The two-path game behind DTCC's US stock tokenization: DTCC's "reform" versus the crypto-native "revolution"

Author: Bocai Bocai｜bocaibocai

On December 11, 2025, the Depository Trust & Clearing Corporation (DTCC) received a “No-Action Letter” from the SEC, allowing it to tokenize the securities assets it holds on the blockchain.

Once the news broke, the industry cheered and focused on this milestone—$99 trillion in custodial assets about to go on-chain, finally opening the door for US equity tokenization.

However, a close reading of the document reveals a key detail: DTCC is tokenizing “security entitlements,” not the stocks themselves.

This distinction may sound like legal technicality.

But in reality, it exposes two very different pathways for securities tokenization, and the ongoing power struggle behind these choices.

1. Who is the true owner of US stocks?

Understanding this battle requires first grasping an counterintuitive fact: in the US public markets, investors have never truly “owned” the stocks.

Before 1973, stock trading relied on physical certificates. After a trade, buyers and sellers exchanged tangible stock certificates, signed and endorsed, then mailed to the transfer agent for registration updates. This process was manageable when trading volumes were low.

But by the late 1960s, the average daily trading volume of US stocks soared from a few million shares to over ten million, nearly collapsing the system. Broker-dealers faced backlog of hundreds of thousands of stock certificates—lost, stolen, forged. Wall Street called this period the “Paperwork Crisis.”

DTC was born as a solution to this crisis. Its core idea was simple: centralize all stock certificates in one place, and for future trades, record only digital entries in ledgers, eliminating physical movement.

To achieve this, DTC established a nominee entity called Cede & Co., which registered almost all listed companies’ stocks under its name.

Official data in 1998 showed Cede & Co. held the legal ownership of 83% of all publicly issued US stocks.

What does this mean? When you see “hold 100 shares of Apple” in your brokerage account, the shareholder register lists Cede & Co. as the owner.

What you hold is a contractual claim called “security entitlement”—the right to claim economic benefits from the stock. The broker has the right to assert this claim to the clearinghouse, which in turn can claim from DTCC. This forms a layered chain of rights, not direct ownership.

This “indirect holding system” has operated for over fifty years. It eliminated the paperwork crisis, supported daily settlement of trillions of dollars, but at the cost of permanently separating investors from the securities they hold through an intermediary.

2. DTCC’s choice: upgrade infrastructure while maintaining the architecture

With this background, the scope of DTCC’s tokenization becomes clear.

According to the SEC No-Action Letter and DTCC’s public statements, its tokenization service targets “securities entitlements held by Participants at DTC.” Participants are clearing brokers and banks directly connected to DTCC—only a few hundred institutions in the US currently qualify.

Ordinary investors cannot directly access DTCC’s tokenization service.

The tokenized “security entitlement tokens” will circulate on a blockchain approved by DTCC, but these tokens still represent contractual claims on the underlying assets, not direct ownership. The underlying stocks remain registered in Cede & Co.’s name; this does not change.

This is an infrastructure upgrade, not a fundamental overhaul. Its goal is to improve efficiency within the existing system, not replace it. DTCC explicitly lists several potential benefits in its application:

• First, collateral liquidity: in the traditional system, moving securities between accounts requires waiting for settlement cycles, locking up capital. Tokenization enables near real-time transfer of rights among participants, freeing frozen capital.
• Second, reconciliation simplification: currently, DTCC, clearing brokers, and retail brokers maintain separate ledgers, requiring extensive daily reconciliation. On-chain records can serve as a shared “single source of truth.”
• Third, paving the way for future innovation: DTCC mentions that in the future, rights tokens might have settlement value or dividends could be paid in stablecoins. But these would require additional regulatory approval.

It’s important to note that DTCC explicitly states these tokens will not enter DeFi ecosystems, will not bypass existing participants, and will not alter the shareholder register of issuers.

In other words, it does not intend to disrupt anyone; this choice is rational.

Multilateral netting is a core advantage of the current securities clearing system. Daily market transactions worth trillions of dollars, after netting by NSCC, require only hundreds of millions to settle. Such efficiency is only achievable within a centralized architecture.

As a systemically important financial infrastructure, DTCC’s primary responsibility is stability, not innovation.

3. The direct ownership camp: from tokens to stocks themselves

While DTCC proceeds cautiously, another pathway is already emerging.

On September 3, 2025, Galaxy Digital announced it became the first Nasdaq-listed company to tokenize SEC-registered equity on a mainstream public blockchain. In partnership with Superstate, Galaxy’s Class A common stock can now be held and transferred as tokens on the Solana blockchain.

The key difference: these tokens represent actual stocks, not just claims on stocks. As a SEC-registered transfer agent, Superstate updates the shareholder register in real-time when tokens are transferred on-chain.

The token holder’s name appears directly on Galaxy’s shareholder register—Cede & Co. is not involved in this chain.

This is genuine “direct holding.” Investors acquire not contractual claims but actual property rights.

In December 2025, Securitize announced it will launch a “fully on-chain compliant trading” tokenized stock service in Q1 2026. Unlike many “synthetic tokens” relying on derivatives, SPV structures, or offshore setups, Securitize emphasizes its tokens will be “real, regulated stocks: issued on-chain and directly recorded in the issuer’s shareholder register.”

Securitize’s approach goes further: it supports not only on-chain holding but also on-chain trading.

During US market hours, prices are anchored to the best bid/offer (NBBO); after hours, automated market makers (AMMs) dynamically price based on on-chain supply and demand. This implies a theoretical 24/7 trading window.

This pathway envisions blockchain as the native layer of securities infrastructure, not just an add-on to existing systems.

4. Two paths, two futures

This is not merely a technical debate but a contest of institutional logics.

DTCC’s approach represents incremental improvement. It recognizes the validity of the current system—the efficiency of multilateral netting, the risk mitigation of central counterparties, the maturity of regulatory frameworks—simply leveraging blockchain to make the machinery faster and more transparent.

Intermediaries’ roles won’t disappear; they will just adopt a different bookkeeping method.

The direct ownership path signifies a structural shift—questioning the necessity of the indirect system itself: if blockchain can provide immutable ownership records, why need layered intermediaries? If investors can self-custody assets, why transfer ownership to Cede & Co.?

Each path involves trade-offs.

(translated from Chuk Okpalugo)

Direct ownership offers autonomy: self-custody, peer-to-peer transfers, composability with DeFi protocols. But it comes with liquidity fragmentation and loss of netting efficiency. Without a central clearinghouse netting trades, capital requirements increase significantly.

Moreover, direct holding shifts operational risks to investors—loss of private keys, wallet hacks—risks traditionally borne by intermediaries.

Indirect holding preserves system efficiency: economies of scale in centralized clearing, mature regulatory compliance, familiar institutional workflows. But the cost is that investors can only exercise rights through intermediaries. Shareholder proposals, voting, direct communication with issuers—these rights, in practice, require passing through multiple layers of intermediaries.

It’s noteworthy that the SEC remains open to both paths.

In its December 11 statement on the DTCC No-Action Letter, Commissioner Hester Peirce explicitly said: “DTC’s model of tokenized securities rights is a promising step in this journey, but other market participants are exploring different experimental paths… Some issuers have already begun tokenizing their securities, which could make it easier for investors to hold and trade securities directly, without intermediaries.”

The regulatory signal is clear: this is not a binary choice but a market-driven evolution to see which model better suits different needs.

5. Defensive strategies for financial intermediaries

How should existing financial intermediaries respond to this pathway contest?

First, clearing brokers and custodians need to consider:

In the DTCC model, are you indispensable or replaceable? If security entitlements can be transferred directly among participants, do the traditional custody, transfer, and reconciliation fees still have a basis? Early adopters of DTCC’s tokenization may gain a competitive edge, but in the long run, such services could become standardized and commoditized.

Second, retail brokers face more complex challenges:

In the DTCC model, their role is reinforced—retail investors still access markets via brokers. But widespread direct holding could erode this moat. If investors can self-custody SEC-registered stocks and trade on compliant on-chain exchanges, what is the value of retail brokers? Likely in high-value services: compliance consulting, tax planning, portfolio management—functions that cannot be replaced by smart contracts.

Third, transfer agents may see a historic upgrade:

In the traditional system, transfer agents are low-profile back-office functions, mainly maintaining shareholder registers. Under direct holding, they become the critical link between issuers and investors. Superstate and Securitize both hold SEC-registered transfer agent licenses—no coincidence. Controlling the update of shareholder registers means controlling the entry point of the direct holding system.

Fourth, asset managers need to watch for competitive pressures from composability:

If tokenized stocks can serve as collateral in on-chain lending protocols, traditional financing businesses could be disrupted. If investors can trade 24/7 on AMMs with instant settlement, the capital lock-up during T+1 cycles disappears. These changes won’t happen overnight, but asset managers should evaluate how much their business models depend on settlement efficiency assumptions.

6. The convergence point of two curves

Transforming financial infrastructure is never instant. The 1970s paperwork crisis led to the indirect holding system, which took over twenty years to solidify after DTC’s founding and Cede & Co.’s 83% stake. SWIFT, also established in 1973, is still being rebuilt for cross-border payments.

In the short term, both paths will grow within their domains:

DTCC’s institutional services will first penetrate collateral management, securities lending, ETF issuance and redemption—areas most sensitive to settlement efficiency.

The direct holding model will start at the margins: native crypto users, small issuers, regulatory sandboxes in specific jurisdictions.

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

The existence of this choice itself is transformative.

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

Cede & Co. still registers the vast majority of US public stocks. This ratio may begin to loosen or remain stable for decades. But after fifty years, another route is finally paved.