Ondo Finance lets approved institutions swap shares for tokenised stocks in kind through Alpaca
Updated: 7 days ago
Institutions that already hold a US share can now hand it over and receive Ondo's token for it, or return the token and get the share back, without any cash changing hands. The ability to redeem a token for the real share is what keeps the token's price close to the share's, which makes this a question every builder of tokenised equity has to answer.
Ondo Finance, the US tokenisation company behind the Ondo Stocks range of tokenised stocks and exchange-traded funds, said on 21 September 2026 that approved institutions can now convert existing shareholdings directly into its tokens through the Instant Tokenization Network run by Alpaca, a US brokerage infrastructure provider. The route works in reverse too: a holder can hand back tokens and receive the underlying shares.
How in-kind conversion of tokenised stocks works
According to Ondo's announcement, an approved institution moves shares or ETF units from its own Alpaca account to Ondo's Alpaca account by internal book transfer, which is a change of ownership recorded inside one broker's books rather than a trade on an exchange. Ondo then issues the corresponding tokens on a public blockchain. Redemption runs the other way, with tokens returned and shares transferred back to the institution's account. The service is live on Ethereum and BNB Chain.
Until now, creating new Ondo tokens required cash. The company describes in-kind conversion as a new primary market route alongside that existing cash-funded process, useful for institutions that already hold the shares and would otherwise have to sell or source cash first. The primary market is where new tokens are created or cancelled, as distinct from the secondary market, where existing tokens change hands between investors.
Access is narrow. Ondo says it is limited to institutions approved by Alpaca case by case, which must hold active accounts with both firms and complete onboarding. The announcement gives no figures for how many institutions are approved or how much has been converted.
Why redemption matters more than issuance
The mechanism is borrowed from exchange-traded funds, the listed funds that track an index or basket of assets. Large ETF dealers keep an ETF's price near the value of what it holds by creating new units when the price runs high and redeeming units when it falls low, usually by swapping baskets of securities rather than cash. When Alpaca launched the network on 2 October 2025, it said the design mirrored the in-kind creation and redemption that the US Securities and Exchange Commission (SEC) had approved for crypto exchange-traded products. Alpaca's launch partners included Backed, the issuer of xStocks, as well as Ondo, Kraken, DRW, Keyrock and Virtu.
The practical point is arbitrage, the trade that buys something where it is cheap and sells it where it is dear until the gap closes. If a dealer can turn a token into the share in one transfer, a token trading below the share price becomes a quick profit, and dealers will buy it until the discount disappears. Without that route, a token can drift from the asset it claims to represent. Ondo itself says the change should bring tighter spreads, meaning a smaller gap between buying and selling prices, and deeper liquidity in secondary markets.
That makes redemption the most important and least discussed part of any tokenised share. Anyone following the argument over what a tokenised share actually is will recognise the underlying question: what the token can be exchanged for, and by whom.
What it means for UK builders and investors
Ondo's tokens are not a UK product. The offering documents are approved by Liechtenstein's Financial Market Authority and notified to certain EU member states, and Ondo says that in the UK its communications are directed only at investment professionals under the Financial Services and Markets Act 2000.
The design lesson travels, though. UK firms working on tokenised versions of listed shares, including the plan by Kraken's parent Payward to tokenise 100 London-listed companies set out in the Nasdaq and Payward tokenised equities push, will face the same question: who can redeem, for what, and how fast. A token that only approved institutions can redeem may still track its share well, because those institutions do the arbitrage for everyone else. A token with no redemption route at all depends on the issuer's word.
For founders thinking about tokenising their own private company shares, the same test applies in a simpler form. The register must say who owns the share, and the token must be tied to that entry in a way a holder can enforce.
Frequently asked questions
What is Ondo Finance's in-kind conversion for tokenised stocks?
Announced on 21 September 2026, it lets approved institutions convert existing US shares or ETF units directly into Ondo tokens through Alpaca's Instant Tokenization Network, and hand tokens back for the underlying shares, with no cash changing hands. The service is live on Ethereum and BNB Chain.
How does in-kind conversion through Alpaca work?
An approved institution moves shares or ETF units from its own Alpaca account to Ondo's Alpaca account by internal book transfer, and Ondo then issues the corresponding tokens on a public blockchain. Redemption runs the other way, with tokens returned and shares transferred back to the institution's account.
Who can use Ondo's in-kind conversion?
Access is limited to institutions approved by Alpaca case by case, which must hold active accounts with both Alpaca and Ondo and complete onboarding. No figures were given for how many institutions are approved or how much has been converted.
Why does redemption keep a tokenised stock's price close to the real share?
If a dealer can turn a token into the share in one transfer, a token trading below the share price becomes an arbitrage profit, and dealers will buy it until the discount disappears. Without a redemption route, a token can drift from the asset it claims to represent.
Are Ondo tokenised stocks available in the UK?
Ondo's tokens are not a UK product. Its offering documents are approved by Liechtenstein's Financial Market Authority, and in the UK its communications are directed only at investment professionals under the Financial Services and Markets Act 2000.
This is general information, not legal, tax or investment advice.
Key takeaways
Ondo Finance said on 21 September 2026 that approved institutions can convert shares into its tokenised stocks, and back, through Alpaca's Instant Tokenization Network, with no cash leg.
Access is limited to institutions Alpaca approves case by case; no volumes or participant numbers were disclosed.
In-kind creation and redemption, familiar from ETFs, lets dealers close gaps between a token's price and the share's price.
In the UK, Ondo's communications are restricted to investment professionals; its offering documents are approved in Liechtenstein.
For anyone designing tokenised equity, the redemption right, not the token itself, decides whether the token tracks the share.
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