Cutting Edge: Web3 Lawyers Interpret the Latest Changes in Tokenization of US Stocks

Dec 20, 2025 22:47:38

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Original Title: Hitting the Frontline | Web3 Lawyers Interpret the Latest Changes in U.S. Stock Tokenization!

Original Authors: Guo Fangxin, Sha Jun, Crypto Salad

On December 15, 2025, U.S. time, Nasdaq officially submitted Form 19b-4 to the SEC, applying to extend the trading hours for U.S. stocks and trading platform products to 23/5 (trading 23 hours a day, 5 days a week).

However, the trading hours requested by Nasdaq are not merely an extension but a change to two formal trading periods:

Daytime trading period (Eastern Time 4:00 AM - 8:00 PM) and nighttime trading period (Eastern Time 9:00 PM - 4:00 AM the next day). Trading is suspended from 8:00 PM to 9:00 PM, and all unexecuted orders will be uniformly canceled during the suspension period.

Many readers became excited upon hearing the news, wondering if this is the U.S. preparing for 24/7 tokenized trading of U.S. stocks? However, Crypto Salad carefully studied the document and wants to say that we should not jump to conclusions just yet, as Nasdaq stated in the document that many traditional securities trading rules and complex orders are not applicable to the nighttime trading period, and some functions will also be limited.

We have always been very concerned about U.S. stock tokenization, believing it to be one of the most important targets for the tokenization of real-world assets, especially with the various official actions from the U.S. SEC (Securities and Exchange Commission) that have been emerging recently.

This application document has rekindled expectations for U.S. stock tokenization because the U.S. wants to bring the securities trading period closer to the 24/7 digital asset market. However, upon closer inspection:

Nasdaq's document does not mention anything about tokenization; it is merely a reform of the traditional securities system.

If everyone wishes to gain a deeper understanding of Nasdaq's actions, Crypto Salad can write a separate article for a detailed interpretation. But today, we still want to discuss news that is directly related to U.S. stock tokenization------

The SEC officially "allows" major U.S. securities custodians to attempt to provide tokenization services.

On December 11, 2025, U.S. time, SEC staff from the Division of Trading and Markets issued a No-Action Letter (NAL) to DTCC, which was subsequently made public on the SEC's official website. The letter clearly states that under certain conditions, the SEC will not take enforcement action against DTC for conducting tokenization services related to its custodial securities.

So, what exactly does this letter say? What is the latest development in U.S. stock tokenization? Let's start with the main character of the letter:

Who are DTCC and DTC?

DTCC, short for Depository Trust & Clearing Corporation, is an American group company that includes different institutions responsible for custody, stock clearing, and bond clearing.

DTC, short for Depository Trust Company, is a subsidiary of DTCC and the largest centralized securities custodian in the U.S., responsible for the unified custody of stocks, bonds, and other securities, as well as settlement and transfer. Currently, it manages and records securities assets exceeding $100 trillion, and can be understood as the bookkeeper for the entire U.S. stock market.

What is the relationship between DTC and U.S. stock tokenization?

In early September 2025, Nasdaq applied to the SEC to issue stocks in a tokenized form. In that application, DTC was already mentioned.

Nasdaq stated that the only difference between tokenized stocks and traditional stocks lies in the clearing and settlement of orders by DTC.

(The above image is extracted from Nasdaq's application proposal)

To make this matter more understandable, we created a flowchart, where the blue part represents the changes Nasdaq applied for in its proposal this September. It is clear that DTC is the key implementer and operational institution for U.S. stock tokenization.

What does the newly released No-Action Letter say?

Many people equate this document with the SEC agreeing to allow DTC to use blockchain for U.S. stock bookkeeping, which is not entirely accurate. To correctly understand this matter, one must recognize a provision in the U.S. Securities Exchange Act:

Section 19(b) of the Securities Exchange Act of 1934 stipulates that any self-regulatory organization (including clearing agencies) must submit a rule change application to the SEC and obtain approval when changing rules or making significant business arrangements.

Both of Nasdaq's proposals were submitted based on this provision.

However, the rule filing process is usually lengthy, potentially taking months, and can last up to 240 days. If every change requires an application and approval, the time costs would be too high. Therefore, to ensure that its securities tokenization pilot activities can proceed smoothly, DTC applied for an exemption from fully complying with the 19b filing process during the pilot period, and the SEC granted this consent.

In other words, the SEC has only temporarily exempted DTC from certain procedural filing obligations, and it does not substantively permit the application of tokenization technology in the securities market.

So, how will U.S. stock tokenization develop next? We need to clarify the following two questions:

01. What pilot activities can DTC conduct without filing?

Currently, the custody bookkeeping of U.S. stocks operates under the following model: assuming a brokerage has an account with DTC, DTC uses a centralized system to record every stock and share bought and sold. This time, DTC proposed whether it could provide brokerages with an option to record these stock holdings again using blockchain tokens.

In practice, participants first need to register a qualified, DTC-approved registered wallet. When participants issue a tokenization instruction to DTC, DTC will do three things:

a) Move this portion of stocks from the original account to a general ledger pool;

b) Mint tokens on the blockchain;

c) Transfer the tokens to the participant's wallet, representing the participant's rights to these securities.

After this, these tokens can be directly transferred between these brokerages without needing to go through DTC's centralized ledger for each transfer. However, all token transfers will be monitored and recorded in real-time by DTC through an off-chain system called LedgerScan, and the records from LedgerScan will constitute DTC's official ledger. If participants wish to exit the tokenized state, they can issue a "de-tokenization" instruction to DTC at any time, and DTC will destroy the tokens and revert the securities rights back to the traditional account.

The NAL also details technical and risk control limitations, including: tokens can only be transferred between wallets approved by DTC, so DTC even has the authority to forcibly transfer or destroy tokens in wallets under specific circumstances, and the token system is strictly isolated from DTC's core clearing system, etc.

02. What is the significance of this letter?

From a legal perspective, Crypto Salad needs to emphasize that the NAL is not equivalent to legal authorization or rule modification; it does not have universally applicable legal effect and only represents the enforcement attitude of SEC staff under established facts and hypothetical conditions.

There is no separate provision in the U.S. securities law system that "prohibits the use of blockchain for bookkeeping." Regulators are more concerned with whether existing market structures, custodial responsibilities, risk controls, and reporting obligations are still met after adopting new technologies.

In addition, in the U.S. securities regulatory system, letters like the NAL have long been viewed as important indicators of regulatory stance, especially when the subject is a systemically important financial institution like DTC, whose symbolic significance actually outweighs the specific business itself.

From the disclosed content, the conditions for the SEC's exemption are very clear: DTC is not directly issuing or trading securities on-chain but is tokenizing existing securities rights within its custodial system.

These tokens are essentially a form of "rights mapping" or "ledger expression," aimed at enhancing backend processing efficiency rather than altering the legal attributes or ownership structure of the securities. The related services operate on a controlled environment and permissioned blockchain, with participants, usage scope, and technical architecture all subject to strict limitations.

Crypto Salad believes that this regulatory attitude is very reasonable. On-chain assets are most susceptible to financial crimes such as money laundering and illegal fundraising; tokenization technology is new, but it cannot become an accomplice to crime. Regulation needs to affirm the potential application of blockchain in securities infrastructure while adhering to the boundaries of existing securities laws and custodial systems.

The Latest Development Progress of U.S. Stock Tokenization

Discussions about U.S. stock tokenization have begun to shift from "whether it is compliant" to "how to achieve it." If we break down the current market practices, we can see at least two parallel but logically different paths forming:

Represented by DTCC and DTC, this is the officially opinion-led tokenization path, with the core goal of improving settlement, reconciliation, and asset transfer efficiency, primarily serving institutional and wholesale market participants. In this model, tokenization is almost "invisible"; for end investors, stocks remain stocks, only the backend system has undergone a technical upgrade.
In contrast, there is the potential front-end role of brokerages and trading platforms. Taking Robinhood and MSX as examples, they have been continuously exploring product innovations in crypto assets, fractional stock trading, and extended trading hours in recent years. If U.S. stock tokenization gradually matures in compliance, these platforms naturally have the advantage of becoming user entry points. For them, tokenization does not mean reshaping the business model but is more likely a technical extension of the existing investment experience, such as closer to real-time settlement, more flexible asset splitting, and integration of cross-market product forms. Of course, all of this still hinges on the gradual clarification of the regulatory framework. Such explorations typically walk close to the regulatory boundary, with risks and innovations coexisting, and their value lies not in short-term scale but in validating the next generation of securities market forms. From a practical perspective, they are more like samples for institutional evolution rather than directly replacing the existing U.S. stock market.

To make it more intuitive for everyone, here is a comparison chart:

Crypto Salad's Perspective

From a more macro perspective, the real problem that U.S. stock tokenization attempts to solve is not to "turn stocks into tokens," but how to improve asset transfer efficiency and reduce operational costs while maintaining legal certainty and system security, and to reserve interfaces for future cross-market collaboration. In this process, compliance, technology, and market structure will engage in a long-term parallel game, and the evolution path will inevitably be gradual rather than radical.

It can be expected that U.S. stock tokenization will not fundamentally change the way Wall Street operates in the short term, but it has already become an important item on the agenda of U.S. financial infrastructure. The interaction between the SEC and DTCC is more like a "trial" at the institutional level, setting preliminary boundaries for broader explorations to come. For market participants, this may not be the endpoint but a truly worthwhile starting point for continued observation.