Tokenization has a significant potential to transform capital markets, promising real -time running, wider investor access and greater programmability across financial infrastructure. However, as the rails are evolving, the current models of tokenized shares remain fragmented, opaque and incorrectly adapted to the protective measures that define the traditional securities markets.
Today there are two dominant approaches:
The Wrapping model Involves tokenized Ious that provide synthetic exposure to existing shares rather than direct ownership. These symbols do not provide holders of government rights or enforceable requirements for the underlying shares. Transferability is typically limited to closed ecosystems, liquidity is sitting over issuer-controlled platforms, and regulation can be cloudy, with many products that are not available to US people.
The On-Chain Issuing Model means creating a native digital share class issued via blockchain. While this approach is closer in line with the legal definition of security, it introduces operational complexities and scalability challenges. Active Distributor is mandatory, liquidity remains fragmented between on-chain tokens and traditional securities and brokerage standards is inconsistent, which complicates participation for regulated financial institutions and investors.
What is missing is a tokenization model that combines speed, accessibility and composition of tokenization with the structure, the protection measure and the clarity of traditional capital markets. Fortunately, this model already exists elsewhere: Depository receipts (Drs).
In many ways, DRS was the original form of tokenization. In over a century, US deposit receipts (ADRS) has enabled foreign shares to trade in the United States through a regulated, custody -supported structure. Today, this framework can also bridge traditional securities with tokenized infrastructure that offers a scalable and legally healthy foundation for modern shares.
The case for tokenized DRS
By combining blockchain rails with the legal and operational framework for DRS, market participants can lock wider participation and active in real time without compromising investor protection or operational standards.
Other benefits include:
- Conservation of shareholder rights
Unlike synthetic wrappers, the ADR structure perfects shareholder rights, which makes it possible to pass to token holders. This includes financial entities, such as dividends and other companies, as well as government rights such as voting.
- Ready separation of duties
A regulated depot bank stores the underlying shares in a separate, bankruptcy structure that was solely in favor of ADR owners. An independent, market-neutral depositary facilitates DR issues and cancellations, maintains accurate items using a SEC-registered transfer agent and performs daily reconciliation with the underlying assets. The depositary has no ownership requirement of the underlying shares themselves.
ADRs are recognized as securities under US law. For years, they have been used to allow us investors to own and trade foreign shares in the US markets. Furthermore, the receipt structure has been flexible to enable the fractionation of US preferred shares. With regard to tokenized securities mentioned commissioner Hester Peirce in his latest declaration of tokenization that “a token could be a receipt for a security.”
- Full fungibility and market access
ADRs are fully fungal and redeemable to their underlying shares, enabling the same day, non-baily conversions. They can be made available to both retail and institutional market participants who can choose to keep securities in tokenized or traditional form without sacrificing rights or liquidity. The fungalness of ADRS is supported by analysis by MSCI, indicating that ADRS deals with parity on average with their underlying local shares.
ADRs can be implemented by both stock issuers and secondary market participants, which improves scalability and adoption-in contrast to issuing models on the chain that depend on issuer initiation and active maintenance.
A trusted mechanism for broda formation of markets
Proven and fully integrated into global funding it is a logical development to apply the ADR structure to tokenized shares.
As tokenization matures, this kind of innovation is critical of scaling the adoption and trust. Like the SEC Rule 12G3-2(b) Streamlined access to foreign issuers, a similar regulatory mechanism could lock wider tokenized stock markets, allowing public companies to offer tokenized shares to US investors in a compatible way.
The path forward does not require inventing a new wrapping – it requires adjusting a proven. In other words, the bridge between traditional funding and digital infrastructure is already found. It just needs to be carefully crossed.
