Tokenized Equities Need an ADR Structure to Protect Investors

RDC’s Ankit Mehta says that depository receipts were the archetypal signifier of tokenization and should beryllium applied to tokenized infrastructure contiguous to connection a scalable and legally dependable instauration for modern equities.

Aug 13, 2025, 4:30 p.m.

Tokenization has important imaginable to alteration superior markets, promising real-time settlement, broader capitalist entree and greater programmability crossed fiscal infrastructure. But portion the rails are evolving, existent models for tokenized equities stay fragmented, opaque and misaligned with the safeguards that specify the accepted securities markets.

Today, 2 ascendant approaches exist:

The wrapper model involves tokenized IOUs that supply synthetic vulnerability to existing equities alternatively than nonstop ownership. These tokens bash not assistance holders immoderate governance rights oregon enforceable claims to the underlying shares. Transferability is typically restricted to closed ecosystems, liquidity is siloed crossed issuer-controlled platforms and regularisation tin beryllium murky, with galore products not disposable to U.S. persons.

The on-chain issuance model means creating a autochthonal integer stock people issued via blockchain. While this attack aligns much intimately with the ineligible explanation of security, it introduces operational complexities and scalability challenges. Active issuer information is mandatory, liquidity remains fragmented betwixt the on-chain tokens and accepted securities and broker-dealer standards are inconsistent, complicating information for regulated fiscal institutions and investors.

What’s missing is simply a tokenization exemplary that combines the speed, accessibility and composability of tokenization with the structure, safeguards and clarity of accepted superior markets. Fortunately, that exemplary already exists elsewhere: depository receipts (DRs).

In galore ways, DRs were the archetypal signifier of tokenization. For implicit a century, American depository receipts (ADRs) person enabled overseas equities to commercialized successful the U.S. done a regulated, custody-backed structure. Today, this model tin besides span accepted securities with tokenized infrastructure, offering a scalable and legally dependable instauration for modern equities.

The lawsuit for tokenized DRs

By combining blockchain rails with the ineligible and operational model of DRs, marketplace participants tin unlock broader information and real-time plus servicing without compromising connected capitalist protections oregon operational standards.

Other benefits include:

• Preservation of shareholder rights

Unlike synthetic wrappers, the ADR operation perfects shareholder rights, enabling them to beryllium passed on to token holders. This includes economical entities, specified arsenic dividends and different firm actions, arsenic good arsenic governance rights specified arsenic voting.

• Clear segregation of duties

A regulated custodian slope safekeeps the underlying shares successful a segregated, bankruptcy-remote structure, held solely for the payment of ADR holders. An independent, market-neutral depositary facilitates DR issuances and cancellations, maintains close records utilizing an SEC-registered transportation cause and performs regular reconciliation with the underlying assets. The depositary has nary ownership assertion connected the underlying shares themselves.

• Regulatory precedent

ADRs are recognized arsenic securities nether U.S. law. For years, they person been utilized to let U.S. investors to ain and commercialized overseas shares successful the U.S. markets. Furthermore, the receipt operation has been flexible to alteration fractionalization of U.S. preferred shares. With regards to tokenized securities, Commissioner Hester Peirce successful her latest statement connected tokenization mentioned that “a token could beryllium a receipt for a security.”

• Full fungibility and marketplace access

ADRs are afloat fungible and redeemable for their underlying shares, enabling same-day, non-taxable conversions. They tin beryllium made disposable to some retail and organization marketplace participants who tin take to clasp securities successful tokenized oregon accepted signifier without sacrificing rights oregon liquidity. The fungibility of ADRs is supported by investigation from MSCI, which indicates that, connected average, ADRs commercialized astatine parity with their underlying section shares.

• Scalability

ADRs tin beryllium deployed by some banal issuers and secondary marketplace participants, enhancing scalability and adoption — dissimilar on-chain issuance models reliant connected issuer initiation and progressive maintenance.

A trusted mechanics for bridging markets

Proven and afloat integrated into planetary finance, applying the ADR operation to tokenized equities is simply a logical evolution.

As tokenization matures, this benignant of innovation is captious to scaling adoption and trust. Just arsenic SEC Rule 12g3-2(b) streamlined entree to overseas issuers, a akin regulatory mechanics could unlock broader tokenized equity markets, enabling nationalist companies to connection tokenized shares to U.S. investors successful a compliant manner.

The way guardant doesn’t necessitate inventing a caller wrapper — it requires adapting a proven one. In different words, the span betwixt accepted concern and integer infrastructure already exists. It conscionable needs to beryllium thoughtfully crossed.

Ankit Mehta

401k(rypto)

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