Tokenization's True Potential: Speeding Up Trillions in Collateral

In September, Nasdaq proposed a rule change to the SEC that would enable tokenized stocks and exchange-traded products (ETPs) to be traded on its platform. At first glance, this seems like a major breakthrough for cryptocurrencies, suggesting that blockchain is rapidly gaining traction in the U.S. financial markets. However, it's important to note that securities have been “digital” for quite some time. The real innovation lies not in simply wrapping stocks with blockchain technology, but in determining whether tokenization can actually improve market efficiency. The key questions are: Can blockchain and tokenization facilitate faster, interoperable, and more fluid collateral movements?

Key Takeaways

Tokenization could enhance market efficiency by enabling quicker and smarter deployments of collateral.
Historically, securities were paper-based but evolved to a digital format for efficiency, laying the groundwork for blockchain applications.
Collateral mobility is crucial for liquidity and risk management; tokenization allows rapid and programmable asset transfers.
Traditional financial assets far exceed the cryptocurrency market, highlighting the need for synergy with established systems.
The next five years will reveal if tokenized collateral becomes mainstream; banks are already exploring tokenized bonds and stablecoins.

Tokenization isn’t simply about digitizing assets; it’s about unlocking the mobility, interoperability, and strategic utility of collateral that makes this efficiency tangible

The Shift from Paper to Digital

In the 20th century, owning stocks meant managing physical paper certificates. By the late 1960s, Wall Street faced a “paperwork crisis,” leading to the establishment of the Depository Trust Company in 1973. This organization created a solution that involved locking certificates in vaults and replacing them with electronic records. Today, the Depository Trust & Clearing Corporation (DTCC) is the backbone of U.S. financial markets, ensuring safe and efficient dollar transfers during stock or bond purchases without the hassle of paper certificates.

Similar transitions took place in Europe and Japan in the 1980s and 90s, where immobilized certificates evolved into fully dematerialized systems. Nowadays, many securities exist in a digital format, tracked and settled through centralized systems. Therefore, while blockchain adds a new method for recording assets, it doesn't necessarily represent a revolutionary change. It’s essential that blockchain innovations lead to operational or financial enhancements beyond what current methods offer.

The Importance of Collateral Mobility

One of the main advantages of tokenization lies in collateral mobility—the rapid movement and utilization of assets across institutions. This concept is pivotal for liquidity, margins, and risk management. Tokenization boosts this capability by enabling collateral to be transferred and reused on-chain without the bottlenecks of traditional infrastructure. As financial markets become more interconnected, adequate and agile token-enabled collateral management solutions are increasingly needed.

It’s worth noting that the digital asset space is still relatively small. The global fixed income market was valued at $145.1 trillion in 2024, while Treasuries alone accounted for roughly $22.3 trillion—eight times greater than the entire cryptocurrency market. This reality indicates that crypto's appeal alone won't bring significant change to traditional markets. Traditional financial assets are crucial for things like repo, refinancing, and margin solutions, emphasizing the significance of fast movement, reusable collateral, and capital efficiency—making them ideal candidates for tokenization.

Stablecoins, which are primarily backed by Treasuries and other cash-equivalent investments, are further driving this change. They present banks with opportunities to lower settlement costs and speed up transfers. Recent studies project that stablecoins may represent 5-10% of global payments, translating to $2.1 trillion to $4.2 trillion in value. The CFTC is also considering allowing stablecoins like USDC and Tether to be used as collateral in U.S. derivatives markets, further emphasizing the need for infrastructure that can manage these assets effectively.

Future Prospects: Markets in Motion

In the coming five years, whether tokenized collateral turns out to be a promising invention or a simple novelty will become clearer. By 2026, significant interest is expected as banks and asset managers begin piloting tokenized bonds and stablecoins in specific workflows with limited high-grade investment opportunities. As stablecoins supplement traditional cash in clearing and settlement processes, particularly in derivatives markets, early adopters using tokenized Treasuries and high-grade bonds may see some improvements in capital efficiency.

By 2030, we could witness a significant shift. Tokenized bonds, funds, and stablecoins could become commonplace in financial institutions, making tokenized Treasuries and corporate bonds vital within liquidity and rehypothecation markets. If banks widely adopt stablecoins, the potential for faster and cheaper settlements will rise, necessitating infrastructure capable of facilitating this ease of collateral movement. The firms that excel will be those that navigate both crypto innovations and intricate operational coordination required in modern collateral management.

Conclusion: Why It Matters

Nasdaq’s proposed rule change is a significant milestone in the digital evolution of financial markets, but it’s just the beginning. Simply tokenizing securities does not add substantial value unless it comes with systems for effectively transforming, reusing, and moving collateral. The real opportunity lies in maximizing the flexibility and efficiency of substantial asset pools (like Treasuries, corporate bonds, and private credit) while integrating them with emerging digital assets such as stablecoins.

This evolution could represent a new frontier for capital markets, merging technology, risk management, and effective operations. Whether or not it involves cryptocurrency, advancing toward better capital efficiency is essential for any serious financial institution. Enhanced capital allocation can provide more than just operational ease; it bestows financial autonomy, protects against market fluctuations, and supports strategic flexibility.

Companies that successfully embrace tokenization will not only work more efficiently but also set the benchmark for future market operations.