This episode reveals how the "wrapped" asset model, perfected by stablecoins, is now being applied to tokenized stocks, creating a pathway for permissionless, DeFi-compatible equities that could bypass the limitations of native on-chain issuance.
The Inevitability of Tokenized Assets
- Central Securities Depository (CSD): Nathan explains that CSDs are the institutions that hold securities and enable ownership transfers in traditional finance, like the DTC in the U.S. or Euroclear in Europe. The process of moving assets between these regional CSDs is slow and cumbersome, often taking days or weeks.
- Ian De Bode, Chief Strategy Officer at Ondo, emphasizes this point, stating that the efficiency gains from tokenizing stocks and treasuries will be a "quantum leap" even larger than what stablecoins achieved for cash.
- The speakers highlight the poor user experience of traditional brokerages, citing multi-day settlement times for cash after selling a security and the complex process of transferring accounts between firms like E*TRADE and Fidelity.
The Current State of Real-World Assets
- Stablecoins are presented as the most successful RWA, with a market cap approaching $300 billion and gaining regulatory acceptance, as seen with recent U.S. legislation.
- Tokenized U.S. Treasuries are the next major category, having grown from roughly $1 billion to over $7.4 billion in just 18 months. This growth is attributed to the clear value proposition of offering yield on stablecoin-like assets.
- Ian notes, "The adoption of that as an asset class has happened a lot faster than a stable coin and we think the logical next step now obviously is to do the same I think for stocks and ETFs."
- The recent stealth launch of Fidelity's tokenized money market funds on Ethereum is cited as a major signal of institutional adoption. Fidelity, the largest manager of money market funds with over $1.3 trillion, entering the on-chain space underscores the massive potential, as the total TradFi money market is worth $7 trillion.
Tokenized Treasuries: Permissioned vs. Permissionless Models
- Permissioned Model: Products like Ondo's OSG and BlackRock's BUIDL fund operate on an "allow list." Only KYC-approved wallets can hold or transfer the asset, which limits its use in DeFi.
- Permissionless Model: Ondo's USDY is structured as a permissionless bearer instrument for non-U.S. investors. While primary issuance requires KYC, the token can be freely transferred on secondary markets after a compliance period, enabling DeFi integration.
- Repo Markets: Ian briefly explains that repo markets are the backbone of TradFi liquidity, where institutions use treasuries as collateral for overnight financing. Tokenized treasuries on-chain can replicate this crucial financial function in DeFi.
- This distinction is key for investors, as permissionless assets can be integrated into a wide range of DeFi protocols, embedding them into the on-chain economy in a way permissioned assets cannot.
The Rise of Tokenized Stocks
- Ian identifies two critical factors for evaluating tokenized stock platforms: whether the asset is a permissionless bearer instrument and the quality of its liquidity and pricing.
- He critiques existing models like XSTOXX (formerly backed finance), which rely on pre-funded on-chain liquidity pools. This model struggles to scale, as it requires enormous capital to provide deep liquidity for thousands of different stocks across multiple chains, leading to poor pricing and high slippage.
- Ondo's Global Markets platform addresses this by using a "just-in-time" minting model. Nathan explains, "Only when a user comes to us... and tries to buy a security only then do we mint the token and buy the underlying stock to back the token." This approach ports deep TradFi liquidity on-chain without requiring market makers to hold massive, idle inventory.
The "Wrapped" vs. "Native" Tokenization Debate
- Ondo's Wrapped Model: Ondo's tokenized stocks are legally structured as debt securities collateralized by the underlying stock. The token tracks the total return of the stock, with dividends being reinvested to simplify DeFi composability. This structure includes strong investor protections like a third-party collateral agent and bankruptcy remoteness.
- Native Tokenization: This refers to a model where the on-chain token itself represents direct ownership of the share, with full property rights like voting. The hosts and guests argue this model faces significant hurdles.
- David Hoffman suggests that native tokenization would inevitably require strict, on-chain KYC enforcement, which would "neuter some of the biggest most cool things about tokenization," such as permissionless transfers and DeFi integration.
- Ian draws a parallel to stablecoins: "A stable coin's a wrapper and that was just fine... If a stable coin had originally been issued as true native cash sitting at a bank account, I'm pretty sure that evolution probably would not have happened." The success of the wrapped stablecoin model provides a powerful precedent for other asset classes.
On-Chain Markets: 24/7 Trading and DeFi Integration
- Ondo supports minting and redemption 24/5, mirroring the extended hours of U.S. equity markets. During weekends when TradFi markets are closed, the on-chain tokens can still trade in permissionless DEX pools.
- This creates a new venue for price discovery during off-hours. As Ian notes, large TradFi market makers are already preparing for this by spinning up weekend desks in anticipation of major crypto exchanges listing these assets.
- The true innovation is turning stocks into "money legos"—programmable assets that DeFi developers can build upon. This unlocks novel applications far beyond the simple "buy, sell, margin" buttons in a traditional brokerage account, enabling everything from personalized, automated investment vaults to new types of collateralized lending.
The Battle of the Chains: Where Will RWAs Live?
- Ethereum currently holds over 70% of all RWA value, demonstrating strong network effects, deep liquidity, and a mature DeFi ecosystem. Ondo launched its stock platform on Ethereum first to leverage its advanced intent-based architecture, which is crucial for their just-in-time liquidity model.
- However, many issuers, including Ondo, are developing their own Layer 1 blockchains (like OndoChain). Nathan explains this allows for specific optimizations around compliance, privacy, and latency that are difficult to achieve on a general-purpose public chain, particularly for regulated activities like broker-dealing.
- The consensus is a multi-chain future where specialized issuer chains act as hubs, with assets flowing to public chains like Ethereum where user activity and DeFi innovation are concentrated. The key is ensuring interoperability to avoid recreating the fragmented liquidity islands of traditional finance.
This episode argues that the "wrapped" asset model, proven by stablecoins, is the most pragmatic and scalable path for bringing stocks on-chain. For investors and researchers, the key takeaway is that permissionless, DeFi-compatible wrapped assets are likely to outpace natively issued tokens, unlocking 24/7 markets and novel financial applications.
