Is on-chain custody really ready to handle tokenized equities, or is it just a promising experiment that will fade as soon as the market tests it against real risk? I remember standing in a crowded hallway at a conference last year, watching a panelist describe how a stock could change hands with a few clicks on a screen, while the traditional ledger kept the authoritative record in a vault somewhere. The moment felt thrilling and terrifying at the same time — like watching the future walk a tightrope above a regulatory abyss. The near-term answer, it seems, is not either/or but both: a regulated, post-trade backbone that preserves traditional rights, coupled with an on-chain layer that moves entitlements quickly among registered participants. The tension is real, and it’s shaping how institutions will implement tokenized equities in 2026 and beyond.

Problem/Situation Presentation

The promise of tokenized equities is seductive: faster settlement, programmable rights, and 24/7 transferability. But the path to practical adoption runs through a regulated landscape that still centers on traditional ownership records. In December 2025, major regulatory and market players signaled a careful, staged approach:
– A DTCC-led tokenization pilot received SEC no-action relief for a three-year window, enabling tokenized entitlements to exist on-chain for eligible assets (Russell 1000 stocks, major ETFs, U.S. Treasuries) while DTCC maintains canonical ownership off-chain. Production readiness is targeted for the second half of 2026, with wallets registered to participate. The architecture hinges on a central ledger (LedgerScan) reconciling on-chain transfers with traditional records. This is not “no-regulatory oversight” — it’s a calculated, auditable path that preserves investor protections while enabling on-chain movement.
– Nasdaq advanced rule-change filings to allow tokenized securities to trade on its markets, to be cleared/settled through the existing DTCC framework, potentially sharing the same order book and standard of care as traditional shares. If approved, tokenized trading could approach parity with non-tokenized trades in terms of rights, settlement timing, and governance.
– Regulators continue to signal a regulatory environment sympathetic to tokenization when coupled with robust custody, governance, and auditable settlement. The CFTC’s 2025 framework initiative to explore tokenized collateral in derivatives markets underscores a broader, cross-agency emphasis on secure custody and clear governance as tokenized assets scale.

What does this mean in practical terms? Tokenized entitlements are not independent, on-chain securities with their own standalone legal status. They are digital representations that track the same ownership rights as the underlying security, with official ownership still rooted in DTCC/DTC records. On-chain transfers occur between wallets registered with DTC for tokenized entitlements, while a central ledger maintains the canonical view of ownership and supports reversals or corrections under predefined conditions. In short: regulated rails plus on-chain movement, not on-chain replacement of the entire legal framework.

Value of This Article

This piece aims to translate regulatory and infrastructure developments into practical guidance for practitioners who must balance ambition with compliance. You’ll learn how to think about custody architecture, governance, and security in a way that aligns with today’s regulated environment while preparing for 24/7 on-chain settlement. You’ll also get concrete considerations for a safe, compliant rollout — from wallet registration to incident response — and a framework to evaluate partner ecosystems and custody solutions.

The Dual-Layer Reality How Tokenized Entitlements Work in Practice

• On-chain transfers are meaningful for speed and programmability, but they sit atop a traditional, off-chain record-keeping system. The tokenized entitlement preserves the same rights as the paper security, including voting, dividends, and liquidation protections, with the DTCC-led ledger serving as the authoritative source of truth for ownership. This dual-layer approach makes a regulated transition possible without erasing established investor protections. (Context from SEC/PT and DTCC materials).
• Wallet registration with DTC is a prerequisite for holding tokenized entitlements. Transfers occur on-chain between pre-authorized wallets, while the canonical ownership is maintained off-chain. A root wallet or Digital Omnibus Account may be used to consolidate activity within a participant’s system, enabling controlled reversals if needed. This structure reduces some risk but introduces new operational demands around 24/7 monitoring, reconciliation, and incident response.

Practical Information and Tips for Practitioners

• Start with regulated rails and registered wallets. If you’re planning tokenized-equity initiatives, prioritize infrastructures aligned with DTCC/DTC and U.S. securities regulation. The DTC tokenization pilot relies on registered wallets and a central ledger; on-chain transfers are restricted to those wallets. This is a central risk-mitigating feature compared with unregulated approaches. (Source context: DTCC communications and related legal analyses)
• Understand the on-chain/off-chain architecture and rights mapping. Tokenized entitlements map to traditional ownership rights; the legal rights themselves do not disappear on-chain. The LedgerScan interface reconciles on-chain movements with DTCC’s records. For readers, explain this dual-layer model clearly to avoid misinterpretation about what is “owned” on-chain versus in the ledger.
• Security architecture for custody and on-chain transfers. Real-world custody designs in this space typically rely on bank-grade custody with robust cryptographic safeguards, such as multi-party computation (MPC) or hardware security module (HSM)-based key management, combined with strong access controls and monitoring. MPC-focused analyses provide actionable insights into how key management can be organized to minimize single points of failure while enabling policy-driven access. When planning, evaluate custody providers’ capabilities in MPC, key rotation, and incident response, and demand auditable wallet registration processes. (Reference: vendor whitepapers and industry analyses on MPC custody)
• Governance and compliance checklist for tokenized equities:
• Track regulatory developments: SEC actions and rule filings (e.g., no-action letters, Nasdaq rule filings) that determine when tokenized trading or settlement will be permitted in practice.
• Ensure explicit rights mapping: confirm tokenized entitlements preserve voting, dividend, and liquidation rights; understand how the canonical LedgerScan reconciles on-chain activity with the official records.
• Prepare for 24/7 readiness: establish continuous reconciliation between on-chain transfers and DTCC/DTCC books, with clear procedures for reversals, corrections, and incident response.
• Enforce robust wallet governance: require registration, accreditation checks, multi-signature or MPC-based access controls, and auditable activity logs.

Sample Scenarios: What to Watch For

• If Nasdaq’s tokenized-security proposal proceeds to approval, a practical consequence is that tokenized trades would coexist with traditional trades on the same venue and settle through DTCC’s back-end. This creates a parity-like environment, but it also relies on flawless ongoing governance and operational reliability to avoid drift between on-chain movements and off-chain ownership.
• The DTCC’s program introduces a three-year no-action relief with a controlled production environment. Plan for evolving standards, potential extensions, and the need to adapt security practices as custody rails mature.
• Cross-agency alignment on tokenized assets (SEC, CFTC, and other bodies) signals that tokenization can scale as long as custody controls and risk governance keep up with the pace of transfer and new use cases (including tokenized RWAs and derivatives collateral).

Final Reflections Questions to Carry Forward

As the ecosystem evolves, three critical questions deserve ongoing attention:
– Are we confident that the on-chain movement is consistently reconciled with the canonical off-chain records under all fault conditions?
– Do our wallet governance and security controls provide the necessary resilience for 24/7 settlement, including rapid reversals or corrective actions if something goes wrong?
– How do we continuously validate the reliability of the registered-wallet model as regulated, institutional participation grows and more asset classes are tokenized?

The road to practical, scalable on-chain custody for tokenized equities is not a single leap but a series of careful steps that respect traditional investor protections while embracing the efficiency and programmability of blockchains. It invites us to test, observe, and iterate — together with regulators and market infrastructure providers — as we move toward a future where trading and settlement can be faster, more transparent, and still grounded in the rule of law.

Wouldn’t it be worth asking: when the ledger and the contract are aligned, what new kinds of market behavior could emerge — and how can we build safeguards that nurture innovation without compromising trust?

Is On-Chain Custody Ready for Tokenized Equities, or Is It a Promising Experiment?

I remember standing in a crowded hallway at a conference last year, watching a panel describe how a stock could change hands with a few clicks on a screen, while the traditional ledger kept the authoritative record in a vault somewhere. The moment felt electric and terrifying at the same time — like watching the future walk a tightrope above a regulatory abyss. The near-term answer, it seems, is not a single leap but a careful balance: a regulated, post-trade backbone that preserves traditional rights, paired with an on-chain layer that moves entitlements quickly among registered participants. The tension is real, and it’s shaping how institutions will implement tokenized equities in 2026 and beyond.

Below is a grounded exploration of where we stand, what’s changing, and how practitioners can approach custody with both ambition and caution. I’ll weave together what regulators and market operators are signaling with practical steps you can start using today — with a clear eye on the regulated rails that still anchor every tokenized trade to the legal rights of the underlying security.

The Regulated Backbone why the dual-layer model still makes sense

• The architecture isn’t a bet against the old world; it’s a bridge to it. The Depository Trust & Clearing Corporation (DTCC) has begun a tokenization pilot for DTC-custodied assets under a no-action relief from the SEC. This framework allows tokenized entitlements to exist on-chain for eligible assets (Russell 1000 equities, major ETFs, U.S. Treasuries) while official ownership remains in the canonical, off-chain records DTCC maintains. The plan targets production readiness in the second half of 2026. This isn’t “no regulation” — it’s regulated, auditable movement within tightly defined rails. ([dtcc.com], [sec.gov])

• In practice, this means on-chain transfers occur between wallets that are registered with DTC, with a central ledger (often described in industry materials as LedgerScan) reconciling those movements with the DTCC’s authoritative, off-chain ownership. The rights — voting, dividends, liquidation protections — remain those of the underlying security and are preserved by the existing UCC Article 8 framework, even as transfers happen on-chain. The dual-layer model is the core insight: on-chain speed, off-chain certainty. ([sidley.com], [dtcc.com], [sec.gov])

• Why this matters for security design: custody providers must be able to anchor on-chain activity to a regulated canonical ledger, while maintaining robust controls over the wallet layer. The goal is to enable 24/7 movement without compromising investor protections or the integrity of legal ownership. The no-action relief explicitly contemplates reversals or corrections under predefined conditions, which informs how incident response and governance must operate in production. ([dtcc.com], [dechert.com])

Practical takeaway for practitioners

• Start with a regulated backbone first. If you’re planning tokenized-equity initiatives, prioritize infrastructures aligned with DTCC/DTC and U.S. securities regulation. The DTC tokenization pilot’s registered-wallet requirement and central ledger design reduce regulatory and operational risk compared with unregulated approaches. ([dechert.com], [dtcc.com])
• Map on-chain to off-chain rights clearly. Tokenized entitlements are not standalone on-chain securities; the legal rights live in the traditional ledger, with on-chain transfers acting as a programmable conduit. Make this dual-layer mapping explicit in governance documents and vendor disclosures. ([sidley.com])

Trading on tokenized securities parity in the making?

• Nasdaq has filed proposed rule changes to permit trading of tokenized equity securities and ETPs on its markets, with clearance and settlement planned through the existing DTCC framework and the same order book as traditional securities. The SEC has issued a notice and is reviewing the filing (SR-NASDAQ-2025-072). If approved, tokenized trades would operate alongside traditional trades, with payout and settlement standards that aim for parity where feasible. This signals a concrete pathway toward mainstream adoption of tokenized securities within familiar market structures. ([sec.gov], [nasdaq.com])

• Public-facing materials from Nasdaq emphasize that tokenized shares would share the same CUSIP, rights, and protections as their traditional counterparts, with tokenized settlement potentially integrated into established post-trade processes. In effect, we’re watching a convergence: the same protections, the same governance, but a different plumbing for transfer. ([nasdaq.com], [sec.gov])

What to watch in practice

• If Nasdaq’s proposal progresses, tokenized trades could coexist on the same venue as traditional ones, settled through the DTCC infrastructure. That means governance, surveillance, and risk controls must operate at the same standard as non-tokenized markets. It also means 24/7 on-chain movement must be reconciled with a trusted, conventional ledger — a reconciliation challenge that firms must staff for and test against in live environments. ([sec.gov], [dtcc.com])
• The move toward parity does not erase the need for rigorous custody controls. It increases the importance of robust, auditable wallet governance and real-time reconciliation because the same investor protections apply, and any misalignment could undermine trust in the entire tokenization program. ([propine.com], [sidley.com])

Security by design: custody and key management for tokenized rails

• The vision of custody in tokenized equities is not “crypto-native only” but bank-grade in its security expectations. Real-world custody discussions emphasize multi-layer safeguards: MPC (multi-party computation) or HSM-based key management, strong access controls, and continuous monitoring. The point is to reduce single points of failure while enabling policy-driven access to the wallets that hold tokenized entitlements. Procedural controls around wallet registration, rotation, and incident response are essential. Industry analyses and vendor whitepapers highlight MPC as a practical approach to secure, auditable key management in a 24/7 environment. ([propine.com], [reuters.com] )

• Governance of the network and the wallet layer matters just as much as the cryptography. If transfers happen on-chain, who can authorize them? How are reversals handled when a mistake happens? How do you detect and respond to a compromise in real time? The DTCC/SEC materials emphasize that the on-chain activity is anchored to a central canonical ledger; the risk controls on the wallet side must be designed to support this model end-to-end. ([dtcc.com], [sec.gov], [sidley.com])

Practical security checklist for teams

• Use regulated, registered-wallet frameworks as your starting point. Prioritize partners and infrastructures with explicit alignment to DTCC/DTC rails and U.S. securities regulation. ([dechert.com], [dtcc.com])
• Design dual-layer ownership clarity into your control environment. Ensure your governance documents spell out how on-chain transfers map to off-chain ownership and how reversals or corrections will be executed in practice. ([sidley.com])
• Invest in robust key-management architecture. Evaluate MPC vs HSM-based approaches, ensure strong access controls, rotation policies, and auditable wallet registration. Demand transparent incident-response playbooks and real-time monitoring capabilities. ([propine.com])

Practical roadmap how to stage a regulated tokenized-equity program

• Step 1: Align with regulated rails. Engage with providers and service desks that explicitly support DTCC/DTC tokenization, registered wallets, and LedgerScan-like reconciliation. Build a program plan anchored to the three-year no-action-relief window and prepare for potential extensions as standards mature. ([dtcc.com], [sec.gov])
• Step 2: Define explicit rights mapping. Create a crosswalk showing how the tokenized entitlements preserve voting, dividend, and liquidation rights identical to the underlying securities, and document how on-chain movements relate to DTCC’s official records. ([sidley.com])
• Step 3: Establish wallet governance. Implement a policy framework for wallet registration, accreditation checks, multi-signature or MPC-based controls, and auditable activity logs. Make sure incidents can be detected and corrected rapidly. ([propine.com], [dtcc.com])
• Step 4: Build reconciliation and monitoring. Design 24/7 reconciliation between on-chain transfers and the canonical ledger, with clear processes for reversals, error corrections, and incident escalation. ([dtcc.com])
• Step 5: Phased rollout. Start with elements like tokenized Treasuries or large-cap equities as pilots, then expand to broader asset classes (RWAs, ETFs) as custody rails mature. Track regulatory progress (SEC actions, Nasdaq rule changes) and adjust your rollout accordingly. ([sec.gov], [nasdaq.com], [dtcc.com])
• Step 6: Third-party risk and vendor diligence. Assess custody providers on their MPC/HSM capabilities, incident-response readiness, and auditability of wallet-registrations. Require independent security testing and continuous monitoring commitments. ([propine.com])

Sample practical angles you can pursue now

• What tokenized equities change in custody: a peek inside the DTC/DTCC tokenization pilot — explain the dual-layer ownership model, the registered-wallet requirement, and how on-chain transfers work within a regulated backbone. Cite the DTCC/SEC materials and the LedgerScan concept. ([dtcc.com], [sec.gov])
• From regulation to trading: Nasdaq’s tokenized-securities proposal — summarize the rule-change filing, the parity with traditional securities, and the practical back-end you’d expect to see. Mention the SEC filing notice and related Q&A materials. ([sec.gov], [nasdaq.com])
• Security-first custody for institutional readers — discuss MPC/HSM-based custody, the importance of wallet governance, and auditable controls. Use Propine’s MPC discussions to ground the technical side, and DTCC/SEC materials for governance. ([propine.com], [dtcc.com])

The dual-layer reality: what tokenized entitlements really mean in practice

• On-chain movements accelerate transfers, but they sit atop a trusted, regulated ledger. Tokenized entitlements preserve the rights of the paper security — voting, dividends, liquidation protections — with the canonical ownership view anchored in DTCC records. The “on-chain” layer enables faster movement, but the official truth remains off-chain. This alignment is what enables both innovation and investor protection to coexist. ([sec.gov], [dtcc.com])
• Wallet registration with DTC and controlled on-chain transfers are designed to minimize risk and provide auditable trails. The root wallet or Digital Omnibus Account concept helps consolidate activity and enables controlled reversals when necessary. The operational implications are significant: 24/7 monitoring, reconciliations, and incident response become part of everyday risk management, not exceptions. ([dtcc.com], [dechert.com])

Final reflection going beyond “ready or not” to “how to get there”

• If Nasdaq’s parity path proceeds, tokenized trades could share a market with traditional ones and settle through the same infrastructure, provided governance and operational reliability keep pace with the on-chain speed. If the DTCC’s three-year no-action relief holds, we’ll have a controlled, production-like environment to test, iterate, and scale. Across these developments, the central question remains: how do we ensure the on-chain layer delivers speed and programmability without eroding the trust anchored in traditional ownership records?

Three questions to carry forward as you plan:
– Are we confident that on-chain movement is consistently reconciled with canonical off-chain records under all fault conditions?
– Do our wallet governance and security controls provide the resilience needed for 24/7 settlement, including rapid reversals or corrections?
– How do we continuously validate the reliability of the registered-wallet model as more asset classes are tokenized and institutional participation grows?

The road to practical, scalable on-chain custody for tokenized equities is not a single leap but a sequence of deliberate steps that honor the rule of law while embracing the efficiency and programmability of blockchains. It invites us to test, observe, and iterate — together with regulators and market infrastructure providers — as we move toward a future where trading and settlement can be faster, more transparent, and still grounded in robust protections.

Wouldn’t it be worth asking: when the ledger and the contract are aligned, what new kinds of market behavior could emerge — and how can we build safeguards that nurture innovation without compromising trust?

Special notes for practitioners and writers: the latest momentum in late 2025 points toward a staged, regulated path to tokenized equities, anchored in DTCC/DTC rails, with Nasdaq exploring tokenized trading on the same playing field. Use real-world scaffolding — registered wallets, LedgerScan-like reconciliations, and MPC/HSM custody — as you craft implementations, case studies, and thought leadership that help readers differentiate between a promising pilot and a practical, scalable system. The most persuasive guidance will be concrete steps, guarded optimism, and a clear map from today’s controls to tomorrow’s on-chain capabilities.

Key sources and signals referenced here include: the SEC and DTCC announcements on tokenization pilots and no-action relief; Nasdaq’s rule-change filings and accompanying materials; ongoing cross-agency momentum around tokenized collateral and regulated custody; and vendor and legal analyses that illuminate practical custody design choices for institutions navigating this evolving landscape. ([sec.gov], [dtcc.com], [nasdaq.com], [cftc.gov], [reuters.com], [propine.com])

Key Summary and Implications

The near-term reality of tokenized equities rests on a pragmatic dual-layer: a regulated, canonical ledger that preserves traditional investor protections, and an on-chain layer that enables faster, programmable movement among registered participants. This is not a promise of erasing the old system, but a careful bridge that keeps rights intact while unlocking speed and flexibility. The practical implication is that custody design, governance rigor, and uninterrupted reconciliation become the new core competencies for institutions aiming to scale tokenized securities. Beyond today’s pilots, we should expect broader asset classes and cross-agency collaboration to shape how this architecture evolves, with real-world tests driving improvements in incident response, reversals, and auditability. Three enduring questions will steer progress: Are on-chain movements consistently reconciled with off-chain records under all fault conditions? Do wallet governance and security controls sustain 24/7 settlement demands? How robust is the registered-wallet model as participation broadens across asset classes?

In other words, the path to scale isn’t a single leap but a sequence of regulated steps that honor established protections while embracing the speed of on-chain transfers. That tension — excitement meeting guardrails — is exactly what will determine whether tokenized equities become a durable architectural feature of modern markets or a fleeting experiment.

Action Plans

• Start with regulated rails first: prioritize infrastructures that align with DTCC/DTC, registered wallets, and LedgerScan-like reconciliation. Build a program plan that anticipates the three-year no-action-relief window and potential future extensions.
• Define explicit rights mapping: create a crosswalk showing how tokenized entitlements preserve voting, dividends, and liquidation rights, and document how on-chain movements map to canonical off-chain ownership.
• Establish robust wallet governance: implement wallet registration, accreditation checks, multi-signature or MPC-based controls, and auditable activity logs; ensure rapid detection and controlled reversals when needed.
• Build 24/7 reconciliation and incident response: design continuous alignment between on-chain transfers and the canonical ledger with clear escalation paths for reversals and corrections.
• Phase the rollout: begin with regulated, high-visibility assets (e.g., large-cap equities, U.S. Treasuries) and expand to additional classes (RWAs, ETFs) as rails mature; monitor regulatory developments and adjust timing accordingly.
• Conduct third-party risk diligence: evaluate custody providers for MPC/HSM capabilities, incident-response readiness, and transparency of wallet-registrations; require ongoing security testing and monitoring commitments.
• Foster ongoing regulatory and market dialogue: track SEC actions, Nasdaq rule changes, and cross-agency guidance to stay ahead of compliance requirements while testing new capabilities.

Closing Message

The journey toward practical, scalable on-chain custody is not about choosing between the old and the new; it’s about choreographing them to move in step. When the ledger and the contract align, markets can pursue speed and programmability without surrendering trust. The coming years will test our governance, our technical resilience, and our willingness to iterate in public, with regulators and peers watching closely. If you’re building this today, you’re not just implementing a system—you’re shaping a durable market practice.

What will you do next to turn cautious optimism into concrete progress? Start by anchoring your plans in regulated rails, map on-chain rights to off-chain ownership, and codify what rapid reversals look like in practice. Share your experiences, challenge assumptions, and let’s move this forward together.