Tokenized Stocks: Nasdaq vs Onchain Markets

The most important tokenization development this week is the SEC’s approval of Nasdaq’s tokenized stock plan.

It reveals three critical principles shaping how the SEC, Nasdaq, and DTC view the future of tokenized equities:

• Tokenization as a controlled market structure upgrade

• Tokenized stocks are not a new asset class

• Tokenization must not fragment liquidity

In this week’s Market Insight, we analyze the current ~$1B tokenized equities market through these lenses:

• How does today’s market align with a controlled infrastructure upgrade model?

• Are existing tokenized equities truly a separate asset class?

• Is there liquidity fragmentation across platforms and instruments?

Let’s dive in.

Onchain tokenized stocks vs Nasdaq’s tokenization plan

Before Nasdaq’s proposal, the SEC broadly framed three models for equity tokenization:

1. Issuer-led model

2. CSD-led model

3. Third-party issuer / synthetic model

Nasdaq’s tokenization framework sits squarely in the CSD-led model. 

“According to Nasdaq, while they are actively assessing multiple methods of tokenization and trading of tokenized securities, the proposed rule change describes and applies to one method by which DTC Eligible Securities can trade on Nasdaq, using DTC to clear and settle trades in token form, per order handling instructions that DTC Eligible Participants may select upon entering their orders for DTC Eligible Securities on Nasdaq”

At the center of this model is the Depository Trust Company (DTC), the core Central securities depository (CSD) of the US equities market. Here is a simplified workflow of a US equities trade on Nasdaq:

• Orders are executed on Nasdaq

• Trades flow to NSCC

• NSCC remains the central counterparty, performing netting

• DTC handles final settlement

In Nasdaq’s proposal, everything upstream of settlement remains unchanged. The only change introduced by the tokenization plan is that the settlement format at DTC becomes optionally tokenized.

Here tokenization is applied post-trade. The “tokenization flag” is selected at order entry but executed after clearing. Clearing, netting and T+1 settlement remain untouched.

This is very much a controlled infrastructure upgrade approach: 

• Tokenization happens at CSD level and is fungible with traditional shares

• NSCC’s CCP role is preserved

• Maintains existing market structure without disruption

By contrast, the current ~$900M tokenized equities market operates very differently.

• Tokenization happens via third party issuers 

• No clearing or CCP is required (at least from users perspective)

• Settlement happens atomically DvP onchain

The two dominant players, Ondo ($524M) and xStocks ($245M), together represent ~85% of the market. Both structure their products as equity-linked instruments providing price exposure, rather than direct legal ownership. They sit squarely in the third-party issuer model.

In this model, traditional stocks are held at custodians and used to issue and back their onchain token versions. When a user executes a trade onchain, the transaction settles instantaneously, with the cash leg represented in stablecoins and delivered directly to the user’s wallet. From the user’s perspective, settlement is final at the point of execution, as delivery versus payment occurs atomically on-chain.

However, this abstraction masks the continued reliance on traditional market infrastructure in the background. The acquisition and disposal of underlying shares still involve brokers and custodians, and fiat settlement and netting processes continue to take place off-chain.

In effect, while the Nasdaq model embeds tokenization within the existing market structure, the onchain model abstracts away much of that structure at the user interface level and leverage stablecoin for instant cash leg settlement. 

The result is two fundamentally different approaches: one that integrates tokenization into established infrastructure, and another that prioritizes immediacy and accessibility, even if it requires synthetic replication of the underlying asset.

Are tokenized equities a separate asset class?

Nasdaq’s framework is explicit in its intent: tokenized equities are not meant to constitute a new asset class. By requiring tokenized shares to carry the same CUSIP, confer identical legal rights, and remain fully fungible with their traditional counterparts, the proposal ensures that tokenization does not alter the fundamental nature of the instrument.

However, this principle does not extend to the current on-chain tokenized equities market.

Under third-party issuer models, tokenized equities are typically structured as instruments that provide economic exposure, rather than direct legal ownership. This distinction is critical. While these instruments track the price of the underlying security, they do not convey the same bundle of rights, nor do they sit within the same legal and market infrastructure.

As a result:

• Tokenized equities under the Nasdaq model are representations of the same asset

• Tokenized equities in today’s on-chain market are derivative-like instruments referencing the asset

In practice, this means that on-chain tokenized equities today behave as a distinct asset class, despite being economically linked to traditional stocks.

Is there liquidity fragmentation across platforms and instruments?

The SEC approval makes clear that tokenized securities must trade:

• On the same order book

• With the same execution priority

• Using the same market structure and routing logic

• Without differentiation in market data

This design ensures that tokenized and traditional shares draw from a single, unified liquidity pool. The implication is straightforward but profound: tokenization must not create parallel markets.

By contrast, on-chain tokenized equities must establish liquidity independently, as they are not fungible with their traditional counterparts and cannot access existing exchange order books.

The traditional liquidity solution in crypto markets has been the automated market maker (AMM) model. Under this approach, liquidity is provisioned through two-sided pools, pairing a tokenized equity with a stablecoin (e.g., tokenized Apple stock against USDC), allowing users to swap between the two.

While simple to implement, this model introduces several structural limitations:

• Insufficient liquidity depth relative to underlying equity markets

• Price deviations from primary market benchmarks

• Fragmentation across venues, pools, and chains

xStocks largely follows this model, and as a result, inherits these constraints.

By contrast Ondo employs a total return tracker model that connects order flows with traditional exchange liquidity. Corporate actions such as dividends and stock splits are handled operationally, with their economic effects reflected in token pricing.

According to its own study, this approach delivers materially different execution outcomes:

• A $50K trade via Ondo’s model results in <0.16% price impact

• Comparable trades on other platforms can experience up to 7.19% impact

Despite their structural differences, Nasdaq’s model and Ondo’s approach converge on a common conclusion: tokenized equities cannot scale without access to the same liquidity as traditional markets.

Nasdaq achieves this by embedding tokenization directly within the existing market structure. Ondo approximates it by linking on-chain activity to off-chain liquidity. In both cases, the direction of travel is clear: liquidity must remain unified.

Conclusion

Nasdaq’s tokenization model is designed to minimize disruption. Operating at the center of a $42 trillion market, any structural change must be incremental, controlled, and compatible with existing infrastructure.

By contrast, today’s onchain tokenized equity platforms operate at the frontier of innovation, where the priority is not preservation, but adoption and validation of new models. 

The divergence is further reinforced by their respective user bases: Nasdaq serves institutional brokers and the buy side, while on-chain platforms primarily target crypto-native individuals, often outside the US.

The divergence between the two is not philosophical, but structural:

• Nasdaq optimizes for stability and integration

• On-chain platforms optimize for access and scalability

Over time, these approaches may converge as infrastructure, regulation, and user demand evolve. For now, however, they represent two distinct stages in the development of tokenized capital markets, each addressing fundamentally different use cases.