Traditional exchanges are embracing tokenised equities, with the London Stock Exchange following suit.
The London Stock Exchange (LSE) has announced plans to explore a UK tokenised equity structure in partnership with Payward, the parent company of cryptocurrency exchange Kraken.
As part of the partnership, Payward is assessing whether London Stock Exchange Group (LSEG)‘s Digital Securities Depository (DSD) could support settlement and asset servicing, subject to regulatory approval.
The partnership with Payward will focus on how wallet-based access and digital-native infrastructure could connect with LSEG’s existing market ecosystem, including the potential use of both public and private blockchains.
“Tokenisation has the potential to change how investors access, and how issuers use, financial markets, but it must develop in a way that preserves the trust, rights and role of regulated markets,” said Julia Hoggett, CEO of LSE plc and Head of Digital and Securities Markets at LSEG.
The project forms part of LSEG’s effort to modernise its infrastructure, in addition to its planned 24-hour trading venue, LSE 24, its Digital Securities Depository and the Digital Settlement House.
A collision course that never was
In the official announcement, Arjun Sethi, Co-CEO of Payward, said there had long been an assumption that traditional finance and crypto were on a collision course that would eventually leave one side behind.
“That was never the real story,” Sethi added. “The real opportunity is what happens when they run on the same rails.”
Tokenised stocks have become a testing ground for this idea, with crypto-native platforms offering investors blockchain-based exposure to traditional equities, particularly for their customers who do not have access to stock listings due to geography.
Robinhood has expanded its Stock Tokens offering in Europe and Coinbase recently launched tokenised versions of US-listed companies including NVIDIA, Apple, Meta and Alphabet through Base, its blockchain network.
Sethi’s comments are similar to those made by Antonio Garcia-Martinez, Head of Growth at Base, when Coinbase launched its offering last week, with both highlighting how tokenisation can open restricted financial assets to wider on-chain use.
“Base has built one of the most vibrant DeFi ecosystems out there, and Chainlink’s oracle infra unlocks new utility for tokenised assets,” said Garcia-Martinez.
“With institutional-grade market data now live onchain, we’re giving millions of users access to financial primitives that, until now, were locked behind traditional gatekeepers.”
Sethi, however, went further by stating that tokenisation could change more than who can access public equities, pointing to potential changes in how shares are issued, traded, settled and transferred.
“Bringing London-listed companies onchain as xStocks is the start of that, demonstrating how investors can access public markets in new ways,” he said.
One of the benefits that has constantly been highlighted is continuous trading. This allows tokenised equities to move outside the opening hours of traditional exchanges, although the technology could also reduce settlement friction and make assets easier to move between different financial applications.
Speaking to Payment Expert last month, Toby Norfolk-Thompson, Co-founder and Chief Commercial Officer at Sentora, said: “Tokenised equities are interesting because they change what investors can do with an asset, rather than simply changing the format in which it is held.
“Bringing equities on-chain can enable 24/7 availability and settlement, while also making them much easier to integrate with decentralised financial infrastructure.”
These benefits become more significant when tokenised equities can interact with digital wallets, blockchain-based settlement and, potentially, decentralised finance infrastructure.
Tokenised stocks are mainstream?
Following companies such as Robinhood and Coinbase embracing tokenised stocks, Payment Expert asked Norfolk-Thompson last month if the trend offered benefits or risked becoming a crypto experiment.
He warned that tokenisation doesn’t automatically make an asset better, arguing that “the opportunity is less about putting traditional equities on a blockchain for its own sake and more about making those assets usable within a broader, continuously operating financial system.”
The LSE’s move adds weight to the view that tokenised equities are becoming more than a crypto trend, particularly as other major exchanges and market infrastructure providers also explore blockchain-based securities.
In March, the Securities and Exchange Commission (SEC) approved a Nasdaq rule change that enables securities to trade on the exchange in tokenised form.
Nasdaq has also outlined plans for an equity token design that preserves the ownership rights attached to traditional shares while giving listed companies greater control over how their stock is represented on blockchain infrastructure.
These trusted markets are key, according to Sethi, who said: “The next step is connecting those new forms of access with trusted market infrastructure. Doing this with an institution the calibre of the LSE is what turns that vision from an idea into lasting market infrastructure.”
