"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."
"Robinhood CEO Vlad Tenev and others called for an overhaul, and since then there has already been progress, as stock trades now settle a day sooner than in 2021. 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."
"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 extreme retail trading overwhelmed settlement systems, forcing brokerages to halt buy orders to avoid a liquidity collapse. Industry participants accelerated reforms that shortened settlement by one day. Financial firms are pursuing tokenization to represent stocks as digital assets on blockchains, enabling near-instant trading and settlement. Major banks and fintechs are experimenting with blockchain-based settlement and tokenized assets, promising efficiency gains. Tokenization could transform trading infrastructure but raises operational, regulatory and investor-protection questions and may introduce new systemic risks to U.S. equity market stability.
Read at Fortune
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