Understanding What DTCC Tokenization Really Means: Two Competing Visions for US Stock Market Infrastructure

When the SEC granted DTCC a “No-Action Letter” on December 11, 2025, authorizing it to tokenize over $99 trillion in custodied securities on blockchain, the industry celebrated. But beneath the headlines lies a crucial insight about what tokenizing meaning actually signifies in this context. The distinction isn’t just technical—it reveals two fundamentally different philosophies about how securities should be owned, traded, and held in the digital age.

The SEC explicitly approved DTCC to tokenize “security entitlements,” not the stocks themselves. Understanding this difference is essential to grasping what tokenizing meaning truly represents: it’s not about revolutionizing ownership, but about rendering the existing system more transparent and efficient.

The Root of the Matter: How We Got Here

To understand what tokenizing meaning entails in 2026, we must first examine why the current system exists. Before 1973, stock trading was straightforward—buyers and sellers physically exchanged and endorsed certificates, then mailed them to transfer agents for registration. This worked fine when daily trading volumes stayed manageable.

Then came the crisis. By the late 1960s, U.S. stock trading volume exploded from 3-4 million shares daily to over 10 million. The system collapsed under the weight. Brokerage back-offices overflowed with millions of certificates awaiting processing, with regular losses from theft, forgery, and mishandling. Wall Street called it the “Paperwork Crisis.”

The solution was the Depository Trust Company (DTC), established in 1973. Its core mechanism: centralize physical certificates in one location and maintain digital transaction records instead of moving paper. To achieve this, DTC created a nominee organization called Cede & Co., which registered almost all listed shares in its own name. By 1998, official data showed Cede & Co. held legal ownership of 83% of all U.S. public stocks.

What does this mean for investors? When you see “100 Apple shares” in your brokerage account, Apple’s official shareholder register lists Cede & Co., not you. You actually hold a contractual claim called “security rights”—a right to claim economic benefits from those shares through layers of intermediaries. This chain extends from you to your broker, to the clearing broker, to DTCC. It’s not direct property ownership; it’s nested contractual rights.

Two Paths: The Meaning of Tokenization Diverges

Understanding what tokenizing meaning represents requires recognizing that two entirely different architectural paths have emerged.

Path One: DTCC’s Incremental Upgrade

DTCC’s approach to tokenization preserves this 50+ year-old infrastructure while making it faster and more transparent. According to SEC filings, DTCC’s tokenized “security equity tokens” will:

• Circulate only on DTCC-approved blockchains
• Represent contractual claims to underlying assets, not direct ownership
• Keep shares registered under Cede & Co. (unchanged)
• Remain inaccessible to ordinary retail investors (only for the few hundred institutions directly connected to DTCC)

The efficiency gains are real. DTCC identified several concrete benefits:

Collateral Liquidity: Traditionally, moving securities between accounts requires waiting through settlement periods, locking up capital. Tokenization enables near-instantaneous equity transfers, releasing frozen funds.

Simplified Reconciliation: Currently, DTCC, clearing brokers, and retail brokers maintain separate ledgers requiring daily reconciliation. On-chain records serve as a shared, immutable “single source of truth.”

Future Innovation Pathways: DTCC mentioned potential future features like dividend payments in stablecoins or settlement value integration, though these require additional regulatory approval.

Critically, DTCC explicitly stated these tokens will not enter the DeFi ecosystem, will not bypass existing participants, and will not alter issuer shareholder registers. This isn’t subversion—it’s optimization. The core advantage they’re protecting is multilateral netting: after NSCC nets trillions in daily transactions, only tens of billions require actual settlement. This efficiency only works under centralized architecture.

Path Two: Direct Ownership Revolution

While DTCC cautiously upgrades, an alternative vision has begun emerging. On September 3, 2025, Galaxy Digital became the first Nasdaq-listed company to tokenize SEC-registered equity on a major public blockchain (Solana). The critical difference: these tokens represent actual shares, not claims to shares.

When Galaxy’s tokens are transferred on-chain, Superstate (an SEC-registered transfer agent) updates Galaxy’s official shareholder register in real time. Token holders appear directly on the company’s register. Cede & Co. is bypassed entirely. This is genuine direct ownership—actual property rights, not contractual rights.

Securitize extended this concept in December 2025, announcing a tokenized stock service with “fully on-chain compliant trading” launching in Q1 2026. Unlike synthetic tokenized stocks using derivative structures or SPVs, Securitize’s tokens are “real, regulated stocks: issued on-chain and recorded directly on issuer shareholder registers.” They go further: supporting on-chain transactions that anchor to NBBO (National Best Price) during market hours and use Automated Market Makers (AMMs) for pricing during closures. Theoretically, this enables 24/7 trading.

This path treats blockchain as a native securities layer, not an addition to existing systems.

What Tokenizing Meaning Reveals: The Philosophical Divide

This isn’t a debate about technology—it’s a contest between two institutional logics about what tokenizing meaning should accomplish.

DTCC’s Logic: Gradual improvement acknowledges the existing system’s genuine merits—multilateral netting efficiency, central counterparty risk mitigation, and a mature regulatory framework. Blockchain makes this machine run faster and more transparently. Intermediaries persist but use different accounting. Efficiency is the priority.

Direct Ownership Logic: Structural transformation questions whether intermediaries are necessary at all. If blockchain provides immutable ownership records, why need nested intermediaries? If investors can self-custody, why surrender ownership to Cede & Co.? The priority is autonomy.

Both paths contain real trade-offs:

Direct Holding Advantages: Self-custody, peer-to-peer transfers, DeFi composability, investor autonomy.

Direct Holding Costs: Dispersed liquidity, lost netting efficiency (meaning higher capital requirements), and transferred operational risk. Investors now bear losses from private key management and wallet theft—risks intermediaries previously covered.

Indirect Holding Advantages: Centralized economies of scale, mature compliance frameworks, institutional familiarity.

Indirect Holding Costs: Mediated rights exercise (voting, shareholder proposals, issuer communication all flow through intermediaries), and permanent separation from actual share ownership.

Market Dynamics: How Intermediaries Must Adapt

The SEC’s December 11 statement signaled openness to both paths. Commissioner Hester Peirce stated explicitly: “DTCC’s tokenized equity model is promising, but other market participants explore different paths… Some issuers have tokenized their own securities, making direct investor holdings and trading easier rather than through intermediaries.”

The regulator’s message: this isn’t either-or. The market decides. This creates urgent strategic questions for financial institutions:

For Clearing Brokers and Custodians: DTCC tokenization offers first-mover advantages, but the service itself may eventually commoditize. Are you providing differentiated value, or becoming a standardized conduit?

For Retail Brokerages: Under DTCC’s model, your role solidifies—retail investors still need brokerages. Direct holding models erode this moat. Your future lies in high-value services: compliance consulting, tax planning, portfolio management—functions smart contracts can’t replace.

For Transfer Agents: Historic repositioning is underway. Traditionally back-office functions, transfer agents now control the shareholder register entry point in direct holding models. Superstate and Securitize hold SEC transfer agent licenses precisely because register control equals system control.

For Asset Managers: Assess how much your business model depends on settlement cycle assumptions. If tokenized shares become collateral for on-chain lending, traditional margin financing transforms. If AMM arbitrage eliminates T+1 settlement advantages, trading model assumptions shift.

The Convergence Ahead: Two Curves on Different Timelines

Financial infrastructure transformations unfold slowly. The 1970s paperwork crisis led to indirect holding, but took over two decades to solidify. SWIFT, also founded in 1973 to revolutionize cross-border payments, remains under restructuring in 2026.

Initially, both paths develop in their territories. DTCC’s institutional-grade services penetrate wholesale markets first—collateral management, securities lending, ETF operations. Direct holding enters peripherally: crypto-native users, smaller issuers, regulatory sandboxes in specific jurisdictions.

Long-term convergence becomes possible. When tokenized equity circulation reaches sufficient scale and direct holding’s regulatory framework matures, investors may gain genuine choice for the first time: accepting settlement efficiency within the DTCC system, or exiting to on-chain self-custody and reclaiming direct asset control.

What tokenizing meaning ultimately represents is this unprecedented choice itself. Since 1973, when you purchased stock, it automatically entered the indirect holding system. Cede & Co. became the legal holder. You became the beneficiary at the chain’s end. This wasn’t a choice—it was the only path.

Cede & Co. still holds the vast majority of U.S. publicly traded shares. This proportion may loosen, or persist for decades. But after 50 years, another infrastructure has finally been constructed. The market—for the first time in generations—will decide which path serves which purpose.