Key Highlights
- Ondo Finance seeks no-action relief from the U.S. Securities and Exchange Commission to use blockchain for tracking securities entitlements.
- The proposal uses Ethereum Mainnet to record tokenized representations of equities while keeping traditional custody intact.
- The pilot focuses on collateral tracking with built-in compliance controls, testing a hybrid model without changing legal ownership structures.
Ondo Finance has asked the U.S. Securities and Exchange Commission (SEC) to confirm it will not take enforcement action over a plan to use public blockchain infrastructure to track securities entitlements.
According to the official announcement, the request centers on a limited pilot: recording ownership claims to U.S. equities and ETFs, already held through traditional systems, on the Ethereum Mainnet. The proposal does not involve issuing new securities, but rather representing existing positions in tokenized form for operational purposes.
A hybrid model, not a system overhaul
The structure keeps the current market plumbing intact. Underlying securities would continue to be held through the Depository Trust Company (DTC) via broker-dealer Alpaca Securities LLC.
What changes is the recordkeeping layer. Ondo’s transfer agent, Oasis Pro TA, would mint tokens reflecting those holdings. These tokens would sit in a custodial wallet managed by BitGo, while Alpaca’s off-chain books remain the official legal record.
The tokens would mirror “security entitlements,” claims to assets held in custody, rather than the securities themselves.
Focus on collateral tracking, not trading
The proposal applies specifically to collateral backing Ondo’s offshore investment products. These tokenized notes, issued by Ondo Global Markets, are linked to more than 260 U.S. stocks and ETFs and sold to non-U.S. investors.
The blockchain layer would:
- Track collateral positions in near real time
- Support minting and burning tied to investor flows
- Improve reconciliation between custodians and agents
The tokens themselves would not be actively traded and would remain within a controlled environment involving regulated entities.
Compliance controls built into token design
The system includes restrictions typically absent in open blockchain assets. Token transfers would be screened against internal compliance lists and external monitoring tools. Administrative controls would allow:
- Freezing or restricting transfers
- Seizing and burning tokens
- Reversing transactions in defined cases
These features are intended to align with regulatory expectations while using a public, permissionless network.
Regulatory question: Can blockchain support broker records?
At the center of the request is whether a broker-dealer can rely on blockchain infrastructure to support its recordkeeping obligations under U.S. securities law.
Ondo argues the proposal does not replace required records. Alpaca would still maintain official books under existing rules, including requirements under the Securities Exchange Act and FINRA supervision standards. The blockchain layer would function as a parallel system for tracking and reconciliation—not as the legal record of ownership.
Comparison with emerging market infrastructure
The request comes as the SEC has already allowed the DTC to explore a centralized tokenization model. Ondo’s approach differs by using a public blockchain rather than a closed system.
The company argues that limiting tokenization to centralized infrastructure may not be the only viable path, especially as blockchain-based systems become more integrated into financial markets.
Limited scope, broader implications
Ondo’s proposal is narrow in scope but raises broader policy questions. It tests whether existing regulatory frameworks can accommodate hybrid systems that combine traditional custody with on-chain transparency. If accepted, the model could offer a template for using blockchain in back-end financial operations without changing the legal structure of securities ownership.
For now, the outcome depends on whether the SEC views this approach as a permissible extension of existing practices or as a step that requires new rules.
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