Analysis of Nasdaq Proposal: How Tokenization of Securities is Reshaping the US Stock Trading Ecosystem?

Author: Aki Wu said Blockchain

On September 8, 2025, Nasdaq submitted a landmark proposal to the U.S. Securities and Exchange Commission (SEC), seeking to amend exchange rules to allow the trading of tokenized securities on its market. This means that U.S. stocks listed on Nasdaq, such as Apple and Amazon, are expected to be traded and settled in tokenized form on the Nasdaq in the future. If approved, this would be the first case of a major U.S. securities exchange allowing the trading of tokenized stocks, marking the first large-scale introduction of blockchain technology in the core markets of Wall Street. This article will systematically outline the key points of the Nasdaq proposal, the motivations behind it, and the potential market upheaval it may bring, as well as its impact on the “U.S. stocks on-chain” sector and related sectors, and look ahead to the potential development paths of this innovative initiative.

Proposal Highlights: Detailed Explanation of Nasdaq Trading Rule Amendments

The core of the 19b-4 rule modification document submitted by Nasdaq to the SEC is to allow member brokers and investors to choose to trade and settle stocks and exchange-traded products (ETPs) listed on the Nasdaq market in a tokenized form. Specifically, it includes the following aspects of rule amendments:

1. Expand the definition of “securities”, adding tokenized form Equity 1, Section 1

The proposal first modifies the exchange's definition of “securities,” emphasizing that “tokenized securities are still securities,” rejecting the “island” trading model that is detached from the main market and expanding it to include two forms:

●Traditional form: refers to the digital accounting representation of asset ownership and rights, but does not use distributed ledger or blockchain technology. This is essentially the electronic bookkeeping form currently used in the U.S. stock market, which still corresponds to the electronic registration of physical securities.

●Tokenization: Refers to the digital representation of asset ownership and rights, utilizing Blockchain (distributed ledger) technology for recording and transferring. In short, it is issuing the rights corresponding to stocks on the Blockchain, represented in the form of tokens.

The Nasdaq clearly stipulates that a tokenized security is only considered equivalent to its corresponding traditional security when it possesses fully homogeneous characteristics, allowing it to be traded alongside traditional forms on the same order book. This means that the token must satisfy: being fungible with traditional stocks, sharing the same CUSIP number (Committee on Uniform Securities Identification Procedures), and granting the holder the same substantive rights and privileges as traditional stocks — including claims on the company's equity earnings, dividend rights, voting rights, and rights to residual asset distribution upon company liquidation. If the tokenized form fails to grant rights equivalent to the original stock (such as no voting rights, no shareholder rights, etc.), or does not share the original stock's CUSIP, the exchange will not view it as equivalent to traditional securities, but rather treat it as a different product, such as a derivative or American Depositary Receipt (ADR).

It is precisely because of this high standard that most of the so-called “tokenized stocks” on the market, such as Robinhood's “Stock Tokens” and Xstocks, do not actually meet the above conditions. At best, they are merely shadow tokens that reflect stock prices and do not represent real equity, and typically do not grant voting rights; dividends are often reflected in the form of reinvestment or cash equivalents; the legal relationships mostly point to SPVs and issuance vehicles rather than the listed companies themselves, with most products primarily focusing on cash redemption, and directly “exchanging back for original shares” facing custody and compliance restrictions.

2. Unified Matching, Flow Settlement: Transaction and Clearing Mechanism

Equity 4, Rule 4757

Nasdaq plans to fully integrate tokenized securities with traditional securities at the trading level. The proposal stipulates that as long as the tokenized version of a stock meets the above homogeneity requirements, it will share the same order book with traditional stocks and will be matched for trading according to the same order matching and priority rules. In other words, from the perspective of the exchange's matching engine, there is no difference between tokenized and non-tokenized buy and sell orders; they are treated equally. In fact, Nasdaq emphasizes: “At the trading stage, there is no difference between the two; essentially, the trading execution process is completely consistent.”

Equity 4, Rule 4756, 4758

The difference is reflected in the settlement layer. Currently, U.S. stock trading typically completes clearing and settlement through the Depository Trust Company (DTC) after the trade is executed. However, with the introduction of tokenization, Nasdaq will provide a new option for trading participants, allowing them to settle using tokens. The specific process is as follows:

When brokers input orders to the exchange, they can choose to specify that the order wishes to be settled in tokens. If the order is executed and marked for token settlement, Nasdaq will pass the clearing instructions for the transaction to DTC, which will execute the settlement transfer of the securities in the background via Blockchain.

DTC will complete the process of registering stock ownership in the form of on-chain tokens based on its own business rules and systems (the blockchain settlement platform it is developing). The entire process is transparent and seamless for front-end investors, with trades still matched on Nasdaq, only the clearing and settlement have changed from traditional electronic bookkeeping to Blockchain registration, and stocks are ultimately held in token form at on-chain addresses.

It is worth noting that Nasdaq's move is not to create a new market from scratch, but to leverage the existing market infrastructure by introducing Blockchain as the underlying recording technology, while not changing the front-end trading mechanism. Therefore, the prices of traditional stocks and tokenized stocks will be unified during the trading phase, and market depth and liquidity will be shared, with transparency of information and risk control monitoring being completely consistent. As Nasdaq stated in the document, this plan aims to prevent different versions of tokenized stocks from competing on multiple Blockchains, leading to liquidity fragmentation, and to ensure that core mechanisms of national market systems, such as price discovery and best execution, are not impacted. This addresses the previous pain points of “tokenized stocks,” namely the insufficient liquidity caused by the dispersion of market-making capital and order books due to multiple chains (ETH/SOL, etc.) + multiple markets (compliant on-exchange vs. crypto exchanges/DEX) + regional compliance restrictions.

3. Trading Session Limitations: 24/7 trading is currently not available

Tokenized stocks have faced issues of deep thinness and high impact costs during the US stock market's closed periods since their launch. This misalignment of trading hours has also contributed to liquidity shortages and price disconnection to some extent, which has led many investors to wonder whether tokenized stocks can break through the existing trading hour restrictions of US stocks and achieve “24/7” round-the-clock trading? Nasdaq's proposal gives a cautious answer: at this stage, tokenized securities can only be traded during the existing trading hours and will not extend or break through trading times. Tokenized stocks cannot be traded outside of regular and extended trading hours and will continue to adhere to US stock practices, only being available for trading during regular hours (9:30–16:00) and pre-market and after-hours sessions from Monday to Friday in Eastern Time, with no support for weekend or late-night trading at this time.

4. Implementation Path of On-Chain Settlement

Behind the Nasdaq tokenized stock trading is the core clearing institution of the traditional financial market — the U.S. Depository Trust & Clearing Corporation (DTC). It is worth mentioning that DTC has been exploring DLT clearing in recent years, and its “Project Ion” is a blockchain-based stock settlement platform aimed at achieving T+0 and even real-time settlement. According to public information, Project Ion went live in a parallel trial environment in 2022, processing over 100,000 stock trade settlement instructions daily. DTC developed this platform in collaboration with enterprise blockchain technology provider R3, utilizing R3's Corda distributed ledger software to build a private permissioned chain as the underlying architecture, which is a non-public consortium chain.

It can be inferred that the tokenized trading on Nasdaq is more likely to operate on DTC's licensed chain platform rather than on public chains like Ethereum, which are often discussed in the community. In this way, DTC can still maintain traditional systems as authoritative records, running in parallel with new DLT systems to ensure security redundancy. Therefore, under Nasdaq's proposal, on-chain settlement may actually occur in a controlled “consortium chain” environment, with nodes maintained by financial infrastructure operators like DTC. This ensures transaction privacy, network reliability, and regulatory controllability, meeting Wall Street's high standards for trading settlement systems.

The consortium blockchain allows participants to have controlled access, making data privacy and transaction speed more manageable, in line with regulatory requirements. Therefore, it can be anticipated that the records of Nasdaq's tokenized stocks will not appear on public Blockchain browsers, but will be stored in a distributed ledger maintained jointly by Nasdaq, DTC, and related custodians. As for how the specific smart contracts will be deployed, Nasdaq has not specified this in public documents, but it is clear that Nasdaq does not intend to introduce a completely open token trading environment; rather, it aims for the Blockchain to serve as “back-end technology” to enhance efficiency, while front-end trading activities still occur within a controlled system. The only change will be in the accounting method, using Blockchain records, meaning that investors will hold on-chain records recognized by regulatory authorities, rather than completely free-floating crypto tokens detached from traditional systems.

Why did Nasdaq apply for tokenized securities?

Blockchain has enormous potential to improve the efficiency of financial market infrastructure. Currently, the trading settlement of U.S. stocks is still T+1 (with some markets at T+2) delayed settlement, while blockchain technology can achieve near real-time (T+0 or even within seconds) settlement, reducing the time funds and securities are held, and lowering counterparty risk. Additionally, the transparent and immutable distributed ledger of blockchain can provide comprehensive audit trails, reducing reconciliation and manual operation errors. Nasdaq aims to introduce tokenized settlement to accelerate post-trade processes while reducing costs in clearing and custody. This can be seen as an attempt to innovate the securities settlement mechanism from the ground up. Nasdaq stated in its document: “Today's stocks and other securities have long since evolved from paper-based records to electronic records, and tokenization is merely another way to digitally represent assets.” By embracing blockchain, exchanges demonstrate their determination to drive financial technology innovation to avoid falling behind in the new wave of technological advancement. The asset tokenization market is expected to experience explosive growth, with the total market value of global tokenized assets projected to surge from approximately $2.1 trillion in 2024 to around $41.9 trillion by 2032, with a compound annual growth rate of up to 45.8%.

As a result, investors and issuers have shown strong interest in the tokenization of securities, representing a huge emerging market opportunity. Regulators and market participants in many countries are actively exploring the on-chain securities landscape, and the U.S. must not lag behind. Nasdaq, as a market organizer, hopes to align with this trend by providing new trading options for clients to attract more capital to the U.S. market. By establishing a foothold early, Nasdaq can strengthen its competitiveness in the era of digital assets, especially in the context of the White House actively promoting innovation in crypto assets and creating a digital asset-friendly regulatory environment. It is crucial to ensure that tokenized securities develop within a compliant framework to prevent market fragmentation. As mentioned earlier, many tokenized stocks are currently traded on offshore unregulated platforms, lacking investor protection, and different platforms operate independently, leading to fragmented liquidity and market opacity. Nasdaq's proposal aims to integrate these innovations into the mainstream regulatory system to prevent investors from falling into unregulated risks in pursuit of novel concepts.

Although exchanges will not aggressively open up various dazzling features in the short term, in the long run, stock tokenization opens up imaginative possibilities for financial innovation. For instance, stocks can be used as on-chain collateral to participate in decentralized finance (DeFi), and equity tokens can be programmably integrated into smart contracts for automated dividends, voting, and even the creation of entirely new derivatives and index products. These scenarios, which are difficult to achieve under traditional frameworks, are expected to gradually become possible after tokenization. However, it should be noted that Nasdaq's tokenized securities trading venue is still on Nasdaq, meaning that transactions are facilitated in a compliant centralized environment and not everyone can trade anonymously on-chain at will.

Conclusion: Long-term Opportunities and Industry Outlook

Nasdaq's push for tokenized securities trading is undoubtedly a significant innovation in the underlying technology of securities trading. It signifies that traditional financial markets are taking a crucial step towards the blockchain era. From regulatory approval to technical readiness, this transformation cannot happen overnight. According to Nasdaq's statements in the application documents, the readiness timeline for the relevant blockchain settlement infrastructure may not be until the end of Q3 2026. Nasdaq expects that, assuming the proposal is approved by the SEC and the DTC's distributed ledger settlement system is launched at that time, American investors can expect to see the first securities trades settled in token form by the end of Q3 2026.

For investors, it is important to recognize that this is a long-term theme. The GENIUS Act has opened a new era of stablecoin compliance, and Nasdaq's tokenized securities may become the next game-changing milestone. In the coming years, policy advancements and technological milestones related to this theme will continuously be in the market spotlight, giving rise to phased investment opportunities, such as oracles and RWA sectors. As the Nasdaq management stated, innovation should occur within the national market system to protect investors, rather than being left in an unregulated offshore wilderness. As Nasdaq's tokenized stocks gradually materialize, it will unlock greater imaginative possibilities for institutional funds to participate in on-chain stocks.

For example, large institutions can obtain real stock tokens through official channels and then invest in DeFi to earn returns with confidence. This is a high-level capital that shadow token platforms currently find it difficult to attract. For general users, once sovereign-level exchanges offer compliant stock tokens, there is a lack of necessity to hold the shadow versions that “do not enjoy shareholder rights.”

Although the prospects are bright, it is also necessary to face potential limitations. First of all, in the initial stage, the opportunities for ordinary investors to benefit directly may be limited. Currently, retail investors in the U.S. can trade stocks quite conveniently through brokers, and the tokenization of Nasdaq will not immediately significantly reduce their trading costs or thresholds. Moreover, benefits such as 24/7 trading may not be desirable for non-professional investors, as they may not want their stocks to be traded and fluctuate seven days a week without rest. Additionally, smart contracts are also susceptible to vulnerabilities or hacking risks; if there are issues with the tokenized stock contracts, who will bear the responsibility is also unknown. Furthermore, some unregulated offshore tokenized stock trading has shown significant price deviations, exposing issues of insufficient liquidity and potential manipulation. Under the Nasdaq plan, such deviations are expected to decrease because tokens are supported by real stocks and traditional market makers participate in pricing.

The tokenization of stocks on the Nasdaq will be a significant milestone in the commercialization of blockchain technology. It signifies that blockchain is no longer confined to the cryptocurrency circle, but has truly entered the core scenario of mainstream finance. From an industry perspective, this is an authoritative endorsement of the blockchain and Web3 ecosystem, which will inspire more enterprises and developers to invest in this field. From the standpoint of financial history, this event may be seen as the starting point for the digital transformation of traditional securities markets, similar to the transition from paper-based trading to electronic trading decades ago. For the Web3 community, this is an opportunity to turn ideals into reality: concepts like decentralization and tokenization can only unleash their maximum value when integrated with the real economy. This may not be the most utopian outcome for pure decentralization idealists, but it greatly accelerates the process of large-scale application of blockchain.