Fairmint CEO Joris Delanoue has warned that the rapid growth of tokenized stocks could trigger a modern version of Wall Street's 1960s "paper crisis" unless the industry resolves fragmentation and infrastructure gaps. In comments aimed at both crypto-native firms and traditional market participants, Delanoue said the sector is pushing distribution while paying too little attention to the legal and operational plumbing that makes a token actually represent a share.

Key facts

• Tokenized stocks are intended to make equity ownership more accessible, but Fairmint CEO Joris Delanoue says the industry is moving faster on distribution than on ownership records and market infrastructure.
• A token that tracks a stock is not necessarily the stock. The critical question is whether the issuer-authorized shareholder register recognizes the holder.
• Delanoue warns that fragmented systems and missing standards could recreate Wall Street's 1960s "paper crisis" in digital form.
• Interoperability, rather than rival exchanges building closed systems, will determine whether onchain equities become durable market infrastructure or another source of fragmentation.

Why the 1960s paper crisis matters

In the late 1960s, Wall Street experienced a surge in trading volume that overwhelmed its manual back-office systems. Stock certificates were physically moved, signed, stamped, and transported by hand. Brokerage firms were buried under paperwork, with deliveries delayed by days or even weeks. The resulting "paper crunch" forced exchanges to close one day a week for a period and led to significant operational losses across the industry.

The crisis was not caused by a loss of investor interest or a market crash. It came from a mismatch between growth in trading activity and the antiquated infrastructure used to confirm, settle, and record ownership. The lessons eventually led to major reforms: the creation of the Depository Trust Company, the emergence of electronic book-entry settlement, and the establishment of central clearing systems that reduced the need to move physical certificates. These changes made modern securities settlement faster and safer, but they also created a highly centralized model.

Delanoue's comparison draws a direct line between that historical bottleneck and the current state of tokenized stocks. The underlying problem, he suggests, is the same: innovation is racing ahead of the systems that support ownership, settlement, and legal recognition.

Tokenized stocks are not automatically stocks

Tokenization is the process of representing ownership rights as digital tokens on a blockchain. In principle, tokenized stocks can make equity markets more accessible, enable near-instant settlement, and allow investors around the world to trade assets without traditional intermediaries. Some offerings are structured as security tokens, while others are more like tokenized deposits, derivatives, or exchange-traded products that reference an underlying stock.

Delanoue's central warning is that a token tracking a stock is not necessarily the stock itself. A token may have a ticker, a price feed, and even a market price, but that does not guarantee it confers the same legal rights as a registered share. The critical question is whether the holder's ownership is recorded on the issuer-authorized shareholder register.

In traditional markets, share ownership is ultimately governed by a shareholder register maintained or authorized by the issuing company. Intermediaries such as transfer agents, brokers, and clearing houses keep layers of records that connect the investor to that register. For a tokenized stock to work as an actual stock, the token must be legally recognized as evidence of ownership or be redeemable for the underlying share through a reliable mechanism.

If the token is not tied to the register, the holder may have only a contractual claim against a platform or an issuer. That distinction matters when a company pays dividends, holds a shareholder vote, or undergoes a corporate action. Token holders could be left out if the platform fails to operationalize those rights.

Fragmentation risk

Delanoue argues that the tokenized equity industry is making progress at the distribution layer but lagging on ownership records and market infrastructure. Many platforms are launching user-friendly apps, retail-facing products, and global marketing campaigns. Behind the scenes, however, there is still inconsistent standards for how tokens are issued, how they are custodied, and how they map to underlying securities.

One danger is fragmentation. Different platforms may issue their own token versions of the same stock on different blockchains, each with different legal wrappers and settlement procedures. A share of the same company could exist as a token on Ethereum, another on Solana, and another on a private ledger, with little or no relation to each other. That creates confusion about which token is authorized, which market gives the most reliable price, and whether an investor can move from one platform to another without losing legal protections.

This fragmentation is similar to the physical paper crisis in one important respect: the problem is not the instrument itself but the inability of the system to keep records straight. When records are scattered across closed systems, errors, delays, and disputes multiply. The cost of resolving those disputes can quickly outweigh the benefits of faster trading.

The role of interoperability

Delanoue says interoperability is the key to avoiding a tokenized version of the paper crisis. The industry needs common standards for representing equities onchain, shared protocols for transferring tokens across networks, and transparent disclosure of how tokens relate to the underlying security.

Interoperability does not mean every platform must use the same blockchain or the same legal structure. It means there must be a common way to identify a token, verify its status, and move it between systems without recreating the silos of the past. It also means information about dividends, votes, corporate actions, and settlement finality needs to flow seamlessly between the token layer and the legacy financial infrastructure.

One important step is to make shareholder register recognition explicit. If an issuer approves a tokenized share, the token should reference the issuer-authorized register or be convertible into a registered share upon demand. Without such a link, tokenized equities are merely synthetic products, not digital shares.

What could prevent the crisis

Delanoue's comments suggest several remedies. First, tokenization platforms should invest in the back-office systems that support ownership, including transfer agent integration, investor identity verification, and legal recordkeeping. Second, the industry should cooperate on standards rather than compete through isolation. Third, regulators should be given clear visibility into how tokenized stocks work, so investor protection rules can keep pace with innovation.

The market is already seeing early signs of both progress and risk. Some traditional exchanges and banks are entering the tokenized securities space, bringing established compliance frameworks with them. At the same time, crypto-native platforms are experimenting with novel structures that may not fit neatly into existing securities laws. The tension between speed and safety is not new, but the 1960s paper crisis shows what can happen when operational infrastructure is treated as an afterthought.

Delanoue's argument is not that tokenized stocks are doomed or that regulators should reject onchain equities. Rather, it is that the industry has a choice. It can build open, interoperable market infrastructure that mirrors the reliability of modern securities settlement, or it can allow proprietary silos to multiply until the market breaks down under its own complexity.

The next few years will be critical. As tokenized stocks move from niche experiments to mainstream products, the legal recognition of token holders, the quality of back-office systems, and the willingness of competing platforms to share standards will determine whether onchain equities become durable market infrastructure or another chapter in the long history of avoidable financial crises.

Source: Coindesk News