Here’s why Wall Street has recently focused on tokenization – but under its own conditions.

Wall Street has spent years discussing tokenization, yet it often seemed to remain stuck in ambiguous plans and pilot initiatives. This week, however, we have witnessed a convergence of various efforts and incentives indicating that it is finally taking the matter seriously.

BMO announced its intention to introduce tokenized cash capabilities in collaboration with CME Group and Google Cloud for real-time payments and continuous margin activity. Nasdaq has already received SEC approval to facilitate the trading and settlement of specific stocks and ETFs in tokenized formats.

Earlier this month, U.S. bank regulators stated that tokenized securities would not incur additional capital charges solely due to the involvement of blockchain technology.

Furthermore, on March 25, the House Financial Services Committee conducted a comprehensive hearing on tokenization and indicated that it was drafting legislation aimed at updating securities regulations to accommodate this new framework.

This series of events and their timing illustrate the current position of tokenization within American finance. It is no longer merely a vaguely crypto-related curiosity; it has evolved into a competition regarding how markets will operate in the coming decade, who will control the underlying software infrastructure, and whether the existing financial system can integrate digital finance without relinquishing its control over the system.

Tokenization involves taking an existing asset and digitally representing it on a blockchain-based ledger, allowing it to move with greater automation and fewer time limitations than the current system permits.

This process simplifies asset issuance, enhances transferability, facilitates collateral usage, and potentially accelerates settlement times. In Larry Fink’s 2026 chairman’s letter, BlackRock characterized tokenization as a means to streamline the issuance, trading, and accessibility of investments. JPMorgan’s Kinexys presents a similar vision in institutional terms: transactions that operate 24/7, in near real-time, across borders.

Finance seeks internet hours

Tokenization entails taking an existing asset and digitally representing it on a blockchain-based ledger, enabling it to move with increased automation and fewer time constraints than the current architecture allows.

The simplest way to grasp Wall Street’s enthusiasm for tokenization is to stop viewing it solely as a push for blockchain technology. What many traditional financial institutions desire is trading continuity, which is nearly impossible to achieve with the current trading and settlement infrastructure.

Global markets already operate around the clock, so to speak, as oil trades while Wall Street is closed, and futures adjust based on news from Asia or the Middle East. Margin calls for commodities on the LSE occur regardless of the time in Chicago. However, the vast majority of the current financial system still depends on business hours, settlement windows, and sluggish back-office processes that were not designed for the interconnected economy we inhabit today.

Tokenization provides a pathway to align money, securities, and collateral with the speed at which modern markets actually function.

BMO articulated this in its announcement. Its tokenized cash platform aims to assist institutional clients utilizing margined products and derivatives at CME, enabling them to manage trading, settlement, and margin calls at any time. JPMorgan seeks to achieve similar goals through Kinexys, which promises continuous payments and expedited cross-border transfers. Citi is advocating for the same through its initiatives on tokenized payments, positioning them as a means to create real-time liquidity, automation, and more efficient collateral utilization.

All these initiatives are substantial and will soon yield tangible outcomes (actual off-hours settlement). What we are witnessing now transcends abstract discussions about innovation. We are observing practical language that describes real treasury management, funding, and collateral mobility.

Washington is now recognizing this potential as a capital-markets issue.

The committee memorandum for the March 25 hearing indicated that lawmakers would investigate whether current securities laws adequately govern tokenized activities and where overlapping requirements might hinder progress. One proposed draft would mandate the SEC and CFTC to conduct a joint study on whether additional regulations are necessary for tokenized securities and derivatives. Another would instruct the SEC to formulate rules allowing key market intermediaries to rely on blockchain records under specified conditions.

The witness testimonies clearly indicate the direction of this initiative.

Nasdaq’s John Zecca contended that tokenization should be incorporated into the existing market system and asserted that capital markets are evolving toward a more continuous, automated, and interconnected structure.

SIFMA’s Kenneth Bentsen supported innovation while cautioning that investor protections and market coherence must accompany it.

DTCC maintained its usual position, endorsing tokenization within a regulated framework that safeguards ownership rights and investor protections.

Even the NASAA letter for the record, which took a more skeptical stance, acknowledged the premise that tokenized securities are legitimate securities and should remain fully subject to securities law. (Federal Register)

Speed, collateral, and the governance of tokenization

The primary argument driving this institutional push for tokenization is efficiency.

However, the rapid settlement that Wall Street envisions is merely a small component of the overall picture. A significantly larger aspect is mobile collateral, which is likely to be more valuable for large, established financial institutions.

During periods of market stress, the issues are rarely limited to price alone. Price volatility can trap capital in inappropriate locations, transfers can be excessively delayed, and the intervals between trades, margin calls, and available cash can become problematic.

Tokenized cash and securities promise a system where valuable assets can be swiftly moved, pledged, and reused with considerably less friction.

The public narrative surrounding tokenization emphasizes efficiency. The institutional narrative delves deeper. Faster settlement is one element. More mobile collateral is another, and for large financial institutions, it may be the most significant one. When markets face stress, the challenges are seldom confined to price alone. Capital can become trapped in unsuitable locations, transfers can take too long, and the lag between a trade, a margin call, and usable cash can become burdensome. Tokenized cash and tokenized securities offer a system where valuable assets can be moved, pledged, and reused with reduced friction. Citi is already working on creating a future trading environment characterized by real-time liquidity and fully automated processes. BMO’s collaboration with CME is based on the same principle.

Then there is the issue of control.

Whoever establishes the infrastructure for tokenized cash, tokenized securities, and tokenized collateral will secure a significant position in the next iteration of market structure. Exchanges and banks are vying for that role, but clearinghouses appear to be the most eager.

Nasdaq’s SEC approval indicates that exchanges were the first to transition from theory to practice. However, NYSE’s partnership with Securitize demonstrates that competitors are not remaining idle. DTCC’s tokenization initiatives reveal that the post-trade establishment intends to adapt rather than yield. Meanwhile, Congress is beginning to shape the legal framework governing this transition.

The recent hearing suggests a coordinated shift in market structure rather than a series of random private-sector experiments. All parties desire similar outcomes: banks want markets that operate on internet hours, exchanges want tokenized trading to occur on their platforms, and clearinghouses want digital assets to remain connected to existing technical and regulatory frameworks.

Lawmakers are seeking to understand how much the current legal framework needs to evolve to accommodate these developments.

Everyone is now engaged in discussions about the same future, which is typically indicative of a transition from pilot projects to the core of the system. (financialservices.house.gov)

However, this does not imply that tokenization will deliver all the benefits these companies are promising.

Fragmentation across chains and platforms poses a genuine risk, interoperability remains incomplete, and legal enforceability still requires clearer solutions. Institutions could invest years in digitizing assets and end up with enhanced branding, quicker demonstrations, but less actual improvement than anticipated.

Nonetheless, the trajectory is unmistakable. When BlackRock, BMO, Nasdaq, DTCC, JPMorgan, NYSE, and Congress all begin to communicate in similar terms, we can confidently assert that tokenization is no longer merely a crypto slogan.

Crypto has helped demonstrate that money and markets can function on continuous digital rails. Wall Street now seeks a version of that future that it can regulate, monetize, and integrate within the existing financial framework.

The hearing on Capitol Hill made one thing clear: tokenization is no longer awaiting permission to enter the mainstream. The contention now revolves around who will define it. (financialservices.house.gov)

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