Tokenized Securities Need Competition, Not Gatekeepers

Patrick McHenry emphasizes the need for competition in tokenized securities, arguing against a one-size-fits-all regulatory approach.

OpinionTokenized Securities Require Competition, Not Gatekeepers

For innovation to succeed, investors must have choices. Patrick McHenry, vice chairman at Ondo Finance and former Chairman of the House Financial Services Committee, argues that Washington should not favor specific models before the market has the opportunity to determine what works.

By Patrick McHenry|Edited by Cheyenne Ligon Jun 30, 2026, 1:25 p.m. 4 min readMake preferred on ShareShare this articleCopy linkX (Twitter)LinkedIn Facebook Email Make preferred on

The adaptability of America’s capital markets has made them a global leader.

Historically, paper certificates transitioned to electronic records, trading floors evolved into digital markets, and manual processes were replaced with quicker settlement methods, automated clearing, and global accessibility. Each transition raised valid concerns and required safeguards. However, the U.S. maintained its lead because it embraced new tools instead of viewing them as threats.

Tokenization represents the next evolution in this process.

Patrick McHenry is the vice chairman of the advisory board at Ondo Finance and a former U.S. Representative who chaired the House Financial Services Committee.

The ongoing discussion regarding tokenized stocks revolves around a fundamental issue: what should be the appropriate structure for securities in the U.S. market? Some believe that tokenization should primarily occur through existing market frameworks, such as broker-dealers, custodians, and securities intermediaries. Others have proposed various products backed by U.S.-listed securities tailored to the growing number of investors who prefer on-chain investments. Meanwhile, some advocate for issuers and transfer agents as the preferred route.

This discussion is crucial, but it should not be limited to a single endorsed model. A more pertinent question is whether various models can effectively compete while ensuring investor protection and the integrity of U.S. markets.

Tokenized securities are diverse; they can take multiple forms and provide different rights. They occupy various positions within the market structure. A uniform treatment of all tokenized securities could lead to poor policy decisions and subpar products for both investors and issuers, ultimately diminishing the competitive edge of U.S. capital markets on a global scale. At least three distinct models warrant consideration.

The first model is market infrastructure tokenization. Here, the underlying securities remain within the established legal and operational framework, utilizing blockchain for better recordkeeping, reconciliation, collateral monitoring, and transfer controls. This method enhances the existing U.S. securities market system without the need for its complete overhaul.

The second model is customer-driven tokenization, which starts with the investor's objectives. Some products may take the form of notes or other instruments designed to track the performance of U.S.-listed stocks or ETFs, underpinned by actual securities and collateral. Others might utilize tokenized records for entitlements held via intermediaries. It is crucial to note that these products differ from directly registered shares and should not be marketed as such.

Well-established market instruments, such as brokerage-held securities, ETFs, depository receipts, and structured notes, exist today. Tokenization does not inherently validate or invalidate their legitimacy; rather, their legal and economic frameworks should dictate their regulatory treatment.

The third model involves issuer-sponsored tokenization, where a company and its transfer agent directly support tokenized ownership. This approach may be suitable for many issuers, connecting tokenized records to shareholder systems while supporting familiar processes for corporate actions and communication.

In today’s market, brokerage-held securities, depository receipts, structured notes, and direct registration coexist, each offering distinct rights. Investors choose among these options based on their specific needs. Key considerations include clarity in structure, disclosure of risks, and ensuring that promised backing is legitimate and that products function as advertised.

This standard should also apply to tokenized markets.

A potential negative outcome of the current tokenization debate could be a scenario where products mimic the language of stocks without adequately informing investors about what they truly own, leading to misrepresentation. This would not only harm investors but also erode trust in the technology.

Another adverse scenario would be the emergence of tokenization as a series of exclusive, private ecosystems. This would stifle competition and hinder the market's ability to learn what works best.

The U.S. must steer clear of both pitfalls.

Open and regulated markets can coexist. The depth of U.S. securities markets stems from their ability to balance investor protection with competition, capital formation, and adaptability. Maintaining this balance is challenging but essential for attracting capital, making U.S. assets desirable for global investors, and fostering innovation domestically rather than abroad.

A more investor-focused approach to tokenization can enhance this strength. It can link global demand back to U.S. assets and liquidity, provide clearer records, and offer more portable products. This approach can enhance transparency without sacrificing the legal protections inherent in the current system.

This is not merely theoretical; market participants are already trialing various models. Some are grounded in existing securities infrastructure, while others are on-chain products that are either directly or indirectly backed by U.S.-listed securities and ETFs. Others are issuer-led.

These distinctions are important, demonstrating that the market is grappling with the right questions.

Throughout my time in Congress, I advocated for clear regulations regarding digital asset policy, which remains vital. Clarity safeguards consumers and investors, and it also ensures that innovation remains in the U.S. However, clear regulations should not force emerging products into outdated frameworks, nor should they allow any single group to dictate which models can exist. The goal is not to declare a single winner from the outset but to enable various models to compete based on their merits, providing options that address the diverse needs of investors and issuers.

This is how American markets operate most effectively.

The markets for tokenized securities do not require more gatekeepers. Instead, they need clear distinctions, robust controls, and space for responsible competition.

This is how the U.S. has historically led and can continue to lead financial markets into the future.

Note: The opinions expressed in this article are those of the author and do not necessarily reflect the views of CoinDesk, Inc. or its affiliates.

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