DTCC and the Paradox of Permissioned Crypto Systems

On October 28, 2026, DTCC launched a Tokenization Service, which enables institutions to convert securities (e.g., stocks, ETFs, and U.S. Treasury bonds) into digital assets on a blockchain in a strictly compliant manner.

The process involves creating blockchain-based tokens representing securities already held at DTCC's subsidiary, the Depository Trust Company (DTC). When a security is tokenized, the DTC prevents the asset’s position from being transferred through its traditional system and instead creates a digital token representing the same ownership title. The token can then be transferred between crypto wallets without transferring the underlying security out of DTC's custody.

The service initially supports 34 securities, including Russell 1000 stocks, with approximately $30 trillion in securities eligible for tokenization. 20 financial institutions (including big players such as JPMorgan, Bank of America, and Morgan Stanley) have signed up to participate as clients.

This launch follows months of preparation and testing. For example, in December 2025, the DTC received a three-year no-action letter from the SEC, allowing it to operate without enforcement action, and in July 2026, the DTCC conducted live transactions involving tokenized securities with more than 30 fintech firms before launching the service with 20 clients.

This highlights an ongoing trend in crypto regulation, whereby existing traditional finance regulation is applied to the blockchain universe rather than the other way around.

Out with PoS and in with Permission

The process involves creating blockchain-based tokens representing securities already held at DTCC's subsidiary, the Depository Trust Company (DTC). When a security is tokenized, the DTC prevents the asset’s position from being transferred through its traditional system and instead creates a digital token representing the same ownership title. The token can then be transferred between crypto wallets without transferring the underlying security out of DTC's custody. It’s important to note that they are not independently issued stocks or bonds. Investors retain the same economic rights associated with the underlying securities.

The service initially operates on the Canton Network and DTCC’s private blockchain built using Hyperledger Besu, an Ethereum-compatible client. Canton is a Byzantine Fault Tolerant (BFT) blockchain designed for institutional finance, with privacy controls restricting access to sensitive transaction information. Most importantly, it does not run proof-of-stake for sybil protection. Instead, validators are onboarded via a permissioned network and continue to earn Canton Coins without locking them up (it’s a proof-of-stakeholder rather than stake alone). Its security is purely a matter of governance rather than of economics.

This is essential to ensuring that public bad actors do not harm the network for their own economic interests, and it's why I fear traditional infrastructure using decentralized blockchains (e.g., Ethereum). We need more security than economic security to enforce financial rules. Similarly, Besu is a BFT (and proof-of-authority) network that requires no staking. However, Besu is less open. Rather than using an onboarding process, financial institutions that benefit directly from the infrastructure serve as validators. For example, operating a validator may improve securities transfers, collateral management, or settlement operations for the institution itself - thereby making its incentive the network's commercial value rather than a token reward. I imagine this will be the future of blockchain itself - why secure financial institutions and their products with public, retail assets when you don't need to?

Utilizing these networks, participating institutions can transfer tokenized securities between approved wallets, subject to DTC’s controls. Therefore, the DTC will retain full administrative authority, including the ability to reverse or forcibly transfer tokens whenever necessary. Sounds a lot like a traditional bank, right?

In other words, the blockchain changes how securities entitlements are recorded and transferred, but it does not eliminate the depository or regulatory responsibilities of any participating institution.

Why Tokenize Anything?

The DTCC identified three principal benefits of tokenization: collateral mobility, liquidity, and capital efficiency. In a post-Keynesian world, this is heaven. This is because in traditional financial markets, securities often serve as collateral for borrowing (with treasuries as the backbone of finance), derivatives transactions, and repurchase agreements (repos). Transferring that collateral requires coordination between many institutions such as custodians, clearing institutions, and settlement systems. Tokenization reduces these operational delays, as securities can move more quickly at lower fees.

For example, a financial institution holding U.S. Treasuries at DTC could tokenize a position and transfer it to another approved institution as collateral, 24 hours a day, seven days a week, including weekends and holidays. Unlike traditional securities infrastructure, with in-stone transaction schedules, blockchain networks allow tokenized assets to be transferred and finalized outside regular market hours. This would be particularly relevant to repo markets, where financial institutions exchange cash and securities to obtain short-term funding. By allowing institutions to meet collateral and margin requirements more quickly, the need to maintain excess collateral across multiple accounts is reduced, and, more importantly, the risk of liquidity disasters (e.g., the 2008 financial crisis) is reduced as well. However, we should be mindful that more stable operations tend to give rise to riskier motives (read Hyman Minsky if you haven't already).

Permissioned Tech for Fragmented Liquidity

DTCC’s launch demonstrates how blockchain technology is being incorporated into established financial infrastructure rather than replacing it.

The distinction is especially clear in the structure of the service. DTC continues to hold the underlying securities, participating institutions remain subject to existing regulations, and blockchain networks provide an additional mechanism for transferring securities entitlements. It’s the story of the telegraph replacing outdated settlement technologies all over again.

This approach also preserves the role of financial intermediaries. Banks and core financial plumbing clearing aren't displaced simply because securities can be represented on a distributed ledger. Instead, tokenization could change how these institutions operate.

However, the longer-term significance will depend on whether tokenized securities can move efficiently across institutions and crypto networks without creating fragmented liquidity pools. The permissioned nature and the lack of decentralized PoS or PoW security networks could help in this regard, but at the expense of the direct control that institutions need. This creates a paradox: the restrictions intended to protect financial institutions could undermine the liquidity and collateral mobility that tokenization promises (in the DTCC's vision). The solution may lie somewhere between these extremes, but that remains a question mark for now.