Not all tokenized securities are created the same

The SEC now distinguishes between two types of tokenized equity: "wrapped" tokens" and "native" tokens. It's a seemingly small distinction that reflects a meaningful difference in how tokenized securities work and what holders can do with them.

Most tokenization today is wrapped. Issuers create a digital representation of an asset that ultimately still lives in a traditional, offchain database. Then they configure tokens to point to a position held by a custodian somewhere else. Tokens that point to assets, not tokens that are assets. In this model, you have two ledgers, kept in sync at a cost, adding complexity to what should be a source of truth.

Native tokenization works differently. In this model, tokens are issued directly onchain by an underlying issuer. When issuers tokenize an asset natively on a blockchain, the blockchain is the ledger. This means only one record of ownership with no offchain position to reconcile.

For holders, wrapped vs. native is like the difference between a photograph of a key and the key itself. One proves the key exists. The other actually opens doors.

Behind those doors: self-custody, daily yield, instant settlement, verifiable governance, and expanded access for investors who used to be priced out.

Custody is where it starts.

When you buy a stock today, you don't technically hold it. Your broker and its custodian hold it on your behalf. That arrangement carries fees, operates on the custodian's schedule, and places an institution between you and the asset you paid for.

With native tokenization, the asset lives in a digital wallet connected to a blockchain that records your position. Anyone can verify it. Your ownership is not fragmented across legacy database systems at multiple institutions. It’s immediately queryable on a single source of truth.

But holding an asset directly is only the starting point. The real advantage is what that ownership unlocks.

Traditional securities distribute economic benefits on a fixed schedule. A money market fund, for example, pays returns at month-end. If you hold the shares for only a few days, those returns are typically lost.

Franklin Templeton’s onchain money market fund on Stellar works differently. It pays interest from the moment you hold the token and distributes yield daily through new token issuance, credited directly to investors’ wallets. You receive the benefit of your ownership as you earn it, not on a monthly calendar.

For investors using tokenized securities as collateral, holding a continuously accruing asset is a meaningful practical advantage over the traditional setup.

Traditional markets generally operate 32.5 hours a week and settle on a T+1 basis. Moving the US settlement cycle from T+2 to T+1 required years of work and significant investment. Moving to instant settlement on traditional infrastructure would require much more.

With native tokenization, a security changes hands the moment a transaction is verified on the blockchain. No settlement delay. No counterparty risk between trade and settlement. More than that, faster settlement removes the main barrier to trading around the clock.

The other key enabler is stablecoins: digital dollars traveling on the same blockchain infrastructure as the security itself. When both the asset and the means of payment are onchain, investors can move between investment and liquidity at any hour without routing through a bank or broker.

Price discovery through live price quotes still follows traditional market hours for now, and onchain price feeds will be needed to extend the practical utility of 24/7 trading. But the infrastructure to close that gap is actively being built.

Retail shareholder participation in corporate governance has long been limited by complex proxy processes. There's rarely a reliable way to confirm that a vote was actually registered.

Native tokenization opens a path to encoding voting rights directly into the security token itself. In this model, smart contracts would register votes automatically, with a public, auditable record on the blockchain. This isn’t a reality today, but the tech pieces are moving into place, and we expect to see broad adoption ahead.

When participation becomes automatic and verifiable, retail investors will be harder to overlook in governance decisions.

Native tokenization reduces costs for issuers, and those savings can reach retail investors. Franklin Templeton cut the recordkeeping and reconciliation cost per transaction from $1 to less than a penny by issuing money market shares on Stellar. That cost reduction allowed them to lower the initial investment to $20, meaningfully improving financial access to this asset.

When the cost of maintaining small accounts drops that sharply, products that were previously only accessible to institutional or high-net-worth investors become viable for retail participants. Native tokenization doesn't just improve the experience for investors already in the market. It enables entry for those who had been priced out.

A digital representation of an offchain security can be a useful first step toward tokenization. A natively tokenized security, fully onchain, goes further, enabling direct custody, instant settlement, participatory governance, real-time economics, and lower-cost access.

Nobody cares about "native tokenization" as an abstract technical concept. What matters is whether you actually hold the key—and whether the doors it opens are ones you couldn't open before.