Ondo Finance Seeks SEC Guidance on Ethereum-Based Tokenization of Securities Entitlements

Expanding Tokenization Through Regulatory Engagement

(Image source: ondo.finance)

Ondo Finance has taken a step toward regulatory alignment by submitting a no-action letter request to the U.S. Securities and Exchange Commission. The purpose of this request is to determine whether the SEC would refrain from enforcement action against a proposed system that uses Ethereum to record and manage certain securities entitlements in tokenized form.

The request is directly connected to Ondo’s Global Markets platform, which already provides tokenized investment products that allow non-U.S. investors to gain exposure to U.S.-listed equities and exchange-traded funds (ETFs). These instruments are structured as tokenized notes, bridging traditional financial markets with blockchain-based infrastructure.

At the core of the proposal is the representation of “security entitlements” tied to equities. While these entitlements would be recorded onchain, the actual underlying stocks and ETFs would continue to be held offchain through the Depository Trust Company (DTC), with Alpaca acting as the U.S. broker-dealer intermediary.

How the Proposed Ethereum-Based Model Works

The key innovation in Ondo’s updated structure lies in how ownership records and collateral tracking are managed. Instead of relying solely on traditional internal accounting systems, Ondo proposes creating Ethereum-based tokens that mirror the status of underlying securities entitlements.

These tokens would not replace the actual equities but would serve as a synchronized record-keeping mechanism. Their function is primarily operational: to improve transparency, streamline reconciliation, and ensure that tokenized representations remain aligned with the traditional financial infrastructure holding the assets.

In essence, the system creates a dual-layer architecture. One layer remains within the regulated traditional financial system, while the second layer operates on-chain to facilitate tracking and programmatic interaction.

Regulatory Environment and Growing Policy Interest

Ondo’s request comes at a time when U.S. regulators are increasingly engaging with the concept of tokenized securities. Under the current regulatory direction, there has been a noticeable shift toward evaluating how blockchain-based financial instruments can coexist with existing securities laws.

SEC Commissioner Hester Peirce has publicly encouraged firms developing tokenization models to communicate directly with regulators, signaling openness to structured experimentation within regulatory boundaries. Meanwhile, legislative discussions in Congress have increasingly acknowledged that tokenization is likely to become a permanent feature of capital markets, even as investor protection remains a central concern.

During a recent House Financial Services Committee hearing, Representative Andy Barr emphasized that securities tokenization is expected to emerge as a major market development, while stressing the importance of maintaining safeguards for investors as the ecosystem evolves.

In parallel, the SEC has already approved several initiatives related to tokenized assets. These include rule changes enabling Nasdaq to explore tokenized share trading, alongside broader efforts from major platforms such as the New York Stock Exchange, Robinhood, Kraken, and Coinbase, all of which are experimenting with onchain equity models.

Market Growth Expectations for Tokenized Assets

The broader market for tokenized real-world assets continues to expand rapidly, with long-term forecasts pointing to significant growth over the next decade. Industry estimates generally project that tokenized assets could reach between $2 trillion and $10 trillion by 2030, depending on regulatory and technological adoption rates.

Despite this expected growth, the current size of the market remains relatively modest. According to data referenced by The Block, the total value of tokenized real-world assets is approximately $23 billion, with Ondo Finance accounting for around $2.8 billion of that total. This positions Ondo as one of the more established participants in the emerging RWA ecosystem.

Understanding Ondo Finance and Its Role in RWA Tokenization

(Image source: OndoFinance)

Ondo Finance operates as a platform focused on bringing traditional financial assets onto blockchain networks through tokenization. Its primary objective is to make institutional-grade financial products more accessible by reducing barriers that typically restrict access to large-scale investors.

The platform is structured around two core components.

The first is its asset management function, which is responsible for issuing and managing tokenized financial products such as USDY (a yield-bearing dollar token) and OUSG (tokenized short-term U.S. Treasuries). These products are designed to provide exposure to low-risk, yield-generating instruments in a blockchain-native format.

The second component is its technology infrastructure, which supports decentralized protocols that enable both permissioned and permissionless access to tokenized assets. This layer is designed to integrate tokenized financial products into broader decentralized applications, including lending and other onchain financial services.

Together, these two functions allow Ondo to serve both institutional investors seeking regulated exposure to real-world assets and developers building financial applications that require programmable asset infrastructure.

Conclusion

Ondo Finance’s request to the SEC highlights a key moment in the evolution of tokenized securities. By proposing an Ethereum-based system for recording and managing securities entitlements while maintaining traditional custody arrangements, the firm is attempting to bridge regulatory compliance with blockchain efficiency.

As regulatory agencies increasingly engage with tokenization frameworks, models like Ondo’s may help define how traditional capital markets and blockchain infrastructure coexist. The outcome of this regulatory review could influence not only Ondo’s operations but also the broader trajectory of real-world asset tokenization in global financial markets.