In a major new development that shows how blockchain and cryptocurrency is revolutionizing the traditional finance sector, the world’s second-largest stock exchange is seeking approval from the US Securities and Exchange Commission (SEC) to tokenize all of its stocks. This would allow the 24/7 trading of Nasdaq equities on the blockchain – the first of its kind. In addition to 24/7 trading, this would allow instant settlement and programmable ownership. According to insiders, tokenization and settlement would occur on the Ethereum blockchain – the namesake blockchain of the world’s second largest cryptocurrency by marketcap.
Ethereum as an asset is rapidly gathering attention and appeal on Wall Street for its smart contract capabilities and ability to bridge Decentralized Finance (DeFi) with Traditional Finance (TradFi). A recent trend has seen a number of niche corporations – most traded on Nasdaq – diversifying their corporate treasuries out of inflationary cash to Ethereum (ETH), betting big on the future infrastructure of finance.
As we reported in an earlier edition of Crypto Finance Asia, the chief information officer of Fundstrat Capital, Thomas Lee, is calling ETH “the biggest macro trade for the next 10 to 15 years as Wall Street financializes on the blockchain.”
Other analysts are focusing more on the broader revolution that is taking place, which is the convergence of blockchain and DeFi with TradFi.
“If equities, bonds, and funds can live onchain with full compliance, we’re staring at a once-in-a-generation overhaul of capital markets,” wrote the CEO of 51insights, a crypto focused research firm. “Once stocks settle on blockchain, the rest of Wall Street will follow.”
But why does Nasdaq want to tokenize its stocks?
From a broader perspective, the appeal of tokenization lies in its ability to address several core pain points in the capital markets.
“First, settlement efficiency. In the existing system, stock trades typically require T+1 or even longer to settle. On-chain settlement, however, allows for near-instant settlement, reducing counterparty risk. Second, trading time and accessibility. Traditional exchanges operate on an open-and-closed trading system, requiring cross-border investment to go through layers of intermediaries. Tokenized stocks, on the other hand, can theoretically be traded 24/7 and more easily reach overseas investors through blockchain wallets. Finally, asset programmability means that proxy voting, dividend distribution, and even corporate governance can be automated and transparent with the support of smart contracts.”
Until recently, TradFi has typically shunned cryptocurrencies and its underlying technology (banks in particularly have been staunch opponents due to an underlying threat of technological superiority – no it does not take days and tens of dollars to process cross border payments; blockchain does this in seconds for pennies). But this is changing. Nasdaq, for example, is embracing adaption and adoption as opposed to resistance. If you can’t beat them, join them.