Grayscale: Three Evolution Stages of Stock Tokenization and a Review of the Core Benefit L1/L2 Blockchains

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Author | Grayscale Research Head Zach Pandl

Compiled by | Wu Talks Blockchain

The tokenization of global equities markets is moving forward. Tokenized stocks are expected to bring users multiple benefits, including 24/7 trading. The next major development will be DTCC [1] launching a tokenized pilot on Canton Network [2]. This pilot will enable tokenized stocks and other assets to move within a regulated financial system via blockchain infrastructure.

We believe that the tokenization of equities markets will progress in three stages, and each stage will create value for different types of blockchain infrastructure (see Chart 1).

The first stage is the third-party “wrapper” model [3]. Under this model, the issuer holds stocks through a Special Purpose Vehicle (SPV) [4], and tokenized stocks represent claims to equity in that SPV. At present, by market capitalization, more than 70% of tokenized stocks use this model. Wrapper-style tokenized stocks do not represent true stock ownership, but they can be used in DeFi and may also be attractive to retail investors. These assets are currently traded on networks such as Ethereum, Solana, and BNB Chain.

The second stage is the “entitlement” model [5], and DTCC’s pilot is a representative example of this approach. Rather than creating a new version of securities, DTCC uses its regulated post-trade infrastructure to put existing eligible securities on-chain, while Canton Network will serve as the first blockchain network for this pilot.

The third stage is the issuer-led model, where companies natively issue securities on-chain directly. Last week, Securitize [6] became the first listed company to tokenize its common stock when it was listed on the NYSE. We believe this model has the greatest long-term potential, but it still requires further regulatory clarity. In our view, the issuer-led model will be more favorable for open-architecture blockchains such as Ethereum and Solana, as well as hybrid networks such as Avalanche.

These three tokenization models are likely to coexist over the coming years.

Key takeaway: There are multiple models for tokenized stocks. We believe the blockchain networks most likely to benefit from tokenization growth include Ethereum, Solana, BNB Chain, Avalanche, and Canton Network.

Chart 1: Third-party platforms currently dominate the tokenized stocks market, while Ethereum, Solana, and BNB Chain hold most of the on-chain asset share.

Notes:

[1] DTCC: The Depository Trust & Clearing Corporation, one of the key post-trade infrastructures in the U.S. securities market, mainly responsible for clearing, settlement, custody, and other services for securities transactions.

[2] Canton Network: A blockchain network for institutional financial assets, mainly emphasizing privacy, compliance, and asset transfer between different financial institutions.

[3] Wrapper model: Understandable as the “wrapper” model—where a third-party platform holds the underlying stocks through an intermediate structure and issues on-chain tokens representing the related entitlements. Investors hold claims to equity in that structure, not necessarily direct ownership of the stocks themselves.

[4] SPV: Special Purpose Vehicle. In tokenized stocks, it typically refers to an entity established by the issuer to hold the underlying stock assets, and the token held by investors represents claims to equity in that entity.

[5] Entitlement model: Understandable as the “entitlement” model—rather than re-issuing a new security, eligible existing securities are recorded or mapped onto the blockchain through a regulated post-trade system, enabling them to move within blockchain infrastructure.

[6] Securitize: A platform for tokenizing digital securities and real-world assets. The article mentions that when it was listed on the NYSE, it also simultaneously tokenized its own common stock.