Blue Ocean, an off-exchange platform that enables overnight U.S. stock trading, said on Friday it was making a push into blockchain-based equity offerings, becoming the latest trading venue betting big on tokenization.
The move comes as corporations and governments embrace digital assets, upgrading them from the fringes of finance to a key portfolio allocation and now a critical underpinning of the trading ecosystem.
Tokenization refers to the process of turning financial assets – such as bank deposits, stocks, bonds, funds and even real estate – into blockchain-based assets.
These “tokens”, then, can be held in crypto wallets and traded on blockchain, providing them with around-the-clock markets.
Nasdaq filed a proposal with the U.S. Securities and Exchange Commission last month to tweak its rules and allow the trading of listed stocks and exchange-traded products on its main market in “either traditional digital or tokenized form”.
The shortfalls in the current infrastructure for overnight trading were in focus during the global selloff in August last year, when Blue Ocean’s alternative trading system – that matches buyers and sellers – crashed due to capacity constraints.
In response, the company upgraded its capacity by several hundredfold in the weeks that followed.
An alternative trading system, or ATS, operated by privately held Blue Ocean powers the expanded trading capabilities at Robinhood, Schwab, Interactive Brokers and Webull.
An ATS matches buyers and sellers outside traditional stock exchanges like the New York Stock Exchange and Nasdaq.
Proponents of tokenization say it can improve liquidity in the financial system, especially for assets such as real estate, by breaking them into small digital tokens.
Critics, however, question how blockchain could be any more efficient than the electronic ledgers and trading systems already used in financial markets.
Buyers of third-party tokens, which are issued by unaffiliated third parties that have custody of securities – such as crypto exchange Kraken – could be exposed to counterparty risks, setting off warnings from regulators.
