On-chain equity trading has the potential to transform markets, for better or worse.

As 2026 approaches, the shift to move equity markets on-chain is rapidly gaining momentum, driven by the appeal of 24/7 trading and nearly instantaneous global settlements. What was once confined to broker-dealer frameworks is now being celebrated by proponents as a form of ‘modernization,’ yet some critical aspects remain unexamined.

Behind the facade of efficiency lies the reality that migrating equities to blockchain will not remove regulatory oversight, structural inequalities, or risks. Proceeding in this direction without due diligence could jeopardize the protections that ensure public markets remain trustworthy.

Tokenizing equities represents an experimental phase in market structure with implications extending beyond mere convenience. Investor interest in these tokenized alternatives is surging, with firms like Nasdaq actively collaborating with regulators to list and trade tokenized stocks.

If the goal is genuine, the safeguards expected by investors in regulated equity markets must be fully adopted in their tokenized counterparts. This transition must incorporate trading mechanisms based in smart contracts while ensuring the custody, transparency, and governance that currently form the backbone of legitimate markets.

The Promise of Speed

On-chain equities can facilitate trade settlements almost instantaneously, alleviating the cumbersome processes traditionally associated with trading and allowing for quicker capital utilization. The allure is evident, especially for cross-border investors who benefit from easier access, fractional ownership, fewer regulatory barriers, and the key advantage over non-tokenized options: speed.

Experts at the World Economic Forum have already outlined the advantages of on-chain equity trading, such as predictable settlements, reduced reconciliation burdens, and programmable corporate actions, marking significant strides toward tokenization. For the first time, retail investors can access fractionalized blue-chip stocks without needing a custodial intermediary.

Blockchain’s capabilities and speed enhance the accessibility of equity markets on a global scale, eliminating geographical barriers. Though these are substantial benefits of on-chain equity trading, speed devoid of appropriate governance reveals itself to be a hollow victory for participants.

As the enthusiasm surrounding tokenized equities escalates faster than regulatory adaptation, the U.S. Securities and Exchange Commission has begun to act. Recognizing both opportunity and risk, the SEC is considering partial exemptions to permit blockchain-based stock trading, but only under specific conditions.

Liquidity Mirages and Regulatory Loopholes

Amid the enthusiasm, the vulnerabilities associated with on-chain equity trading, particularly concerning liquidity, often go unnoticed. While on-chain assets may trade swiftly, that doesn’t guarantee they trade with depth.

Academic studies show that tokenized assets (even with legitimate backing) can experience significant liquidity cliffs, especially during periods of market volatility. Synthetic equities with weak order books and inadequate liquidity to cope with sell-offs may become flash-crash incidents waiting to occur.

If companies or exchanges try to evade securities laws by arguing that on-chain transactions fall ‘outside jurisdiction,’ the entire framework could be classified as a shadow market, resulting in a sudden collapse.

The SEC has been clear in asserting that tokenized stocks will continue to be regarded as securities, bound by full regulatory requirements. A token that resembles a stock, trades like a stock, and behaves like a stock is, by definition, a stock.

Failure to uphold this standard and ensure regulatory compliance results in mere ghost assets, and nothing more.

Standards Must Rise, or They Will Fall

The moment has arrived to either embrace tokenized equities as a genuine enhancement while safeguarding investors or to manipulate blockchain in a way that undermines the essential protections of trustworthy public markets.

Tokenized equities should provide authentic shareholder rights, enforceable claims to dividends and corporate actions, and comply with the same disclosure and reporting standards as today’s markets. Regulatory bodies have made their stance evident; now, the focus must be on establishing safeguards and compliance as the leading factors.

The potential benefits of on-chain equity trading are vast, but only if the protective measures concerning custody, liquidity, and legality are derived from established public markets. Tokenization must uplift equity markets rather than undermine them, thereby ensuring that tokenized equities retain the accountability demanded by contemporary equity exchanges.

Standards must elevate to satisfy the economic demands of investor safety, or else tokenized equities will fall into the background. The industry will ultimately reveal the decision made over time.

Hedy Wang

Hedy Wang is the CEO and co-founder of Block Street, the first unified liquidity layer and derivatives infrastructure for tokenized assets. A Harvard alumnus and external advisor to the Harvard Business School, Hedy has a background intertwining institutional finance and decentralized innovation. She previously directed quantitative research at Point72. As CEO of Block Street, Hedy is developing the inaugural lending and derivatives infrastructure for tokenized equities, allowing for borrowing, shorting, and yield strategies on actual stocks. Block Street is powered by a proprietary RWA Liquidity Layer that consolidates fragmented issuers into a single, composable pool, supporting both pooled and peer-to-peer lending models.