A quiet but consequential lobbying battle is unfolding in Washington over who gets to define what a tokenized stock actually is — and the outcome could shape how millions of investors access blockchain-based equities for years to come. The Securities Transfer Association (STA), a trade group representing major Wall Street transfer agents, has sent a formal letter to the Securities and Exchange Commission urging regulators to draw a hard line between issuer-sponsored tokenized securities and the third-party token models that currently dominate the nascent market.
Summary
Key takeaways
- The STA is lobbying the SEC to give preferential regulatory treatment to issuer-sponsored tokenized securities over third-party or synthetic token models.
- Issuer-sponsored tokens are actual company shares recorded in official shareholder registers; third-party tokens may only offer economic exposure with additional custody and credit risks.
- The roughly $2 billion tokenized stock market is currently dominated by third-party synthetic models, largely inaccessible to US retail investors.
- The Direct Registration System (DRS) needs modernization — its current speed is incompatible with blockchain-based securities transfers.
- The SEC has not yet issued formal rules on tokenized securities but is expected to introduce an innovation exemption.
Securities Transfer Association Advocates for Issuer-Sponsored Tokens
The core argument is straightforward but legally significant: only tokens authorized by the underlying company and recorded in its official shareholder register should be treated as genuine tokenized stock. Everything else, the STA contends, is something different — and potentially dangerous to investors.
“The distinction is fundamental,” the STA wrote. “An Issuer-Sponsored Token is an actual share or other security of the Corporation.” The letter goes further, arguing that any SEC innovation exemption, pilot program, no-action position, or permanent framework for tokenized securities should apply exclusively to issuer-sponsored models.
The group also asked the SEC to require explicit issuer consent before platforms market products as tokenized shares of public companies — a direct response to episodes like the one involving OpenAI, which publicly distanced itself from Robinhood’s tokenized product tied to its shares, stating it had neither approved the offering nor that the tokens represented actual equity.
Industry leaders back the issuer-first position
Computershare, which serves as transfer agent for more than half of the companies in the S&P 500 index, was vocal in its support. Ann Bowering, CEO of issuer services at Computershare North America, said listed company clients have raised specific concerns about “wrapper-style products, which can look like ownership of a company’s shares while sitting outside the issuer’s own records, governance and communication channels.”
Fiona Chalmers, global CEO of issuer services at Computershare, put it plainly: “The decisions regulators make now will shape how accessible tokenised shares become for issuers and their shareholders.”
Dan Kramer, CEO of transfer agent Equiniti, was even more blunt. “A token that isn’t authorized by the issuer and recorded through its transfer agent isn’t a tokenized share,” he said. “It is a synthetic instrument that leaves investors exposed and issuers without recourse.” Equiniti operates in both the US and UK.
Competing Models of Tokenized Securities
Three distinct tokenization structures have emerged in the market, each offering investors a different level of legal protection and proximity to actual share ownership.
Under the issuer-sponsored model, a company directly authorizes tokenized shares and records them in its official register — investors get the same legal rights as holders of conventional stock. Custodial models have a regulated intermediary hold the underlying shares and issue blockchain tokens representing ownership interests. Synthetic models go furthest from real ownership, providing only economic exposure to a stock’s price without any direct legal claim against the issuer.
Where the $2 billion market actually sits
Most of the roughly $2 billion tokenized stock market currently follows the third-party synthetic model, led by Ondo Finance and Kraken’s xStocks. These products remain generally unavailable to US retail investors.
The issuer-sponsored model has its own established players: Figure and Securitize have both issued their own shares directly onchain. Dinari operates the custodial model and was the first platform to obtain broker-dealer registration in the US for tokenized equities. Ondo Finance recently moved toward the custodial model as well, using a licensed transfer agent with Broadridge handling proxy voting, regulatory disclosures, and shareholder communications.
The SEC offered some early guidance on these distinctions in a January staff statement, separating third-party tokenization into custodial tokenized security entitlements and synthetic products. The statement acknowledged that investor rights vary significantly depending on which structure is used — though it did not carry the force of formal regulatory guidance.
Not everyone agrees with the STA’s framing
Dinari CEO Gabe Otte accepts many of the STA’s concerns but says they apply primarily to synthetic products, not custodial models. “Both issuer-sponsored and custodial models offer true stock ownership and these should be distinguished from synthetic models for the benefit of the end investor,” he said.
Alan Konevsky, CEO of digital securities platform tZERO, agrees that issuer-sponsored tokenization offers important advantages but argues the market will likely support multiple compliant approaches: “Innovation is accelerating, and we expect multiple compliant, non-misleading, economically and technologically meaningful models to emerge as the market matures.”
Eli Cohen, chief legal officer at tokenization platform Centrifuge, offered a candid reading of the STA’s motivations: “Here, the STA is protecting its market. Transfer agents are paid by issuers, so if non-issuer securities become widely adopted, the existing transfer agent franchises will shrivel up.” Cohen also noted that the letter’s call to modernize the Direct Registration System may be its most consequential element.
Infrastructure Challenges and Market Expansion
The STA’s letter goes beyond questions of token structure to flag a deeper infrastructure problem: the Direct Registration System (DRS) is too slow for tokenized markets. The current process for moving shares between DTCC’s broker-held accounts and transfer-agent records introduces friction that is incompatible with the speed blockchain-based settlement demands.
The scale of what’s at stake is striking. DTCC processed $4.7 quadrillion in securities transactions last year, while its subsidiary DTC provides custody and asset services for over $100 trillion in securities. The STA urged the SEC to work directly with DTCC and transfer agents to streamline share transfers as tokenized securities move toward broader adoption.
Cohen framed the DRS question as potentially decisive: “If DTC cannot adapt and develop a faster system soon, there is little chance the existing transfer agent system will be able to maintain their current position and role in the market.”
Wall Street and crypto firms pressing ahead regardless
Major institutions are not waiting for the regulatory picture to fully clarify. Coinbase unveiled plans to introduce onchain shares of US stocks. Robinhood just expanded its stock token offering to users in 120 countries. Nasdaq received SEC approval to test tokenized securities trading and tapped Kraken to distribute tokenized stocks globally. The New York Stock Exchange has partnered with Securitize to develop tokenized securities infrastructure. The DTCC itself plans to begin testing its tokenized securities platform in July ahead of a broader rollout in October.
Legal Perspectives and Regulatory Outlook
Louis Froelich, a partner at law firm Womble Bond Dickinson who previously spent nearly a decade at hedge fund Two Sigma Investments, offers a nuanced take: regulators should recognize third-party stock tokens as different financial instruments without dismissing them entirely.
“In some senses, third-party stock tokens are nothing new: regulated markets for options, futures and swaps have long offered price exposure to stocks without ownership,” he said. “The novelty is that blockchain rails allow for efficient, broader distribution.” Because holders may lack voting rights, dividends, and a direct legal claim against the issuer, Froelich suggested such tokens could ultimately trade at a discount to underlying shares.
“I’d encourage the Commission not to dismiss third-party stock tokens, but to treat them as what they are — a different class of financial instrument, with clear separation from real stocks.”
Carlos Domingo, CEO of Securitize and an STA member, was less generous toward synthetic structures: “Synthetic tokens are not a shortcut to market modernization — they are a source of added risk and confusion.”
The regulatory picture remains unresolved. The SEC has not yet proposed formal rules specific to tokenized securities and is expected to introduce an innovation exemption, though the timeline and scope have not been specified. As Joris Delanoue, CEO and co-founder of Fairmint — the first SEC-registered transfer agent operating natively onchain — put it: “A blockchain isn’t the source of truth; the issuer-authorized shareholder register is.”
The STA’s lobbying effort lands at an unusually consequential moment. With Citi projecting the tokenized securities market could reach $5.5 trillion by 2030, the structural question the STA is raising — who ultimately backs a token, and what rights come with it — may prove more important than any single product launch or exchange partnership. If the SEC endorses the issuer-first framework, synthetic token platforms could face serious headwinds in the US market. If regulators opt for a more permissive multi-model approach, the battle over investor rights in tokenized equities is only beginning.
FAQ
What is the main difference between issuer-sponsored and third-party tokenized securities?
Issuer-sponsored tokens are actual shares authorized by the company and recorded in its official shareholder register, giving holders the same legal rights as conventional shareholders. Third-party tokens are issued by intermediaries and may only represent economic exposure to a stock’s price, without direct legal ownership or the associated shareholder rights.
Why does the Securities Transfer Association prefer issuer-sponsored tokenized securities?
The STA argues that issuer-sponsored tokens preserve legal ownership and full shareholder rights, while third-party tokens expose holders to credit, custody, and operational risks from the issuing platform. The group also warns that third-party models can confuse investors and weaken their legal relationship with the underlying company.
What infrastructure challenges exist for tokenized securities in the US market?
The current Direct Registration System is considered too slow for efficient blockchain-based securities transfers. The STA has called on the SEC to work with DTCC and transfer agents to modernize and streamline the system to support broader tokenization adoption.
Has the SEC finalized regulations for tokenized securities?
No formal rules have been proposed yet. The SEC is expected to introduce an innovation exemption aimed at fostering tokenized securities, but the timeline and scope of that framework have not been specified.
Article produced with the assistance of artificial intelligence and reviewed by the editorial team.
