On September 21, Ondo launched a new channel.
It allows qualified institutions to mint tokenized stocks and ETFs directly with real stocks, and when redeeming, they get back the underlying securities without going through cash.
This is what you call redeeming for real assets.
How did tokenized stocks work before? Institutions bought with cash, then the issuer would go buy the stocks—there was a layer in between. Now they skip the cash step.
On the same day, TD Cowen poured cold water on it.
This investment bank said that even if the SEC’s new rules allow tokenized stocks to trade over the counter, demand is still limited.
On one side, Ondo is pushing the infrastructure forward; on the other, TD Cowen says nobody’s coming.
I looked over the timeline. The SEC’s new trading rules had just gone into effect, and Ondo’s move was almost right on time.
But TD Cowen’s logic is also solid: institutions buy stocks for liquidity, custody, dividends, and voting rights. Can a tokenized version capture all of that?
Physical redemption and issuance solves the “real equity” problem—behind the tokens you mint are real stocks in the custody account, not cash equivalents.
This step isn’t small.
But what institutions want isn’t just “real.”
They want “as convenient as it is now, but cheaper.”
If tokenized stocks are more troublesome than traditional paths in custody, compliance, and taxes, then physical redemption and issuance is only a technically impressive trick.
When reviewing the data, I noticed another thread.
On the same day, Circle launched BTC-collateralized borrowing with USDC for institutions. Bitmine bought $75 million worth of ETH. Tom Lee says institutions are still underallocated to crypto.
Put these together: the infrastructure for institutions to enter is accelerating, but each piece is still waiting for demand to be validated.
Ondo’s physical redemption and issuance pathway is essentially betting on a scenario: in the future, some of how institutions hold stocks will migrate onto the chain.
This migration requires a few prerequisites.
The custodian is willing to accept on-chain instructions. The compliance department can pass review. Tax treatment doesn’t add extra cost. Market makers can provide enough depth on-chain.
TD Cowen says demand is limited—maybe that’s because these prerequisites haven’t all come together yet.
But flip it around: if all the prerequisites are in place, does Ondo still need to rush for this first-mover advantage?
The SEC’s new rules created an opening, and Ondo inserted physical redemption and issuance into it. Whether this combination can actually run depends on two numbers in the coming months: the number of institutions onboarded, and the daily minting and redemption volume of on-chain tokenized stocks.
If those two numbers don’t take off, TD Cowen will be right.
If they do take off, then the story of tokenized stocks has to be told differently—from a “cash channel” to an “equity channel.”
What I still haven’t figured out is: if institutions really start doing physical redemption and issuance, then the banks that custody these stocks—are they considered counterparties in the on-chain system, or just a warehouse being called upon?