a16z: Once Securities Go Onchain, Intermediaries Get Replaced by Code
a16z: Once Securities Go Onchain, Intermediaries Get Replaced by Code
Tokenization is no longer a niche experiment. As regulators and market infrastructure providers increasingly engage with tokenized securities, the core question stops being “Can blockchains handle traditional finance?” and becomes “Which parts of today’s market structure are still necessary once ownership, transfer rules, and settlement are programmable?”
That shift is the heart of the a16z crypto discussion inspired by “A Former SEC Chief Economist Analyzed How Tokenized Securities Can Benefit From DeFi” (by Miles Jennings, Robert S. Walker, and Aiden Slavin). The thesis is simple but disruptive: when securities are issued and transacted onchain, many intermediary functions can be expressed as software—auditable, composable, and (in some cases) automatic. For context on this research direction, see a16z crypto.
Below is a practical, market-focused interpretation of what “intermediaries replaced by code” actually means, why it matters in 2025’s onchain environment, and what users and institutions should watch next.
Why “Securities onchain” changes the conversation
Traditional securities markets rely on a long chain of specialized entities—brokers, custodians, transfer agents, clearinghouses, settlement systems, and various reconciliation layers. This stack exists partly because:
- Ownership records are fragmented across systems
- Settlement is delayed (often netted and batched)
- Compliance checks are performed by institutions, not embedded in the asset
- Corporate actions and reporting require manual coordination
Tokenization compresses that stack because the asset itself can carry rules (who can hold it, when it can move, what disclosures are required) and settlement can be atomic (delivery versus payment in one transaction).
Importantly, “onchain” does not automatically mean “unregulated.” It means the mechanisms of regulation and market integrity can be implemented in more transparent and automated ways—often called compliance by design. For a baseline on how regulators think about securities and markets, refer to the U.S. Securities and Exchange Commission (SEC).
The key idea: intermediaries aren’t only institutions, they’re functions
A useful mental model is to separate “intermediaries” into two categories:
1) Institutions that provide trust
Examples: regulated custody, capital buffers, supervised governance, legal enforcement.
2) Processes that exist because systems cannot coordinate natively
Examples: reconciliation, batch settlement, duplicated recordkeeping, manual transfer restrictions, and operational back-office workflows.
Tokenized securities primarily attack category (2). If a rule can be expressed as deterministic logic, the “middle” becomes a smart contract.
How tokenized securities can benefit from DeFi (without pretending risk disappears)
DeFi is often summarized as “finance without intermediaries,” but a more accurate description is:
DeFi is a modular set of financial primitives—trading, lending, collateral, liquidation, risk limits—implemented as smart contracts.
When securities become tokens, they can plug into these primitives. That unlocks capabilities that are hard or expensive in traditional rails.
A) Atomic settlement reduces counterparty and operational risk
With onchain settlement, you can exchange a security token and payment token in a single transaction (or a tightly-coupled sequence). That can reduce:
- failed trades
- settlement delays
- costly reconciliation
This is one reason market infrastructure groups have explored tokenized settlement models. For broader context on post-trade modernization, see DTCC.
B) Programmable compliance: “transfer agents as code”
A tokenized security can enforce transfer restrictions at the token level, such as:
- investor eligibility (e.g., jurisdiction, accreditation status)
- holding limits
- lockups and vesting schedules
- corporate action permissions (voting, distributions)
This doesn’t eliminate legal obligations—but it can reduce the operational burden of enforcing them.
C) Composability enables new market structures (but demands stronger risk controls)
When assets are composable, you can build:
- onchain securities lending
- collateralized borrowing against tokenized instruments
- automated market-making for eligible venues
- programmatic repo-like structures (where appropriate)
This is where a16z’s argument becomes most provocative: some activities we associate with brokers or prime brokers are partially “just workflows,” and workflows can be automated.
D) 24/7 markets and faster innovation cycles
Onchain markets don’t inherit exchange hours by default. For global participants, always-on infrastructure can:
- improve access
- reduce time-to-settlement
- support more continuous risk management
But 24/7 trading also raises questions about surveillance, liquidity fragmentation, and incident response—all of which matter more, not less, for securities.
What replaces intermediaries: not “no rules,” but new control points
In practice, tokenized securities often evolve toward permissioned or hybrid DeFi:
- Permissioned identity / access for regulated instruments
- Whitelists / allowlists enforced at the contract layer
- Onchain attestations proving eligibility without fully doxxing the user
- Audited smart contracts with formal controls, pause mechanisms, and transparent upgrades
This doesn’t remove trust. It repackages trust into software + governance + audits + legal wrappers.
For readers tracking the policy side, global standard-setters like the Bank for International Settlements (BIS) are a useful reference point for how regulators think about tokenization, settlement, and systemic risk.
The 2025 reality check: what’s actually happening in the market?
By 2025, user attention has shifted from “tokenize everything” to “tokenize what the market already demands”:
- Tokenized cash equivalents (often used for settlement, collateral, and treasury operations)
- Tokenized funds and structured products, designed for programmable transfer rules
- Real-world assets (RWA) as a category, increasingly discussed in terms of liquidity design, transparency, and enforceable compliance
Meanwhile, the infrastructure conversation has matured:
- better smart contract security practices
- stronger institutional key management
- more realistic approaches to privacy and compliance
The takeaway: tokenization is increasingly about market plumbing, not marketing.
User questions that matter (and the answers that avoid hype)
“Will brokers, custodians, and clearinghouses disappear?”
Not entirely. Many roles remain essential:
- legal accountability
- regulated safeguarding and reporting
- dispute resolution and enforcement
- governance of upgrades and emergency procedures
But many operational functions can shrink, especially those tied to reconciliation and slow settlement.
“Is this just DeFi with extra steps?”
No. Tokenized securities introduce constraints that most permissionless DeFi was not built to handle:
- transfer restrictions
- jurisdictional requirements
- disclosure and recordkeeping
- controlled liquidity venues
This is why the next wave looks less like “open liquidity for everything” and more like regulated composability.
“What are the main risks?”
The same ones that become critical when code touches regulated value:
- smart contract vulnerabilities
- oracle and data integrity failures
- governance capture (who controls upgrades?)
- systemic leverage built through composable collateral
- chain-level outages and finality assumptions
Tokenization can reduce some risks (operational, settlement), while amplifying others (technical, governance).
Where OneKey fits: self-custody becomes more valuable when assets become more programmable
As securities and RWAs become tokens, more users—especially advanced users and funds—will care about secure key management for:
- holding tokenized instruments
- signing compliant transfers
- interacting with onchain settlement, collateral, and lending workflows
A hardware wallet can help isolate private keys from internet-connected environments, which matters when onchain assets represent real-world legal claims.
If you participate in onchain finance and want a self-custody setup designed for modern multi-chain usage, OneKey is worth considering for its security-focused approach and practical support for day-to-day signing flows in DeFi and onchain asset management.
Closing: “Code replaces intermediaries” is really “code replaces coordination costs”
The most credible version of the tokenized securities story is not anti-institution—it is anti-friction.
When securities are onchain, markets can move from institution-mediated coordination to protocol-mediated coordination, where:
- rules can be enforced automatically,
- settlement can be atomic,
- and financial primitives can be composed safely under clear constraints.
That is the long-term implication behind a16z’s framing: the middle doesn’t vanish, it becomes software—and the winners will be the ones who can make that software compliant, secure, and interoperable.
