How Tokenization Will Rebuild Capital Markets | Gabe Otte

Gabe Otte argues that tokenization is not a wrapper on existing capital markets but a fundamental rebuild of how ownership is recorded, transferred, and settled. His core claim is that moving asset records from a single centralized database to distributed servers, using a universal language across debt, real estate, public equities, and private shares, changes what financial interactions are structurally possible, not just how existing interactions are executed.

Otte founded Denari in 2021 as both an SEC registered transfer agent and a federally licensed broker dealer, reportedly the first tokenization platform awarded a federal broker dealer license. The co-founders include the executive who took LegalZoom public and the founder of Crunchyroll, which was sold to Sony. Denari operates a B2B2C model, distributing access via API and SDK to partner platforms in over 85 countries, including markets in Argentina, Pakistan, and the UAE, where partners already had investor relationships but lacked compliant access to U.S. equities. Denari charges API fees to partners and no trade fees to partners or end users. Otte argues that regulatory compliance itself is a scaling moat because platforms avoiding regulation cannot replicate it at scale.

Unlike synthetic tokenization platforms, Denari backs each token one-to-one with actual shares held through its broker dealer subsidiary, which is required to seek best execution and guarantee NBBO pricing. Otte notes that synthetic platforms have shown observable price dislocations versus actual shares and do not guarantee best execution. The SPV model introduces additional counterparty risk because investors hold a claim through an intermediary rather than directly on the underlying security. Because Denari is also a registered transfer agent, token holders have direct redemption rights on the underlying shares, can vote on corporate actions on-chain with Denari translating those votes into traditional protocols, and see stock splits reflected directly in token count rather than through a synthetic adjustment.

Dividends are currently paid in USD Plus, a yield-bearing version of USDC, through a Circle partnership. Denari receives dividends as the broker dealer, converts them to stablecoin, mints USD Plus, and issues it to users. USD Plus and USDC are exchangeable one to one, and Otte says conversion cost has been optimized to be immaterial. He says Denari plans to give users more flexibility in which stablecoins dividends can be issued in within forthcoming months, which he frames as an advantage over traditional brokerage accounts.

Otte says Denari plans to list SpaceX stock as a one-to-one backed token on the same day SpaceX IPOs, making it available to all partner clients globally on IPO day. He acknowledges that even on U.S. exchanges, IPOs experience liquidity issues that take several days to resolve and expects similar challenges. He also notes that some platforms already offer SpaceX shares in token form but characterizes those as not real because there is currently no way to back them with actual shares before an IPO occurs.

Denari currently runs an off-chain system that mirrors on-chain records to remain compliant with existing regulations, which Otte compares to duct-taping new layers onto legacy infrastructure. He is working directly with regulators toward a framework where the token itself is the legal share, eliminating the need for a separate server-based record. He predicts regulators will eventually become comfortable declaring tokens to be shares themselves, analogous to how digital records replaced paper share certificates.

Otte identifies three capabilities whose combination he sees as transformative: atomic lending and borrowing, fractionalized order books, and instant settlement operating simultaneously in a single environment. He argues these interactions are not possible under current market structure and that their convergence will fundamentally change the financial system. He also predicts that fully on-chain order books would enable direct share-to-share trading pairs such as Apple to Nvidia, eliminating the fiat settlement leg entirely. Today, moving between equities requires settling to fiat first, which constitutes a taxable event. Otte argues that a direct on-chain swap between tokenized stocks without touching fiat raises an open legislative question and that such a swap should not be taxable because the investor never received liquidity out of the capital markets. His broader critique is that institutional investors are applying tokenization only to existing frameworks rather than asking how those frameworks themselves change once everything is on chain simultaneously.