Tokenized Stocks Risk Recreating Wall Street's 1960s 'Paper Crisis,' Fairmint CEO Warns

Joris Delanoue, CEO of onchain securities infrastructure provider Fairmint, has warned that the tokenized stock market 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 Delanoue, fragmented systems and standards could lead to a breakdown in ownership records and operational failures.

In the late 1960s, a booming U.S. stock trading volume overwhelmed a market reliant on clerks processing physical paper share certificates. Back offices fell behind, securities went missing, and settlement failures piled up. The New York Stock Exchange (NYSE) even closed on Wednesdays for part of 1968 to allow firms to catch up. This crisis ultimately drove a redesign of U.S. post-trade infrastructure, including centralized securities depositories and the formation of the Depository Trust Company.

Delanoue cautions that today's tokenized stock market, if it continues to develop across multiple exchanges, special-purpose vehicles (SPVs), token wrappers, and proprietary ledgers, could create a similar administrative and legal tangle by fragmenting ownership records. He stated that "a token is not equity, but equity can be a token," emphasizing that when equity is tokenized, it must possess the same safeguards, guarantees, and trust as the previous system. Some tokenized stock products, however, provide only economic exposure to an underlying share rather than legal ownership, potentially leaving investors dependent on intermediaries and creating uncertainty over voting, dividends, and claims to assets if an issuer or SPV fails.

Tokenization of real-world assets (RWAs) 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, especially for "Magnificent Seven" stocks. The global market for tokenized equities has grown significantly, from less than $500 million to approximately $2 billion by the end of the first quarter. However, this fragmentation not only hinders interoperability but also leads to dispersed liquidity pools and inconsistent investor experiences. Traditional finance views the breakup of its previously consolidated, centralized liquidity as a serious structural threat.

The U.S. Securities and Exchange Commission (SEC) is reportedly preparing an “innovation exemption” framework that would allow third parties to tokenize listed stocks without issuer approval. However, this exemption explicitly excludes synthetic stock tokens that carry no voting or dividend rights, applying only to on-chain instruments that fully preserve shareholder rights. Regulations for digital assets vary widely across jurisdictions, creating a patchwork that complicates cross-border issuance, trading, and settlement. SEC-registered transfer agents like Fairmint aim to address these issues by building on-chain securities infrastructure and an authoritative shareholder register.

Analysts and market experts emphasize the need for the industry to unify around common technical and legal standards, clear ownership records, and interoperability to ensure adoption, security, and institutional interest. Without a unified approach, the industry risks creating a patchwork of incompatible systems that are difficult to regulate. Fairmint CEO Delanoue noted that the "line between private and public markets is an artifact of paperwork" and can disappear by putting ownership on one live, interoperable record.