How Should Boards Address Tokenization of Equities?
Are public companies prepared for the potential tokenization of their equity?
Today the crypto industry is expanding rapidly with the change in U.S. administration and the SEC’s “Project Crypto”. A key feature of this expansion is bringing new money and assets into the crypto domain, such as tokenizing real-world assets (RWA) from gold and real estate to treasury bills and, now, listed and private company equities.
Boards need to weigh the relative advantages and disadvantages of tokenization and decide whether to embrace this change or fight it, and whether they want to be active in tokenizing the company’s shares or reactive. The considerations for private companies are different from those of public companies, mainly because they have a tighter control over their equity, often with restrictive convents on transfer, and fewer of the disclosure and trading rules. This article focuses on the perspective of the boards of public companies.
This is not a new topic. In 2018, Overstock, a U.S. public company, drove the idea of recreating the “Boston Stock Exchange” to trade equities on a private blockchain. It required a rule change by the SEC, which generated tremendous pushback by the existing exchanges that successfully argued that it placed an unreasonable burden on them if they had to replicate a blockchain trading system. So that grand vision was whittled down dramatically to simply an options market.
A different approach was tried in December 2020 by Terraform Labs, which launched “The Mirror Protocol”. This allowed users to obtain “mAssets” — tokens whose value would “mirror” the price of a preexisting non-crypto asset, such as publicly traded securities (like Google, Apple and Tesla). Google, Apple and Tesla strongly objected to their publicly traded securities being used in this way. However, the idea was never really tested because Terraform Labs crashed in May 2022 in the wake of the failure of its flagship algorithmic “stablecoin”, having knock-on effects across the crypto industry, resulting in the bankruptcies of Three Arrows Capital, BlockFi, Celsius, FTX and many others.
Things then went quiet until the change in U.S. administration, but now major players such as the crypto exchange Kraken with xStocks offer tokenized equities of major U.S. companies (Apple, Tesla and Nvidia) to non-U.S. investors. In September 2025, Galaxy Digital, listed on NASDAQ, is reviving this idea by offering their class A shares as tokens on the Solana blockchain. Superstate is acting as the transfer agent. The tokens can only be traded between investors who have gone through “Know Your Client” (KYC) registered with Superstate.
The stakes were just raised on September 8, 2025, when NASDAQ sent a letter to the SEC with a proposal for the trading of tokenized securities. The proposal is for securities to be traded on NASDAQ in both traditional and securitized forms. DTC would still do the back-end work of clearing and settling the trade. This appears to be the latest step in a fight brewing between the traditional centralized U.S. equities trading market with NASDAQ and NYSE at its core, surrounded by layers of clearing houses and transfer agents, versus crypto exchanges that want to trade tokenized equities directly on a blockchain.
It is likely that in a near future there will be a significant relaxation of the U.S. regulations that have held the crypto and traditional financial trading markets apart and that they will rapidly converge. There are obvious effects like 24/7 trading and less obvious effects like retail investors programmatically trading individual stocks against meme coins. Whilst very different, these developments are likely to lead to more volatility in share prices, particularly in the early days.
The purported benefits of tokenization are that there is a single source of truth (the blockchain) per security and that equities can be fractionized, hence reducing the entry price, 24/7 trading, immediate settlement and larger addressable markets for the security.
These benefits may or may not be real benefits depending on the circumstances of any particular public company. Companies whose customer base strongly aligns with crypto culture, such as gaming and fashion, may well be able to either promote their equity through their product (it could be bought inside a video game) or use it as a reward for product purchases. While these sorts of approaches were previously difficult from a regulatory perspective, they look increasingly realistic in the current environment.
There are two key approaches to tokenizing listed equities. The first is issuer-sponsored tokens. In this approach, the public blockchain is used as a ledger that records ownership of shares in a particular public company. Rather than a transfer agent recording ownership in their private ledgers, “tokens” are written to the blockchain and record who owns the shares. It is up for strong debate as to whether the transfer agent maintains this role or whether it is taken over by another industry player, such as the broker-dealer or even the exchange itself. Transfer agents who are intermediaries between public companies and their shareholders will be significantly affected if this takes off and will need to rapidly evolve their business models.
The SEC recently provided guidance that TAs can use blockchains as ledgers, as long as they adhere to the existing rule framework, so there is no regulatory hurdle to this step. If you are a company going public, why not take this approach? Issuer sponsored tokenization provides direct ownership of the securities and ensures that, whatever the holding types are (certificates, book-entry/DRS and token) or whether it is held in the street or registered name, there is fungibility. However, actually implementing such a system is non-trivial. Somebody is going to have to take your street-registered security holding and convert it into a token, and this has a cost involved.
It is more complicated for companies that are already listed. Boards need to consider whether they want to issue any new shares on chain, but this would lead to the same class of shares being in both tokenized and traditional bearer formats. Moving an existing class of shares on-chain would require approval from shareholders, the existing exchanges and regulators. It is likely to be more popular for new listings or companies that have a very crypto-native shareholder base, such as gaming, sports-related or certain consumer brands.
Intermediated tokenization is not new but is rarely used. It has come to the fore recently with a lot of interest in the possible tokenization of high-profile private company shares, such as Space X.
It does not require the involvement of a transfer agent or an issuer, so it is very fast to market and easily replicated. There are two main approaches that have regulatory approval.
Custodial intermediation. Custodians and depositories (brokers and DTCC) can
tokenize claims against the underlying shares they already hold and issue tokens to
end investors directly.
Compliant wrappers. Firms can create a new investment vehicle (SPV, DR, ETF)
that buys the underlying securities and issues tokens to eligible investors depending
on the registration or exemption of the vehicle.
Noncompliant wrappers. These are being created by crypto firms that are issuing tokens and not adhering to registration requirements and are issuing permissionless tokens to investors without KYC or eligibility checks. This is the most problematic for directors.
It is important to stress that these tokens do not represent true ownership or the associated rights of the underlying issuers’ shares. Instead, they represent a claim against the firms issuing these tokens. Multiple companies can issue tokens for the same underlying security but they are not fungible and tokens bought from one issuer cannot be redeemed by another issuer. Instead, tokens for a particular share can be traded via a centralized or decentralized exchange. This is the case also for ETFs but they are a much more tried and tested structure, with close SEC oversight. There is a financial and reputational risk, depending on the issuer of the wrapper.
This obviously fragments the liquidity as well as making it more difficult to implement public reporting, insider holdings and insider trading rules. This raises considerable risks that the board needs to consider and ensure management has a playbook ready to address these issues.
Boards of public companies need to decide which model they want to follow. For some companies, having tokenized equity may make sense if it can increase liquidity and potentially bring more investor interest to the stock. It will be interesting to see if more crypto-native companies start to issue tokenized equity and if this gives us a blueprint for having all the shares tokenized. In this case, the board is likely to want the company to control the tokenization process and to lobby the SEC to ensure that they have this control.
Boards need to ensure that they are provided regular updates on developments around tokenization of equities and that management has a plan in place to address issues like 24/7 trading and potentially increased volatility.
About the Author(s)
David Crosbie is a former Visiting Fellow at the SEC Cyber and Crypto Unit and senior lecturer at University of Pennsylvania.
Susan Holliday is a director, advisor and Qualified Risk Director.