Tokenizing Public Equity: The Next Frontier

Welcome back to Old Man New Money. I'm Ali Davoudi. We've covered two extremes in real world asset tokenization. Real estate that isn't working yet and treasuries that are working beautifully. Today we're looking at something in the middle. Something that's just starting to happen but could reshape global equity markets. Tokenizing public company stock. Galaxy Digital just tokenized their equity on Solano. INX, the platform Douglas helped build is now listing tokenized shares of major companies through their partnership with Bakkt. And there are some companies building infrastructure to bring traditional stocks on chain 24/7.

This is either the future of equity markets or it's solving a problem nobody asked for. I'm gonna give you both sides and then tell you what I think. Because of public equity tokenization works, we're talking about fundamentally changing how stocks trade. Not in some distant future, but in the next few years. What is public equity tokenization? Let me start by clarifying what we mean by tokenizing public equity. There are actually two different models happening right now. Model one is direct tokenization. This is what Galaxy Digital did. They issued tokenized shares of Galaxy stock directly on the Solano blockchain.

These are real shares of the company just held and transferred on a blockchain instead of through traditional broker dealers and the DTCC. Model two is what we call wrapped tokenization. This is what Bakkt does through INX. They hold shares of public companies in custody, then issue tokens that represent beneficial ownership of those said shares. The underlying shares stay with the custodian but the tokens trade 24/7 on a digital platform. Both approaches have the same goal. Enable 24/7 trading, instant settlement, fractional ownership and global access to public company shares.

But they have different legal structures and different regulatory requirements. The direct model requires the company's participation in regulatory approval from securities commissions. The wrap model can be done by third parties with proper custody and regulatory licensing. Which model wins? Maybe both, maybe neither. We're still figuring it out. Galaxy Digital's groundbreaking move. Let me walk you through what Galaxy Digital did because it's genuinely innovative. In April 2024, Galaxy Digital announced they were tokenizing their common stock on Solano, not wrapped shares. Actual Galaxy Digital common stock issued on a blockchain.

They partnered with Securitize for the token issuance and with NASDAQ to maintain compliance with Canadian securities regulations since Galaxy is listed on the Toronto Stock Exchange. The tokenized shares trade on alternative trading systems alongside traditional shares. Holders have full shareholder rights including voting rights and dividends. Why did they do this? First, Galaxy wanted to demonstrate the blockchain infrastructure is ready for real equity trading. They're a crypto company. This is a brand aligned marketing as much as it is financial engineering.

Second, they believe 24/7 trading and instant settlement provide real value to shareholders. If you want to buy or sell Galaxy stock, why should you be limited to Toronto Stock Exchange hours? Third, you see this is positioning for the future. If equity markets move on chain over the next decade, Galaxy wants to be a first mover. Is it working? It's too early to tell. The tokenized shares definitely exist. They trade, but volumes are still small compared to traditional exchange trading. We're in the early adopter phase.

But the fact that a publicly traded company with a multi-billion dollar market cap successfully tokenized their equity is significant. This isn't a startup experiment. This is a real company doing this with real regulatory approval. The Bakked and the INX model. Now let me explain the wrapped tokenization model that Bakked and INX are pursuing. It's a company that creates tokenized representations of traditional assets. They hold shares of companies like Microsoft, Apple, or Tesla in custody with regulated custodians. Then they issue tokens on the blockchain and represent beneficial ownership of those shares.

So INX through their partnership with Bakked lists these tokenized equities on their SEC registered alternative trading system. This means US investors can buy and trade tokenized Apple or Microsoft stock 24/7. The shares generate the same economic returns as regular share. If Apple pays a dividend, token holders receive it. If Apple stock goes up, the token value goes up. But you're not directly holding Apple stock. You're holding a token issued by Bakked that's Bakked by Apple stock, which is held in custody. This has advantages and disadvantages. The advantage is scalability.

Bakked can tokenize any public traded stock without needing that company's participation. They just buy the shares on the open market, put them in custody, and then issue tokens. The disadvantage is additional counterparty risk. You're relying on Bakked's operational integrity. The custodian's security and the legal framework that entitles token holders to the underlying shares. For Galaxy's direct model, you're a shareholder of record. For Bakked's wrap model, you're a beneficial owner through a token structure. Both are valid, they just have different trade-offs. So what are the value propositions for tokenized equities?

Why would anyone want tokenized equity instead of just buying stock through a traditional broker? Value proposition one, 24/7 trading. Traditional stocks and markets close. Tokenized stocks can trade around the clock. If news breaks about a company at 2 a.m., you can react immediately instead of waiting for market open. Does this matter? For most investors, probably not. For traders, for international investors in different time zones, or for companies whose news cycles don't respect market hours, this has big value. Value proposition two, instant settlement. Traditional equity take two business days to settle.

Tokenized equity settles instantly. This matters for capital efficiency. We don't have unsettled trades tying up capital. Value proposition three, fractional ownership at minimal cost. You can buy .1 shares of Apple stock as a token without paying fractional share fees some brokers charge. This democratizes access to expensive stocks. Value proposition four, programmable compliance. Smart contracts can automate restrictions, holding periods of regulatory reporting. For private placements that become public or for stocks with complex ownership restrictions, this simplifies compliance. Value proposition five, composability with DeFi.

You can use tokenized equity as collateral in lending platforms, create options and derivatives, or integrate with other financial products in ways that are difficult with traditional shares. These value propositions are real. The question is whether they're compelling enough to overcome the friction of adopting new infrastructure. The challenge is nobody wants to talk about. Let me be direct about the problems with tokenized public equity. Challenge one is the liquidity fragmentation. If some galaxy shares trade on the Toronto stock exchange and some trade as tokens of alternative trading systems, you've split liquidity.

This can actually make markets less efficient by creating pricing discrepancies between venues. Challenge two is custody complexity. Traditional brokerage accounts are straightforward. You open an account, you buy stock, it's held in the street name, you're protected by SIPC insurance. With tokenized equity, you need wallet secured. You need to understand smart contract risk and the insurance framework is less clear. Challenge three is regulatory uncertainty and cross-border scenarios. If a European investor buys tokenized shares of a US company, whose regulations apply? What about tax reporting? What about shareholder voting?

These questions don't have clear answers yet. Challenge four is corporate actions. When a company does a stock split, a merger or a dividend, how does that flow through to tokenized shares? Traditional infrastructure handles this automatically. Tokenized systems need to build equivalent automation and it's not trivial. Challenge five is the existential questions. Pastors actually want this. Robinhood, Schwab, Fidelity already offer 24/7 trading for some assets. Fractional shares, instant settlements and some context. The brokerage industry is solving these problems without tokenization. The last challenge is the most important.

Tokenization has to provide value that can't be delivered through improving existing systems. So what are my personal views? As someone who runs businesses and evaluates investments, here's how I think about tokenized public equity. For companies, the decision to tokenize their equity is primarily about brand and positioning. Galaxy did it because they're a crypto company that aligns with their brand. For a traditional manufacturing company, the benefit is less clear. For investors, the benefit right now is marginal. Yes, 24/7 trading is nice, but how often do I need to trade Apple stock at 3 a.m.? Almost never.

The real opportunity is in what becomes possible, not what exists today. If tokenized equity becomes the standard where we build sophisticated financial infrastructure on top of it, then we unlock new capabilities, options markets that are automated through smart contract, lending against equity that's permissionless, instant cross-boarding equity transactions without intermediaries. But we're not there yet. We're in the build out phase where the infrastructure is building, created by the killer apps that haven't emerged yet. I compare this to the early internet. In 1995, you can send email and browse basic websites.

This was interesting, but not revolutionary. The revolution came when we build e-commerce, social networks, and cloud computing on top of the internet infrastructure. Tokenized equity is like 1995 internet. The infrastructure is being built. The revolution comes later. The regulatory framework and challenges. Let me talk about regulation because it's critical here. In the United States, tokenized equity securities are still securities. They're subject to the same SEC regulations as traditional equity. Companies need to register offerings or find exemptions.

Trading platforms need to be registered as broker dealers or alternative trading systems. This is why Galaxy's tokenization was significant. They went through proper regulatory channels. They didn't pretend that putting shares on blockchain exempts them from securities law. SEC has been relatively clear that tokenization doesn't change the underlying regulatory requirements. If it's a security, it's a security regardless of the technology used for issuance and transfer. But there are gray areas. What happens when tokenized shares trade across multiple jurisdictions simultaneously?

What about securities laws in countries that don't have clear frameworks for digital securities? And then there's the question of qualified custodians. Where I think this is heading. Let me give you my predictions for tokenized public equity over the next five to 10 years. Prediction one, more companies are gonna tokenize, but it will be concentrated in crypto native companies and tech companies initially. Traditional industries will wait to see how it plays out. Prediction two, the wrapped tokenization model will grow faster in direct tokenization because it doesn't require company participation.

Platforms like Bakkt can tokenize hundreds of stocks while Galaxy's model requires each company to make the decision individually. Prediction three, we'll see consolidation among trading platforms. Right now there are so many multiple alternative trading asset systems and platforms offering tokenized equity trading. Most will fail or get acquired. The winners will be those with best liquidity and regulatory compliance. Prediction four, traditional exchanges will enter this space. NASDAQ, NYSE, London Stock Exchange. We're all exploring digital asset trading. When they launch tokenized equity offerings, it will legitimize the category.

Prediction five, the killer app won't be 24/7 trading. It will be something we haven't imagined yet that's enabled by programmable composable equity. Maybe it's automated employee equity compensation that vests for grammatically. Maybe it's instant cross-border M&A settlements. Maybe it's something entirely different. Prediction six, mainstream adoption is five to 10 years away, not two years. The infrastructure needs to mature, regulations need to clarify, and the value proposition needs to become clear to average investors. I'm optimistic long-term, but realistic about the timeline. What are the lessons from looking at all RWA categories?

We've now covered three categories of real-world asset tokenization, real estate, treasuries, and public equity. We synthesize what we've learned. The assets that tokenized successfully have certain characteristics. They're already highly financialized, they have clear legal frameworks, they're relatively standardized, and they're strong demand from tokenized access. Treasuries check all those boxes. They are standardized as assets get. Public equity checks, most boxes, but has some complexity around governance and corporate actions. Real estate checks, almost none of those boxes. The second pattern is that institutional participation matters.

BlackRock entering tokenized treasuries legitimizes the category. Galaxy tokenizing their equity gives credibility. When established players with regulatory expertise enters, adoption accelerates. The third pattern is that solving real problems matters more than technological novelty. Tokenized treasuries solve the problem of crypto-native users wanting yield. That's real demand. Tokenized real estate doesn't solve a clear problem that existing solutions don't address. And the fourth pattern is that regulatory clarity enables growth.

The categories where regulations are clearest, like treasuries and to some extent public equity, grow faster than categories where regulations are unclear. These patterns will help us evaluate the final category, private equity tokenization. What you should do as an investor. If you're thinking about investing in tokenized public equity, here's my guidance. First, understand what you want. If it's just because it's new technology, that's a bad reason. If it's because you genuinely benefit from 24/7 trading or you want to integrate it with other crypto infrastructure, that's valid. Second, compare the costs carefully.

What are the fees for buying, holding and selling tokenized equity versus traditional brokerage? Sometimes tokenization is more expensive due to additional infrastructure layers. Third, understand the custody model. Are you holding tokens in your own wallet or are they custody by the platform? What are the security and insurance implications? What happens if the platform goes bankrupt? Fourth, assess the liquidity. Can you actually exit quickly at a fair value or are you trading on thin order books with wide spreads? Check actual trading volume, not just listings. Fifth, consider tax implications.

How is tokenized equity taxed in your jurisdiction? Is there clear guidance or are you in uncertain territory? Talk to a tax advisor. And finally, start small. If you want to experiment with tokenized equity, buy a small position, see how it works, understand the user experience, then decide if you want to allocate more. For me personally, I'm watching the space with interest, but I'm not moving significant capital into tokenized public equity yet. The value proposition isn't compelling enough given the additional complexity.

But for crypto native investors who want exposure to traditional equities without leaving the ecosystem, this makes sense. Connecting into private equity tokenization. Public equity tokenization is interesting, but the market already works reasonably well. New York Stock Exchange, NASDAQ, these are deep liquid markets with good infrastructure. Tokenization improves them marginally but doesn't revolutionize them. Private equity is different. Private markets are massive. Over $10 trillion in private company valuations. But they're illiquid, inaccessible to most investors and have limited price discovery.

If tokenization can solve these problems for private equity, the impact is much bigger than improving public equity markets by a few percentage points. That's what we're going to explore in the next and final episode of this module. Private equity tokenization. The democratization of alternative assets and whether this is the category where tokenization truly changes markets. Private equity is where the biggest opportunity might be. It's also where the challenges are most severe. We'll dig into both. Our closing thoughts, public equity tokenization is happening. It's real. Galaxy shares trade on blockchain.

I next list tokenized Apple and Microsoft stock. The infrastructure is being built, but it's still early. We're in the experimentation phase where companies and platforms are figuring out what works and what doesn't. The question is of whether tokenization can work for public equity. It clearly can. The question is whether it provides enough value to justify the complexity and infrastructure costs. My view is that will eventually work, but it'll take time. Traditional financial infrastructure took decades to build. Digital securities infrastructure won't mature overnight.

As an entrepreneur, I look for step function improvements, not incremental ones. Public equity tokenization right now feels incremental. It might become step function when we discover applications we haven't imagined yet. Until then, it's a category to watch, to experiment with cautiously, but not to bet the pharma. I'm Ali Davoudi. This is "Old Men, New Money." If this episode helps you understand tokenized public equity, please share it with an investor trying to evaluate whether it's real or hype. Final episode of this module, private equity tokenization in the future of alternative asset access coming next.