The next big thing in crypto will be tokenized stocks: Here are the likely winners and losers

Crypto has no shortage of detractors, but even they would concede the industry has produced massive innovations, including Bitcoin and stablecoin payment rails, that have had a profound effect on global commerce. Now, another crypto invention is on the cusp of introducing disruption on a similar scale: Blockchain-based stock trading, which got a big vote of confidence from both NYSE and NASDAQ this month, and is poised to deliver big changes for both investors and companies.

Robinhood CEO Vlad Tenev memorably described tokenized stocks as an unstoppable “freight train.” The arrival of that train will depend on how fast regulators can supply a legal framework, but Tenev’s basic premise is sound. The more interesting question is which firms will lead this coming wave of disruption, and which will be left out.

According to Sebastian Pedro Bea, a former BlackRock executive who is now CIO at crypto firm ReserveOne, the emerging world of tokenized stocks is being led by offshore players and by U.S.-based “compliant disruptors.” Bea includes in this category the likes of Securitize, Superstate and Figure, which have little in the way of trading volume, but that are laying the groundwork to allow Fortune 500 companies to issue their shares on-chain. Once this happens, a whole range of corporate activities—from paying dividends to proxy votes to settling trades—will become far more efficient.

In a recent chat, Bea also pointed to leading offshore players Kraken and Ondo, which are offering a very different type of blockchain-based stocks. Namely, these firms are using special purpose vehicles to purchase large quantities of stocks like Apple and Tesla, and selling tokens that provide a legal claim to the stock. These offerings are basically derivatives that don’t provide the full advantages of blockchain, but their tokenized wrappers mean trades can be settled instantly.

For now, the market for all this is relatively small—perhaps $2 billion across all platforms. This is likely to change, though, since key figures at the Securities and Exchange Commission are supportive of tokenized equities, and as the country’s most prestigious stock exchanges, NYSE and NASDAQ, recently announced tie-ups with OKX and Kraken, respectively. All of these companies, including Bea’s “compliant disruptors,” and Coinbase and Robinhood, are likely to be key players in the coming tokenization of the stock market. In doing so, they will create a more decentralized type of stock market.

Then there are those on the receiving end of the disruption. This is likely to be the legions of middle-men who oversee the current system of clearing and settling trades, whose roles stand to become obsolete. As Superstate notes in a helpful blog post “What really happens when stocks trade”: “U.S. equity markets still run on architecture designed for a different era … Settlement is delayed by design. Risk is warehoused in intermediaries built for reconciliation, not execution.”

The rise of tokenized stocks means the equity markets of the future will be built around instant execution. At this point, it’s not a question of if but when. 

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

This story was originally featured on Fortune.com