"In early 2021, an army of retail traders made massive bets on meme stocks and briefly melted down the market. Trading volume swelled to such a huge extent that popular brokerage Robinhood had to halt buy orders for stocks like GameStop for a few days in order to escape a liquidity crisis. At the time, the situation led to claims of a conspiracy, but the reason for the meltdown was more mundane: Wall Street's creaky infrastructure could not settle trades fast enough."
"But the financial industry is also pushing ahead with a more radical solution: turning stocks into digital assets that can be traded and settled instantly on a blockchain. It is not just crypto firms and fintech players leading this charge for "tokenization." Big banks like J.P. Morgan are also using blockchains to facilitate trades in certain assets and, in doing so, transforming the financial ecosystem more broadly."
"The potential upsides to tokenization are huge, but significant questions remain over how to implement it. Meanwhile, some fear the coming train could undermine some protections for individual "retail" investors and destabilize a U.S. equities market whose reliability has for decades been the envy of the world. The tokenization wave isn't the first push to overhaul Wall Street's under-the-hood operations."
In early 2021, retail traders' large bets on meme stocks produced extraordinary volume that overwhelmed Wall Street's settlement infrastructure, causing Robinhood to halt buy orders to avoid a liquidity crisis. Settlement processes have since accelerated, shaving a day off trade settlement. Financial firms, including major banks, are pursuing tokenization to convert stocks into digital assets tradable and settleable instantly on blockchains. Tokenization promises efficiency and fundamental changes to trading mechanics, but implementation challenges, regulatory questions, and concerns about erosion of retail investor protections and U.S. market stability remain. A 1970s paperwork crisis shows infrastructure upgrades can resolve systemic bottlenecks.
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