The Truth About Tokenization: How Investor Activity Determines the Choice of the DTCC Direct Ownership Model

The news that the U.S. Depository Trust & Clearing Corporation (DTCC) has been authorized to begin tokenizing securities infrastructure has generated great market expectations. However, the reality differs significantly from what many imagine. The key point is that what is being tokenized are not “the shares themselves,” but rather security rights (security entitlements). This fundamental difference determines all subsequent impacts. Furthermore, when considering investor agency as a core principle, two entirely different pathways for tokenization are emerging simultaneously.

The Current Securities System: Structural Challenges Facing the $99 Trillion Barrier

In the U.S. public markets, investors do not directly hold shares of listed companies. Share ownership rights are layered within a chain of intermediaries.

At the bottom is the issuer’s shareholder register, typically managed by a transfer agent. For nearly all listed stocks, this register records only one name: Cede & Co., the nominee holder designated by DTCC. Above this layer is DTCC itself, which manages approximately $99 trillion in securities assets and supports trillions of dollars in annual transaction volume.

DTCC’s direct participants are clearing brokers, representing retail brokers serving end clients, responsible for custody and settlement. Importantly, DTCC’s internal records do not reflect “actual shares” but rather claims to rights—specifically, how much of a security each participant is entitled to.

At the top is the investor themselves. Investors do not hold physically distinguishable shares but hold legally protected security rights—claims against their broker, who, through the clearing broker, holds corresponding rights within the DTCC system.

While the current system is highly robust, it has clear limitations. Settlement involves time delays and depends on processes constrained by operational hours. Corporate actions (dividends, stock splits, etc.) and account updates still rely on batch messaging, making real-time workflows nearly impossible. Additionally, the long settlement cycle requires posting billions of dollars in margin to manage risk between trade execution and final settlement.

The DTCC Model and the Direct Ownership Model: Two Pathways Toward the Same Goal

Discussion around tokenized securities is not about a single future but involves two different models emerging at different levels, each addressing distinct issues.

The DTCC Model: Internal Optimization of the Existing System

In the DTCC pathway, the underlying securities remain centrally managed and registered in the name of Cede & Co. What changes is the representation of rights. Rights that originally existed in proprietary ledgers are now represented as “digital twin” tokens on an approved blockchain.

This is crucial because it modernizes without overturning the existing market structure. DTCC introduces 24/7 rights transfer among participants, reducing reconciliation costs and evolving these rights into faster collateral liquidity and automated workflows. Simultaneously, it retains the efficiency benefits of centralized systems like multilateral netting, which can compress trillions of dollars of gross activity into hundreds of millions of dollars of final settlement. This efficiency remains central to today’s market infrastructure, even as new ownership models emerge.

However, the boundaries of this system are intentionally set. These tokens do not make the holder a direct shareholder of the company. They remain permissioned, revocable claims within the same legal framework. They cannot be freely composed as collateral in DeFi, bypass DTC’s participants, or alter the issuer’s shareholder register.

The Direct Ownership Model: Fundamental Rebuilding of Ownership

The second model begins where the DTCC model cannot go: it tokenizes the shares themselves. Ownership is recorded directly on the issuer’s shareholder register, managed by a transfer agent. When tokens are transferred, the register updates the shareholder’s identity, removing Cede & Co. from the ownership chain.

This unlocks capabilities structurally impossible under the DTCC model: self-custody, direct relationships between investors and issuers, peer-to-peer transfers, and programmability and composability integrated with blockchain-based financial infrastructure—covering collateral, lending, and yet-to-be-invented new financial structures.

This model is not just theoretical. Galaxy Digital’s shareholders have already tokenized their shares via Superstate, holding them on a blockchain with direct reflection in the issuer’s share register. By early 2026, Securitize plans to offer similar capabilities, enabling 24/7 trading supported by compliant broker-dealers.

Of course, this model also involves practical trade-offs. Moving away from an indirect holding system fragments liquidity, and the efficiency of multilateral netting is lost. Broker services like margin and lending must be redesigned. Operational risks shift more onto individual holders rather than intermediaries.

Yet, the active agency enabled by direct ownership allows investors to choose whether to adopt these options. Within the DTCC framework, such choices are limited because innovations around “rights” must pass through layers of governance, operations, and regulation.

Investor Agency: The Greatest Transformation Is Having a Choice

The DTCC and direct ownership pathways are not competing routes but solutions to different problems.

The DTCC pathway upgrades the existing indirect holding system, preserving core advantages like netting, liquidity concentration, and systemic stability. It targets institutional participants requiring scalable operations, settlement certainty, and regulatory continuity.

The direct ownership pathway addresses different needs—self-custody, programmable assets, and on-chain composability—serving investors and issuers seeking new functionalities.

The critical point is investor agency: the right to freely choose between these models. Even if direct ownership eventually reconfigures market structure, such a transition would be a multi-year process involving technological, regulatory, and liquidity shifts happening in parallel. It will not occur overnight. Settlement rules, issuer behaviors, participant readiness, and the pace of global interoperability lag behind the pace of technological change.

Therefore, a more realistic outlook is coexistence. One pathway involves modernizing infrastructure; the other, innovating at the ownership level. Today, neither can fully replace the other. It is precisely because investors have agency that markets can evolve optimally.

Impact on Market Participants: Who Will Truly Change?

These two tokenization pathways will impact different levels of market participants in distinct ways.

Retail Investors

For retail users, the DTCC upgrade will be barely perceptible. Retail brokers already mitigate most friction points for users (such as odd lots, instant buying power, weekend trading), but these experiences are still broker-provided.

The real change comes with the direct ownership model. Self-custody, peer-to-peer transfers, instant settlement, and the potential to use shares as on-chain collateral open new possibilities. Currently, some platforms and wallets are beginning to offer tokenized shares, but most implementations rely on “wrapping/mapping” formats. In the future, these tokens could become the actual registered shares, greatly increasing retail investor agency.

Institutional Investors

Institutions stand to benefit most from tokenized securities within the DTCC framework. Their operations—collateral flows, securities lending, ETF flows, and reconciliation—are highly dependent on these rights. Tokenized “rights” can significantly reduce operational costs and increase speed.

The direct ownership model appeals especially to opportunistic trading firms seeking programmable collateral and settlement advantages. However, liquidity fragmentation will likely mean broader adoption occurs gradually, starting from the periphery of the market.

Brokers and Clearinghouses

Brokers are central to transformation. Under the DTCC model, their roles are reinforced, with innovation supporting their existing functions. Early adopters of tokenized rights will differentiate themselves, and vertically integrated firms can develop new products directly.

In the direct ownership model, brokers are not eliminated but reconfigured. Licensing and compliance remain necessary, but native on-chain intermediaries will emerge, competing for users prioritizing direct ownership features.

Conclusion: Active Choice Will Drive the Market’s True Winners

The future of tokenized securities is not about one model winning but about how these two models evolve in parallel and connect.

Rights tokenization continues to modernize core public market infrastructure. Direct ownership will grow in areas emphasizing programmability, self-custody, and new financial structures. The transition between them will become increasingly seamless.

The ultimate outcome will be a broader market interface: faster, cheaper existing tracks, alongside new pathways supporting behaviors that current systems cannot accommodate. Both pathways will produce winners and losers, but the key driver of transformation is investor agency. As long as the option of direct ownership exists, investors are the ultimate winners—they will have the ability to choose the best infrastructure and freely select between different models.