Tokenized securities need competition, not gatekeepers

America’s capital markets lead the world because they adapt.

Paper certificates gave way to book-entry records. Trading floors gave way to electronic markets. Manual processes gave way to faster settlement, automated clearing, and global access. Each step raised fair concerns. Each step required guardrails. But America stayed ahead because we did not treat every new tool as a threat to the old system.

Tokenization is the next step in that history.

Patrick McHenry is the vice chairman of the advisory board at Ondo Finance, and a former U.S. Representative who chaired the House Financial Services Committee.

The current debate over tokenized stocks has centered on a basic question: what is the proper form for securities in the U.S. market? Some argue tokenization should happen primarily through existing market infrastructure: broker-dealers, custodians, securities intermediaries, DTC, and related records. Others have introduced products in various forms backed by U.S.-listed securities designed to meet the needs of the fast-growing cohort of investors that prefer to invest onchain. Still others point to issuers and transfer agents as the preferred pathway.

That debate is worth having. But it should not be reduced to one approved model. A better question is whether different models can compete on substance while preserving investor protection and the strength of U.S. markets.

Tokenized securities are not one thing. They can and do take different forms, and carry different rights. They can sit in different parts of the market structure. Treating them all the same will lead to bad policy and worse products for investors and issuers alike, ultimately putting the U.S. capital markets at a competitive disadvantage globally. There are at least three models to consider.

The first model is market infrastructure tokenization. The underlying securities remain within the existing legal and operational framework: broker-dealers, custodians, securities intermediaries, DTC, and related records. Blockchain can then be used for recordkeeping, reconciliation, collateral monitoring, transfer controls, and operational efficiency. This approach does not require abandoning the existing U.S. securities market system. It uses technology to improve specific parts of it.

The second model is customer-driven tokenization. These products start from a different place: what does the investor want to accomplish? Some products may be notes or other instruments designed to track the performance of U.S.-listed stocks or ETFs, supported by underlying securities and collateral. Others may use tokenized records for entitlements held through intermediaries. These products are not the same as directly registered shares. They should not be marketed as if they are.

But familiar forms of market exposure, including brokerage-held securities, ETFs, depository receipts, structured notes, and other equity-linked instruments, are well-established parts of the market today. Tokenization alone does not make them more or less legitimate. Their economic and legal structures should dictate their regulatory treatment.

The third model is issuer-sponsored tokenization. A company and its transfer agent support tokenized ownership directly. This may be the right model for many issuers. It can connect tokenized records to shareholder systems and support familiar processes for corporate actions, recordkeeping and communications.

Brokerage held securities, depository receipts, structured notes, and direct registration all coexist in today’s market. They do not provide identical rights. Investors choose among them because they serve different needs. The important questions are whether the structure is clear, the risks are disclosed, the backing is real where promised, and the product does what it says it does.