<div id="readability-page-1"><div><div><p>Author: Vaidik Mandloi, Source: Token Dispatch, Translated by: Shaw Jinse Finance</p><h2>Introduction</h2><p>Last week, two decisions by US regulators changed the scope of use of tokenized assets in financial markets.</p><p>The US Commodity Futures Trading Commission (CFTC) announced that Bitcoin, Ethereum, and USDC can now be used as collateral in regulated derivatives markets. At the same time, the US Securities and Exchange Commission (SEC) allowed the US Depository Trust and Clearing Corporation (DTCC) to test a tokenized settlement system without taking enforcement action.</p><p>These decisions are not aimed at promoting cryptocurrencies or facilitating trading for retail users, but rather at ensuring that tokenized assets are reliable enough to be used in risk-management aspects of the financial system.</p><p><img src="https://imageproxy.pbkrs.com/https://img.jinse.cn/7423149_watermarknone.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="600" height="334" original-src="https://imageproxy.pbkrs.com/https://img.jinse.cn/7423149_watermarknone.png"/></p><p>Collection and settlement are core functions. Collateral is the guarantee that traders provide to compensate for market movements that are unfavorable to their interests. Settlement is the process of completing a transaction and the actual transfer of funds. If an asset is allowed to be traded in these areas, it means that regulators are satisfied with its performance under pressure.</p><p>To date, most tokenized assets operate outside of these core systems. They can be issued and traded, but they are not included in the trust scope of margin systems or settlement processes. This limits the actual extent of tokenization.</p><p> The change lies in the fact that regulators are beginning to allow tokenized assets into these core areas. This article will explain why they started with collateral and settlement, the actual scope of these approvals, and the resulting tokenization models. Why Collateral is the First Target for Tokenization by Regulators To understand why the CFTC's decision is important, it's essential to understand how collateral actually works in the derivatives market. In the derivatives market, collateral plays a very clear role: **limiting losses before they spread.** When traders open leveraged positions, the clearinghouse doesn't care about the logic of the trade. It cares about whether the collateralized assets can be quickly sold at a known price to cover losses if the position moves against the trader. If a sale fails, the loss is not borne by the trader but transferred to the clearing member, then to the clearinghouse, and ultimately into the broader market. This is the significance of collateral rules. They are designed to prevent forced liquidation from escalating into a systemic funding shortage. For assets to qualify as collateral, clearinghouses actually assess the following four aspects: Liquidity: Can it be sold in large quantities without freezing the market? Price Reliability: Is there a consistent, globally accepted price? Custody Risk: Can the asset be held without operational failures? Operational Integration: Can Margin Systems Be Accessed Without Human Intervention? Most tokenized assets have failed this test for years, even with active trading on exchanges. This is because trading volume alone is insufficient. Clearinghouse margin accounts are controlled environments with strict custody, reporting, and liquidation rules. Assets that do not meet these standards cannot be used here, regardless of market demand. This CFTC decision is significant because it **changes the types of margin assets legally acceptable to clearing members in regulated derivatives markets**. In these markets, collateral is not flexible. Clearing members must strictly adhere to regulations, including what assets they can hold on behalf of clients, how to value these assets, and how to meet capital requirements. Even if an asset is highly liquid and actively traded, it cannot be accepted as margin unless explicitly permitted by the regulator. Prior to this decision, this restriction also applied to crypto assets. Under CFTC guidance, Bitcoin, Ethereum, and USDC can now be used within the existing margin framework, subject to established risk control measures. This removes previous regulatory restrictions that prevented institutions from including these assets in their derivatives trading, regardless of market demand or depth. Margin systems rely on **continuous pricing, predictable liquidation, and operational reliability under stress**. Assets that cannot be valued intraday, require discretionary processing, or have slow settlement pose risks that settlement is intended to mitigate. USDC meets these criteria because it already supports large-scale, repetitive trading flows. The supply of stablecoins has grown from approximately $27 billion in 2021 to over $200 billion today, with on-chain transfers currently exceeding $2 trillion per month. These volumes reflect the daily flow of funds between exchanges, trading platforms, and financial operations. From a margin system perspective, this is crucial because USDC allows for instant transfers, rapid settlement, and is independent of bank operating hours or agent networks. This makes it suitable for margin calls and collateral adjustments without requiring modifications to existing processes. Bitcoin and Ethereum meet a range of different requirements. Both assets are volatile, but volatility itself is not a disqualifying factor in the derivatives market. The key is whether price risk can be managed through mechanisms. Bitcoin and Ethereum are continuously traded on multiple exchanges, have excellent liquidity, and have largely consistent reference prices. This allows clearinghouses to use established models to enforce discounts, calculate margin requirements, and clear transactions. Most tokens do not meet these criteria. </p><p><img src="https://imageproxy.pbkrs.com/https://img.jinse.cn/7423151_watermarknone.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="600" height="688" original-src="https://imageproxy.pbkrs.com/https://img.jinse.cn/7423151_watermarknone.png"/></p><p>While this decision by the U.S. Commodity Futures Trading Commission (CFTC) is limited in scope, it is significant. Now, a small subset of tokenized assets can be directly used to support leveraged trading in regulated markets. </p><h2>Settlement: The Stage Where Funds Are Actually &#34;Locked&#34;</h2><p><strong>Collection determines whether leverage is feasible. The settlement method determines how long funds will be locked up once they are available.</strong></p><h2> In most financial markets today, transactions are not completed instantly. After a transaction is concluded, there is a period of time for ownership transfer and fund delivery. During this time, both parties face risk exposure, and therefore both must hold additional funds to hedge this risk. This is why settlement speed is crucial. The longer the settlement time, the more funds are idle as protection, unable to be used for other purposes. This is the problem that tokenization attempts to solve at the infrastructure level. DTCC is at the heart of this process. The company is responsible for the clearing and settlement of stocks, bonds, and funds. If DTCC cannot process transactions, the market cannot function. Therefore, changes at this level are more important than changes to trading venues or applications. The SEC's &#34;no action&#34; letter allows DTCC to test its tokenized settlement system without triggering enforcement action. This is not a green light for cryptocurrency trading, but rather allows it to experiment with how to use tokenized representations instead of traditional ledgers for transaction settlement, recording, and reconciliation. The key issue that DTCC is addressing is **balance sheet efficiency**. Under the current settlement model, funds are locked up during the settlement window to protect against counterparty default. These funds cannot be reused, pledged, or used for other purposes. Tokenized settlement shortens or even eliminates this window by allowing near-instantaneous transfer of ownership and funds. The faster the settlement, the less capital is idle as insurance. This is why the limitations of settlement speed are far more significant than most people realize. Faster settlement not only reduces operating costs but also directly impacts the leverage levels the system can withstand and the efficiency of capital circulation. This is why regulators are eager to start here. Tokenized settlement does not change the underlying assets or trading entities; it changes how obligations are fulfilled after the transaction is completed. This makes testing within the existing legal framework easier without redefining securities law. Importantly, this approach ensures that regulators maintain firm control. Settlement still requires licensing. Participant identities remain transparent. Compliance checks remain effective. Tokenization aims to shorten settlement times and reduce reconciliation work, not to eliminate regulation. Linking all this to collateral clarifies the process. Assets can now be used as margin, and regulators are testing systems to allow for faster transfer and settlement when positions change. These measures collectively reduce idle funds in the system. Currently, tokenization allows existing markets to accomplish the same amount of work with less capital. What types of tokenization do regulators actually allow? At this point, regulators are clearly not deciding whether tokenization should exist, but rather where it should fit within the financial system. Currently, the answer is consistent. Tokenization is widely accepted because it reduces operational friction without altering legal ownership, counterparty structure, or control. However, it slows down or stagnates whenever tokenization attempts to replace these elements. This is clearly evident from the current accumulation of actual trading volume. Aside from stablecoins, the largest tokenized asset class is currently tokenized US Treasury bonds. While their total value remains relatively small compared to traditional markets, their growth model is significant. These products are issued by regulated institutions, backed by common assets, and redeemed at net asset value. They do not introduce new market structures but rather compress existing ones. Other tokenized products that have withstood regulatory scrutiny exhibit similar patterns. They share several common characteristics: **issuance requires permission; holder identities are publicly transparent; custody is handled by regulated intermediaries; transfers are restricted; and redemption processes are clearly defined.** These restrictions allow tokenization to exist in regulated markets without violating existing rules. This is also why many early attempts at permissionless tokenization of real-world assets failed. When tokens represent rights to off-chain assets, regulators are more concerned with the legal validity of those rights than the token itself. If ownership, priority, or liquidation rights are unclear, the token cannot be used in any large-scale risk management system. In contrast, the tokenized products that are thriving today deliberately appear unremarkable. They closely resemble traditional financial instruments, primarily utilizing blockchain technology to improve settlement efficiency, transparency, and the programmability of the infrastructure layer. Tokens are merely a packaging form of assets, not a reinvention of the assets themselves. This framework also explains why regulatory initiatives surrounding collateral and settlement preceded those concerning the broader tokenization market. Allowing tokenization at the infrastructure layer allows regulators to test its benefits without reigniting discussions about securities laws, investor protection, or market structure. It's a controlled way to adopt new technologies without redesigning the system. Once all the links are connected, tokenized assets will be introduced into the system from the bottom up. First, collateral, then settlement. Only after these links are validated is there reason to expand to more complex instruments. This also suggests that a potentially scalable version of tokenization does not replace the open, permissionless financial model of existing markets, but rather leverages tokenization to achieve faster speeds, less capital tied up, and lower operational friction, thereby building a more regulated financial system.</h2></div></div></div>

CRCL

<p>US regulators, the CFTC and SEC, have expanded the use of tokenized assets in financial markets. The CFTC now allows Bitcoin, Ethereum, and USDC as collateral in regulated derivatives markets, while the SEC permits the DTCC to test a tokenized settlement system. These changes aim to integrate tokenized assets into core financial functions like collateral and settlement, ensuring their reliability in risk management. This marks a significant shift as tokenized assets begin to enter core financial systems, previously limited by regulatory restrictions.</p>

Tokenization is entering the core areas of the financial market.