The NYSE’s Big Tokenization Plan Is Vaporware Positioned as Innovation
In 1998, AT&T—the world’s largest telecommunications company—struck a series of agreements with Excite, a popular startup. The telecom giant thought distributing Excite’s content and search tools via its massive cable network would let it maintain dominance as the Internet era emerged. Of course, [another player] had other plans, and today that company’s market capitalization is 20 times greater than AT&T’s.
I thought of AT&T when I read about the New York Stock Exchange’s new platform for tokenized securities. The news is a pivotal moment for blockchain because not only is the NYSE an iconic brand, but its parent company, ICE, owns exchanges and clearing systems worldwide. A firm of that stature embracing blockchain suggests the technology is finally entering the mainstream.
Adding to this is the strong possibility that Congress will pass legislation integrating crypto services into the existing financial system. The future then seems straightforward: Equities will be tokenized; regulators will supervise a new era of blockchain-based issuance and trading; and the NYSE and its peers will take the lead.
But hold on. While the first two points are almost guaranteed to happen, the third isn’t a given. Just like AT&T in the late 1990s communications industry, the NYSE’s current dominance in finance doesn’t ensure it will lead the next era.
In fact, there are solid reasons to be skeptical—beginning with the NYSE’s announcement itself, which is full of hype and buzzwords but lacks substantive details. If the exchange were serious about being a key player in blockchain-powered finance, it would answer basic, obvious questions.
To start, which blockchains and stablecoins will the NYSE support? Has its proposed tokenized exchange chosen programming languages, virtual machines, or token standards? That’s just the first set of questions. The NYSE also hasn’t addressed which jurisdictions it will operate in, whether it will integrate decentralized tokens and DeFi tools, or how it plans to generate revenue in a tokenized system.
The lack of details is even more puzzling because the NYSE’s plans are “pending regulatory approvals”—and regulators need answers to these questions more than anyone else. When Galaxy Digital tokenized its own equity, it released a detailed document covering the complex specifics—and that’s just a single company. For a major exchange like the NYSE, the considerations are far more intricate.
The few details the NYSE has shared only deepen my doubt. Their platform is supposed to operate 24/7, but tokenization isn’t required for that—all you need is a database. Ironically, the NYSE runs some of the world’s top databases, so there’s no technical barrier to 24/7 operation. The same goes for their plan to use blockchain for instant settlement: they could do this with existing technology, but it would hurt the business models of many of their current partners.
Anyone who thinks continuous trading and instant settlement are unique to blockchain doesn’t grasp what makes platforms like Ethereum stand out. It’s not the database—Ethereum is a poor database, after all.
Permissionless blockchains enable new financial activities because they’re built on a different architecture. Code and cryptography play a role, but a smaller one. More critical is the existence of bearer-like assets that anyone can access globally without needing a horde of intermediaries.
The NYSE can use all the computer science and public-key cryptography it wants, but unless its new platform cuts out many of its partners—some of which are owned by the same parent company—it won’t succeed. Ironically, preserving intermediation is one of the only clear design choices:
The venue is designed to align with established principles for market structure, with distribution via non-discriminatory access to all qualified broker-dealers.
Notice the contradiction: calling a solution available only to “qualified broker-dealers” “non-discriminatory.” This is a classic innovator’s dilemma. Today, the NYSE’s customers are broker-dealers, high-frequency trading firms, and clearing members. It makes money by charging them fees for access, trading, colocation, and data—none of which work in DeFi on a public blockchain.
So what’s a 200-year-old institution to do? Build an alternative platform, naturally.
Excite didn’t survive, and AT&T isn’t as influential as it once was. But it didn’t have to be this way: in 1999, Google’s co-founders offered to sell the company to AT&T for [an amount]. The deal was rejected, in part because Google Search was too good—faster search meant people would spend less time on AT&T’s portal. Executives from a culture built on per-minute access fees saw this as a negative.
NYSE executives likely share a similar mindset—otherwise, they’d be rushing to integrate directly with DeFi. Instead, they’re doing tokenization their way, in a manner that serves their existing customers and business model.
They’re free to try, and the effort is a strong sign that change is coming. But we shouldn’t read more into it than that.
Omid Malekan is an adjunct professor at Columbia Business School and the author of several books on crypto and finance. The opinions expressed here are entirely his own.