Ondo Finance Sounds Alarm on Nasdaq’s Tokenized Stocks Plan

Ondo Finance Urges SEC to Pause Nasdaq’s Tokenized Stocks Initiative

In a significant development at the intersection of traditional finance and blockchain, Ondo Finance has formally urged the U.S. Securities and Exchange Commission (SEC) to pause Nasdaq’s proposed plan to allow trading of tokenized stocks—digital versions of real-world equities. The request highlights growing concerns in the financial sector regarding transparency, fairness, and the mechanics of integrating traditional securities with blockchain technology.

The Proposal at the Center of Debate

Nasdaq, the world’s second-largest stock exchange by market capitalization, has proposed a groundbreaking initiative to bring tokenized versions of corporate stocks, including high-profile companies such as Apple, Tesla, and Amazon, onto its trading platform. The objective is to modernize equity markets by leveraging blockchain technology to facilitate faster, more efficient, and transparent transactions. Tokenized stocks are digital representations of actual company shares, enabling investors to trade fractional ownership in real-time without the delays inherent in conventional clearing and settlement systems.

Source: OndoFinance

While the concept has been met with enthusiasm among blockchain advocates and tech-savvy investors, Ondo Finance has voiced caution. In a detailed letter to the SEC, the company highlighted that critical details about how tokenized trades would be settled remain unclear. The firm specifically emphasized the dependence on the Depository Trust Company (DTC), the U.S. entity responsible for finalizing stock trades. According to Ondo Finance, the absence of clear mechanisms for how DTC would handle tokenized transactions introduces potential risks for market fairness and investor protection.

Ondo Finance’s Concerns

Ondo Finance’s main concern revolves around ensuring a level playing field for all market participants. The firm warned that proceeding without full transparency and defined rules could disproportionately benefit large Wall Street institutions that have the resources and infrastructure to exploit the system. Smaller blockchain-based firms, which rely on innovation and agility rather than scale, could face an uneven competitive landscape if the plan moves forward prematurely.

The letter underscores the need for well-defined operational protocols and open access to settlement processes before tokenized equities are permitted to trade on Nasdaq. Ondo Finance stressed that tokenized trading should not merely replicate traditional market structures on a blockchain but should be implemented in a manner that promotes inclusivity, fairness, and investor protection.

Who Is Ondo Finance?

Founded with the mission of bridging traditional finance and blockchain innovation, Ondo Finance operates as a decentralized finance (DeFi) company specializing in tokenizing conventional financial assets. The firm’s platform enables investors to access tokenized versions of U.S. Treasury bills, ETFs, and other securities, providing an alternative avenue for earning yields while maintaining digital custody of assets.

Among its notable products are:

• OUSG: Tokens backed by short-term U.S. Treasuries, offering investors a secure, yield-bearing digital asset.

• USDY: A yield-generating stablecoin fully collateralized by Treasuries and cash equivalents.

• Ondo Global Markets (OGM): Tokenized U.S. stocks and ETFs accessible to investors outside the United States.

Ondo Finance supports the concept of tokenization as a path toward financial innovation but emphasizes that such advancements must be executed transparently and equitably. The company advocates for a system in which both established financial institutions and smaller blockchain firms can compete fairly, without structural advantages skewing the market.

The SEC’s Role in Regulating Tokenized Assets

The SEC is currently reviewing Nasdaq’s proposal and weighing the potential implications for market participants. As the primary regulatory authority overseeing securities trading in the U.S., the SEC must determine whether tokenized stocks can be traded safely within the existing legal framework. The commission’s review will examine whether proper investor protections, disclosure requirements, and settlement protocols are in place to prevent market manipulation or systemic risk.

Ondo Finance’s letter urges the SEC to request further clarification from DTC regarding how tokenized assets would be cleared and settled. This includes detailed operational procedures and risk management protocols, ensuring that tokenized equity trading aligns with both federal securities law and market integrity standards.

Potential Implications of Tokenized Stocks

Tokenized stocks have the potential to revolutionize the financial ecosystem by bridging traditional and digital markets. Potential benefits include:

1. Faster Settlement Times: Blockchain-enabled trades could settle near-instantaneously compared to the typical T+2 (two days post-trade) settlement for conventional stocks.

2. Fractional Ownership: Investors could purchase fractional shares, making high-priced stocks more accessible to retail participants.

3. Global Access: Digital tokens can be traded across borders, opening opportunities for international investors to participate in U.S. equities.

4. Enhanced Transparency: Blockchain’s immutable ledger allows real-time tracking of transactions, reducing the risk of settlement errors or fraud.

However, challenges persist, particularly in regulatory compliance, investor protection, and integration with existing clearinghouses like DTC. Without a clearly defined framework, tokenized equities could inadvertently favor established financial entities, reinforcing systemic inequalities in access and influence.

Nasdaq’s Vision and Industry Reaction

Nasdaq has positioned tokenized stocks as part of a broader digital transformation strategy, aiming to modernize capital markets for a new era of technology-driven investing. According to company statements, the initiative seeks to create a seamless environment where investors can engage with both traditional and digital assets in a unified ecosystem.

Industry reaction has been mixed. Blockchain enthusiasts and fintech innovators view tokenized equities as a breakthrough that could democratize investing, while traditional market participants have expressed caution, citing potential operational and regulatory risks. Ondo Finance’s intervention reflects broader apprehension about ensuring fairness, transparency, and accountability before large-scale implementation.

What Ondo Finance Is Requesting

Ondo Finance has made it clear that it is not opposed to innovation or the tokenization of stocks in principle. Instead, the company seeks a temporary pause and further clarification from the SEC and DTC to ensure that the initiative is safe, transparent, and accessible to all participants.

The firm has requested that:

• The SEC delay any approval of Nasdaq’s proposal until DTC provides comprehensive details on tokenized asset settlement.

• The operational mechanics for tokenized trades be publicly disclosed to avoid creating an unfair advantage for major Wall Street players.

• Clear rules and safeguards be established for both retail and institutional investors before tokenized stocks go live.

By making these recommendations, Ondo Finance hopes to encourage a balanced approach that fosters innovation without compromising market integrity.

Looking Ahead

The SEC’s decision will have far-reaching implications for the future of tokenized equities in the United States. If approved under a transparent and regulated framework, Nasdaq’s plan could pave the way for a hybrid financial ecosystem, where blockchain technology and traditional markets coexist seamlessly. Conversely, approving the initiative without adequate safeguards could expose investors to undue risk and limit opportunities for smaller blockchain innovators.

As financial markets increasingly intersect with blockchain technology, the debate over tokenized stocks illustrates the need for thoughtful regulation that prioritizes transparency, fairness, and equitable access. Ondo Finance’s letter to the SEC serves as a crucial reminder that technological advancement should not outpace regulatory oversight.

Conclusion

Ondo Finance’s appeal to the SEC underscores the challenges and opportunities inherent in integrating blockchain technology with traditional financial markets. While tokenized stocks promise efficiency, global access, and fractional ownership, ensuring fairness and operational clarity remains essential. Investors, regulators, and market participants will be closely watching how the SEC addresses these concerns, which could shape the future of digital asset trading on a major U.S. exchange.

 

Writer @Ellena

Erlin is an experienced crypto writer who loves to explore the intersection of blockchain technology and financial markets. She regularly provides insights into the latest trends and innovations in the digital currency space.

 

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