Wall Street spent four hours in July acting out a normal market day, except with a twist. The firms traded tokenized stocks and Treasuries, put up collateral, answered margin requests, and moved assets from one blockchain to another.
"Tokenized" just means a real asset, like an ETF share or a Treasury, gets a digital version on a blockchain.
DTCC, short for Depository Trust & Clearing Corp., ran the exercise. That is the company that keeps the official record for securities worth trillions of dollars.
In one test, JPMorgan converted securities collateral into tokens and used them to cover a margin call. Those tokens were tied to Invesco's Nasdaq 100 ETF, ticker QQQ.
DTCC also changed an equity holding into token form and posted it as margin at CME Group within minutes. The whole exercise ran from control rooms in New York and New Jersey, with dozens of transactions taking place.
The point was not to show off blockchain. "We tried to replicate the activities that occur in the market on a day to day," said Nadine Chakar.
"You don't want tokenization to be done in isolation. You want it to be part of the daily workflow."
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Danny Hand noted that tokenization might cut down on operational drag, make collateral easier to shift, and allow assets to serve margin needs more effectively. Institutional demand has also changed Wall Street's approach.
An industry working group now has more than 100 members, nearly doubling in a few months.
Vivian Fang, a finance professor at Indiana University, said earlier corporate blockchain initiatives frequently fell short because the necessary circumstances for commercial adoption were absent. "The ultimate test," she said, "is whether market participants meaningfully adopt tokenized securities and whether the platform delivers measurable economic profit."
The catch: DTCC can build tokenized collateral. But clearinghouses, the middlemen that stand between buyers and sellers, still have to accept it.
Custodians, the firms that hold assets for investors, have to handle it too. Risk systems also have to recognize it.
Blockchains do not automatically connect. Moving an asset from one network to another requires both systems to agree on the transaction and ownership.
In July, Digital Asset Holdings LLC's Canton Network supported several of those cross-network moves. DTCC did not reveal dollar volumes or participant-specific details.
Noelle Acheson said legal clarity is still questionable. However, DTCC holds a distinctive advantage in advancing the sector through establishing norms and collaborating with firms worldwide.
That said, she added, the transformation is likely to take roughly a decade. The remaining concerns, Chakar said, include user adoption, regulatory approval, and compatibility with existing systems.
DTCC also plans to add another blockchain network, broaden support for Treasury interest payments and maturity dates, and admit firms outside the original July group.
The group ran a deliberately controlled test in July. Participants had practiced together for months, kept the window narrow, and used a relatively small amount of tokenized assets.
The harder phase begins in October, when a larger group will use the system in ordinary day-to-day operations. Chakar described the drill as "a massive step for the market and for the overall state of readiness for all participants come October."
Bank of America's research team expects early uses in collateral movement, blockchain-based cash management, and settlement of well-known financial products. Stocks and credit are likely to grow more slowly.
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