Why America’s Capital Markets Must Embrace Tokenization Competition
America’s capital markets have led the world for decades precisely because they adapt. Paper certificates gave way to book-entry records. Trading floors yielded to electronic markets. Manual processes surrendered to faster settlement, automated clearing, and global access. Each evolution sparked legitimate concerns and required guardrails, yet America stayed ahead by refusing to treat every new tool as a threat to the old system. Tokenization is simply the next step in that history.
Patrick McHenry, Vice Chairman at Ondo Finance and former Chairman of the House Financial Services Committee, argues that the current debate over tokenized stocks centers on a fundamental question: what is the proper form for securities in the U.S. market? Some contend tokenization should occur primarily through existing market infrastructure—broker-dealers, custodians, securities intermediaries, DTCC, and related records. Others have launched products backed by U.S.-listed securities to serve investors who prefer onchain exposure. Still others point to issuers and transfer agents as the preferred pathway.
Three Models for Tokenized Securities
Tokenized securities are not monolithic. They can take different forms, carry different rights, and sit in different parts of the market structure. Treating them all identically will produce bad policy and worse products for investors and issuers, ultimately putting U.S. capital markets at a global competitive disadvantage. McHenry identifies at least three distinct models:
1. Market Infrastructure Tokenization
Under this model, underlying securities remain within the existing legal and operational framework: broker-dealers, custodians, securities intermediaries, DTCC, and related records. Blockchain technology is then used for recordkeeping, reconciliation, collateral monitoring, transfer controls, and operational efficiency. This approach does not require abandoning the current U.S. securities market system; it uses technology to improve specific parts of it.
2. Customer-Driven Tokenization
These products start from a different premise: what does the investor want to accomplish? Some may be notes or other instruments designed to track the performance of U.S.-listed stocks or ETFs, supported by underlying securities and collateral. Others may use tokenized records for entitlements held through intermediaries. Crucially, these products are not the same as directly registered shares and should not be marketed as if they are.
3. Issuer-Sponsored Tokenization
A company and its transfer agent support tokenized ownership directly. This may be the right model for many issuers, connecting tokenized records to shareholder systems and supporting familiar processes for corporate actions, recordkeeping, and communications.
Competition Over Gatekeepers
Brokerage-held securities, depository receipts, structured notes, and direct registration all coexist in today’s market. They do not provide identical rights. Investors choose among them because they serve different needs. The important questions are whether the structure is clear, the risks are disclosed, the backing is real where promised, and the product does what it says it does. That same standard should apply to tokenized markets.
One wrong outcome would be a market where products borrow the language of stocks without telling investors what they actually hold—or misleading them altogether. That would harm investors and undermine confidence in the technology. Another wrong outcome would be a market where tokenization becomes a set of private walled gardens, converting a promising new technology into a tool that narrows competition before the market has had a chance to learn what works.
America should avoid both mistakes. Open markets and regulated markets are not opposites. The U.S. has the deepest securities markets in the world because it combines investor protection with competition, capital formation, and adaptability. A more customer-centric approach to tokenization can support that strength, connecting global demand back to U.S. assets and liquidity, giving investors clearer records and more portable products, and making collateral and entitlements easier to monitor—all without discarding the legal protections embedded in the current system.
Market Participants Are Already Experimenting
This is not theoretical. Market participants are already testing different models. Some are built around existing securities infrastructure. Others are onchain products directly and indirectly backed by U.S.-listed securities and ETFs. Still others are issuer-led. Those differences matter—they are evidence that the market is working through the right questions.
For years, McHenry argued in Congress that digital asset policy needs clear rules of the road. That remains true: clarity protects consumers and investors and keeps innovation in the United States. But clear rules should not mean forcing emerging new products into a legacy framework, nor letting any one group decide which model is allowed to exist. The point is not to pick a single winner at the starting line. The point is to let different models compete on substance and provide optionality to meet the varying needs of investors and issuers.
That is how American markets work best. Tokenized securities markets do not need more gatekeepers. They need clear distinctions, strong controls, and room for responsible competition. That is how America has led, and how it can continue to lead, financial markets into the future.
Frequently Asked Questions
What is the difference between tokenized securities and traditional securities?
Tokenized securities represent ownership of traditional assets (stocks, bonds, funds) on a blockchain or distributed ledger. They can offer faster settlement, fractional ownership, and programmable compliance, but their legal and economic rights depend on the specific tokenization model used—market infrastructure, customer-driven, or issuer-sponsored.
Why does Patrick McHenry argue against a single regulatory model for tokenization?
McHenry contends that tokenized securities are not one thing—they take different forms with different rights and risks. Mandating a single model would stifle innovation, create walled gardens, and put U.S. markets at a competitive disadvantage globally. Competition among models, with clear disclosures and strong controls, better serves investors and issuers.
How does DTCC fit into tokenized securities?
In the market infrastructure model, the Depository Trust & Clearing Corporation (DTCC) continues to serve as the central securities depository. Blockchain is used as a technological layer for recordkeeping and reconciliation on top of existing DTCC infrastructure, rather than replacing it.
