Digital assets have grown into a multi-trillion-dollar market, yet they are still not fully integrated with traditional finance. Institutional investors are increasingly interested in owning and monetizing digital assets, but many financial entities continue to use infrastructure designed for stocks and bonds rather than blockchain-based assets. Spot crypto ETFs offer some level of access but primarily provide passive exposure; to fully realize the potential of digital assets, a system that integrates them into the existing capital markets in a regulated manner is essential.

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Enter American Depositary Receipts (ADRs)

For almost a century, depositary receipts have acted as a bridge for international stocks, debt, and commodities, allowing U.S. investors to easily own foreign assets. The first ADR—issued in 1927—paved the way for a system today that facilitates trillions in global investment. ADRs function well because they provide fungibility, economic rights, and U.S. regulatory oversight while ensuring efficient settlement through the Depository Trust & Clearing Corporation (DTCC). They enhance local liquidity and market access as demonstrated by U.S. stocks trading in Brazil.

Crypto as the modern foreign market

Crypto-focused ADRs will perform a similar role within the digital asset marketplace. Like foreign assets, crypto operates outside conventional U.S. capital markets, posing challenges for institutions attempting to participate without specialized infrastructure. ADRs present a regulated and accessible framework that enables:

1. Seamless access – Crypto can be included within funds and held at existing banks or brokerage accounts, unlocking traditional capital markets capabilities.
2. Efficient two-way convertibility – ADRs provide asset holders the flexibility to convert their underlying crypto and ADRs as needed.
3. Cost efficiency – ADR conversions are straightforward, same-day processes that negate the need for a NAV calculation. Fees are not deducted from the underlying crypto sales.
4. Institutional workflow compatibility – Settlement through DTCC via identifiers like CUSIP and ISIN guarantees alignment with existing workflows.

TradFi demands crypto

Institutional demand for digital assets is surging, yet many traditional financial participants still rely on DTCC systems and are ill-equipped to interact directly with crypto. ADRs provide these firms with a suitable solution while addressing critical regulatory, compliance, and operational challenges:

1. Regulation – ADRs are SEC-regulated securities with CUSIPs, ISINs, and tickers, ensuring investor security.
2. Compliance – Custody and servicing of ADRs is managed exclusively by regulated entities (broker-dealers, banks, etc.), upholding stringent compliance standards.
3. Operations – ADRs are processed through standard stock clearing systems, just like any other security.

Unlocking market expansion

By connecting the $3 trillion crypto market with the $87 trillion securities market via DTCC, ADRs could spur institutional adoption and create fresh opportunities within traditional markets, including:

• 24/7 trading – Unlike traditional securities, cryptocurrency markets do not close. ADRs permit continuous trading of conventional securities, minimizing overnight and weekend risks. Since the launch of spot bitcoin ETFs in early 2024, BTC has seen large fluctuations over weekends—events that institutional investors could not completely capitalize on.

• Yield, lending & settlement – ADRs could facilitate margin trading, settle spot crypto and futures transactions, provide collateralized lending, and create structured products. Their unique capability to connect ADR and crypto liquidity makes them ideally suited for institutional deployment.

• Custody choice – Investors have the flexibility to hold assets either on-chain or within conventional brokerage accounts.

• Fund inclusion – As regulated securities, ADRs open the door for crypto ownership within ETFs and institutional investment portfolios.

Conclusion: a foundation for institutional growth

ADRs transformed global investing by making foreign stocks easily accessible to U.S. investors. There now exists a unique chance to further this tradition of market facilitation. By offering a regulated, efficient, and recognizable gateway for institutions to engage with digital assets, ADRs have the potential to unlock the next phase of growth in the crypto sector and introduce new institutional capital to the on-chain environment.