat erodes. If investors can hold and trade SEC-registered shares independently on compliant on-chain exchanges, what justifies the broker’s fee? The answer may lie in high-value advisory services: tax optimization, compliance guidance, portfolio management—functions that smart contracts cannot replicate. Transfer agents occupy unexpected leverage. Historically, they were a back-office function maintaining shareholder registers. In direct holding models, they become the critical bridge between issuers and investors. Superstate and Securitize both hold SEC-registered transfer agent licenses deliberately. Controlling register updates means controlling the gateway to direct holding infrastructure. Asset managers face pressures from composability: if tokenized shares become collateral for on-chain lending protocols, traditional margin lending changes. If 24/7 settlement via AMMs eliminates T+1 settlement asymmetries, certain arbitrage opportunities vanish. These shifts won’t occur immediately, but asset managers need to stress-test how dependent their models are on specific settlement assumptions.

When Infrastructure Paradigms Collide: Regulation Embraces Choice

Financial infrastructure transformations rarely complete quickly. The 1973 creation of DTCC solved the immediate crisis, but it took two decades for the indirect holding system to fully solidify, eventually concentrating 83% of U.S. equities under Cede & Co.'s legal name. SWIFT, also established in 1973, is still being restructured for cross-border payments fifty years later. Both paths will likely grow in their respective territories initially. DTCC’s institutional services will penetrate wholesale markets most sensitive to settlement efficiency—collateral management, securities lending, ETF creation-redemption mechanics. The direct holding model enters from the margins: native crypto users, small issuers willing to disintermediate, regulatory sandboxes in pioneering jurisdictions. Over longer horizons, the two curves may gradually converge. As tokenized equity circulation reaches scale and regulatory frameworks for direct holding mature, investors may face a genuine choice for the first time: remain within DTCC’s efficient institutional ecosystem, or exit to on-chain self-custody and reclaim direct asset control. That choice itself represents historic change. Since 1973, the moment a stock entered a brokerage account, it automatically entered the indirect holding system. Cede & Co. became the legal owner by default, not by design choice. For fifty years, there was only one path. Today, alternatives exist. Cede & Co. still holds the overwhelming majority of American public equities. That proportion may gradually loosen—or persist for decades. But the fact that another infrastructure path has now been paved, and that regulators permit competition between them, signals a structural shift in how securities markets can be organized.