The Echoes of the Paperwork Crisis: What Do the Two Paths of US Stock Tokenization Mean

December 11, 2025, the Depository Trust & Clearing Corporation (DTCC) received an “exemption letter” from the SEC, allowing the tokenization of custodial assets on the blockchain. Upon this news, the industry rejoiced—$99 trillion in custodial assets are about to go on-chain. But behind this seemingly simple announcement, the deep imprint left by the paperwork crisis is beginning to surface. Two forces are engaged in a fierce battle over the path to tokenizing US equities, and this contest’s implications go far beyond a mere technical dispute.

The key detail is that DTCC is tokenizing “securities interests” rather than the stocks themselves—this distinction reflects two fundamentally different systemic logics and carries different implications for investors, financial intermediaries, and even the entire market structure.

From Paperwork Crisis to the Meaning of Paperwork: The Birth of an Indirect Holding System

Before 1973, US stock trading was based on physical certificates. But by the late 1960s, daily trading volume soared from a few million shares to over ten million, nearly collapsing the entire clearing system. Broker-dealer back offices were overwhelmed with millions of pending stock certificates, with losses, thefts, and forgeries becoming commonplace. Wall Street called this period the “Paperwork Crisis”—and this paperwork signified the end of an era and the beginning of a new system.

This crisis led to the creation of DTC and later DTCC. The core idea was simple: store all stock certificates centrally, and record transactions digitally on the books. To do this, DTCC established Cede & Co., a nominee entity that registered the majority of stocks of US-listed companies in its name. Data from 1998 showed that Cede & Co. held legal ownership of 83% of all issued publicly traded US stocks.

What does this mean? When an investor sees “100 shares of Apple” in their brokerage account, the actual record on Apple’s shareholder register is in the name of Cede & Co., not the investor personally. The investor’s holdings are actually a contractual claim called a “securities interest”—a layered chain of rights: Investor → Retail Broker → Clearing Broker → DTCC. This “indirect holding system” eliminated the paperwork crisis but at the cost of permanently separating investors from direct ownership.

What does the end of this paperwork era signify? It means efficiency, but also a transfer of control.

Incremental Change, Not Revolution: The Choice Behind DTCC’s Tokenization

More than fifty years later, DTCC faces a new technological choice. According to the SEC exemption letter, DTCC’s tokenization targets “securities interests held by participants at DTC”—that is, direct institutions like clearing brokers and banks, not ordinary investors.

The tokenized “securities interest tokens” will circulate on a blockchain approved by DTCC, but they still represent contractual claims on the underlying assets, not direct ownership. The underlying stocks remain registered in the name of Cede & Co. This is an infrastructure upgrade, not a complete overhaul of the architecture.

What does this choice by DTCC imply? It suggests caution and careful consideration. The core advantage of the existing indirect holding system—the multilateral netting—relies on a centralized architecture that cannot be abandoned. Billions of dollars of daily transactions are netted through NSCC, requiring only hundreds of millions to settle. If scaled onto a decentralized chain, this economies of scale would vanish.

As a systemically important financial infrastructure, DTCC’s primary responsibility is to maintain stability. Therefore, the goals of tokenization are positioned as threefold: enhance collateral liquidity, simplify reconciliation, and pave the way for future innovation. But one thing is clear: tokens will not enter DeFi ecosystems, will not bypass existing participants, and will not alter the shareholder register of issuers.

This choice means: efficiency is optimized, but the power structure remains unchanged.

The Possibility of Direct Ownership: The Meaning and Challenges of On-Chain Tokenization

While DTCC proceeds cautiously, another path is developing.

On September 3, 2025, Galaxy Digital became the first Nasdaq-listed company to tokenize on a mainstream public blockchain. In partnership with Superstate, Galaxy’s Class A common shares are now held and transferred as tokens on the Solana blockchain. The key difference is that these tokens represent actual shares, not just claims on shares. When transferred on-chain, the holder’s name appears directly on Galaxy’s shareholder register—Cede & Co. is not involved.

In December of the same year, Securitize announced it would launch a compliant on-chain tokenized stock service in Q1 2026. Unlike the market’s synthetic or offshore structures, which rely on derivatives or offshore arrangements, Securitize emphasizes that its tokens are genuine, regulated stocks. Furthermore, they support on-chain trading—US stock prices are anchored to the best bid and offer (NBBO) during market hours, and during off-hours, automated market makers set prices based on on-chain supply and demand. This implies a near 24/7 trading window in theory.

This path’s implications are entirely different: it treats blockchain as a native layer of securities infrastructure, not an add-on to the existing system.

Two Systemic Logics, Two Future Implications

This is not merely a technical debate but a fundamental divergence in systemic logic.

The DTCC path represents incremental improvement—acknowledging the rationality of the current system and using blockchain to make it faster and more transparent. The role of intermediaries does not disappear; it’s just a change in bookkeeping.

The direct ownership path signifies structural change—questioning the necessity of the indirect holding system itself. If blockchain provides immutable ownership records, why layer multiple intermediaries? If investors can self-custody, why transfer ownership to Cede & Co.?

Each path involves significant trade-offs.

Direct ownership grants autonomy—self-custody, peer-to-peer transfers, composability with DeFi protocols—but at the cost of liquidity fragmentation. Without a central clearinghouse’s netting, capital requirements increase substantially. Additionally, investors bear risks traditionally borne by intermediaries—loss of private keys, wallet theft.

Indirect holding preserves system efficiency—scale economies of centralized clearing, mature regulatory frameworks, familiar operational modes for institutional investors—but investors can only exercise rights through intermediaries. Shareholder proposals, voting, and direct communication with issuers all require passing through multiple layers.

It’s noteworthy that the SEC remains open to both paths. Commissioner Hester Peirce explicitly stated that DTC’s securities interest tokenization is “a hopeful step” in this journey, but other market participants are exploring different experimental approaches. The regulator’s signal is clear: it’s not a binary choice but a market-driven decision about which model suits which needs.

Industry Reshaping: The Implications for Financial Intermediaries in the Transformation

In the face of this path competition, what should existing financial intermediaries consider?

Clearing brokers and custodians need to evaluate: under the DTCC model, are you indispensable or replaceable? If securities interests can be transferred directly between participants, do traditional custody, transfer, and reconciliation fees still make sense? Early adopters may gain a competitive edge, but in the long run, these services could become commoditized.

Retail brokers face more complex challenges. Under the DTCC model, their role is reinforced—retail investors still rely on brokers. But if direct ownership spreads, it could erode their moat. If investors can self-custody and trade on compliant chains, what is the role of retail brokers? The answer may lie in high-value services that cannot be replaced by smart contracts—regulatory consulting, tax planning, portfolio management.

Transfer agents are poised for an upgrade. In the traditional system, they are low-profile back-office functions. In a direct ownership model, they become key intermediaries between issuers and investors. The fact that Superstate and Securitize both hold SEC-registered transfer agent licenses is no coincidence—controlling shareholder register updates grants access to the direct ownership system.

Asset managers need to watch for competitive pressures related to composability. Tokenized stocks as collateral in on-chain lending protocols threaten traditional financing. Investors can trade and settle instantly on AMMs 24/7, eliminating the capital lock-up during T+1 settlement cycles. These changes may not happen immediately, but asset managers should evaluate how their business models depend on settlement efficiency assumptions.

Convergence and Choice: After Fifty Years, US Stock Investors Finally Have a New Meaningful Option

Financial infrastructure changes are rarely swift. From the 1970s paperwork crisis to Cede & Co.’s 83% stake in US stocks, it took over two decades for this system to solidify. SWIFT was founded in 1973, and cross-border payments are still undergoing transformation.

In the short term, both paths will develop within their respective domains. The institutional-grade services of DTCC will first penetrate wholesale markets sensitive to settlement efficiency—collateral management, securities lending, ETF issuance and redemption. The direct ownership model will start at the margins: native crypto users, small issuers, and regulatory sandboxes in specific jurisdictions.

In the long run, these trajectories may converge. When the circulation of tokenized interests becomes large enough, and the regulatory framework for direct ownership matures, investors may finally have a real choice—enjoying netting efficiency within the DTCC system or exiting to self-custody on-chain, gaining direct control over assets.

The very existence of this choice signifies change.

Since 1973, ordinary investors have never truly had this option. The moment they buy stocks, they automatically enter the indirect holding system, with Cede & Co. as the legal owner, and the investor as the beneficiary at the end of the rights chain. This is not a matter of choice but the only path.

What does the end of the paperwork era mean? It means that after fifty years, another route has finally been paved. The “right to choose” for investors is itself a historic change. Cede & Co. still registers the majority of US public stocks, but this proportion may begin to loosen or remain stable for a long time. But from now on, investors will truly have the power to define their relationship with assets—whether to continue relying on intermediaries for efficiency or to embrace blockchain for autonomy. This is the deepest implication of this contest.