Beyond Nested Promises: The Collision Between DTCC's Incremental Path and Crypto-Native Disruption in Stock Tokenization

On December 11, 2025, the U.S. Securities and Exchange Commission granted the Depository Trust Company (DTCC) a “No-Action Letter,” authorizing it to tokenize custodied securities on the blockchain. The news reverberated through financial markets: $99 trillion in assets stood ready to enter a digital era, and the gates of US stock tokenization had finally swung open. Yet beneath this celebratory narrative lies a critical distinction—one that reveals two fundamentally incompatible visions for the future of stock ownership.

The DTCC would tokenize “security entitlements,” not the stocks themselves. This semantic precision masks a deeper architectural choice: it represents the tension between incrementally upgrading an existing system versus dismantling it entirely. To understand this friction, we must first confront an uncomfortable reality about stock ownership in America.

The Nested Promises Problem: Fifty Years of Indirect Ownership

Most Americans believe they own the stocks in their brokerage accounts. They do not.

Before 1973, this distinction barely mattered. Stock trading relied on the physical circulation of certificates—a laborious process where buyers and sellers exchanged papers, endorsed them, and mailed them to transfer agents for registration. This worked until the late 1960s, when daily trading volume skyrocketed from three to four million shares to over ten million. Brokerage back-offices became warehouses of unprocessed certificates. Theft, forgery, and loss became epidemic. Wall Street called it the “Paperwork Crisis.”

The solution was elegantly simple: centralize everything. The DTC (Depository Trust Company) gathered all securities into a single vault and replaced physical movement with digital ledger entries. To accomplish this, DTC created a legal fiction called Cede & Co.—a nominee organization that registered nearly all listed shares under its name. By 1998, official data showed Cede & Co. held legal title to 83% of all outstanding US public equities.

When you check your brokerage account showing “100 shares of Apple,” Apple’s actual shareholder register lists Cede & Co. What you hold is called “securities entitlements”—a contractual claim upon claims upon claims. Your brokerage firm has a claim against the clearing broker, who has a claim against DTCC, who has a claim against the issuer. This cascade of nested promises separated investors from direct property rights for over five decades.

This system worked. The Paperwork Crisis vanished. Trillions in daily transactions settled smoothly. But the cost was permanent: the average investor forfeited direct ownership in exchange for operational efficiency.

DTCC’s Answer: Tokenize the Architecture, Not the Ownership

DTCC’s approach to tokenization is conservative by design. According to SEC filings and official statements, tokenized assets would circulate only among DTCC participants—a small club of clearinghouses and banks (currently, only a few hundred institutions globally hold this status). Ordinary investors cannot directly access these services.

Crucially, the tokenized “security equity tokens” still represent contractual claims to underlying shares, not the shares themselves. Cede & Co. remains the legal registered owner. The underlying architecture persists unchanged.

This is infrastructure optimization, not institutional disruption. DTCC identified several efficiency gains:

Enhanced Collateral Liquidity: In traditional settlement, securities transfers between accounts require waiting periods while funds lock up. Tokenization enables near-instantaneous equity movement between participants, releasing frozen capital. For institutions managing billions in collateral, this translates to measurable cost reduction.

Streamlined Reconciliation: Today, DTCC, clearing brokers, and retail brokers each maintain separate ledgers requiring daily reconciliation. On-chain records could serve as a single authoritative source, reducing administrative overhead and operational risk.

Foundation for Future Innovation: DTCC’s filing hints at possibilities—tokens that incorporate settlement finality, dividends paid in stablecoins—though each would require additional regulatory approval. The language is carefully cautious.

Notably, DTCC explicitly stated these tokens will not enter DeFi ecosystems, will not circumvent existing participants, and will not alter the issuer’s shareholder register. There is no ambition to overthrow the system. This restraint has rationale: multilateral netting—the practice of offsetting trillions in daily obligations to require only tens of billions in actual settlement—only functions under centralized coordination. As systemically critical infrastructure, DTCC’s primary mandate is stability, not innovation acceleration.

The Crypto-Native Path: From Entitlements to Actual Ownership

While DTCC deliberates, an alternative architecture has begun materializing. On September 3, 2025, Galaxy Digital announced it had become the first Nasdaq-listed company to tokenize its SEC-registered shares on a public blockchain—Solana. The distinction from DTCC’s approach is absolute: these tokens represent actual shares, not claims to them.

Here’s the mechanism: as tokens transfer on-chain, Superstate (Galaxy’s SEC-registered transfer agent) updates Galaxy’s shareholder register in real-time. Token holders appear directly on that register—Cede & Co. is absent. This is genuine direct ownership. Investors acquire property rights, not a contractual chain.

In December 2025, Securitize announced a tokenized stock service launching in Q1 2026, emphasizing that tokens would be “real, regulated stocks: issued on-chain and recorded directly on the issuer’s shareholder register”—a deliberate contrast to synthetic tokenized stocks relying on derivatives, SPVs, or offshore structures.

Securitize extends further: it enables on-chain trading during US market hours (prices anchored to the National Best Bid-Offer spread) and 24/7 trading during closures (prices set by automated market makers based on on-chain supply and demand). This architecture treats blockchain as native financial infrastructure, not an external add-on.

The Institutional Logic: Two Competing Visions

This is not a technical debate. It is a collision between institutional logics.

The DTCC pathway acknowledges existing system merits—multilateral netting efficiency, central counterparty risk mitigation, mature regulatory frameworks—and uses blockchain to make it faster and more transparent. Intermediaries remain indispensable, simply with different accounting methods.

The direct ownership pathway questions the intermediary structure’s necessity itself: if immutable blockchain records can establish ownership, why maintain nested claims? If investors can self-custody, why surrender ownership to Cede & Co.?

Each path carries distinct trade-offs. Direct ownership delivers autonomy—self-custody, peer-to-peer transfers, composability with decentralized finance protocols. The cost: dispersed liquidity and netting efficiency collapse. Every transaction requires full on-chain settlement without a clearinghouse, dramatically increasing capital requirements. Investors also absorb operational risks previously managed by intermediaries—lost private keys, stolen wallets, custody failures now become personal liabilities rather than institutional ones.

Indirect holding (DTCC’s model) preserves systemic efficiency: economies of scale from centralized clearing, mature compliance frameworks, operational models familiar to institutions. The cost: investors exercise rights only through intermediaries. Shareholder voting, governance participation, direct issuer communication—theoretically shareholder prerogatives—require navigating multiple intermediary layers in practice.

Notably, SEC Commissioner Hester Peirce signaled regulatory openness to both. In a December 11 statement, she explicitly endorsed “different experimental paths” and acknowledged that “some issuers have already begun tokenizing their own securities, which could make it easier for investors to hold and trade securities directly, rather than through intermediaries.” The regulator’s message was unambiguous: this is not binary choice but a market segmentation question—which model suits which investor types and use cases.

How Financial Intermediaries Must Navigate Divergence

Faced with two competing trajectories, incumbent intermediaries confront uncomfortable questions.

Clearing brokers and custodians must assess: does tokenized settlement eliminate our value proposition? If participants can transfer rights directly without intermediaries extracting custody fees, settlement fees, and reconciliation revenue, does that service survive? Early DTCC adopters may capture competitive advantages, but long-term commoditization risks are real.

Retail brokerages face more acute pressure. Under DTCC tokenization, their gatekeeping role solidifies—retail investors still access markets exclusively through brokers. But if direct holding models proliferate and investors can hold SEC-registered shares independently while trading on compliant on-chain exchanges, retail brokerage moats erode. Their survival depends on high-value services technology cannot displace: compliance consulting, tax optimization, portfolio management, advisory.

Transfer agents experience a historic inflection. Traditionally back-office functions, barely visible, they maintained shareholder registers. In direct holding models, transfer agents become critical chokepoints—the portal between issuers and investors. That Superstate and Securitize both hold SEC-registered transfer agent licenses is no accident. Controlling register authority means controlling direct ownership gatekeeping.

Asset managers confront composability pressure. If tokenized shares become collateral for on-chain lending markets, traditional margin financing faces disruption. If investors can trade 24/7 with instant settlement on AMMs, arbitrage premiums from T+1 settlement cycles vanish. These shifts arrive gradually, but asset managers should model how revenue assumptions depend on settlement timing, settlement finality, and liquidity fragmentation.

The Two Curves: Coexistence Rather Than Convergence

Transforming financial infrastructure never happens overnight. The 1973 Paperwork Crisis spawned DTC, but two decades elapsed before Cede & Co. held 83% of US stocks. SWIFT, founded the same year, remains undergoing restructure in cross-border payments decades later.

In the near term, both paths develop within their territories. DTCC’s institutional-grade services penetrate wholesale markets most sensitive to settlement timing: collateral management, securities lending, ETF creation-redemption cycles. Direct ownership models enter from the periphery: crypto-native users, small issuers, regulatory sandboxes in forward-leaning jurisdictions.

Over time, these trajectories may coexist permanently rather than converge. When tokenized equity circulation reaches critical mass and regulatory frameworks for direct holding mature sufficiently, investors may face genuine choice for the first time—enjoy netting efficiency within DTCC’s centralized system, or exit for on-chain self-custody regaining direct control.

The choice itself represents transformation. For fifty years, nested promises bound every stock: the moment purchases settled into brokerage accounts, Cede & Co. became legal owner and investors became beneficiaries at the chain’s terminus. This was not choice—it was architecture.

That second path now exists alongside the first. Cede & Co. still holds the vast majority of public US shares. That proportion may loosen gradually, remain stable indefinitely, or shift unpredictably. But the nested promises that once seemed inevitable architecture have acquired an alternative. For the first time since the Paperwork Crisis, investors may choose their future.