Grayscale: Three Stages of Stock Tokenization Evolution

Source: Zach Pandl, Head of Research at Grayscale; compiled by Golden Finance Claw

The tokenization process of the global equity market is underway. Tokenized stocks are expected to bring numerous benefits to users, including 24/7 trading.

The next major step will be the DTCC launching a tokenization pilot project on the Canton Network, enabling tokenized stocks (and other assets) to trade via blockchain infrastructure within the regulated financial system.

We believe the tokenization of the stock market will proceed in three phases, each creating value for different types of blockchain infrastructure (see Chart 1).

Chart 1: Third-party platforms (Ondo, xStock, etc.) currently dominate the tokenized equity market, while Ethereum, Solana, and BNB Chain account for the majority of on-chain assets.

Phase one is the third-party "wrapper" model, where issuers hold equity in a special purpose vehicle (SPV), and tokenized stocks represent claims on that SPV.

Currently, over 70% of tokenized stocks by market cap use this model. Wrapper-style tokenized stocks do not represent true ownership but can be widely used in DeFi and may appeal to retail investors. They trade on Ethereum, Solana, BNB Chain, and other networks.

Phase two is the "entitlement" model, exemplified by the DTCC pilot project.

Rather than creating new versions of securities, the DTCC puts existing eligible securities on-chain through its regulated post-trade infrastructure, with the Canton Network serving as the first blockchain platform for its pilot.

Phase three is the issuer-initiated model, where companies issue securities directly on-chain.

Last week, Securitize became the first listed company to tokenize its common stock upon its NYSE listing. We believe this model has the greatest long-term potential, but requires further regulatory clarity.

We believe the issuer-initiated model is better suited for open-architecture blockchains like Ethereum and Solana, as well as hybrid networks like Avalanche.

These three tokenization models are likely to coexist for years.

Key takeaway: There are multiple models for tokenized equities. We believe the blockchain networks best positioned to capture the tokenization growth opportunity include Ethereum, Solana, BNB Chain, Avalanche, and the Canton Network.