top of page
Search

The Week Wall Street Started Using DeFi's Plumbing

Writer: Htin Shar Aung
Htin Shar Aung
Sep 20
16 min read

Tokenized equities, stablecoins and decentralized liquidity are beginning to converge into a new financial-market infrastructure layer.



For most of the past five years, the institutional question in digital assets concerned demand. Would asset managers and corporate treasuries buy bitcoin? Would regulators approve exchange-traded products that hold it? Those questions were answered, largely in the affirmative, through ETFs, treasury purchases and a maturing custody industry. Digital assets became something financial institutions own, hold and report on.


The past week raised a different question: whether financial institutions have begun to use public blockchains to operate markets. Owning an asset that lives on a blockchain and settling a share of Nvidia through a smart contract are separate activities. In the first, the blockchain is the thing being bought. In the second, it is the machinery under the trade, the way clearing houses and depositories are machinery today.


Several developments arrived within days of one another. On Thursday, September 17, the Securities and Exchange Commission issued an order permitting venues to trade tokenized U.S. stocks through automated market maker pools on public blockchains. Robinhood's own blockchain has been live since July. The next day, the issuer behind Solana's largest tokenized-stock product announced a new volume milestone. Earlier in the week, Zama opened confidential vaults that let large depositors use DeFi lending markets without publishing their balances. Stablecoin transfers, measured conservatively, continue to run near ten trillion dollars a year.


Each of these is small next to the markets it touches, and they are not all connected. Some of the largest numbers this week belong to products the SEC's new order does not cover. This issue therefore spends less effort announcing a shift than measuring one. It sets out what happened, separates structure from noise, and closes with a scorecard for judging whether public blockchains are becoming infrastructure or remain a very busy place to trade.


The SEC opens the door


The order, released on September 17, grants two pieces of temporary relief under Section 36(a)(1) of the Securities Exchange Act. Venues the SEC calls Tokenized Securities Venues are exempted from the definition of an exchange, so they can match buyers and sellers of tokenized stock without registering as national securities exchanges. Liquidity providers in the pools those venues run are separately exempted from the definition of a dealer, provided they trade with their own capital and confine their securities activity to those pools. Both exemptions expire five years after publication, and the Commission has invited public comment. Chairman Paul Atkins called the order a bridge toward durable rulemaking and noted that Congress had failed to advance the CLARITY Act earlier in the week. The agency acted inside its own authority.


A venue provides one or more liquidity pools in which verified participants trade against an automated pricing formula. Liquidity providers deposit a tokenized stock and a paired asset, and the smart contract sets the price from the ratio between the two. The order lets a tokenized stock be paired with another tokenized stock, a tokenized money market fund or a non-security crypto asset, and it names a payment stablecoin from a permitted issuer as one example. Access is permissioned. The venue must be a U.S. person, must comply with sanctions rules and must set standards for who may trade. Its smart contracts, however, must be public, auditable and deployed on a public, permissionless blockchain. A gated pool on an open chain is the intended design.


The conditions on the tokens are strict. A tokenized stock qualifies if it was created by or on behalf of the issuer, or by an unaffiliated third party once the issuer has received thirty days' written notice and a chance to object. In every case the venue must verify that holders receive the same rights as holders of the ordinary share: the same interest in the company, the same dividends, the same voting rights and the same claim on residual assets in a liquidation. Third-party tokenizers must pass proxy materials to holders at no cost to the issuer. Products that provide synthetic exposure, such as a tokenized linked security or a tokenized security-based swap, are excluded, as are rights and warrants. Primary issuance is not allowed.


Then come the limits. Stocks in the S&P 500, the Russell 1000 and qualifying exchange-traded products form the first tier. A venue may list at most 75 of them, and trading in each may not exceed 0.25 percent of that stock's average daily share volume over the prior month. Every other stock falls into a second tier capped at 250 symbols and 2.5 percent. Affiliated venues are counted together. A first breach of a volume cap carries no penalty, while each later breach forces a three-month pause in that stock. One analyst's arithmetic put the ceiling for Nvidia near 65 million dollars of daily trading, a sliver of the stock's turnover in ordinary markets. The SEC's reasoning is candid: pool prices come from the ratio of assets in the pool, not from outside markets, so a token can drift from the price of the real share, and the caps limit the damage a drift could do.


Further conditions follow. A venue must stop trading a token whenever trading stops in the underlying stock on its primary listing exchange. It must publish the price, size, time and direction of every transaction in dollars within ten minutes. It may not borrow, lend, hypothecate or extend credit on the venue. It must post a public notice thirty days before operating and state that it is not registered with the SEC. Anti-fraud law applies in full, and the order gives no relief under the Investment Company Act, which leaves tokenized ETFs with open questions.

Read as a whole, the order resembles a laboratory protocol more than a market launch: small, permissioned, transparent, halted in step with the real market and limited in time. That is a sensible design for an experiment. It also means that no venue is trading under the exemption today. On the order's own terms, a venue can open no sooner than a month after it posts its notice, which points to mid-October at the earliest.


Robinhood builds the institutional bridge


The Robinhood story is easier to read once marketing and mechanics are separated. Robinhood Chain opened its public mainnet on July 1, at an event in London. It is an Ethereum Layer 2 network built on Arbitrum technology, with Uniswap running a dedicated pool as the main public venue, a proprietary market maker called Pleiades alongside it, Chainlink supplying price feeds and BitGo among the custody integrations. Robinhood says the chain was built to institutional standards.


The product at the center is the Stock Token. According to Robinhood's disclosures, these are tokenized debt securities issued by Robinhood Assets (Jersey) Limited that give economic exposure to underlying shares and no legal or beneficial rights in them. They are unavailable in the United States and to U.S. persons, restricted in Canada, the United Kingdom, Switzerland and the United Arab Emirates, and open to eligible users in more than 120 countries through Robinhood Wallet. Set that description beside the SEC's definition. The exemption excludes synthetic exposure delivered through an issuer's own security, and Robinhood's structure closely resembles the category the Commission left out.


Custody follows the usual pattern for this product. The earlier European generation of Robinhood tokens, launched in 2025, kept the underlying shares with a U.S. broker-dealer while the investor's claim ran against the issuer. Real shares in custody support a debt claim on a company. Custody protects the collateral without converting the claim into ownership, and a holder should read what happens if the issuer fails.


The DeFi functionality is real. Holders can trade the tokens around the clock, swap them through Uniswap, 1inch and other venues, deposit them in lending pools and post them as collateral. Uniswap has reportedly processed about 1.5 billion dollars of stock-token volume in six weeks across some 190 tokens, and around 60 percent of it fell outside U.S. market hours, which suggests demand for access at times when the New York Stock Exchange is closed. The SEC's exempt venues, by contrast, may not lend, borrow or hypothecate on the venue.

Early usage tells a plainer story. Two weeks after launch, Bernstein analysts noted that meme coins rather than tokenized stocks had led trading, which reached 3.1 billion dollars of decentralized exchange volume in the first week. Users then held roughly 13 million dollars of stock tokens against a single meme coin valued at 150 million. Robinhood is covering network fees for eligible users during the first 90 days, so early activity reflects subsidy as well as appetite. With nearly 28 million customers, the company has distribution that few crypto-native builders can match, and the launch shows what that distribution can do. Institutional adoption is a separate claim, and the data has yet to support it.


Solana shows what permissionless tokenization looks like


If Robinhood shows a broker's version of tokenization, Solana shows the version built by crypto-native teams, and its numbers are larger. On September 18, xStocks, the product suite from Backed Finance, announced that its tokens had passed 6 billion dollars in cumulative trading volume on Solana and now account for 54 percent of all tokenized-stock volume in the chain's history. Token Terminal data cited by Solana Compass put Raydium's tokenized-stock volume at about 2.3 billion dollars for the third quarter through September 18, up roughly 40 percent from the second quarter with two weeks still to run. Days earlier, Kraken had added yield vaults paying up to 2 percent on tokenized S&P 500, Nasdaq-100 and Nvidia products through Kamino.


The figures carry a caution. They come from an issuer, an analytics vendor and secondary reporters, and they do not reconcile neatly. Some counts cover xStocks alone, others cover all tokenized equity, and one widely circulated Raydium statistic combines tokenized stocks with meme-themed tokens routed through launchpads. Concentration is heavy too: Raydium handled roughly three quarters of recent xStocks flows.


The legal structure mirrors Robinhood's. xStocks are Swiss-law tracker certificates issued by Backed Assets (JE) Limited, a Jersey company. They are bearer debt instruments giving economic exposure to a share, with no voting rights and no direct claim on the underlying company. Each token is collateralized one-to-one by shares held in segregated accounts at Alpaca Securities and InCore Bank, reserves are attested weekly on-chain, and an independent security agent can liquidate the collateral for holders if the issuer defaults. The tokens are not offered to U.S. persons, and Kraken's own guidance says an xStock cannot be moved into a brokerage account. The engineering is careful, and what it delivers is exposure.


The profile of the holders is the more revealing measure. Reports put xStocks' assets under management near 800 million dollars as of September 11. The S&P 500 token, SPYx, has between 63,000 and 73,000 holders and an on-chain market capitalization between 46 and 73 million dollars, according to Crypto Briefing, which implies average positions on the order of a thousand dollars. That is the profile of a retail market, and by these measures a healthy, growing one. Institutional capital would look different: fewer wallets, larger balances, regulated custodians and reporting to match. Tokenized-asset activity and institutional capital are separate things, and the Solana data documents the first far better than the second.


Stablecoins become the cash leg


Tokenized securities need something to trade against, and it has to move as fast as the token does. Stablecoins fill that role. The SEC order names payment stablecoins from permitted issuers as an eligible trading pair, and on Robinhood Chain the stablecoin USDG accounts for roughly 65 percent of stablecoin activity, according to Crypto Briefing. The cash leg is also a dependency. If a stablecoin loses its peg or its issuer meets a legal problem, the securities leg of every trade against it inherits the problem.


Supply sits near 300 billion dollars. Trackers disagree by a few percent, with early September readings between about 290 and 311 billion depending on methodology, against a peak near 322 billion in May. Supply has therefore been flat to slightly lower for months while usage has risen: The Block Research found that daily turnover reached 0.78 times supply in August, up from 0.38 in 2024.

Volume needs the same discipline. The Block Research counted more than 90 trillion dollars of raw on-chain stablecoin transfers over the trailing year. Visa's analytics, built with Allium Labs, strip out bot activity, exchange rebalancing and repeated contract cycles, and arrive at 8.82 trillion dollars for the first half of 2026, including a record 1.79 trillion in June. The trailing twelve-month adjusted figure was near 10 trillion dollars in early July, while the most recent thirty days ran near 1.2 trillion, below June's peak. The gap between raw and adjusted counts, roughly nine to one, is a reminder that headline volume in this sector often measures activity inside the machine rather than economic use.


Settlement is the use that matters to institutions. Visa reported that its stablecoin settlement volume passed a 20 billion dollar annualized run rate in its fiscal second quarter, more than fifteen times the level a year earlier. That figure is large as growth and modest as scale. Twenty billion dollars is well under one percent of the more than 12 trillion dollars Visa handles each year. An earlier Visa analysis covering the twelve months to March 2025 found retail-sized transactions below one percent of adjusted stablecoin volume, which points to crypto-native settlement, exchange plumbing and treasury movement as the bulk of the flow.


Officials remain unconvinced. On August 28, at Jackson Hole, BIS General Manager Pablo Hernández de Cos said stablecoins do not credibly serve as a means of payment at scale, citing weak interoperability between platforms, uneven enforcement of anti-money-laundering rules and the strain that widespread use of dollar tokens abroad places on monetary sovereignty. He pointed to tokenized bank deposits as the better route. The SEC's inclusion of tokenized money market funds as an eligible pair hints at the same possibility: the cash leg of institutional securities may end up plural. Stablecoins are the settlement asset that exists at scale today, and whether they become the one institutions choose is undecided.


DeFi becomes the market infrastructure layer


The architecture is easiest to follow as layers, because each layer has a different legal owner and a different way to fail.


At the bottom sits the real share, held by a custodian such as a broker-dealer or a bank. Above it is the tokenization layer, where an issuer, or the company itself, creates a token representing the share or a claim on it, and a mint-and-burn process moves tokens in and out of circulation as shares move in and out of custody. The role resembles the authorized participant in an exchange-traded fund. Above that sits the venue, where an automated market maker holds pools of tokenized stock and stablecoin. Traders swap against the pool, prices move with its balance, and liquidity providers earn fees for supplying the inventory. Settlement happens inside the trade itself, so the token and the payment change hands together with no clearing house between them. The SEC lists near-instant settlement, fractional ownership and investor self-custody among its reasons for granting relief.


Prices are the awkward part. A pool does not consult the outside market, so arbitrageurs keep it aligned by trading against gaps, and oracles supply reference data where a venue wants safeguards. When the exchange is closed, the pool becomes the only market. Alex Cutler, co-founder of Aerodrome, the largest decentralized exchange on Coinbase's Base chain, described liquidity providers positioning around Nvidia's earnings after the close on August 26, effectively forecasting the next day's opening price. That is price discovery overnight and on weekends, and it explains why the SEC insists on halts and caps. A pool at three o'clock on a Sunday morning has no anchor except its own participants.


Collateral and lending form the next layer, and here the design pulls in two directions. Composability is DeFi's advantage: on Solana, lending protocols such as Kamino have accepted xStocks as collateral, and on Robinhood Chain stock tokens can back loans. The SEC's order forbids leverage and hypothecation on the exempt venues. Regulated pools can trade tokenized stock, and they cannot become the base of a credit system. Lending against tokenized equities will for now live in a separate layer that this order does not touch.


Custody spans two worlds. The share sits with a regulated custodian, while the token sits in a wallet, sometimes held by a custodian such as BitGo and sometimes by the investor. Each is a distinct point of failure, alongside the smart contract, the oracle, the issuer and the stablecoin issuer. The architecture works when these pieces are independent and strains at the seams between them, which is where institutional risk teams will spend their time.


The institutional missing piece: privacy


Professional capital has an objection to transparent ledgers that no exemption addresses. On a public blockchain, balances, trades and strategies are visible to competitors and to anyone who profits from front-running. A fund does not publish its positions on a website, and it will not do so on a ledger because the ledger happens to be more efficient.


Zama's launch this week speaks to that objection. On September 15 it opened deposits into 16 confidential vaults on Morpho, curated by Steakhouse Financial, Armitage by Wintermute, Flowdesk, RockawayX and Bitwise, and released a protocol for confidential swaps. The vaults reproduce existing strategies, liquidity and risk while encrypting individual balances and transfer amounts. The first confidential vault, started in June, grew to 40 million dollars in seven weeks. Zama's method is fully homomorphic encryption, which lets a contract compute on data it cannot read. It differs from zero-knowledge proofs, which demonstrate a fact without revealing the data behind it, and from trusted hardware. Morpho co-founder Merlin Egalite argued that confidentiality is a precondition for on-chain markets to carry institutional volume, a claim from an interested party that is nonetheless logical.


Two cautions apply. The first is scale: forty million dollars is small, and real institutional adoption would be visible in far larger sums. The second concerns the rules. Zama's swap protocol today covers confidential stablecoins and vault shares, not tokenized equities, but a similar design applied to stock would collide with the SEC's requirement that every transaction's price, size, time and direction be published. Regulators want the venue transparent and the participant verified. Institutions want the participant hidden from the public. The space between those positions is unsettled, and how it resolves will influence which institutions can take part.


The evidence test


This week's headlines can support two different stories. In one, public blockchains are becoming market infrastructure. In the other, a fast-growing speculative venue has acquired better legal packaging. Both stories fit most of the events above, which is why an argument needs a test defined before the data arrives. The table sets out eight pairs. Each row is a question with two possible answers, and an observation counts toward structural adoption only when it matches the left-hand column.


Evidence of structural adoption

Evidence of speculation

Regulatory permission

Temporary exemptions

Real tokenized securities

Synthetic or exposure-based products

Regulated custody

Intermediary dependence

On-chain settlement

Off-chain ownership

Growing liquidity

Incentive-driven liquidity

Institutional infrastructure

Retail and speculative activity

Stablecoin settlement

Crypto trading volume

DeFi integration

Limited institutional participation


Applied to the week, row by row, the picture is mixed. Regulatory permission is the strongest structural signal, and it arrives with a five-year expiry, volume caps and no venue yet operating, so it sits in both columns at once. Real tokenized securities exist in small form: according to its SEC filings, Galaxy Digital issued its own shares as tokens on Solana in 2025, with the shareholder register updating as tokens change hands. The tokens carrying the volume, xStocks and Robinhood's Stock Tokens, are exposure instruments. Custody is regulated at the collateral layer, with Alpaca and Swiss banks holding real shares, yet holders depend on the issuer standing behind the claim. Settlement is on-chain in the literal sense that token and payment swap together, while ownership of the share stays off-chain with a custodian.


Liquidity is growing, and a visible part of it is bought. Robinhood subsidizes fees for 90 days, Uniswap holds about 99 percent of stock-token liquidity on that chain, and Raydium dominates on Solana. The infrastructure under construction is institutional in character, from the Nasdaq and DTC pilot to Zama's vaults, while the wallet data reads retail. Stablecoin settlement is measurable at around ten trillion dollars a year on Visa's adjusted count, though Visa's own network settlement is a small fraction of that and the flow appears largely crypto-native. DeFi integration exists as collateral, yield and lending, and institutional participation in that layer has yet to be shown, particularly as the exempt venues are barred from leverage.


On the evidence available on September 20, the right-hand column is well populated and the left-hand column is mostly potential. That is a normal condition for a pilot, and the question stays open. The test also works in reverse. If the shift is real, it should appear as a change in composition: a rising share of volume in issuer-linked tokens, larger balances per wallet, deeper pools, less subsidy and more regulated custody behind each token.


What could prevent the transition


Market depth is the first obstacle. Institutions move size, and a pool priced by formula, capped at a quarter of one percent of a stock's daily volume and confined to verified participants cannot absorb it. Liquidity is also fragmenting across chains and venues, each with its own pools, wallets and permissioning lists. The SEC itself acknowledges that pool prices can dislocate from the underlying market.


Legal ownership is the second. Exposure tokens, however well collateralized, leave holders as creditors of an issuer. Qualifying tokens must carry the same rights as shares, which means registers, proxy voting and dividends must be handled in a way issuers accept, and the order gives issuers thirty days to object to third-party tokenization. Corporate actions such as splits, mergers and spin-offs must pass through the token layer intact, and the order asks venues to explain how they handle them when markets are closed. Today's tokens typically reflect dividends through balance multipliers or rebasing, which suits price exposure and leaves voting unresolved.


Capital and compliance rules form the third. As written, the Basel Committee's crypto standard effectively places assets on public permissionless blockchains in a punitive 1,250 percent risk-weight category. The Committee announced an expedited review in February, with an update due this year. U.S. bank regulators took a technology-neutral position in March, treating eligible tokenized securities like their conventional forms, but only where the legal rights are identical. Privacy and permissioning add further constraints, and interoperability across chains and stablecoins remains weak, as the BIS observed.


The fourth is the incumbents' own route. Nasdaq's rule, approved in March, lets tokenized shares trade on the same order book as ordinary shares and settle through the Depository Trust Company, under a three-year DTC pilot expected to begin operating in the second half of this year. It keeps existing rails and changes the wrapper. If that route prevails, tokenization will spread and public blockchains will be one settlement rail among several, or absent from the process altogether. The title of this issue describes a possibility, and the incumbent design is a live alternative to it.


The exemption itself is provisional. Relief granted by one Commission can be revisited by another, and the five-year window includes a presidential election. The failure of the CLARITY Act this week shows how much of the structure still rests on agency discretion rather than statute.


What institutional investors should watch next


Nothing in this issue is a recommendation. The purpose of a scorecard is to replace impressions with measurements, and the measurements below are observable.


Activity indicators come first. Sustained tokenized-equity volume matters more than any single week's total, particularly the share that migrates from exposure tokens to issuer-linked tokens that qualify under the exemption, and whether venues begin to press against the volume caps, which would signal demand rather than weakness. Institutional wallet participation can be read through allow-listed addresses, average balances and holder concentration. Stablecoin settlement volumes deserve the adjusted measure rather than the raw one, alongside movement in the alternative cash legs, tokenized deposits and money market funds.


Market quality follows. Depth and spreads in pools relative to the underlying market, and the gap between Friday's close and Monday's open after a weekend of pool trading, show whether the on-chain price is anchored.

Then the plumbing: regulated custody growth and the assets standing behind each token, redemption activity and the time it takes to redeem at par, and corporate-action infrastructure, meaning how dividends, splits and proxy votes pass through tokens without loss.


Finally, participation and rules. Institutional use of DeFi beyond the 40 million dollars in Zama's first vault is one gauge. Regulatory expansion beyond the current exemption is another, including comment-letter outcomes, changes to the caps, Investment Company Act relief and the Basel update. The last is whether pilots become ordinary market infrastructure: how many venues post notices and go live, and whether the Nasdaq and DTC pilot reaches production.

Sources


Fed, OCC, FDIC tokenized securities capital FAQ (March 5, 2026): https://www.federalreserve.gov/newsevents/pressreleases/bcreg20260305a.htm


 
 
 

Comments

Rated 0 out of 5 stars.
No ratings yet
Add a rating
bottom of page