Ondo Finance Adds In-Kind Minting for Tokenized Stocks

Ondo Finance announced the launch of in-kind minting for its tokenized stock products on September 23 2026. The new mechanism allows authorized participants to deposit underlying securities directly into the protocol in exchange for on-chain tokens representing those shares. This development removes the cash settlement step that previously required selling shares before token creation.

What Is In-Kind Minting and Why Does It Matter?

In-kind minting lets market makers transfer actual shares into a tokenization vault rather than delivering cash for the protocol to purchase shares on the open market. The process reduces settlement time from two business days to near-instant finality on chain. It also eliminates market impact costs when large blocks of shares must be acquired for token creation. For institutional investors, this means tighter spreads between token prices and net asset values.

The feature addresses a structural friction that has limited arbitrage efficiency in tokenized equity products. When only cash minting exists, authorized participants must sell shares in traditional markets, wait for settlement, then send funds to the protocol. During volatile periods this delay creates persistent premiums or discounts. In-kind creation closes that loop by letting the same entity that holds shares tokenize them directly.

How Ondo's Implementation Works

Ondo's tokenized stock products operate through a series of Cayman Islands exempted companies that hold underlying shares in omnibus accounts at qualified custodians. Each token series represents beneficial ownership in a specific equity such as Apple or Tesla. The in-kind minting function integrates with the Depository Trust Company settlement system through a broker-dealer partner that holds DTC participant status.

Authorized participants initiate creation by delivering shares to the custodian through DTC's delivery-versus-payment system. Once the custodian confirms receipt, the protocol mints an equivalent number of tokens to the participant's wallet. Redemptions work in reverse: tokens are burned and shares are delivered back through DTC. The entire cycle can complete within hours rather than days.

The protocol uses ERC-3643 compliant tokens with built-in transfer restrictions that enforce know-your-customer and anti-money-laundering rules. Only whitelisted addresses can hold tokens. This compliance layer satisfies SEC Regulation S and Rule 144 requirements for private placement securities. Ondo maintains a register of authorized participants that includes several major market makers and prime brokers.

The Broader RWA Market Context

Tokenized real-world assets surpassed twelve billion dollars in total value locked during the third quarter of 2026. Treasury products dominate with BlackRock's BUIDL fund crossing two billion dollars and Franklin Templeton's FOBXX exceeding one point five billion. Equities represent a smaller but growing segment as protocols solve the operational complexity of corporate actions, dividends, and voting rights.

Ondo launched its first tokenized stock product in early 2025 after securing a no-action letter from the SEC staff. The protocol now offers exposure to approximately thirty large-cap US equities. Competitors include Backed Finance which offers tokenized European stocks and Matrixdock which focuses on Asian equities. Each uses slightly different legal structures but all rely on special purpose vehicles to hold underlying assets.

The RWA narrative shifted in 2026 from yield-bearing treasuries to productive assets including equities, corporate bonds, and private credit. Institutional allocators increasingly view tokenization as a settlement layer upgrade rather than a speculative vehicle. Major custodians including BNY Mellon and State Street have announced digital asset custody platforms that integrate with tokenization protocols.

Regulatory Framework and Compliance

Tokenized stocks in the United States operate under the Investment Company Act of 1940 either as registered funds or through private placement exemptions. Ondo's products use the Section 3(c)(1) and 3(c)(7) exemptions limiting holders to qualified purchasers and accredited investors. The tokens are classified as securities subject to transfer restrictions and reporting obligations.

The SEC has not approved a spot exchange-traded fund for tokenized equities but has allowed private funds to tokenize shares. A key regulatory milestone occurred in March 2026 when the staff issued guidance confirming that in-kind creation and redemption mechanisms do not violate the Investment Company Act if the underlying securities are valued consistently. This guidance paved the way for Ondo's implementation.

Internationally, the European Union's Markets in Crypto-Assets regulation provides a clearer path for tokenized securities through the financial instruments regime. Singapore's Monetary Authority has granted licenses to several tokenization platforms under its variable capital company structure. These jurisdictional differences create a fragmented but evolving global framework.

What This Means for Liquidity and Arbitrage

In-kind minting should narrow the bid-ask spread on secondary markets for Ondo's tokenized stocks. When authorized participants can create and redeem at net asset value with minimal friction, they compete more aggressively to provide liquidity. This benefits end investors who trade tokens on decentralized exchanges or request redemptions through the protocol.

Arbitrage opportunities still exist but shift from creation-redemption delays to funding rate differentials and corporate action timing. For example, dividend capture strategies may create temporary premiums before ex-dates. The protocol handles dividends by accumulating cash in the vault and distributing proportionally to token holders quarterly. Voting rights are exercised by the custodian based on token holder polls.

Market makers report that operational risk decreases with in-kind settlement. The elimination of cash wire delays reduces counterparty exposure during volatile sessions. Several firms have indicated they will increase quote size and tighten spreads on Ondo products following the launch. This liquidity improvement could attract larger institutional allocations that previously avoided the asset class due to exit concerns.

Key Dates and Catalysts to Watch

The next quarterly rebalancing for Ondo's equity tokens occurs in December 2026 when index constituents are updated. Investors should monitor whether the protocol adds small-cap or international exposures beyond the current large-cap US focus. A potential catalyst is the SEC's ongoing rulemaking on digital asset custody which could clarify whether registered investment advisers can hold tokenized securities directly.

BlackRock's anticipated expansion of BUIDL into equity tokenization represents both competition and validation. If the largest asset manager launches tokenized stock shares, total addressable market estimates could rise significantly. Ondo's first-mover advantage in in-kind equity minting may erode if competitors replicate the feature quickly.

Technical upgrades to Ethereum's layer-two ecosystems including Arbitrum and Optimism could reduce gas costs for token transfers below one cent. This would make high-frequency market making viable on-chain. Ondo has indicated plans to deploy on multiple layer-two networks by the first quarter of 2027. The protocol's governance token ONDO may see increased utility if fee switches are activated for tokenized stock products.