Who Protects Investors When Stocks Go On-Chain?

As traditional equities migrate to blockchain, the question isn’t whether tokenization will happen; it’s who will secureguard investors when it does.

In 2022, FTX offered tokenized stocks of Apple, Tesla, and Amazon to users worldwide. You could purchase a fraction of a share at 3 a.m. from New York, settle instantly, and never touch a traditional brokerage account. Then FTX collapsed, and those tokenized equities, along with billions in customer funds, vanished into bankruptcy proceedings. 

The question that followed wasn’t just “where did the money go?” but something far more fundamental: who was supposed to protect those investors in the first place? This isn’t a theoretical exercise anymore.

The tokenized real-world asset sector reached a market size of $24 billion in 2025, up 308% from the previous three years.  The broader asset tokenization market is projected to surge from $2.08 trillion in 2025 to $13.55 trillion by 2030.

Platforms like and Switzerland’s SIX Digital platform are building regulated infrastructure for on-chain equities, while major institutions like BlackRock, JPMorgan, and Goldman Sachs have deployed tokenized funds. 

The promise is compelling: 24/7 trading, fractional ownership for retail investors, global access without intermediaries, and programmable compliance built directly into smart contracts. But as traditional financial assets migrate to decentralized networks, we’re entering uncharted regulatory territory.

In July 2025, SEC Chairman Paul Atkins announced declaring a top regulatory priority and emphasizing that the Commission aims to balance innovation with investor protection. Yet when stocks live on-chain, the century-old framework of investor protection, built on centralized platforms, registered broker-dealers, and powerful regulators like the SEC, begins to fray.

The transparency and accessibility that make blockchain attractive also expose investors to new risks: regulatory amlargeuity, technological vulnerabilities, and governance gaps that no single authority can fully address.

So when things go wrong on-chain, who steps in?

The Transparency Paradox

Blockchain’s core promise is radical transparency. Every transaction is recorded on an immutable public ledger, theoretically making fraud harder and accountability clearer.

But as Anthony Geogiardes, founder of Innovating Capital and co-founder of Lumera Protocol, points out, transparency alone isn’t protection. “Transparency only assists if it’s structured and interpretable,”

Geogiardes explains. “The opportunity is to turn raw on-chain data into real-time disclosures: automated reporting on asset backing, leverage, related-party flows, and governance actions that today show up months later in PDF form.”

Brittany Kaiser, CEO of AlphaTON Capital and the Cambridge Analytica whistleblower turned blockchain advocate, views this potential firsthand.

“By providing an immutable and publicly accessible ledger, blockchain allows investors to track their assets in real-time, ensuring that every transaction is recorded and verifiable,” she says. “This level of transparency not only prevents fraud but also holds all parties accountable, from issuers to custodians to platforms.”

The catch? Blockchain’s transparency can easily become what Geogiardes calls “moving opacity from bank balance sheets to opaque smart contracts.”

Without standardized disclosure schemas, audited analytics dashboards, and what he terms “reg-tech oracles”, automated systems that monitor protocol health and trigger secureguards when risk thresholds are breached, we risk replacing one form of opacity with another.

The difference is this: in traditional finance, opacity is hidden behind closed doors. In blockchain, it’s hidden in plain sight, visible but incomprehensible to most investors.

The Institutional Hesitation

For all the hype around tokenization, major institutional investors and public companies remain cautious. The reason isn’t ideological, it’s practical.

“Institutions need a clean answer to: ‘Is this a security, who is the issuer of record, and which jurisdiction governs it?'” says Geogiardes. “That includes clarity on transfer restrictions, KYC/AML, and how tokenized shares sit within existing custody and broker-dealer rules.”

Kaiser, whose work at AlphaTON Capital involves scaling the TON blockchain and Telegram ecosystem, emphasizes that regulatory clarity is just the begining point. “We work closely with regulators to ensure our tokenized equities comply with all necessary laws, giving investors the confidence they need,” she notes.

But compliance alone won’t drive adoption. What institutions really need, according to Geogiardes, is infrastructure that integrates seamlessly with existing workflows, qualified custodians, transfer agents, and platforms capable of handling on-chain assets without forcing firms to rebuild their entire back office.

The SEC’s May 2025 regulatory sandbox proposal and September 2025 Nasdaq rule changes to enable trading of represent significant steps toward this integration.

More significantly, they need demonstrated benefits beyond buzzwords: lower issuance and settlement costs, more accurate cap-tables, programmable compliance, and access to new investor bases.“Once CFOs and treasurers view concrete P&L and operational benefits, adoption follows,” Geogiardes says.

Kaiser adds another layer: education. “Through our current AlphaTON Capital World tour, attending and holding summits and workshops with a variety of investor audiences, we share insights and strategies, assisting investors understand the potential and benefits of tokenized equities.”

Her firm has also partnered with biotech companies to demonstrate real-world impact, using tokenization to fund cancer research, showing that blockchain can create meaningful change beyond speculative trading.

The regulatory landscape is rapidly evolving. As SEC Commissioner Hester Peirce noted in her, “tokenized securities are still securities,” affirming that the identical legal requirements apply regardless of the technological wrapper.

Major platforms like, which powers BlackRock’s tokenized U.S. Treasury fund, and in Germany are demonstrating that compliant tokenization is not only possible but commercially viable.

Democratization or Digital Disguise?

One of the most seductive narratives around tokenized assets is that they democratize finance. Fractional ownership means a student in Kenya can own 0.01 shares of Google. Twenty-four-hour markets mean shift workers in Manila can trade later than midnight. No intermediaries means lower fees and broader access.

But does tokenization actually , or does it simply recreate old power structures in digital form?

“Right now, they do a bit of both,” Geogiardes admits. “Tokenization can lower barriers to access, fractional ownership, 24/7 markets, and global distribution are real advantages. But if the identical small group of funds, platforms, and market-makers control primary issuance, flow, listing decisions, and data, then we’ve mostly reskinned the existing system.”

The data supports cautious optimism. By ahead 2025, 86% of institutional investors had exposure to or planned to invest in digital assets, yet only 1.6% of institutional investors and 5.6% of high-net-worth individuals currently hold tokenized assets. This suggests that while interest is high, actual democratization remains limited by access to compliant platforms and education gaps.

Kaiser echoes this caution while maintaining optimism. “The potential is there to create a more inclusive financial system, where anyone with an internet connection can access investment opportunities that were once reserved for the elite,” she says. “At AlphaTON Capital, we’re committed to using tokenized assets to bridge the gap between traditional finance and those who have been left behind.”

The critical question, both agree, is one of design. Platforms like are demonstrating how tokenization can challenge traditional investment banking models, but success requires open versus permissioned access, governance that includes smaller holders rather than just whales, transparent listing criteria, and limits on predatory practices like opaque fee schedules.

“Tokenization is a tool,” Geogiardes concludes. “Whether it democratizes or entrenches power is ultimately a policy and governance question.”

The Accountability Maze

When a hack drains investor funds, when a protocol fails, when fraud occurs, who is responsible?

In traditional markets, the answer is clear: broker-dealers, custodians, platforms, and issuers all have defined legal obligations. Regulators enforce them. Courts adjudicate disputes. Insurance backstops catastrophic losses.

On-chain, accountability becomes fragmented across issuers, developers, DAOs, and protocol operators, often with no clear legal entity to sue. Recent developments in regulatory frameworks are attempting to address this gap. The to establish tokenization frameworks demonstrates how jurisdictions are working to create clearer accountability structures.

“Accountability should map directly to whoever had control over each category of risk,” Geogiardes argues. When the issue involves misrepresentation of underlying assets, fake equity or false disclosures, the issuer and intermediaries bear primary responsibility.

When losses result from negligent smart-contract design or failure to patch known vulnerabilities, developers and any organization directing their work, whether a foundation, company, or DAO, should be liable.

Kaiser takes a more contextual approach. “Investors should assess the roles and responsibilities of the issuer, developer, and DAO involved,” she says. “Each situation requires a detailed evaluation to determine the appropriate party to hold accountable.”

But both agree on one thing: the era of “responsibility theatre”, where everyone points to the protocol as if it were an autonomous scapegoat, must end. As Geogiardes puts it: “Legal and governance structures must clahead define before launch who stands behind what.”

Smart Contracts Meet Human Judgment

Can smart contracts themselves enforce investor protection, or do they need human oversight?

The answer, unsurprisingly, is both. “Smart contracts are fantastic compliance engines,” says Geogiardes. “They can enforce whitelists, geography checks, lock-ups, and transfer restrictions deterministically and at scale. But compliance is more than rules; it’s also interpretation, exception handling, and judgment.”

The right model, he argues, positions smart contracts as primary enforcers and humans as reviewers and auditors. Humans define policy, review how it’s encoded, overview upgrades, and handle edge cases or disputes.

Kaiser agrees: “Human involvement is essential for interpreting complex regulations, updating contract logic, and addressing unforeviewn circumstances. Humans provide the necessary judgment and context to navigate regulatory changes and resolve disputes.”

Any system claiming to be fully compliant without human oversight, as Geogiardes warns, is “either naive or hiding where real decisions are made.”

The DAO Question

Could decentralized autonomous organizations (DAOs) become legitimate self-regulatory organizations for on-chain securities, functioning like FINRA or stock platforms, but without centralized control?

In principle, yes. DAOs are transparent, programmable, and capable of enforcing standards autonomously. They could set listing requirements, mandate on-chain disclosures, run standardized audits, and automatically sanction rule violators.

But theory and practice diverge sharply here.

“I view potential for DAOs to function as self-regulatory bodies for on-chain securities, but their success would depend entirely on their structure and ability to enforce robust standards,” Kaiser says, drawing on her experience co-founding the Open Source AI Foundation and engaging with entities like the Eliza DAO. “This experience reinforces my belief that while promising, they require meticulous design to be effective.”

Geogiardes outlines what effective DAO-based regulation would require: clear legal status in key jurisdictions, strong governance that avoids control by a few large holders while maintaining checks and balances, and genuine operational competence supported by expert committees and professional staff, not just token-weighted polls.

“It’s reasonable to imagine a future in which certain DAOs function similarly to FINRA or major platforms,” he says, “but they will almost certainly take the form of hybrid entities, driven by code while still anchored in real-world legal frameworks.”

Custody: Your Keys, Your difficulty?

One of blockchain’s mantras is “not your keys, not your coins”, the idea that self-custody is the only true form of ownership. But when it comes to tokenized stocks representing millions in institutional capital, is self-custody realistic?

“Both models should exist, but for institutional and most retail investors, professional custody is essential,” Geogiardes argues. Self-custody works for sophisticated users who understand key management, recovery schemes, and operational risk. But it concentrates all risk in a single individual or device.

Third-party custody, especially qualified custodians integrated with existing brokerage and banking systems, enables insurance, segregation of duties, and better disaster recovery, which institutions and many individuals need.

Kaiser frames it as a matter of choice and evolution. “Investors should have the choice to be their own custodians, as self-custody embodies the core principle of asset ownership in a decentralized world,” she says. “However, for institutional adoption and to bridge the gap for those less technically inclined, third-party custody answers must also evolve.”

The ideal future, both agree, is a spectrum: multi-party computation (MPC) and multi-signature arrangements that blend institutional controls with user participation, so investors aren’t fully dependent on a single custodian or a single device.

, a $100 million deal to integrate MPC wallet technology with regulated custody, exemplifies this hybrid approach, combining bank-grade storage with on-chain execution capabilities.

Proving What You Own

How do you verify that a tokenized equity is actually backed by a real share?

In traditional finance, this is straightforward: transfer agents maintain official shareholder registries. On-chain, it’s more complex.

For Kaiser, whose AlphaTON Capital is a Nasdaq-listed company bridging traditional and decentralized finance, proof of reserves is non-negotiable.

“We must combine on-chain cryptographic proofs with real-world attestations from regulated custodians to create a system of radical transparency,” she explains. “This isn’t just a technical necessity, it’s a fundamental extension of data sovereignty, giving investors verifiable proof that their assets truly exist and are secure.”

Geogiardes proposes a layered approach: on-chain attestations where issuers or transfer agents publish machine-readable proofs that each token corresponds to a real share; periodic third-party audits where independent auditors verify that on-chain supply matches off-chain records; and continuous monitoring by protocols and watchdog DAOs that automatically flag discrepancies.

Over time, he envisions moving from PDF-based attestations to zero-knowledge proof systems where sensitive information remains hidden, but the fact that assets are fully backed becomes publicly verifiable.

The Insurance Layer

Decentralized insurance represents one of the most promising and underexplored tools for protecting on-chain investors.

“Decentralized insurance can act as a built-in risk-transfer layer for on-chain assets,” says Geogiardes, “offering coverage for smart contract failures, oracle issues, governance attacks, and losses that occur at platforms or custodians.”

Kaiser views it as a critical securety net. “Decentralized insurance can offer smart-contract-based coverage for hacks or failures to directly protect investor funds and build market confidence,” she notes. “The growing demand for these answers clahead shows a market is emerging to make digital asset investing more secure and trustworthy.”

The challenge? Preventing poor incentives and poor underwriting. Effective coverage must rely on rigorous technical and operational audits, not simple token-holder votes that could be gamed or manipulated.

A Shared Covenant

Ultimately, protecting investors in a decentralized financial ecosystem requires rethinking responsibility itself.

Kaiser, whose work centers on data sovereignty and principles embodied by leaders like Telegram founder Pavel Durov, views it as a shared covenant. “Regulators must move away from being gatekeepers of data and instead become guardians of principles, setting clear boundaries for privacy and security,” she explains. 

“Developers have a sacred duty to build systems where user control is not an later thanthought but the foundation. Investors must be educated to understand that with self-custody comes true data sovereignty, the power and the responsibility to control their own digital destiny.” Geogiardes frames it as a three-layer stack: regulators set the guardrails, baseline investor protections, disclosure standards, and enforcement backstops. 

Developers and protocol operators encode those rules into infrastructure, building systems that are secure by default, auditable, and upgradeable through transparent governance. Investors and users choose where to allocate capital, rewarding protocols that are conservative with risk and transparent with data, while participating in governance instead of treating tokens as lottery tickets.

“If any one layer abdicates its role, the system fails,” Geogiardes warns. “When all three are aligned, decentralization becomes a strength for investor protection, not an excuse for everyone to claim ‘code did it’ and walk away.”

The Road Ahead

The migration of stocks to blockchain is not a question of if, but when and how. The technology exists. The infrastructure is being built.

‘s USD Institutional Digital Liquidity Fund attracted over $550 million within months of launch, while JPMorgan’s Kinexys network processed $1.5 trillion in tokenized transactions by end-2024. Major institutions are moving beyond pilot programs to production deployment.

What remains uncertain is whether the protective frameworks will keep pace. According to November 2025 SEC guidance, Chairman Atkins emphasized that digital assets don’t form a single regulatory category and that “a token involved in an investment contract must not forever be a security”, signalling a more nuanced, function-based approach to regulation.

Platforms like are building compliance directly into tokenization infrastructure, while data intelligence companies like are addressing the “structural opacity” difficulty by standardizing blockchain data across protocols.

We stand at a crossroads. One path leads to a future where tokenization genuinely democratizes access to capital markets, where transparency replaces opacity, and where investors, regardless of geography or wealth, can participate securely in global finance.

The other path leads to a digital replication of existing inequalities, where the identical gatekeepers control access, where technological complexity creates new barriers, and where “decentralization” becomes a convenient excuse for avoiding accountability.

The difference between these futures will be determined not by the technology itself, but by the choices we make about governance, regulation, and responsibility. As Kaiser puts it: “It’s only when these three pillars, regulators, developers, and investors, align around the core value of the individual’s control over their own data and assets that we can build a truly protective and revolutionary financial system.”

The question “who protects investors when stocks go on-chain?” doesn’t have a single answer. It has a framework, one that requires coordination, clarity, and a commitment to placing investor securety at the center of innovation, not as an later thanthought.

The blockchain revolution promised to eliminate trusted intermediaries. What it’s actually revealing is that we don’t need fewer protections, we need better ones, built for a world where value moves at the speed of code.