Nasdaq Tokenization Could Split Markets and Create Price Gaps: TD

• TD Securities warns that Nasdaq's push into tokenization could lead to a split market structure between traditional US exchanges and blockchain platforms.
• Tokenized equity trading on offshore venues like Kraken has seen massive growth, exceeding $25 billion in volume.
• Experts highlight risks of price gaps and reduced liquidity as trading fragments across different regulatory environments.

Potential for Market Bifurcation

Nasdaq is currently advancing a three-pronged strategy to integrate tokenization into capital markets. This involves upgrading post-trade settlement processes, allowing firms to issue shares as tokens, and supporting trading on offshore venues. According to Reid Noch, vice president of US equity market structure at TD Securities, these parallel initiatives could create a dual-market system. One side would remain within the traditional, regulated US environment, while the other would operate on global, blockchain-based platforms.

Risks of Fragmented Liquidity

The emergence of offshore trading for tokenized US stocks presents significant challenges for market stability. While these digital assets are backed by actual shares, they often operate outside the US regulatory framework. This separation could lead to price disparities, where the same underlying stock trades at different prices on different venues. Investors may face a more complex landscape where liquidity is split, potentially making it harder to execute trades at consistent prices compared to centralized exchanges.

The Rise of 24/7 Global Trading

Despite the risks, the demand for tokenized assets is accelerating. Kraken’s xStocks platform has reported roughly 150% growth since November, reaching a cumulative trading volume of over $25 billion. This trend signals a shift toward round-the-clock markets that bypass traditional exchange hours. Other major players are also entering the space; Coinbase is developing its own "everything exchange," and the NYSE has partnered with Securitize to explore tokenized securities that could support extended trading windows.