Wall Street is betting on tokenized stocks and around-the-clock trading — but big institutional investors aren’t rushing to join.
What is tokenization?
Tokenization means putting traditional assets like shares onto blockchain networks so they can be traded and settled digitally. Proponents say it could modernize decades-old market plumbing by enabling near-instant settlement and potentially 24/7 trading.
What’s happening now
Momentum is building: ICE (owner of the New York Stock Exchange) and Nasdaq have each announced major partnerships with native crypto exchanges to bring tokenized equities to market. Some venues are already exploring extended trading hours, and tokenization is often discussed as a way to support nearly continuous markets in the coming years.
Why institutions are wary
Many institutional traders are skeptical of the instant-settlement model. Under the current U.S. regime, trades settle one business day after execution (T+1), which gives brokers and trading firms time to net positions and manage funding. Instant settlement would force trades to be fully funded at execution — in effect requiring “prefunding.”
“As a rule, institutional investors generally do not like instant settlement,” said Reid Noch, VP of U.S. equity market structure at TD Securities. He warns that prefunding could increase financing costs, reduce liquidity at critical moments (like the market close), and introduce new operational frictions for professional market participants.
Practical pain points
- Higher intraday financing needs: Trading firms would need financing ready throughout the day rather than relying on netting and post-trade funding.
- Strained liquidity during peaks: Balance-sheet limits could make heavy-volume periods more expensive and unevenly liquid.
- Market fragmentation: If multiple tokenized versions of the same stock appear on different chains or platforms, it could weaken price discovery and create confusion about ownership and rights.
Why retail might lead adoption
Retail traders are more likely to embrace tokenized stocks sooner. Benefits such as holding shares directly in digital wallets, trading outside conventional hours, and easier access for international retail investors could make tokenized venues attractive. Retail already accounts for roughly 20% of U.S. equity volume on average and far more in certain names — in some meme-stock episodes, retail activity has exceeded 90%.
The tipping point
Noch notes that institutional attitudes could change if meaningful liquidity migrates to tokenized venues. “If retail liquidity migrates there and becomes meaningful, institutions won’t really have a choice but to participate,” he said.
Where this could lead
Tokenization could quietly modernize back-office infrastructure while gradually shifting how and when investors access equities. But for now, the technology is advancing faster among retail users and innovation-minded exchanges than among the large institutions that currently dominate trading.
Bottom line
Tokenized stocks promise speed and accessibility, but they also raise real tradeoffs around funding, liquidity and market structure. That tension — rapid fintech innovation versus institutional caution — will likely shape how quickly tokenization moves from experimentation to mainstream markets.
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