The essence of tokenized securities is not about innovating the trading interface, but about upgrading the recording and transfer of financial rights into a verifiable, programmable shared state. This article analyzes four modes of securities tokenization, a three-layer analytical framework, and how to improve settlement efficiency and collateral management.
(Background: RWA Thousand-Word Research Report: The First Wave of Tokenization Has Arrived)
(Additional context: Why is ERC-3643 the most suitable token standard for RWA?)

Table of Contents

• 1. What exactly is securities tokenization?
  • 1. Regulated fund shares and cash asset tokenization
  • 2. Native issued securities tokens
  • 3. Wrapped, custodial tokenized stocks
  • 4. Synthetic and derivative on-chain US stock exposure
  • A. Legal layer
  • B. Capital layer
  • C. Economic layer
• 2. What problems does it solve, and what value does it create?
  • Value 1: Turning multi-ledger reconciliation into a single ledger execution
  • Value 2: Changing settlement models to improve collateral efficiency
  • Value 3: Transforming compliance from post-transaction checks to pre-transaction constraints
  • Value 4: Making securities composable financial components

1. What exactly is securities tokenization?

Based on first principles, the essence of securities is not just a piece of code or a string of numbers in an account, but a set of rights enforceable by courts and regulators:

Ownership, income rights, voting rights, redemption rights, protection of client assets under bankruptcy isolation, procedures for counterparty default, and asset segregation and transferability under investor protection frameworks.

Therefore, on-chain securities are not simply about replacing the trading UI with on-chain wallets or exchanges, but about re-engineering the following four aspects with blockchain technology to enhance transaction flow and clearing efficiency:

1. Where do rights come from: Is the token holder recognized by law as a shareholder or beneficiary?
2. Who is responsible for registration: Who is the responsible entity for the official shareholder register or equivalent record system?
3. When is the transfer final: Where does the finality of settlement occur, can it be revoked, and how are disputes handled?
4. Who is responsible in case of issues: What are the obligations and boundaries of brokers, custodians, transfer agents, clearinghouses?

Before formally analyzing tokenized securities, we need to classify and define this broad concept carefully and rigorously. Without a unified definition and classification, there is no consistent discussion framework. Combining the latest market practices, tokenized securities roughly fall into four categories, with compliance levels from low to high:

1. Regulated fund shares and cash asset tokenization

This path was scaled first and has the highest compliance level. Typical examples include various on-chain tokenized money market funds and Treasury funds products. Their advantages are simple rights structures, transparent valuation, minimal corporate actions, and controllable regulation.

Notable cases include:

BlackRock’s BUIDL product released via Securitize on March 20, 2024

J.P. Morgan Asset Management’s Ethereum-based tokenized money market fund MONY released on December 15, 2025

2. Native issued securities tokens

Tokens issued, registered, and transferred entirely on-chain.

Theoretically the purest, but due to the highest regulatory, transfer agent, and secondary market structure requirements, progress is slow, and mature products and practices are still lacking.

3. Wrapped, custodial tokenized stocks

Third-party platforms collaborating with traditional US stock brokers, using actual stock holdings as underlying, then issuing tokens based on them. Similar to ADR logic but with a more complex overall structure.

Typical examples include DeFi projects like Satblestock, which obtain US stock exposure through cooperation with traditional brokers, then anchor on-chain via synchronized minting and burning, and provide trading venues.

4. Synthetic and derivative on-chain US stock exposure

A key point for these on-chain US stock investment tools is that on-chain exposure does not equal the underlying security. This leads to higher counterparty risk for investors, and the most sensitive regulatory boundaries, such as those developed with Hyperliquid’s HIP-3 protocol for perpetual US stock contracts.

By analyzing these four different models and underlying architectures, we can abstract a three-layer framework for analyzing tokenized securities products:

A. Legal layer

Does the token represent a security interest under securities law?

Can investor rights be enforced in courts and regulatory frameworks?

Does it fall under existing rules for brokers, trading venues, clearing, transfer agents?

A key regulatory perspective here is: tokenized securities are still securities; technology does not change the nature of the underlying assets. SEC Commissioner Hester Peirce emphasized in 2025 that blockchain does not alter the asset’s fundamental properties; tokens sponsored or issued by third parties may only provide synthetic exposure without shareholder rights. Further regulatory details will be elaborated later.

B. Capital layer

Who maintains the public ledger or an equivalent recognized ledger?

Is the token equivalent and interchangeable with traditional securities?

Industry organization (SIFMA) in late 2025 stated plainly to the SEC: tokenized and non-tokenized versions of the same share class should be legally and economically interchangeable; otherwise, market fragmentation, price divergence, and weakened investor protection could occur.

C. Economic layer

Does the token represent: the underlying equity, a benefit share, or just a price exposure?

Are there redemption or conversion mechanisms? Who is the redemption object, and under what conditions?

As previously mentioned, investment exposure ≠ the security itself; being able to buy at a price does not equate to ownership rights. The nature of rights at the economic layer determines regulatory risk, counterparty risk, and whether it can enter mainstream capital pools.

After clarifying the main product logic and analysis framework, this article and subsequent series mainly discuss high-compliance tokenized securities products based on traditional financial frameworks and their issuance paths, rather than non-compliant DeFi products or platforms on-chain.

2. What problems does it solve, and what value does it create?

To summarize in one sentence —

The core value of securities tokenization is to upgrade the recording and transfer of financial rights into a verifiable, programmable, and composable shared state via blockchain technology, thereby significantly improving settlement and collateral efficiency, reducing reconciliation and compliance friction, and enabling traditional assets to have native on-chain composability and automation capabilities.

Value 1: Turning multi-ledger reconciliation into a single ledger execution

Core summary:

Tokenization transforms many complex, labor-intensive backend operations into transparent, consistent frontend rules.

Traditional problem:

In traditional markets, a single security transaction leaves records across multiple systems: exchange ATS, broker ledgers, custodial and clearing institutions, transfer agents, regulatory reporting systems…

Its operation relies on a finely tuned integration system: message passing + reconciliation + error handling + legal accountability.

This incurs two costs:

Operational costs: reconciliation, correction, failed settlements, handling corporate actions rely heavily on manual and batch processes.

Time costs: settlement is not just a single step but confirmed after a process cycle, thus not immediately final.

Tokenization solution:

Create a shared ledger state that multiple parties can read and verify, representing asset status (who owns, frozen, collateralized, post-corporate actions balances), and encode transfer rules as auditable executable logic.

Direct value:

Reduce reconciliation and error costs: no longer a reconciliation-driven trusted system, but a shared state-driven trusted system on-chain.

Lower failed settlement and dispute resolution costs: post-trade processing shifts from after-the-fact correction to in-process constraints.

Value 2: Changing settlement models to improve collateral efficiency

Core summary:

The core of tokenization is not just faster trading, but faster, more granular scheduling of cash and collateral.

Traditional problem:

A common misconception is that T+1/T+2 simply results from slow technology. In fact, it’s a compromise due to current traditional market structures: netting reduces liquidity needs but introduces settlement cycles, counterparty risk, and complex margin systems.

Thus, the main pain points are not slowness but:

• Slow movement of collateral across systems: securities here, cash there, margin in another system
• Low asset reuse efficiency: high costs for rehypothecation, re-financing, cross-product scheduling
• High settlement risk management costs: requiring complex margins, risk funds, failure handling

Tokenization solution:

Tokenization places securities and on-chain cash or settlement assets on a programmable track, enabling near real-time settlement and collateral management.

Direct value:

• Lower capital occupation: faster, more certain settlement reduces capital and margin requirements for counterparty risk
• Accelerated collateral turnover: the same collateral can serve more transactions and financing scenarios faster
• Transform cash management into a native on-chain capability: this is why institutions often first put money market funds, government bonds, and cash equivalents on-chain — because the earliest value is in collateral efficiency, not flashy trading interfaces or derivatives

Value 3: Transform compliance from post-checks to pre-constraints

Core summary:

Tokenization can turn compliance from a post-hoc regulatory investigation into automatically enforced pre-transaction rules.

What are traditional problems:

In traditional markets, compliance often involves processes + records + spot checks + accountability: KYC, investor suitability, transfer restrictions, concentration limits, sanctions lists, freezing, judicial assistance… Many compliance requirements are traceable after the fact but may not prevent violations proactively.

Tokenization solution:

Embed certain compliance rules as hard constraints in asset and transfer layers:

e.g., whitelist transfers, permission controls on who can buy, transfer, and where accounts can move assets.

Governance mechanisms for asset freezing, rollback, error correction, based on legitimate authorization and clear responsibilities.

Audit logs and verifiable proofs are obviously more friendly to regulators and auditors.

Direct value:

• Reduce compliance costs and violation risks: from passive problem detection to active rule setting and blocking
• Reduce cross-border distribution friction: under compliance, standardize and automate distribution and holding management
• Stronger risk visibility: especially for on-chain collateral, lending, rehypothecation, and complex structures, transparency is significantly improved

Value 4: Making securities into composable financial components

This is the most valued aspect in the crypto world, and traditional finance may gradually adopt it: composability.

Traditional problem:

Poor composability of traditional assets is not due to lack of standardization but due to inconsistent interfaces, permissions, and settlement processes. To combine stocks + margins + lending + options into an automated strategy often requires cross-institution, cross-system, cross-time window coordination.

Tokenization solution:

• Turn securities and cash legs into standardized programmable ledger calls, enabling:
• Automated margin management
• Automated securities lending and repurchase
• Automated structured products and risk trigger thresholds
• 24/7 strategy and capital scheduling

Direct value:

Enhance composability to accelerate financial innovation.

Easier distribution of niche assets: standardized interfaces reduce issuer and channel onboarding costs.

Finally, after understanding the potential value and problems solved by securities tokenization, it’s also important to clarify what tokenization does not solve and where its boundaries lie.

First, tokenization does not automatically grant regulatory exemptions; securities remain securities, and responsible parties must exist.

Second, tokenization does not inherently improve liquidity; atomic settlement may reduce counterparty risk but could sacrifice the liquidity benefits of netting.

Finally, tokenization does not eliminate intermediaries overnight: intermediaries will shift from simple record-keeping and reconciliation to responsibilities like compliance, key management, risk control, and customer protection.