SEC "Two-Year On-Chain" Prediction: Tokenization Reconstruction of the DTCC Clearing System

Author: @BlazingKevin_, the Researcher at Movemaker

SEC Chair Gary Gensler pointed out that the entire U.S. financial market, including stocks, fixed income, government bonds, and real estate, may fully migrate to a blockchain technology architecture that supports cryptocurrencies within the next two years. This can be regarded as the most significant structural change in the U.S. financial system since the emergence of electronic trading in the 1970s.

1. Comprehensive On-chain Cross-department Collaboration Framework and Actual Contributions

The “Project Crypto” initiative promoted by Atkins is not a unilateral action by the SEC; it is built on systematic cooperation across legislation, regulation, and the private sector. For the comprehensive on-chain integration of the U.S. financial markets, valued at over $50 trillion (including stocks, bonds, treasury securities, private credit, real estate, etc.), it requires multiple institutions to clarify their roles and contributions.

1.1 Government departments that will be involved in comprehensive assetization

It should be noted that the “Project Crypto” and the “Innovation Waiver” mechanism acknowledge the incompatibility of blockchain technology with existing financial regulations, providing a controlled experimental environment that allows traditional financial institutions (TradFi) to explore and implement tokenized infrastructure without violating core investor protection principles.

The GENIUS Act addresses the Cash Leg issue necessary for institutions to conduct on-chain transactions and collateralization by creating compliant, fully reserved-backed stablecoins and clearly transferring regulatory authority to banking regulators.

The CLARITY Act clarifies the jurisdiction between the SEC and the CFTC by defining a “mature” framework specifically for crypto-native platforms, allowing institutions to clearly understand under which regulatory body their digital assets (such as Bitcoin) operate, while also providing a pathway for crypto-native platforms to register as federal regulatory intermediaries (“broker-dealers”).

OCC was established in 1973 and specializes in providing clearing and settlement services for options, futures, and securities lending transactions, promoting market stability and integrity. *CFTC is the main regulator of the futures market and futures traders.

This cross-departmental collaboration is a prerequisite for the comprehensive on-chain implementation of the US financial market, laying a solid foundation for the subsequent large-scale deployment by giants such as BlackRock and JPMorgan Chase, as well as the integration of core infrastructures like DTCC.

1.2 Collaboration of Traditional Financial Giants

In the collaborative blueprint of traditional financial giants in the United States, the deepening layout of various institutions reflects a more specific strategic focus and technical details. BlackRock is the first to issue a tokenized U.S. Treasury bond fund on a public chain (Ethereum), establishing its cornerstone position as an asset manager bringing traditional financial returns into the public chain ecosystem.

After renaming its blockchain business to Kinexys, JPMorgan allows banks to complete atomic swaps of tokenized collateral and cash within hours instead of days, significantly optimizing liquidity management; at the same time, its pilot initiative for JPMD on the Base chain is seen as a strategic step toward extending into a broader public blockchain ecosystem, aimed at seeking stronger interoperability.

Finally, the specific breakthrough of the custodial trust and the clearing company (DTCC) was achieved by its subsidiary, the Depository Trust Company (DTC). As the most important trading infrastructure provider in the world, the SEC “no-action letter” it received enables it to connect the traditional CUSIP system with the new token infrastructure, thereby officially launching a pilot for the tokenization of mainstream assets, including the Russell 1000 constituents, in a controlled environment.

2. Analysis of the Financial Environment and Impact After Comprehensive Tokenization

The core goal of asset tokenization is to break the “silo effect” and “time constraints” of traditional finance, creating a global, programmable, and around-the-clock financial system.

2.1 Significant Improvement in the Financial Environment: Leap in Efficiency and Performance

Tokenization will bring efficiency and performance advantages that are difficult to match by traditional financial systems:

2.1.1 Leap in Settlement Speed (T+1/T+2 to T+0/Second-level):

Enhancement: Blockchain enables near real-time (T+0) or even second-level settlement and delivery, in stark contrast to the T+1 or T+2 settlement cycles typically required in traditional financial markets. The digital bonds issued by UBS on SDX demonstrate T+0 settlement capability, while the European Investment Bank's digital bond issuance has also reduced the settlement time from five days to one.

Pain Points Addressed: Significantly reduces counterparty credit risk and operational risk caused by settlement delays. For time-sensitive trades such as repos and derivatives margin, the improvement in settlement speed is crucial.

2.1.2 The Revolution of Capital Efficiency and the Release of Liquidity:

Enhancement: Achieved “atomic settlement,” where assets and payments occur simultaneously in a single, indivisible transaction. Additionally, through tokenization, it is possible to unlock the “sleeping capital” currently locked in settlement waiting periods or inefficient processes. For example, programmable collateral management can release over $100 billion of trapped capital annually.

Pain Points Addressed: Eliminated the principal risk in the traditional “pay after delivery” operations. Reduced the need for high margin buffers at clearinghouses. At the same time, tokenized money market funds (TMMFs) can be transferred directly as collateral, preserving returns and avoiding the liquidity friction and yield loss associated with the need to redeem cash and reinvest in traditional systems.

2.1.3 Enhancement of Transparency and Auditability:

Enhancement: Distributed ledgers provide a single, immutable authoritative record of ownership, with all transaction histories being public and verifiable. Smart contracts can automatically execute compliance checks and corporate actions (such as dividends).

Pain Points Addressed: Completely resolved the inefficiencies of data silos, multiple bookkeeping, and manual reconciliation in traditional finance. Provided regulators with an unprecedented “God's Eye View,” enabling real-time, penetrating supervision and effective monitoring of systemic risks.

2.1.4 24/7/365 Global Market Access:

Enhancement: The market is no longer restricted by traditional bank working hours, time zones, or holidays. Tokenization facilitates smoother cross-border transactions, allowing assets to be transferred peer-to-peer on a global scale.

Pain Points Addressed: Overcame the time lag and regional restrictions in traditional cross-border payments and liquidity management, particularly benefiting cash management for multinational companies.

2.2 Participants Most Affected

The transformation brought about by tokenization is disruptive and has the greatest impact on the following categories of market participants:

Main Challenges and Risks:

• Trade-offs between Liquidity and Net Settlement: DTCC currently reduces the actual amount of cash and securities that need to be transferred by 98% through net settlement of millions of transactions, achieving significant capital efficiency. Atomic settlement (T+0) is essentially Real-Time Gross Settlement (RTGS), which may lead to a loss of net settlement efficiency, requiring the market to seek hybrid solutions between speed and capital efficiency, such as intraday repos.
• Privacy Paradox: Institutional finance relies on transaction privacy, while public chains (like Ethereum) have transparency. Large institutions cannot execute large trades on public chains without being “front-run.” The solution is to adopt privacy-preserving technologies like zero-knowledge proofs or operate on permissioned chains (such as JPMorgan's Kinexys).
• Amplification of Systemic Risk: The 24/7 market eliminates the “cooling-off period” of traditional markets. Algorithmic trading and automated margin calls (via smart contracts) could trigger massive chain liquidations under market stress, thereby amplifying systemic risk, similar to the liquidity pressures observed during the UK's LDI crisis in 2022.

2.3 Core Value of Tokenized Fund (TMMF)

The tokenization of money market funds (MMFs) is one of the most representative cases in the growth of RWA. TMMFs are particularly attractive as collateral:

• Retained Earnings: Unlike non-interest-bearing cash, TMMFs can continue to earn returns as collateral until they are actually used, reducing the opportunity cost of “collateral drag.”
• High Liquidity and Composability: TMMFs combine the regulatory familiarity and safety of traditional MMFs with the instant settlement and programmability brought by DLT. For example, BlackRock's BUIDL fund addresses the pain point of traditional MMF redemptions requiring T+1 by utilizing Circle's USDC instant redemption channel, achieving 24/7 instant liquidity.

3. The Role of DTCC/DTC in the Tokenization Process

DTCC and DTC are indispensable core systemic institutions in the U.S. financial infrastructure. The assets held by DTC are substantial, covering the vast majority of stock registration, transfer, and custody in the U.S. capital markets. DTCC and DTC are regarded as the “master warehouse” and “main ledger” of the U.S. stock market. The involvement of DTCC is fundamentally key to ensuring the compliance, security, and legal validity of the tokenization process.

3.1 The Core Roles and Responsibilities of DTC

• Identity and Scale: DTC is responsible for central securities depository, clearing, and asset services. As of 2025, DTC's assets under custody reached $100.3 trillion, covering 1.44 million types of securities issuances, dominating the registration, transfer, and certification of the vast majority of stocks in the U.S. capital markets.
• Tokenization Bridge and Compliance Assurance: The involvement of DTCC represents the official recognition of traditional financial infrastructure for digital assets. Its core responsibility is to act as a trust bridge between the traditional CUSIP system and the emerging tokenization infrastructure. DTCC commits that tokenized assets will maintain the same high levels of security, robustness, legal rights, and investor protection as their traditional forms.
• Liquidity Integration: DTCC's strategic goal is to achieve a single liquidity pool between the TradFi (traditional finance) and DeFi (decentralized finance) ecosystems through its ComposerX platform suite.

3.2 DTC Tokenization Process and SEC No-Action Letter

In December 2025, DTCC's subsidiary DTC obtained a milestone no-action letter from the U.S. SEC, which serves as the legal basis for its large-scale promotion of tokenized services.

3.3 The Impact of Tokenization on DTC

The approval of DTC NAL is regarded as a milestone in tokenization, with its impact mainly reflected in:

• Certainty of Official Tokens: The tokenization of DTC means that tokenized stocks backed by official U.S. endorsements are on the horizon. Future projects that tokenize U.S. stocks may be able to directly access DTC's official asset tokens instead of building their own asset on-chain infrastructure.
• Market Structure Integration: Tokenization will drive the US stock market toward a model of CEX + DTC custodial trust companies. Exchanges like NASDAQ may directly participate as CEX, while DTC manages token contracts and allows withdrawals, achieving complete liquidity integration.
• Enhanced Collateral Liquidity: DTC's tokenization services will support enhanced collateral liquidity, enabling 24/7 access and asset programmability. DTCC has been exploring the use of DLT technology to optimize collateral management for nearly a decade.
• Eliminate Market Fragmentation: Stock tokens are no longer a digital type that is separated from traditional assets, but are fully integrated into the ledger of traditional capital markets.