Wall Street, crypto industry say tokenization will reshape global markets: 'It’s going to eat the entire financial system'

Imagine a future where the biggest US stocks like Tesla (TSLA) or Nvidia (NVDA) can be traded around the clock, with the transactions settled in seconds.

Momentum is building toward that vision. The crypto industry, along with Wall Street heavyweights, wants to bring tokenized stocks, or digital versions of traditional shares that are recorded on a blockchain’s digital ledger, into the mainstream.

Last month Nasdaq (NDAQ) asked regulators for permission to allow listed stocks to trade in tokenized form on its exchange. If the request is granted by the Securities and Exchange Commission, it would mark a pivotal step toward merging traditional finance with blockchain. The SEC opened the proposal for public comments in September, with a decision expected within 45 to 90 days of publication.

“Tokenization is like a freight train. It can’t be stopped, and eventually it’s going to eat the entire financial system,” Robinhood (HOOD) CEO Vlad Tenev said at a crypto conference in Singapore on Wednesday. Over the summer, the trading platform launched more than 200 US stock and ETF (exchange-traded fund) tokens in Europe.

Meanwhile, Wall Street firms ranging from Goldman Sachs to asset manager BlackRock have already rolled out tokenized money-market funds. BlackRock is also reportedly exploring the launch of tokenized ETFs.

“Every stock, every bond, every fund — every asset — can be tokenized. If they are, it will revolutionize investing,” BlackRock (BLK) CEO Larry Fink said in the company’s annual newsletter in July. “Markets wouldn’t need to close. Transactions that currently take days would clear in seconds.”

Supporters argue that tokenized stocks make trading more accessible to investors, enable exchanges of assets in just one blockchain transaction, and expand their use in lending or as collateral.

“These are financial tools that the retail investor is not used to,” said Kevin Rusher, founder of real-world asset borrowing and lending firm RAAC. “It lowers the barrier to entry.”

The market for tokenized real-world assets, which include stablecoins, bonds, real estate, and commodities, could swell from about $600 billion in 2025 to nearly $19 trillion by 2033, according to Boston Consulting Group and Ripple.

The rollout of some tokenized equity products abroad have had a rocky start.

Tokens tracking popular stocks like Apple (AAPL) and Amazon (AMZN) in Europe have struggled with thin liquidity, leading to prices diverging from those of actual stocks.

Concerns about third-party issuers have also surfaced.

When Robinhood announced in June it would offer tokenized shares of private firms OpenAI (OPAI.PVT) and SpaceX to its European customers, the ChatGPT maker was quick to point out that those “are not OpenAI equity” and that it was not involved in the offering.

In August, industry trade group World Federation of Exchanges, which includes Nasdaq, urged regulators to step up scrutiny of tokenized stock products,saying they “are marketed as stock tokens or the equivalent to stocks when they are not.”

In its September proposal, Nasdaq emphasized the tokenized securities it aims to list would have the same exact value and shareholder rights as their traditional counterparts.

In order for stocks as digital assets to be adopted widely in the US, experts say a more comprehensive regulatory framework is needed.

“Currently, a lot of token-related investment products and services are being regulated kind of on an ad hoc basis at the state and federal level,” Jerry Comizio, associate director of the business law program at American University’s Washington College of Law, told Yahoo Finance.

“There’s no central consolidated overview of this, the way there is in other industries like banking. That’s going to be the challenge,” he added.

The SEC has said that tokenized stocks fall under its regulatory authority, noting in a July statement that “tokenized securities are still securities.”

In the US, the tokenization boom has gained momentum alongside new legislation this year that fueled a surge in stablecoins, digital tokens pegged to the US dollar. Ether (ETH-USD) and solana (ETH-USD) have rallied as enthusiasm grows for real-world assets moving onto blockchain networks.

Many in the crypto industry envision big companies like Tesla or Amazon (AMZN) one day issuing shares directly “on-chain.”

“Eventually, all financial markets will be based on the same technology as crypto is today,” Kevin de Patoul, CEO of Brussels-based blockchain liquidity provider Keyrock, told Yahoo Finance.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.

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