Wall Street is racing to bring tokenized stocks and around-the-clock trading to crypto rails — but many big investors are quietly skeptical.
What is tokenization? It’s the process of representing traditional assets like shares on blockchain networks. In theory, tokenized equities could overhaul decades-old market plumbing by enabling instant settlement and 24/7 trading. That prospect has attracted major players: ICE (owner of the New York Stock Exchange) and Nasdaq have both recently struck large partnerships with native crypto exchanges to introduce tokenized stocks to the market.
Still, institutional traders are raising practical objections. “Institutional investors generally do not like instant settlement,” Reid Noch, VP of U.S. equity market structure at TD Securities, said. Today’s U.S. system settles stock trades one business day after execution (T+1), which lets brokers and trading firms net positions and manage funding across the day. Instant settlement would force trades to be fully funded before they occur — a model many pros view as costly and operationally awkward.
Key institutional concerns
- Prefunding: Firms would need to arrange financing throughout the day instead of relying on netting, increasing capital costs. “No one really wants to be prefunded,” Noch said.
- Liquidity strain: Balance-sheet pressures could make busy times — such as the market close when volumes spike — more expensive and unevenly liquid.
- Market functioning: Day-to-day trading and financing workflows built around T+1 could be disrupted, raising frictions even if settlement efficiency improves.
Retail traders, by contrast, could be quick adopters. Tokenized markets promise advantages that appeal directly to individual investors: direct ownership in digital wallets, trading outside conventional market hours, and easier onboarding for international users who want U.S. stocks but find traditional brokers cumbersome. Retail already makes up about 20% of U.S. equity volume on average, and in some names it can be more than half — even exceeding 90% in certain meme-stock episodes.
The network effect matters: if retail liquidity shifts to tokenized venues, institutional players may be compelled to follow. “If retail liquidity migrates there and becomes meaningful, institutions won’t really have a choice but to participate,” Noch observed.
But risks remain. One major worry is fragmentation: multiple tokenized versions of the same stock on different chains or platforms could dilute transparency and impair price discovery. “Generally, most companies only have one stock,” Noch said. “If suddenly there are multiple tokenized versions with different rights or liquidity profiles, that could create confusion about what investors actually own.”
Despite those hurdles, momentum is building. Exchanges are testing longer trading hours and some industry watchers foresee nearly round-the-clock markets within a few years. Tokenization could become part of that evolution — incrementally modernizing infrastructure and changing how investors access equities — but the technology is likely to gain traction among retail participants before it wins broad institutional acceptance.
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