Refresher
In a major statement that has sparked discussion across traditional finance and the crypto world alike the Chair of the U.S. Securities and Exchange Commission (SEC) has predicted that U.S. financial markets could begin moving “on chain” within the next couple of years. This prediction stands not just as a forward-looking vision but as a signpost of how tokenization might reshape global markets in the decade to come. The idea of tokenizing real world assets — representing traditional financial instruments as blockchain-based digital tokens has been gaining momentum and is now attracting regulatory interest at the highest levels.
The potential size of this shift is enormous. While many discussions about tokenization focus on equities tokenized stocks or speculative assets the real immediate opportunity may lie in other markets such as repo exposures where daily flows dwarf equity trading volumes. In this blog we explore what this could mean why it matters how realistic the timeline is and what opportunities and risks lie ahead.
What Is Tokenization?
Tokenization refers to the creation of digital representations of real world assets on a blockchain or distributed ledger. Instead of traditional paperwork ledgers or centralized database records ownership is tracked on a cryptographic ledger. A token can represent anything from a share of stock a treasury bond or even an interest in a real estate property.
The appeal of tokenization is clear: it promises 24/7 settlement greater transparency lower operational costs and the ability to unlock previously illiquid assets by enabling fractional ownership. The technology also enables programmable contracts that can automate certain parts of trading settlement and compliance.
However tokenization as a concept has many layers and not all of them mean the same thing. As SEC Chair Paul Atkins has pointed out there is a difference between simply wrapping an existing asset in a digital token and completely rearchitecting the markets so that every stage from issuance through settlement and governance operates on chain.
SEC Chair’s Two Year Projection
In an interview reported by multiple news outlets SEC Chair Paul Atkins said he expects U.S. financial markets to be moving significantly on chain within “a couple of years.” This comment reflects not just optimism about blockchain technology but also signals that the SEC is actively exploring how to integrate tokenization into regulated markets.
Such a timeline is ambitious. Traditional market infrastructure from clearing and settlement systems to regulatory frameworks has been built up over many decades. Changing this is not purely a technical task but involves legal operational and institutional shifts. Atkins’ projection suggests that regulators see a clear path for at least part of this evolution within a short timeframe.
Four Layers of On Chain Tokenization
To understand the statement it helps to break down what “on chain” means. According to reporting on this topic on CryptoSlate tokenization can be seen as a four-layer stack:
First is issuance and representation. This is where a token simply represents ownership of an existing security but does not change the underlying legal structure. Think of it like a digital certificate that mirrors a traditional share certificate.
Layer two involves record of entitlement and transfer. In this stage the ownership ledger moves onto the blockchain but the settlement clearing and netting still occurs through incumbent systems such as the Depository Trust and Clearing Corporation (DTCC).
The third layer adds on chain settlement with an on chain cash component. Here delivery-versus-payment could occur using stablecoins tokenized deposits or even a wholesale central bank digital currency.
The fourth and final layer envisions a full lifecycle solution where corporate actions voting tax treatments and all governance elements operate natively on chain.
What Atkins appears to have in mind with the two-year timeline is at least substantial progress in middle layers one and two and possibly early experiments with layer three. The full comprehensive lifecycle solution across all markets is likely a much longer horizon.
Why the Opportunity Is So Large
The sheer scale of the underlying markets helps explain why the statement caught so much attention. U.S. public equities alone are estimated to represent more than $67 trillion in market capitalization at the end of 2025. On top of that U.S. Treasuries represent trillions more in outstanding volume and the daily exposure in the U.S. repurchase agreement market (repo) is massive at an estimated $12.6 trillion.
When you consider that even a tiny fraction of these markets moving on chain could represent hundreds of billions or trillions of dollars in tokenized value the incentives for institutional participation become clearer.
For example tokenizing even one percent of equity market capitalization could translate to serious on chain representation without requiring the entire market to fully rewire itself. Similarly the operational benefits for collateral mobility around the repo market are substantial.
What Moves On Chain First
Tokenization is not a binary event where everything immediately shifts from old systems to new ones. Instead there is a gradient of adoption.
The first likely candidates are assets that already behave a lot like cash or can be easily expressed in short-dated instruments. This includes things like tokenized money market funds short term bills and treasuries. These instruments already trade freely and have well understood legal and operational characteristics.
Next in line are assets that sit in the securities plumbing but can be represented digitally without fully replacing existing functions. Here the focus is on efficiency gains such as 24/7 transfer and improved transparency without jumping straight to decentralized finance style permissionless trading.
The farthest away are activities such as election voting corporate actions or full decentralized governance which require deep legal and institutional integration.
Institutional and Regulatory Developments
One concrete sign that tokenization is gaining regulatory traction came with the SEC granting a no-action letter allowing the Depository Trust & Clearing Corporation to pilot tokenized entitlements for selected assets. This does not mean that all securities immediately become tokenized but it validates a model where ownership records and transfer logic can live on approved public infrastructure while still operating within existing legal frameworks.
Institutional players are already experimenting with tokenized money funds and treasury products and in some cases these products are scaling into meaningful sizes. This suggests that the market may be ready for tokenization pilots that go beyond theoretical experimentation.
Regulators and stakeholders also continue to debate how tokenized securities should be classified and regulated. Even supporters of tokenization stress that it does not alter the underlying legal nature of the asset. For example an SEC commissioner has emphasised that tokenized securities remain securities and must comply with applicable laws and investor protections.
Real World Asset Tokenization Growth
While tokenizing stocks often gets the most attention real world asset tokenization extends beyond equities. Real world assets include fixed income instruments money market funds private credit infrastructure assets and more. These tokenized assets represent ownership rights and can be structured to participate in on chain markets.
Research indicates that tokenized real world assets had reached almost $20 billion in overall represented asset value across various token categories by early January 2026 with growth driven by treasuries and money market funds.
This growth highlights that tokenization is not purely theoretical — segments of the market are already experimenting with and adopting tokenized representations. The interfaces between these tokenized instruments stablecoin settlement rails and permissioned blockchain systems represent an active area of innovation that could lay the groundwork for broader adoption.
Pros of Financial Market Tokenization
There are several well-recognized potential benefits to tokenizing financial assets.
First tokenization can dramatically improve settlement efficiency. Traditionally trading settlement involves multiple intermediaries and delays that can stretch settlement processes over days. On chain settlement could compress these timelines reducing counterparty and liquidity risk.
Second tokenization enables greater transparency since blockchain ledgers provide immutable records of ownership and movement.
Third tokenization can unlock liquidity and fractional ownership, allowing investors to participate in assets that might otherwise be illiquid or require large capital outlays. This can be beneficial in private markets or real estate where traditional barriers to entry are high.
Tokenization also broadens the possible scope of financial innovation enabling programmable contracts that automate compliance or certain aspects of corporate actions.
Cons and Challenges Ahead
Despite its promise tokenization also presents challenges and uncertainties.
Regulatory complexity remains one of the biggest issues. Traditional securities laws and market structure rules were not written with on chain settlement in mind. Bringing these systems into compliance with existing regulation requires careful legal architecture and coordination with regulators.
There is also the risk of fragmentation or regulatory arbitrage where assets move to jurisdictions with unclear or divergent rules. The need to maintain investor protections while enabling innovation is a delicate balance that regulators continue to work through.
Liquidity remains another challenge. Even if assets are tokenized the extent to which they trade in meaningful volume on secondary markets is not guaranteed. Academic research on tokenized assets notes that trading volumes and active participation remain relatively low for many categories of tokenized real world assets outside of pilot markets.
Additionally there are technological and operational hurdles. Integrating distributed ledger systems with existing infrastructure such as clearinghouses custody agents and banking rails requires sophisticated coordination and standards.
Finally there are cybersecurity and smart contract risks. Any system that depends on code and public infrastructure must grapple with vulnerabilities that could expose participants to loss or manipulation if not properly secured.
What This Means for Investors and Markets
For investors tokenization could open new opportunities. Fractional ownership could democratize access to previously exclusive asset classes. Faster settlement could reduce cost and risk. Greater transparency could enhance trust in post-trade processes.
For markets as a whole tokenization could spur broader modernization of infrastructure. Reducing settlement delays improving transparency and enabling cross border flows are all structural benefits that supporters highlight.
However if these benefits materialize depends on more than technology. Regulatory clarity market readiness institutional adoption and legal certainty all play crucial roles. A two-year timeline for meaningful progress is ambitious but not impossible — especially if it focuses on middle layers of tokenized entitlements and permissioned institutional use cases rather than fully decentralized markets.
Summary
Tokenization is emerging as a potentially transformative force in global finance. The SEC Chair’s prediction that parts of U.S. markets could operate on chain within a couple of years reflects a broader push toward modernization driven by regulatory initiatives institutional experiments and growing asset tokenization pilots.
The potential market opportunity is vast especially in segments like daily repo exposures fixed income and treasury products rather than just equities. Yet the path forward is complex involving regulatory challenges operational integration technological developments and careful attention to investor protection.
While tokenization promises real benefits in settlement efficiency transparency liquidity and programmable finance the reality will unfold over years not months and requires cooperation across financial institutions regulators technologists and policymakers.
