Kraken Owner Payward and Nasdaq Form Tokenization Pact

The collaboration will see the two companies develop an “equities transformation gateway” joining tokenized equity capital markets with decentralized blockchain networks, the release said.

The partnership is designed to combine Nasdaq’s regulated market infrastructure with Kraken’s xStocks framework to allow tokenized equities to smoothly flow between permissioned institutional markets and permissionless DeFi spaces, per the release.

“Tokenization upgrades market infrastructure at the asset layer by allowing equities to exist as programmable financial instruments that can operate across both regulated capital markets and open blockchain networks,” Payward and Kraken co-CEO Arjun Sethi said in the release. “Today, most equities sit inside brokerage systems where their utility is largely limited to directional exposure and, in some cases, broker-specific margin arrangements. That structure fragments liquidity across venues and leaves a meaningful amount of capital static relative to its potential utility. With xStocks, our goal is to make equities natively interoperable across trading venues, financial applications and blockchain networks while preserving issuer rights, regulatory protections and price integrity.”

Launched last year, xStocks is Kraken’s tokenized equity product that has now surpassed $25 billion in transaction volume, the release said. The company announced in December plans to acquire tokenized assets platform Backed, which had been its partner in xStocks.

Nasdaq’s equity token design, expected to become operational in the first half of next year, “is a new framework for tokenizing equities that preserves issuer control, existing regulatory frameworks, and the underlying rights of company shares,” according to the release.

Kraken and Payward will function as the chief settlement layer for these transactions in eligible jurisdictions, with Payward Services providing know your customer (KYC) and anti-money laundering (AML) onboarding compliance, per the release.

Meanwhile, new guidance from banking regulators in the United States reaffirms that the existing U.S. banking capital framework is technology-neutral. That means that if a security is tokenized but confers the same legal rights as its conventional form, it should get the same capital treatment as the traditional security.

“For finance leaders exploring distributed ledger infrastructure, the clarification effectively removes a regulatory overhang that has slowed experimentation with tokenized bonds, equities and other financial instruments,” PYMNTS reported Friday (March 6).

For all PYMNTS digital transformation coverage, subscribe to the daily Digital Transformation Newsletter.