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Tokenization of Financial Products: The Sea Change to Our Immediate Front

DTCC's tokenization of securities markets signals the arrival of a profound (and durable) change
By   Stephen T. Gannon
10.29.26
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Key Takeaway

The speed of tokenization of financial assets, especially when combined with the rapid growth of agentic AI, is accelerating in ways that may create something new—a profound change that happens all at once.

Introduction: The Autobahn of Change (No Speed Limits)

For years, technology has been driving significant change in the financial markets, and with the growth of digital assets, blockchain, and AI, it is common knowledge that more changes are on the way. What is less known, though, is the fact that emerging changes have not yet been fully realized but have been accumulating and are about to drive a very substantial change curve in an accelerated and highly compressed time frame. These changes will occur regardless of external market events or policy movements. They are part of the technology wave that is being helped along by regulation but is not necessarily dependent on it.

We discuss below a sampling of changes caused or empowered by tokenization that will drive a profound change in financial markets and from which there will be no going back. The future will be fully tokenized. Financial markets will never close. And the advent of agentic AI will mean the sunset of fiat rails and the dominance of blockchain rails. Moreover, these changes are being encouraged by the most innovation-friendly regulatory environment in living memory. It is a cliché to say that "things will never be the same"; but in this case that adage rings true.

The Race Goes to the Swift: Paradigm Shift and the Need for Governance

The shift is happening fast. The consulting firm Gartner predicts that 40% of enterprise applications will be integrated with task-specific AI agents by the end of 2026, up from less than 5% in 2025. As agentic AI becomes ubiquitous, financial services firms must confront the fact that it will interact across the entire spectrum of financial markets, depending on the customer, perhaps thousands of times per second. Fiat-based rails cannot handle volumes of transactions at this speed, nor are the traditional delayed settlement times any longer acceptable. Accordingly, the only infrastructure option for truly broad adoption of agentic AI will be blockchain-based payment rails.

As an example of how quickly change is arriving as a result of tokenization, the magazine PYMNTS has been surveying the largest companies in the country for the last several years about their use of AI. In 2025, just 7% of the executives studied were piloting AI agents, and 67% said they wouldn't give agents any access to company systems at all. In 2026 the same decision makers were surveyed and 89% said they were using agents in at least one part of their business and only 2% would refuse them any access. Moreover, in 2025 major corporations surveyed indicated an "in production" use of AI agents to assist with live tasks at 5%. In 2026 to date, that number has risen to 40%. These are stunning shifts in a very short time.

Thus, as AI begins to run entire workflows, governance and controls will become critical. The hardest part will be the organizational transformation required to deploy AI responsibly at an enterprise scale in a regulated business. Speed, control, and accountability must work together. The industry needs to double down to ensure these are available and robust, but, ready or not, the change is here, and it's not waiting around.

The Big Picture: Why Should We Care About Tokenization and What Issues Does It Solve?

As global markets become more digital and continuous, tokenization offers opportunities to substantially improve certain attributes of the traditional market infrastructure, such as:

  • 24/7/365 trading
  • Near-instantaneous settlement
  • Atomicity—the execution of multiple inseparable transactions, such that either all occur or none occur (which prevents partial execution, allows trustless execution, and eliminates counterparty risk)
  • Transparency and auditability
  • Reduced latency and operational friction through digitization
  • Interoperability across platforms (blockchains, exchanges, custody providers)
  • Composability—the ability to combine and reuse programmed instructions in new ways to develop different products and different services
  • "Programmability" or automation of administrative functions (e.g., transfer of ownership)—the ability to embed code-based instructions that automatically execute when predetermined triggering conditions are met.
  • Fractional ownership (similar to ETFs)—dividing assets into smaller, tradable units
  • Access to investment products within new markets

These benefits are so significant operationally and economically that they are being embraced with enthusiasm. In fact, as this is being written, one of the most significant changes in financial services is about to launch—the tokenization of securities by the primary back-office infrastructure provider for American capital markets, the Depository & Trust Clearing Corporation (DTCC).

DTCC Goes Digital: The Legacy Tech Stack Begins to Sunset

This month, DTCC will be going live in connection with tokenization of all Russell 1000 stocks that it custodies, as well as Treasuries and ETFs. That means that a very wide swath of publicly traded securities, traditionally available through typical fiat-based rails, will now be available in tokenized form. This will drive major changes in conduct across financial services. There is no bank of any size that does not have a wealth management function. Those functions will now be embracing tokenization as a critical and growing part of their offerings. Moreover, as we note below, in order to control internal costs and meet ongoing capital markets needs, corporate treasurers will be compelled to use both tokenized collateral and tokenized deposits and/or stablecoins in order to control funding and liquidity costs.

Some key features of the DTCC tokenization service:

  • There will be a common liquidity pool across TradFi and DeFi (assets can move between traditional and blockchain ecosystems using the same CUSIP).
  • DTC tokens will represent the same legal rights, economic interest, and investor protection associated with the underlying securities while also supporting corporate action processing.
  • DTC tokens will include embedded functionality and controls to support compliance and operational oversight. Tokens will be interoperable and will be able to integrate with existing custody, settlement, and servicing processes.
  • DTC tokens will enjoy enhanced market transparency with near-real-time visibility into asset ownership and movement across traditional and blockchain environments.

This is not a product built on top of existing rails. It is a replacement of the rails. The DTCC tokenization service will have over 50 major institutional participants (to start) and will use the Canton Network (200+ partners) to tokenize select U.S. Treasuries, equities (Russell 1000), and ETFs custodied at DTCC. This will allow participants to execute atomic, synchronized, 24/7 repo and collateral movements without exposing unauthorized trade data. It is highly likely this will shift the conversation from whether tokenization is viable to how quickly the legacy stack can be decommissioned.

One of the drivers of this pace of change will be the simple expedient of corporate treasurers wanting to improve their bottom line by freeing up idle capital. This can best be illustrated by changes happening right now in the repo markets.

Revolution in the Repo Markets

In its traditional structure, the repo (repurchase) market opens, there are fixed windows for putting in orders, and operations are closed overnight and on weekends. Most activity is routed through intermediaries that manage collateral and settlement but also add operational steps and fees. There can be phone calls asking for last-minute changes. Cross-border transactions can be particularly difficult due to time zones and holiday mismatches. Excess money can be tied up for hours, and trades can get disrupted or canceled for missed deadlines, collateral shortfalls, or system outages. Blockchain-based systems ease many of those pain points. A borrower can request funding through a digital interface, and once a lender agrees, the cash and collateral are represented as tokens. After both sides approve, the transactions are recorded on a blockchain, a shared and auditable record, for as long as the terms are set. Crucially, trades can be made at any time of the day, including outside of traditional business hours. These traits materially lessen the distributional friction of capital.

Large banks not only save on fees and transaction time but on the amount of capital that such heavily regulated firms must hold against trades. A recent analysis showed that big banks could reduce their intraday liquidity buffers by 8% to 17% simply by placing 15% of their repo activity on chain. Some large banks hold as much as $1 billion to meet intraday liquidity needs. Cutting that buffer by 15% would free up roughly $150 million for other uses or to reduce external funding. This is a conversion from a static balance sheet asset into programmable working capital. By tokenizing some of the highly liquid assets that it custodies, DTCC will widen the pool of eligible collateral for tokenized repo and make it easier for firms to transact with assets held at their existing custodian that are readily usable on distributed ledgers. As markets go 24/7/365, institutions will need the ability to access cash at any time. In addition, when an institution holding money market funds faces a collateral call, it often sells the units rather than pledging them. Using a tokenized fund as collateral allows the institution to raise liquidity without selling the asset. On-chain repo is a powerful tool to be able to facilitate those collateral needs.

None of this, however, would be possible without regulatory cooperation.

SEC Flexibility Opens the Door to Change

Through a series of statements, no-action relief, proposed rules, and exemptive relief acting as the functional equivalents of regulatory sandboxes, the SEC has shown a propensity to provide pathways for decentralized systems to bring products and services to market within the current regulatory framework. To recap actions from the last year:

  • January 30, 2026: Statement on Tokenized Securities providing the staff's views on the taxonomies associated with tokenized securities.
  • March 17, 2026: Interpretive Release re token taxonomy defining crypto transactions and five categories of crypto assets, viz.: digital commodities, digital collectibles, digital tools, stablecoins, and digital securities.
  • March 23, 2026: SEC approval of NASDAQ Stock Market LLC's proposed rule change to enable trading of securities in tokenized form.
  • August 12, 2026: No-action letter to Franklin Templeton affiliated funds permitting custody of tokenized shares of certain money market funds without complying with certain provisions of Rule 17f-2 of the Investment Company Act of 1940, allowing Franklin Templeton to use an affiliated transfer agent for custody.
  • August 18, 2026: Proposed Regulation Crypto Assets rule creating a framework for certain investment contracts involving crypto assets.
  • September 1, 2026: Proposed modernized rules for registered transfer agents to include the use of blockchain technology in connection with securities offerings or the transfer shares.
  • September 17, 2026: Innovation Exemption—which grants temporary (five-year) exemptive relief allowing Tokenized Security Venues (TSVs) to trade tokenized versions of exchange-listed stocks through permissioned, automated market makers (AMMs) and liquidity pools without registering as an exchange or an alternative trading system.

In a break from the past, the SEC has shown a willingness to work together with the industry to enable it to bring innovations to market, while also protecting investors and requiring risk disclosures, which rigid interpretations of 90-year-old statutes and traditional rule sets could have made impossible. That flexibility is allowing digital assets to evolve within a regulatory perimeter with full oversight as opposed to outside of it.

Other Major Tokenization Adoptions

Tokenization is becoming ubiquitous. Besides the cases noted above, usage and implementation of tokenization at speed is also evidenced by these additional events and use cases:

Swift: One advantage of a blockchain versus fiat rails is in the ability to move faster and settle quicker with more transparency. This means further savings and less intermediation. Swift, (the Society for Worldwide Interbank Financial Telecommunication) the global payments messaging stack, has launched a pilot with 17 major banks  to enable 24/7 cross-border payments using bank-issued tokenized deposits. Initial live transactions were successfully executed this summer. Its core functionality is to operate as a secure orchestration and validation layer using an EVM-compatible architecture to coordinate tokenized deposits before final settlement. One can imagine that when DTCC and Swift are fully tokenized, it would be difficult for a company to explain to its shareholders why it is using services that are both slower and more expensive. And, as an aside, this will only increase competition with other crypto-based major global payments networks.

New York Stock Exchange and NASDAQ: Both have programs in place to tokenize their operations and securities traded on them.

Banks: Many large banks are placing their formerly internally provisioned coins on Ethereum, and others are engaging in broad adoption of stablecoins and tokenized deposits to move collateral. Other large banks with a significant presence in asset management are also adopting tokenization. Even at the community bank level, tokenization is advancing. Vantage Bank and Custodia Bank just announced a successful set of transactions on the Participate network using tokenized bank deposits to handle routines for loan participations, reducing manual coordination between loan sales servicing, notices, and payment processing. Other banks are adopting major roles in using tokenization to improve yield for depositors and to act as middlemen for orchestrating crypto projects. Notably, far from attacking small banks, crypto exchanges are enabling large banks to buy crypto directly on bank apps.

Interoperability: For crypto to have commercial utility, tokens must be able to be traded across blockchains. Interoperability solutions have come to market not only to allow trading across chains but also to allow institutions to leverage on-chain lending protocols without their assets ever having to leave their custody providers.

Open chains vs. provisioned chains: Banks generally have adopted the use of private provisioned blockchains to move money. Some of it is perhaps a result of security and privacy concerns. However, BlackRock has found the use of such blockchains to be suboptimal, a potential indicator of a move toward open, permissionless blockchains. In fact, the Canton Network, which will be used to enable the DTCC tokenization effort, is a privacy-enabled open blockchain. That said, technology is moving to the point that institutions soon may not have to bet on a private chain or a public one. Technology will be available that can make a private chain part of the extended Ethereum ecosystem, where most tokenization happens. This will combine both synchronous composability and zero-knowledge proofs so that separate sovereign chains can work together as one system.

Other government action: There has been significant and ongoing activity geared toward bringing digital assets within the regulatory perimeter. The SEC and the CFTC have been active in providing exemptions and guidance to digital asset and blockchain-based companies that are allowing them to build products and functions within the agencies' regulatory purview. On October 5, 2026, the CFTC published an Advance Notice of Proposed Rulemaking to establish a federal regulatory framework for retail crypto transactions regarding commodities—Regulation Crypto Asset Transactions (Reg CAT) and Regulation Crypto Asset Markets (Reg CAM). As is well known, the OCC has also been active in granting national trust bank charters to fintechs and crypto-related firms. For example, the OCC issued a statement encouraging community banks to develop stablecoin capabilities.

Payments: Major card networks are fully adopting stablecoins as part of their payment strategies. At the same, time certain cards have developed real-time risk-scoring tools that evaluate transactions before funds move to flag scams, restricted-party exposure, and suspicious funds origin. There also is a service for institutions that evaluates virtual asset service providers based on AML controls, KYC processes, geography, and negative news. Some exchanges are offering significant compensation to customers whose accounts have been compromised.

Conclusion: Our Take

The benefits to be obtained from tokenization are becoming more evident by the day, but the speed of adoption will surprise those who think that full tokenization is still on the far horizon. They think it will be coming to be sure, but only "one day." For those paying closer attention, "one day" is today.

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Steve Gannon is a partner in DWT's Washington, D.C., office. For any questions or more information, please contact Steve or another member of our financial services team. To stay informed, sign up for our alerts.

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