GET READY TO OWN A TOKENIZED PORTFOLIO

A BLOCKCHAIN "FREIGHT TRAIN" IS ALREADY REMAKING WALL STREET'S FINANCIAL PLUMBING. IT COULD MAKE TRADING EVEN FASTER AND CHEAPER

- BY JEFF JOHN ROBERTS

IN EARLY 2021, an army of retail traders made massive bets on meme stocks and briefly melted down the market. Trading volume swelled to such a huge extent that popular brokerage Robinhood had to halt buy orders for stocks like GameStop for a few days in order to escape a liquidity crisis. At the time, the situation led to claims of a conspiracy, but the reason for the meltdown was more mundane: Wall Street's creaky infrastructure could not settle trades fast enough.

Robinhood CEO Vlad Tenev and others called for an overhaul, and since then there has already been progress, as stock trades now settle a day sooner than in 2021. But the financial industry is also pushing ahead with a more radical solution: turning stocks into digital assets that can be traded and settled instantly on a blockchain.

It is not just crypto firms and fintech players leading this charge for “tokenization.” Big banks like J.P. Morgan are also using blockchains to facilitate trades in certain assets and, in doing so, transforming the financial ecosystem more broadly. Already, tokenization—which Tenev has described as a “freight train” poised to eat Wall Street—has brought fundamental changes to how stocks and other assets are traded.

The potential upsides to tokenization are huge, but significant questions remain over how to implement it. Meanwhile, some fear the coming train could undermine some protections for individual “retail” investors and destabilize a U.S. equities market whose reliability has for decades been the envy of the world.

THE TOKENIZATION wave isn't the first push to overhaul Wall Street's under-the-hood operations. In the 1970s, traders confronted what became known as the “paperwork crisis,” which saw stock markets, drowning in orders, shut down midweek simply to keep up with recordkeeping. Repeated work stoppages finally led to a computer-based solution.