Ondo Finance Adds In-Kind Share Transfers to Tokenize Stocks

Ondo Finance has rolled out an in-kind conversion mechanism, built with Alpaca, that lets approved institutions mint tokenized stock and ETF tokens by moving the underlying shares directly rather than paying cash for them. The change, effective September 21, 2026, runs across both Ethereum and BNB Chain and removes a structural cost that has made it harder for large holders of equities to bring their positions onchain.

Under the previous setup, an institution that already held shares of a stock or ETF still had to come up with separate cash to mint the matching Ondo Stocks tokens. That meant firms sitting on real inventory of, say, an S&P 500 ETF had to tie up additional capital just to create a tokenized version of something they already owned. The new option allows an internal book transfer of shares from an institution’s Alpaca account to serve as the minting collateral instead, and the same mechanism works in reverse: tokens can be redeemed back into shares without a cash leg. Access is not open to everyone — it requires institutional approval from Alpaca and active accounts with both Alpaca and Ondo, so the mechanism is aimed squarely at professional market participants rather than retail users.

Why a Cash Requirement Mattered

The cash-funded model created what amounts to a financing tax on tokenization. An institution wanting to supply tokenized shares to the market had to hold both the underlying stock and a cash buffer sized to mint an equivalent token position, even though the shares themselves were sitting idle as collateral in spirit. That duplication increases the cost of capital for market makers and authorized participants, and it can introduce timing mismatches between when shares are acquired and when tokens can actually be issued against them — a friction familiar from traditional ETF creation and redemption, but layered on top of blockchain settlement.

By letting shares themselves count as the minting input, Ondo and Alpaca are effectively aligning the tokenization process with how authorized participants already operate in conventional ETF markets, where in-kind creation and redemption are standard tools for managing inventory efficiently. For a platform competing to be the settlement layer of choice for tokenized equities, cutting that capital drag is a direct pitch to trading desks and liquidity providers who move large blocks of shares and need the tokenized side of their book to move just as fast.

Ondo’s Position in a Crowded Field

The launch lands as Ondo works to consolidate its standing in real-world-asset tokenization. According to RWA.xyz data cited alongside the announcement, the platform has distributed $3.63 billion in assets across 441 products, placing it second by onchain tokenized value behind Securitize. That scale matters context-wise: Ondo is not a niche experiment but one of the larger conduits through which traditional financial instruments are being represented onchain, so changes to how it handles minting and redemption ripple through a meaningful slice of the tokenized-asset market.

The move also arrives against a broader backdrop of institutions and regulators building out rails for tokenized securities. Regulatory clarity has been advancing on multiple fronts — a five-year framework from the SEC on tokenized stocks has already been read as favoring firms positioned to serve this market, as detailed in the SEC’s tokenized-stock rule, while European authorities have pursued their own settlement infrastructure through the ECB’s Pontes platform for tokenized assets. Ondo’s in-kind mechanism is a narrower, operational piece of that same push: making it cheaper and faster for institutions to actually use tokenized-equity infrastructure once it exists.

What to Watch

Several practical questions will determine whether this becomes a meaningful shift or a modest operational tweak. First is adoption: how many institutions actually clear Alpaca’s approval process and open the dual accounts needed to use in-kind transfers, since the mechanism is gated rather than universally available. Second is whether other tokenization platforms follow with comparable in-kind options, which would suggest the cash-funded model is being recognized industry-wide as a bottleneck rather than a one-off Ondo limitation.

• Whether trading volumes or minted supply for Ondo Stocks tokens shift noticeably now that share-based minting is available
• Whether Alpaca extends similar in-kind arrangements to other tokenization partners beyond Ondo
• How this development compares with parallel institutional moves in tokenized markets, including brokers pursuing new derivative products such as Coinbase’s push for single-stock perpetual futures
• Whether custody and trust infrastructure providers, including newly chartered entities like the one behind Bastion’s conditional OCC trust charter, begin supporting in-kind tokenization flows

None of this changes the underlying investment characteristics of the tokenized instruments themselves — an in-kind mint is still a claim tied to the same shares as before. What it changes is the plumbing: who can create and redeem those claims efficiently, and at what capital cost. For an industry still working out whether tokenized equities can scale beyond pilot programs, that plumbing may matter as much as any single product launch.

Source: Cointelegraph

This content is for informational purposes only and does not constitute financial or investment advice.