Martin Koopman and Ishmael Asad both hold tokenized stocks. Only Koopman is a shareholder.

Koopman, chief product officer at financial-technology company Hazeltree, owns tokens of Figure Technology Solutions that provide the same dividend and voting rights as its Nasdaq-listed stock. Asad, a research analyst at Bitwise Asset Management, holds a GameStop token that tracks the stock's price.

The difference is now a regulatory dividing line, at least in the U.S. To trade under the Securities and Exchange Commission's new framework, a token must give its holder the same rights as a regular share.

Tokenized stocks trade on the blockchain, the ledger system that underpins cryptocurrencies. And until recently, they were a niche option reserved mostly for overseas investors. Now, traditional financial powers, crypto upstarts and even regulators are pushing to bring tokenization to the U.S. The path forward is still murky, but the potential they hold is clear: They just might reshape the stock market.

Last month, the Securities and Exchange Commission cleared a path for trading venues to offer tokenized stocks here, prompting companies to fast-track their plans to launch tokenized stock trading platforms.

Major Wall Street firms have already raced to tokenize Treasurys and money-market funds into tradable tokens. And brokerages and crypto exchanges have launched tokenized versions of U.S. stocks to overseas investors who face hurdles accessing U.S. markets.

Crypto proponents say tokenized stocks could transform financial markets by enabling round-the-clock trading, lowering costs and enabling instant settlement. Skeptics question the need to trade stocks during off hours or periods of low volume, arguing that it could leave prices vulnerable to manipulation, excessive volatility and cyber risks.

Still, with exchange giants like Nasdaq and the New York Stock Exchange actively working on tokenized stocks and Wall Street firms pushing ahead, a future where shares are traded on the blockchain could soon become a reality for investors.

Here's what to know:

What are tokenized stocks?

Tokenized stocks are digital tokens that represent shares of publicly traded companies.

Most of the tokenized stocks trading today are technically derivatives tracking share prices without conferring all the rights of ownership that come with shares. In the future, though, tokens are expected to grant those rights, including dividend payouts and the ability to vote on shareholder proposals.

Asad's GameStop token came free from an app that sends users hunting for tokenized stocks on a map. Issued by a separate company and backed by GameStop shares held in custody, the token tracks the stock's price but doesn't make Asad a GameStop shareholder. He can trade it, but not exchange it for GameStop stock.

"The app did not explain any of that," said Asad, a research analyst at crypto investment firm Bitwise Asset Management.

Why do investors want tokenized stocks?

Tokenized stocks are gaining popularity because blockchain technology allows them to be traded 24/7, a feature already familiar to crypto investors but previously untapped in most traditional markets. Tokenization also expands overseas access to U.S. stocks, allowing anyone in the world to hold whole or fractional shares of blue-chip equities in the same digital wallet as their crypto assets. Proponents argue that this opens the world's deepest and most liquid capital markets to investors around the world.

Proponents say that the blockchain could accelerate the process of stock transactions by cutting out the middlemen, ultimately translating to lower trading costs and higher returns for investors.

Tokenized assets might also help markets function smoothly under pressure. Some bank executives have said that tokenized money-market funds could serve as high-speed collateral that can be moved instantly to back up trades during periods of stress.

Where can people trade tokenized stocks now?

Robinhood, Coinbase, Kraken and Gemini, among other firms, do offer blockchain-based versions of U.S. stocks and exchange-traded funds for non-U. S. customers.

Asset managers including BlackRock and JPMorgan Chase's asset-management arm have launched tokenized money-market funds, though many remain primarily for institutional or high-net-worth investors.

Koopman in October used Figure's app to buy $10 of the company's blockchain stock, about a third of a share. And because Figure issued the token itself, it is an actual share, with the same dividend rights as the regular stock and one vote per share.

If the app went down, "you've still got it," Koopman said.

What are the risks?

Because tokens are often thinly traded during off-hours, they are susceptible to sharp price moves when users buy or sell more than the markets can handle.

Regulators have also warned that such tokenized assets create opportunities for bad actors to engage in insider trading and market manipulation while circumventing oversight. In the U.S. stock market, exchanges use surveillance to identify suspicious activity and the people behind it, while brokerages must know the identity of their customers. But such controls don't currently exist with tokenized stocks.

The rise of synthetic stock tokens has drawn resistance from corporate executives. AMC Entertainment Chief Executive Adam Aron recently clashed with Robinhood CEO Vlad Tenev on X, criticizing the broker for bypassing U.S. regulations, interfering with a company's ability to raise capital and not providing investors with the same shareholder rights. Tenev has defended the company's push into tokenized stocks, arguing that companies can't control the financial products created around their shares once public.

Some Wall Street firms, including Citadel Securities, have objected to the SEC allowing the trading of tokenized stocks through innovation exemptions. In a letter to the agency, the market maker said the SEC should engage in a notice-and-comment process to address concerns about investor protection, fair access and ensuring tokenized stocks are subject to the same standards as traditional securities.

What's coming to the U.S.?

The SEC's order cleared a path for trading venues to offer tokenized stocks in the U.S. through two five-year innovation exemptions.

The SEC's framework comes with strict safeguards for corporate issuers: Before a venue can begin trading any stock tokenized by a third party, it must give the issuing company 30 days notice. If the company objects, the venue can't proceed with the offering.

Crucially, the tokens permitted by the SEC exemptions will carry the same shareholder rights granted to investors in traditional stocks, including dividend payouts and proxy votes. That would rule out for now the synthetic stock tokens offered by brokers and exchanges outside the U.S.

This explanatory article may be periodically updated.