Ondo Finance Opens Stock-to-Token Conversion for Institutional Investors

The in-kind conversion model removes cash as an intermediary in tokenized equity minting, a structural shift that could affect how US institutions manage settlement risk and redemption timing.

Ondo Finance has launched a mechanism allowing approved institutional investors to mint and redeem tokenized stocks and exchange-traded funds by depositing the underlying securities directly, bypassing cash conversion entirely, according to a report published September 21, 2026, by CoinTelegraph.

The system, which Ondo calls in-kind conversion, lets qualified institutions exchange physical shares or ETF units for their tokenized equivalents on a one-to-one basis. The reverse process, redeeming tokenized shares for the underlying security, operates through the same mechanism in the opposite direction.

Traditional tokenized equity programs have generally required institutions to sell securities for cash, transfer that cash to a minting platform, and then receive tokens representing exposure to the original asset. That multi-step process introduces timing gaps, foreign exchange exposure for non-dollar assets, and additional counterparty touch points at each conversion stage.

By allowing securities to serve as direct collateral for token issuance, Ondo reduces the number of intermediary steps to one. The institution transfers the security; the token is minted against it. No cash changes hands in the interim.

Ondo Finance is a US-based firm registered as a financial technology company. Its tokenized US Treasury product, OUSG, has been available to accredited investors and institutions since 2023, according to disclosures on the Ondo Finance website. The company operates under existing US securities law frameworks and restricts its tokenized products to verified institutional and accredited participants.

The new in-kind conversion feature applies to tokenized stocks and ETFs rather than fixed-income instruments. Ondo has not publicly disclosed which specific equity securities or ETFs are currently eligible for in-kind conversion, and the full list of approved counterparties has not been made public as of September 21, 2026.

The structural significance for US markets centers on settlement. Standard US equity settlement occurs on a T+1 basis, meaning transactions clear one business day after execution, a timeline adopted by the Securities and Exchange Commission in May 2024 under Rule 15c6-1, according to SEC Release No. 34-96930. Tokenized securities on blockchain rails can, in principle, settle in seconds. The in-kind conversion model allows an institution to move between these two settlement regimes without liquidating its position.

What remains unknown is whether the SEC has issued specific guidance on in-kind minting of tokenized equities as a distinct securities activity separate from a standard transfer of ownership. The agency's Division of Corporation Finance and Division of Trading and Markets would typically be the offices to address that question. No public staff bulletin or no-action letter specifically covering in-kind tokenized equity minting by a registered or exempt platform was identified in SEC public records as of this reporting date.

The tokenized asset market has grown substantially in the period between 2023 and 2026. According to data published by rwa.xyz, a real-world asset tracking platform, the total on-chain value of tokenized US Treasuries and equivalent instruments crossed $5 billion in early 2025 and continued to expand through mid-2026. Equity tokenization has lagged Treasury tokenization in volume, in part because equities carry more complex corporate action considerations such as dividends, proxy votes, and stock splits.

Ondo's in-kind model does not eliminate those corporate action questions. How dividends paid on underlying shares held in custody are passed through to token holders, and how voting rights are handled, are mechanics that would need to be addressed in the product's legal documentation. Ondo has not published those terms publicly as of the reporting date.

For US institutional investors, the practical appeal of in-kind conversion is most visible in scenarios involving large block positions. A fund holding several million shares of a given ETF could, under this model, convert a portion to tokenized form for use in decentralized finance protocols or on-chain settlement networks without triggering a taxable sale event, assuming the conversion itself is not treated as a disposition under Internal Revenue Code Section 1001. The IRS has not issued formal guidance specifically addressing whether in-kind tokenization of a security constitutes a realization event, leaving that tax question unresolved.