Two paths to security tokenization: The fundamental difference between the DTCC rights model and the direct ownership model

Introduction: Change is More Complex Than It Looks

The news that the American Depository Trust & Clearing Corporation (DTCC) obtained a no-action letter from the U.S. Securities and Exchange Commission (SEC) and was permitted to begin tokenizing securities infrastructure has generated great market expectations. However, this differs significantly from the “blockchainization of stocks” that investors imagine.

In reality, two entirely different approaches to tokenization are emerging simultaneously. One is the modernization of the existing system promoted by DTCC, and the other is a fundamental rearchitecture of stock ownership itself. Confusing these two leads to a gap between market expectations and reality.

Understanding the Current Stock Ownership Structure: Why Does Cede & Co. Exist?

In the U.S. public markets, investors do not hold shares directly issued by the company. Instead, ownership is embedded within a chain of multiple intermediaries.

At the bottom is the issuer’s shareholder register, typically managed by a transfer agent. Crucially, for almost all listed stocks, only one name is recorded on this register: Cede & Co. Cede & Co. refers to the nominee holder designated by DTCC, existing to avoid the issuer having to maintain records for millions of individual shareholders.

Above this layer is DTCC itself. DTCC centrally manages the physical circulation of shares by “freezing” the actual transfer and recording only the rights claimed by each participant—namely, “how many shares they are entitled to.”

At the top are the investors themselves, but what they hold are not specific, distinguishable shares, but legally protected security entitlements. That is, they are claims against the broker, which, through a clearing broker, holds corresponding rights within the DTCC system.

What DTCC Actually Tokenizes: Rights or Shares?

The key change in this tokenization is the form of expression of the “rights” existing within the DTCC system. Rights that originally existed in a proprietary ledger are now represented as “digital twin” tokens on an approved blockchain.

Importantly, the underlying shares themselves remain under centralized control in the name of Cede & Co. What is tokenized are the rights claims, not the shares themselves.

This approach allows DTCC to:

• Introduce 24/7 rights transfer, shortening settlement times
• Reduce reconciliation costs and improve operational efficiency
• Promote collateral liquidity and automation workflows
• Maintain the benefits of multi-party netting

In multi-party netting, trillions of dollars in total transaction activity can be compressed into hundreds of billions of dollars in final settlement, making this efficiency a core part of today’s market structure.

However, this model has deliberate limitations. These tokens do not make holders direct shareholders of the company. They remain permissioned, revocable rights claims, cannot serve as freely composable collateral in DeFi, and do not alter the issuer’s shareholder register.

Direct Model: Tokenization of the Shares Themselves

The second model begins in areas outside the scope of the DTCC model. In this approach, the shares themselves are tokenized.

Ownership rights are recorded directly on the issuer’s shareholder register, and when tokens are transferred, the shareholder on the register changes simultaneously. This eliminates the need for intermediaries like Cede & Co., creating a direct relationship between investors and the company.

This approach unlocks a series of capabilities that are structurally impossible under the DTCC model:

• Self-custody: investors manage assets directly
• Peer-to-peer transfers: direct transfers without intermediaries
• Programmability and composability: integration with blockchain-based financial infrastructure to build collateral, lending, and new financial structures
• Direct relationship with issuers: participation in governance and corporate actions

This concept is already in the realization stage. Shareholders of Galaxy Digital have already tokenized their shares via Superstate, holding them on the blockchain, directly reflected in the issuer’s share register. By early 2026, Securitize plans to offer similar capabilities, enabling 24/7 trading supported by compliant securities firms.

However, this model also faces practical challenges:

• Fragmented liquidity reduces the efficiency of multi-party netting
• Broker services (margin, lending, etc.) need re-engineering
• Operational risks shift more onto individual holders
• Interoperability with existing markets is limited

Why the Two Models Are Not in Competition

The DTCC model and the direct ownership model are not competing routes but address different problems.

The DTCC model is an upgrade of the existing indirect ownership system, targeting institutional participants who require scalable operations, settlement certainty, and regulatory continuity. It modernizes without overturning the current market structure.

The direct model fulfills needs for self-custody, programmable assets, and on-chain composability, serving investors and issuers seeking new functionalities.

Even if direct ownership eventually reconfigures the market structure, such change would be a multi-year process involving simultaneous technological, regulatory, and liquidity transitions. The pace of settlement rules, issuer readiness, and global interoperability development lag behind the technology itself.

Therefore, a more realistic outlook is coexistence. Infrastructure upgrades and ownership-level innovations will develop in parallel, with neither fully replacing the other.

Impact on Different Market Participants

Individual Investors

For individual users, DTCC upgrades are barely perceptible. Retail brokers already absorb most of the friction experienced by users (odd lots, instant buying power, weekend trading, etc.), and these experiences will continue to be provided by brokers.

The real game-changer is the direct ownership model. It opens the door to self-custody, peer-to-peer transfers, instant settlement, and using stocks as collateral on-chain. Currently, some platforms and wallets are beginning to offer stock trading, but mostly rely on “wrapping/mapping” formats. In the future, these tokens could become the actual shares recorded on the register.

Institutional Investors

Institutions are likely to be the greatest beneficiaries of DTCC’s tokenization. Their operations depend heavily on collateral circulation, securities lending, ETF flows, and multi-party reconciliation, and tokenized rights can significantly reduce operational costs and increase speed in these areas.

Direct ownership appeals more to opportunistic trading institutions pursuing programmable collateral and settlement benefits. However, liquidity fragmentation will likely lead to broader adoption gradually expanding from the periphery of the market.

Brokers and Clearing Agencies

Brokers are at the heart of transformation. Under the DTCC model, their roles are further strengthened. Clearing brokers that first adopt tokenized rights can differentiate themselves, and vertically integrated institutions can build new products directly.

In the direct ownership model, brokers are not eliminated but restructured. Licensing and compliance remain necessary, but native on-chain intermediaries will emerge, competing with users who prioritize the characteristics of direct ownership.

Conclusion: The Winner Is Those Who Have “Choices”

The future of tokenized securities is not about one model winning but about how the two models evolve in parallel and connect with each other.

Rights tokenization continues to modernize the core of public markets, while direct ownership grows in the periphery, emphasizing programmability, self-custody, and new financial structures. The transition between the two will become increasingly seamless.

Ultimately, the broader market interface will be the outcome. Existing tracks will become faster and cheaper, while new tracks will emerge to support behaviors that current systems cannot.

Both paths will produce winners and losers, but as long as the direct ownership path exists, the ultimate winners will be investors. Gaining access to better infrastructure through competition and having the freedom to choose between different models is the true value.