Nasdaq Tokenization: From One Order Book to Two Systems

What You Need to Know:

• NYSE is launching a tokenized ATS for 24/7 trading and instant settlement.
• Nasdaq’s strategy is broader and modular, spanning post-trade tokenization, issuer tokenization, and an offshore DeFi trading rail with Kraken.
• For post-trade infrastructure, trading stays on Nasdaq’s core order book (no front-office change), while tokenization is applied after execution to modernize settlement. Participants can choose traditional vs. tokenized settlement.
• With issuer tokenization, a gateway for companies/funds to tokenize shares, enabling wallet-level ownership visibility and programmable corporate actions.
• The third project involves a separate, non-U.S. venue for tokenized “xStocks” with 24/7 trading and instant settlement; fully backed 1:1 but without full shareholder rights.

Tokenization efforts among major incumbents have accelerated meaningfully. NYSE announced plans to launch a tokenized alternative trading system (ATS) supporting 24/7 trading with instant settlement. More recently, Nasdaq has outlined a strategy that is just as ambitious, albeit structurally different. Taken together, the rapid movement from the two largest U.S. exchange operators highlights how quickly tokenization is shifting from concept to implementation.

Nasdaq’s Tokenization Expansion

Nasdaq’s latest approach is not a single initiative, but rather a series of coordinated efforts spanning post-trade infrastructure, issuer tooling, and decentralized distribution.

• Post-trade infrastructure - tokenization embedded after execution to improve settlement efficiency, reduce costs, and enhance collateral mobility.
• Issuer tokenization - a gateway for companies and funds to tokenize shares, enabling enhanced ownership visibility and programmable corporate actions.
• Offshore trading (Kraken) - a separate, Decentralized Finance (DeFi)-based trading rail offering 24/7 access and instant settlement outside the U.S. framework.

Project 1: Tokens Fully Fungible with Stocks - A Back-Office Transformation

Nasdaq’s initial tokenization effort is deliberately structured to avoid disruption to the core trading ecosystem. Rather than fragmenting liquidity, the design keeps all activity on Nasdaq’s core order book, preserving price-time priority, Reg NMS compliance and existing workflows for brokers and institutions. From a front-office perspective, nothing changes. The innovation instead sits entirely in the post-trade layer.

The approval builds on DTCC’s exemptive relief framework, where participants can elect between traditional and tokenized settlement, both remaining on a T+1 timeline. Over time, this selection may take place at the execution management system (EMS) level, allowing firms to dynamically choose settlement pathways based on workflow or funding needs. The tokenized settlement model is expected to significantly reduce back-office costs while also improving collateral mobility and enabling shorter-duration financing, such as intraday or hourly repo.

The key takeaway is that Nasdaq’s first step is not about changing how markets trade, but rather how capital moves and settles once trades are complete.

Project 2: Issuer Tokenization - Expanding Control for Funds and Companies

The second phase of Nasdaq’s strategy moves beyond infrastructure and into the issuer domain, introducing a tokenization gateway designed to give funds and companies greater control over ownership and shareholder engagement. At its core, this initiative establishes a standardized framework for tokenized equity, allowing issuers to convert existing shares into tokenized form or issue new shares natively on-chain. This creates a more direct connection between issuers and their investor base.

For fund issuers, tokenization presents a meaningful shift in distribution and ownership models. With the SEC approving multi-share class structures last year, firms have begun exploring tokenized ETF share classes or fully tokenized versions of existing funds. These structures could allow fund shares to be held directly in digital wallets, reducing reliance on traditional custody and potentially expanding access to new investor bases, particularly those overseas. Similar to corporates, tokenization also enables more flexible distribution mechanisms, including the potential for more frequent or even continuous dividend streams. The implications may be even more pronounced for active funds, where traditional ETF structures have struggled to accommodate performance fees. By embedding fee logic directly into smart contracts, tokenization introduces a pathway to more customizable fund structures that better align with active strategies. This may be more impactful for hedge funds.

For companies, one of the most immediate implications is the evolution of direct registration, with enhanced cap table transparency. As we discussed previously, direct registration allows shareholders to hold shares in their own name rather than in street name, creating a more direct line between issuer and investor. While this model has seen limited adoption in the U.S., it has been supported by issuers globally. In France, for example, some companies offer a 10% loyalty bonus dividend to shareholders who hold registered shares for at least two years.

Tokenization extends this concept by introducing wallet-level ownership visibility, giving issuers a more granular view into shareholder behavior and enabling more dynamic corporate actions and dividend distributions. In practice, this could support more tailored engagement, such as perks or distributions tied directly to ownership. However, this same transparency introduces potential challenges. Visibility into wallet-level flows may allow market participants to detect when large holders are accumulating or exiting positions, potentially leaking sensitive information.

Beyond transparency, tokenization enables programmable corporate actions, where voting rights, dividends and other entitlements can be embedded directly into the asset via smart contracts. This allows for more flexible and automated shareholder engagement, including non-traditional distributions and real-time voting mechanisms.

Project 3: Kraken Partnership - A Parallel, Offshore Trading Rail

The final component of Nasdaq’s tokenization strategy introduces a fundamentally different construct: a separate, offshore trading ecosystem developed in partnership with Kraken. Unlike the first two initiatives, which remain fully embedded within the U.S. framework, this effort is designed to operate outside of it in a more decentralized capacity. Expected to launch in early 2027, the platform would not be accessible to U.S. participants and instead targets global investors.

At the center of this model is a transformation gateway, through which Nasdaq facilitates the conversion of traditional equities and ETFs into tokenized representations and vice versa. Through this portal, securities can move out of the U.S. market structure and Depository Trust and Clearing Corporation (DTCC) system into Kraken and the broader DeFi environment. While the initial partnership is with Kraken, the framework is designed to expand over time, with additional DeFi platforms potentially joining.

On Kraken, these tokenized equities, referred to as “xStocks”, are issued as 1:1 representations of underlying shares and made available for trading on crypto-native rails. This enables 24/7 trading — including holidays without pauses for corporate actions or Limit Up-Limit Down (LULD) mechanisms. Importantly, while this creates a separate trading system, the underlying shares remain fully backed, helping preserve the economic linkage between the two environments. That said, these instruments do not carry the full bundle of traditional shareholder rights, notably lacking voting rights and direct dividend entitlements, and they are not structured around standard identifiers. This results in the emergence of a parallel liquidity venue, where trading activity does not directly feed back into U.S. markets in real time. While Nasdaq is exploring ways to incorporate elements such as notional volume or pricing signals, a growing share of price discovery and liquidity may begin to occur outside the consolidated tape.

The divergence is further amplified by differences in settlement. While U.S. equities operate on a T+1 basis, the Kraken ecosystem is built around instant, atomic settlement, introducing a fundamentally different liquidity and funding dynamic. This may create arbitrage opportunities between systems, as differences in settlement timing could lead to premiums or discounts, particularly given that xStocks operate outside the National Best Bid and Offer (NBBO) framework. Increased accessibility for global investors may further influence demand dynamics. In addition, we do not know the friction regarding how long it will take to burn / mint tokens.

Looking Forward

As tokenization continues to evolve, the key question is not whether these systems develop, but how tightly they remain connected. Even with 1:1 backing maintaining economic linkage, the separation from U.S. regulatory frameworks suggests that alignment between systems may increasingly rely on arbitrage.