The Largest Securities Exchange in the World is Coming Onchain

The tokenized treasury space, exemplified by BlackRock's BUIDL fund, has experienced rapid growth, expanding from $200 million to $11 billion in two years. Despite this growth, the tokenization of real-world assets is still in its early stages, with projections suggesting that even a small percentage of stocks moving on-chain could double the size of the crypto market. Securitize and the New York Stock Exchange (NYSE) recently announced a partnership aimed at bringing tokenized securities to public blockchains. Carlos Domingo from Securitize and Michael Blagrand from the NYSE elaborated on the details of this collaboration. Securitize has been named the first "digital transfer agent" for the NYSE. A transfer agent is responsible for maintaining the records of security ownership. Securitize's "digital" designation signifies its use of public blockchains as its ledger technology and its entirely digital operational procedures, eliminating traditional paper certificates. This allows Securitize to work with publicly traded companies to issue tokens that are native representations of equity, which will then trade on the NYSE's digital venue. Carlos clarified that while "digital" is a descriptive term, transfer agents are fundamentally regulated entities that manage securities on behalf of an issuer. Their responsibilities include controlling transfers, updating cap tables, paying dividends, conducting votes, and asset servicing (e.g., reissuing tokens if private keys are lost). Not all securities require a transfer agent, but it is mandatory for registered and public securities. This initiative aims to create "native" tokenized securities, meaning the token itself is the equity, not just a representation or IOU. Carlos highlighted that existing models, like Ondo's, often create fragmented markets with multiple versions of the same asset, each with different rights, risks, and regulatory compliance issues. The Securitize model, in contrast, offers a direct, tokenized form of ownership, akin to holding shares through a traditional broker but with the benefits of blockchain technology. Regarding blockchain compatibility, Securitize is chain-agnostic, supporting major public blockchains like Ethereum, L2s, Avalanche, Solana, and Aptos. The choice of blockchain for an asset is typically made by the issuer, with Securitize also conducting due diligence to ensure sufficient decentralization and reliability. Issuers can choose to issue on multiple chains, treating each as a separate share class or aggregating tokens across different ledgers. Michael then detailed the NYSE's forthcoming "affiliated tokenized security platform," an Alternative Trading System (ATS). This ATS will operate adjacent to existing traditional exchanges, trading tokenized equities against stablecoins. It aims to offer crypto-native user experiences such as 24/7 operations and instant atomic settlement, while still conforming to significant market structure conventions set by the SEC and FINRA. The platform will use on-chain settlement but off-chain matching, leveraging NYSE's existing matching and market data technology. The NYSE's system will run a private, permissioned on-chain core ledger. Securities can be brought into this platform either as natively minted tokens from digital transfer agents like Securitize or converted from previously issued securities held by traditional depositories like the DTC. Once tokenized and moved into the custody of a participating broker-dealer, they become available for pre-funded trading and instant settlement. This system acts as an aggregator of tokenized securities from various public blockchains. Michael anticipates a dual-track process for asset availability. Initially, crypto-forward companies and ETF issuers, like BlackRock, will be early adopters of native issuance. Concurrently, the DTC plans to make all US equities, starting with the Russell 1000, available for tokenization conversion over time. Michael estimates that all US equities could be convertible into tokens within a couple of years, but ubiquitous tokenized trading will take longer, perhaps three to five years, due to the need for robust infrastructure and investor protections. Carlos emphasized the potential market size, noting that US securities represent a $100 trillion market, with NYSE alone accounting for $44 trillion. Even a small percentage of this market moving on-chain would be transformative, unlocking efficiencies and new applications like easier borrowing against shares. The future state envisions retail investors being able to buy tokenized versions of stocks (e.g., Exxon) through their existing brokers (e.g., Fidelity) and hold them in non-custodial wallets. This would allow investors to move their securities between brokers easily, unlike the current cumbersome process. While immediate reality might involve permissioned bearer instruments, the long-term goal is to blend self-custody with regulatory compliance. Carlos clarified that while wallets need to be whitelisted (requiring KYC), the underlying infrastructure can still be permissionless. The transfer agent verifies the investor's identity and wallet control, linking ownership to the individual, not just the wallet. This means if a wallet is lost, the transfer agent can burn and reissue the security to a new wallet, reducing risk compared to pure bearer assets like Bitcoin. Integrating tokenized securities with DeFi protocols, such as Aave, is also a key goal. Aave Horizon is being developed to accept tokenized securities as collateral, and Securitize has released a "vault registrar" for other DeFi protocols to integrate. While whitelisting liquidators and smart contracts is required, Carlos believes this is not a significant hurdle, opening up massive opportunities for stock lending and efficient collateral management in DeFi. He argued that introducing high-quality collateral like tokenized equities could drive institutional participation and growth in DeFi. The debate about using public permissionless ledgers versus private permissioned ones for tokenized securities was addressed. Carlos likened this to the AOL vs. Internet debate, advocating for open networks for innovation. He asserted that public permissionless networks are suitable for securities when managed by a regulated intermediary like a transfer agent, which can handle issues like burning and reissuing securities. Michael added that the NYSE's regulatory obligations remain the same regardless of the technology choice, and they expect to use various L1 and L2 solutions across their operations. Carlos also pointed out that the SEC has explicitly stated that transfer agents are allowed to use public permissionless networks for maintaining security holder records. Michael explained that the NYSE's new ATS is a parallel trading venue, not a replacement for its traditional exchange. This allows for experimentation and growth in the tokenized space without disrupting the existing, critical traditional market infrastructure. He believes that the shift to on-chain infrastructure for capital raising, trading, clearing, and settlement is inevitable, even if it's a long-term migration. Regarding the impact on traditional exchanges, Michael foresees a gradual migration similar to the shift from floor-based to electronic trading. He expects retail investors to move faster, and some features like expanded trading hours are already influencing traditional finance. Ultimately, the goal is to abstract away the complexity of tokenization, allowing investors to own assets like Exxon with a broader menu of capabilities, including self-custody and lending, without needing to be blockchain experts. The discussion also touched on the need for legislative clarity, such as the Clarity Act. While such acts are valuable for the marketplace and can prevent regulatory arbitrariness, Michael stated that the NYSE can proceed with its tokenization platform without significant regulatory exemptions or legislative changes. Carlos added that the Clarity Act primarily addresses the classification of digital assets as securities or commodities, and there's already clarity that tokenized securities are indeed securities. Finally, the challenge of convincing issuers to tokenize their assets was discussed. Carlos believes that the existence of a legitimate trading venue like the NYSE's ATS will be a significant catalyst, as it provides a clear utility for tokenized securities. This could lead to more investors, increased liquidity, and new ways for issuers to interact with shareholders through verifiable ownership. Michael agreed, emphasizing the need to demonstrate utility to overcome the inertia of the existing system and drive industry-wide shifts. The timeline for the NYSE's tokenized security platform is Q4 of this year, subject to regulatory approval. Issuers interested in native issuance can begin working with Securitize even before the ATS is fully live.