Tokenized Equities Need an ADR Structure to Protect Investors
Main Idea
Tokenized equities should adopt an ADR (American Depositary Receipt) structure to ensure investor protection and regulatory compliance, leveraging blockchain technology while maintaining traditional safeguards.
Key Points
1. The wrapper model for tokenized equities involves synthetic IOUs with limited liquidity and regulatory clarity, often excluding U.S. investors.
2. ADRs provide a proven, regulated, and custody-backed structure for trading foreign equities in the U.S., serving as an early form of tokenization.
3. Tokenized DRs can preserve shareholder rights, ensure full fungibility, and integrate blockchain with existing legal frameworks.
4. ADRs are recognized as securities under U.S. law, offering a bankruptcy-remote structure that protects underlying shares for the benefit of holders.
5. Applying the ADR framework to tokenized equities could streamline market access and enhance trust without requiring new regulatory inventions.
Description
Tokenization has significant potential to transform capital markets, promising real-time settlement, broader investor access and greater programmability across financial infrastructure. But while the rails are evolving, current models for tokenized equities remain fragmented, opaque and misaligned with the safeguards that define the traditional securities markets. Today, two dominant approaches exist: The wrapper model involves tokenized IOUs that provide synthetic exposure to existing equities ...
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