On-Chain Settlement Comes to Traditional Finance: The DTC Tokenization Pilot and Beyond

Tokenization is no longer limited to crypto-based trading venues.

On July 15, the Depository Trust Company (DTC)¹ announced that it had successfully used tokens representing DTC-held securities to complete real-world trades. This milestone, ahead of the service’s planned October 2026 launch, moves securities tokenization from proposal to practice. It also points to a broader trend of regulated financial institutions testing whether settlements in traditional finance can be made faster, more programmable and more interoperable by moving them onto distributed ledgers. Three initiatives in different sectors of the financial industry illustrate this broad institutional trend: the DTC tokenization pilot, an intra-bank initiative to launch a shared tokenized-deposit network and a collaboration between Visa Inc. and fintech Brale to explore stablecoin-based settlement of institutional payments.

Rather than creating a separate legal ecosystem, these initiatives reflect efforts to integrate tokenization into existing legal and regulatory frameworks for securities, banking and payments settlements while preserving the underlying legal rights and obligations of market participants. Still, effective counseling and representation will require an understanding of how the underlying technology operates in practice and interacts with these established regimes.

Three Streams of Institutional Adoption

1. Securities: DTC’s Tokenization Service

DTC’s pilot program, which went into live production on July 15, allows participants to record and transfer their security entitlements to DTC-held securities using distributed ledger technology rather than DTC’s centralized ledger.

Operationally, the pilot program works as follows: A participant registers one or more blockchain addresses with the DTC as “Registered Wallets,” instructs the DTC to tokenize their entitlement to a security and then receives a corresponding token in the registered wallet. The participant may then transfer that token directly to another participant’s wallet without further instruction to the DTC. Throughout, an off-chain DTC system (LedgerScan) tracks the movements across the supported blockchains and serves as DTC’s official books and records for tokenized entitlements. The design of the pilot preserves the existing holding structure of the DTC — i.e., Cede & Co., DTC’s nominee, remains the registered owner of the underlying securities.²  The DTC also retains the control to mint, burn or reverse tokens to address errors or misconduct.

The legal authorization for DTC’s pilot came on Dec. 11, 2025, when the staff of the SEC’s Division of Trading and Markets issued a no-action letter for the “Preliminary Base Version” of the DTC Tokenization Services, providing a three-year relief period. The letter imposes several limitations and conditions on the proposed service, including, notably, that the service must be limited to highly liquid instruments including certain Russell 1000 securities, U.S. Treasury securities and major-index ETFs.

While the pilot preserves the existing securities-law framework, tokenization introduces additional compliance, disclosure and litigation considerations. Financial institutions and their counsel may need to supplement existing controls to address new technological elements, including wallet administration, private-key security, transaction authorization and reconciliation between blockchain records and traditional books and records. The technology may also create new avenues for disputes involving unauthorized or erroneous transfers, the exercise of administrative reversal authority, data discrepancies across systems and the adequacy of disclosures regarding the nature of tokenized entitlements and the rights they confer.

2. Bank Deposits: Tokenized Commercial Bank Money

According to recent reporting, JPMorgan Chase, Citigroup, Bank of America, Wells Fargo and other major commercial banks are exploring a shared tokenized-deposit network operated by The Clearing House (a co-owned real-time payments utility), with a target launch in the first half of 2027. The network would convert traditional deposits into blockchain-based tokens capable of moving with instant, around-the-clock settlement and programmable functionality while keeping the funds inside the regulated banking system.

The advantage of this type of tokenization is evident: A tokenized deposit, like a stablecoin, can potentially offer around-the-clock transfer; unlike a stablecoin, however, a tokenized deposit represents and corresponds to an actual bank deposit. This preserves insurance related to bank deposits and the existing credit and regulatory framework of the banking system. Several participating banks already operate proprietary versions of this settlement system, including JPMorgan’s Kinexys platform and Citi Token Services, but the shared network would have broader reach across the industry.

As with the DTC pilot, tokenized deposits — although remaining within the existing banking regulatory framework — will create new compliance, disclosure and litigation considerations. Participating banks and counsel will need to evaluate how tokenized-deposit activity fits within existing controls for risk management, sanctions, anti-money laundering (AML), fraud prevention, cybersecurity and recordkeeping. On the customer side, they will need to ensure that account documentation and disclosures accurately describe the nature of the deposit and the operation of the network. Litigation risk is likely to focus less on whether a new asset class has been created and more on traditional banking disputes — including claims related to unauthorized transfers, fraud losses, operational failures, recordkeeping discrepancies and disclosures — but arising in a new technological setting.

The shared-network model may also raise novel questions regarding transaction finality, allocation of losses arising from fraud or operational failures, and the respective responsibilities of participating banks and network operators when transfers are disrupted or disputed.

3. Payments: Institutional Stablecoin Settlement

In the payments layer, established networks are testing stablecoin and tokenized settlement for institutional flows. In June, Visa and Brale announced a collaboration to explore stablecoin-based institutional settlements using SBC, a U.S. dollar-backed stablecoin issued by Brale on the Canton Network. Canton is a permissioned blockchain, which means that unlike public blockchains it “is designed to allow participants to transact on shared infrastructure while limiting the visibility of sensitive transaction information.”³  As described, the collaboration seeks to evaluate a model that gives institutions the benefits of blockchain-based settlement while protecting sensitive information about payments and counterparties. Visa, which began enabling stablecoin settlement in 2021, has positioned such arrangements as a next-generation settlement technology that must still satisfy institutional privacy, compliance and interoperability requirements.

Stablecoin-based institutional settlement raises similar technology-based compliance, disclosure and litigation considerations described above. The stablecoin context, however, introduces additional regulatory considerations, including those dictated by the GENIUS Act and other relevant laws. For example, participants may need to conduct diligence on the stablecoin issuer and its reserves and protocols. Participants and counsel will also need to address any tension between the use of a privacy-preserving network and the transparency required for sanctions screening, AML monitoring and recordkeeping obligations. Accordingly, it will be critical that any governing documentation and network protocols provide sufficient visibility, audit rights and record retention to satisfy applicable AML and sanctions obligations.

Final Thoughts

Underlying each of the above initiatives is the premise that tokenization, as used in these instances, does not alter the existing legal and regulatory framework for settlements. However, that premise should not obscure the significance of these developments. Together, these initiatives represent an incremental but potentially important step toward integrating distributed ledger technology into traditional financial markets. For financial institutions, that evolution offers opportunities to leverage the efficiencies of blockchain-based settlements, transfers and recordkeeping. For fintech companies, it creates opportunities to develop and provide the technology and infrastructure to support that transformation. For counsel, the task will be to apply familiar legal frameworks to new technological settings.

1. DTC is the primary operating subsidiary of the Depository Trust Clearing Corporation (DTCC). 

2. While the DTC pilot governs how entitlements are recorded and transferred, it does not address how tokenized securities trade on an exchange. The SEC closed that gap on March 18, 2026, when it approved a Nasdaq rule-change permitting eligible participants to trade tokenized versions of certain DTC-eligible securities on the Nasdaq’s exchange. The rule mirrors the incremental design of the pilot. A tokenized security trades in the Nasdaq Market Center on the same order book, and with the same execution priority, as its traditional counterpart — but only where the tokenized security is fungible with that counterpart and confers identical rights and privileges. 

3. Visa, Visa and Brale Explore Private Stablecoin Settlement for Institutional Payments (June 4, 2026), at https://investor.visa.com/news/news-details/2026/Visa-and-Brale-Explore-Private-Stablecoin-Settlement-for-Institutional-Payments/default.aspx.