Read more

This panel discussion, titled “Onchain Capital Markets,” features Nadine Chakar (Global Head of DTCC Digital Assets) and Yoshi Yokokawa (CEO of Alpaca), moderated by Mark. The conversation explores the drivers, infrastructure, and regulatory landscape of tokenizing publicly traded securities.

1. The “Why”: Access and Efficiency

The panelists identify two distinct drivers for tokenization:

• Global Access (The Retail View): Yoshi highlights that demand is driven by international investors seeking access to stable assets (like US stocks) because their local currencies or banking systems lack credibility. Tokenization democratizes this access.

• Systemic Risk Reduction (The Macro View): Moving settlement on-chain reduces settlement times (T+0), thereby minimizing counterparty risk and preventing capital crunches similar to the Lehman Brothers crisis.

• Asset Mobility: Nadine emphasizes the efficiency of Collateral Mobility.

  • Scenario: A Japanese firm needs to finance a security during Japanese business hours (when the US is asleep).

  • Solution: If the US security is tokenized and held in a wallet, it can be used as collateral instantly, 24/7, regardless of banking hours.

2. The “How”: Regulatory Breakthroughs & Models

Nadine discusses a significant milestone: DTCC received a “No Action” letter from the SEC in December.

• Implication: This allows DTCC to proceed with tokenizing inventory (starting with Russell 1000 ETFs and Treasuries) without requiring exemptions from securities laws, ensuring strict adherence to existing rulebooks.

• Tokenization Models: The panel discusses the SEC’s recent taxonomy of tokenization methods:

  1. Direct: The token is the security (ownership at the issuer level).

  2. Indirect (DTCC Model): Tokenizing the entitlement to the security.

  3. Synthetic: Derivatives or contracts mirroring the asset.

Nadine argues that intermediation remains necessary for investor protection (e.g., managing corporate actions like dividends or splits), regardless of the model used.

3. The “Where”: Infrastructure & The Collateral App Chain

The discussion moves to the debate between private permissioned chains and public permissionless chains.

• The Hybrid Approach: DTCC envisions a “curated network” of L1 and L2 blockchains (using Hyperledger Besu and Canton) topped with an orchestration layer.

• The Collateral App Chain: Nadine reveals that DTCC is building a specific “App Chain” dedicated solely to collateral.

  • Purpose: To encapsulate data (security reference files) within the token, allowing collateral to move at the speed of the network while maintaining privacy.

• National Interests: Yoshi predicts that blockchain adoption won’t have a single “winner.” Instead, adoption will likely align with national interests (e.g., different nations preferring different chains for geopolitical reasons), necessitating interoperability.

4. Solving Liquidity Fragmentation

A major concern in the industry is that tokenization creates “walled gardens” that split liquidity.

• The Digital Twin Solution: To prevent this, DTCC uses “Digital Twins.” By keeping the same CUSIP (identifier) for both the traditional and tokenized asset, and allowing convertibility between the two, they aim to aggregate liquidity rather than fragment it.

• Market Makers: Yoshi notes that fragmentation is currently solved by market makers engaging in arbitrage between TradFi (traditional finance) and on-chain assets, which ultimately deepens liquidity.

Read more