Crypto’s tokenized-stock boom risks creating a digital version of the “paper crisis” that brought Wall Street’s settlement machinery close to breaking point more than half a century ago, according to Joris Delanoue, CEO of onchain securities infrastructure provider Fairmint.

In the late 1960s, booming U.S. stock trading overwhelmed a market reliant on clerks processing paper share certificates. Back offices fell behind, securities went missing and settlement failures piled up. The New York Stock Exchange even closed on Wednesdays for part of 1968 to let firms catch up.

The crisis helped drive a redesign of U.S. post-trade infrastructure, including centralized securities depositories and the formation of the Depository Trust Company.

“The main question today is whether we are recreating the paper crisis, but as a digital crisis,” Delanoue told CoinDesk in an interview.

The danger, he said, is that exchanges, special-purpose vehicles (SPVs), token wrappers and proprietary ledgers could fragment ownership records as tokenized stocks grow.

“A token is not equity, but equity can be a token,” Delanoue said. “When equity is a token, this token has the same safeguards, guarantees and trust as you had in the previous system.”

Some tokenized stock products, however, provide only economic exposure to an underlying share rather than legal ownership. That can leave investors dependent on intermediaries and create uncertainty over voting, dividends and claims to assets if an issuer or SPV fails.

Tokenization of real-world assets has accelerated as banks, asset managers and crypto firms experiment with putting stocks, bonds, funds and other traditional assets on blockchain rails. Tokenized equities have emerged as a particularly active area, fueled by demand for easier, round-the-clock access to U.S. stocks worldwide.

The global market for tokenized equities has grown to roughly $2 billion, from less than $500 million at the end of the first quarter, though it remains a rounding error compared with the more than $100 trillion traditional equities market.

Fairmint provides onchain infrastructure for issuing, managing and recording securities, acting as an SEC-registered transfer agent with the blockchain serving as the authoritative shareholder record.

Bullish, CoinDesk’s parent company, agreed in May to acquire transfer agent Equiniti for $4.2 billion to add those sorts of capabilities to its digital asset exchange.

Tokenized stocks meet global demand

Demand is real, particularly from investors outside the U.S. seeking exposure to American equities, Delanoue said.

“People underestimated the demand across the world to effectively own a piece of a U.S. company, and even more so the Magnificent Seven stocks that anyone in Asia or Europe would love to have in their portfolio,” he said.