Why Nasdaq and NYSE Are Putting the $126T Equity Market on Blockchain

The $126 Trillion Global Equity Market is Going On-Chain

Nasdaq and Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange (NYSE), teamed up with crypto exchanges to migrate the $126 trillion global equity market to the blockchain.

For example, Nasdaq collaborates with Kraken to connect tokenized equity capital markets with decentralized blockchain networks. That means they are going to create a special gateway, using xStocks, to let users trade tokenized shares of top U.S. stocks and ETFs, from the S&P 500 to Amazon.

It is reported that the gateway will allow clients in eligible jurisdictions to seamlessly swap tokenized equities between a regulated, permissioned market environment and the permissionless DeFi ecosystem, enabling assets to move fluidly between institutional trading infrastructure and global on-chain financial networks.

At the same time, ICE revealed a strategic investment in crypto exchange OKX at a $25 billion valuation. CoinDesk reported that the deal includes plans to launch new tokenized stocks and crypto futures, allowing the exchange operator to tap into OKX's 120 million-user base.

Key Takeaway

The transition of traditional exchanges, such as the NYSE and Nasdaq, to blockchain is an attempt to upgrade the financial infrastructure that hasn't changed in the last few decades. In other words, they will try to turn traditional “paper” equities into digital tokens on the blockchain.

Why Nasdaq and NYSE Want to Create the "Everything" Exchange

There are several reasons for this decision. First of all, instant settlement. Let's break down the differences between the two ways to buy stocks: traditional and blockchain-based.

The traditional way looks like this: You sell a stock → An exchange sends a request to a clearing house → The clearing house checks if you have stocks and the buyer has money → Custodian banks reconcile their general ledgers → The final transfer is processed over 24 hours, sometimes it's longer.

The blockchain-based way looks like this: A deal is completed → The smart contract simultaneously debits the seller’s token and the buyer’s funds (stablecoins or the central bank’s digital currency) → Settlement occurs according to the principle of Atomic Settlement (the transaction either goes through entirely in a second or does not go through at all. No funds are held up for a day).

This frees up a huge amount of capital that was previously tied up in a holding pattern.

However, you can fairly ask: What's the sense if Bitcoin transaction confirmations take about an hour or more?

In this case, the exchanges won't use classic blockchain technology. They are going to create private closed networks, for example, based on technologies such as Hyperledger, Corda, or specialized Layer 2 solutions on Ethereum.

When we are talking about blockchain technologies in finance, we’re referring to distributed ledger technology (DLT). It’s a blockchain without miners. It takes the best aspects of cryptocurrency — transparency, immutability, and automation — but eliminates the slowness of public networks by limiting participation to a trusted group of participants (or those regulated by a regulator).

Thus, they don't need to wait for block confirmation because the blockchain's record is updated immediately.

The second main reason is programmability (DeFi). This is perhaps the most hyped aspect. Tokenized equities become compatible with the decentralized finance (DeFi) ecosystem. For example, you can use your tokenized stocks as collateral to obtain a loan in stablecoins directly through an automated protocol, without waiting for bank approval.

Finally, trading on traditional exchanges comes with some challenges: they work on a schedule with close on weekends, whereas the crypto market operates 24/7. Moreover, to start classic trading, you need to choose a broker, have a certain budget, and so on. Tokenization of assets allows users to “slice” a big lot or an expensive stock into tiny pieces.

Key Takeaways

Blockchain could transform the stock market in the near future. This collaboration is literally like “frenemy” — rivals but friends. In this case, a partnership is better than competition because global exchanges understand that if they don't move on to modern rails, new crypto platformы will drive them out of the market. For example, Robinhood has already offered to trade tokenized assets.

What should you do? As usual, estimate risks and follow the news.

Frequently Asked Questions

What are tokenized stocks?

Tokenized stocks are digital representations of real company shares issued on a blockchain or distributed ledger network. Each token mirrors the value of an underlying stock, such as Apple, Amazon, or Tesla, and can potentially be traded 24/7 through blockchain-based platforms.

What is the difference between traditional stocks and tokenized equities?

Traditional stocks settle through multiple intermediaries, such as brokers, clearing houses, and custodian banks, which can take 1 or more business days. Tokenized equities use blockchain-based settlement, in which ownership transfers and payments occur simultaneously through smart contracts.

What is atomic settlement in blockchain finance?

Atomic settlement is a blockchain-based mechanism in which asset transfers and payments occur instantly and simultaneously. The transaction either completes fully or fails entirely, reducing counterparty risk and eliminating settlement delays common in traditional financial markets.

Are tokenized equities legal?

The legality of tokenized equities depends on the jurisdiction. In many countries, tokenized shares are treated as securities and must comply with financial regulations, including KYC, AML, and investor protection laws.

What are the risks of tokenized equities?

Tokenized equities still face several risks, including regulatory uncertainty, smart contract vulnerabilities, liquidity fragmentation, custody issues, and dependence on centralized issuers or intermediaries.