Tokenization of Stocks: Opportunities and Challenges Coexist

With the changes in the regulatory environment, tokenized stocks are increasingly attracting attention from the crypto industry. This article will introduce the development history of tokenized stocks, the current market situation, and the future opportunities and challenges.

The Development of Tokenization of Stocks

Tokenization of stocks is not a new concept; there were attempts at STO( security token offerings) as early as 2017. The essence of STO is to digitize and put traditional security rights on-chain, achieving asset tokenization through blockchain technology, combining the compliance of traditional securities with the efficiency of blockchain.

Before STO, the blockchain sector primarily relied on ICO financing. ICOs depend on Ethereum smart contracts, but most projects issue tokens that do not represent real asset rights and lack regulation, leading to numerous issues. In 2017, the U.S. SEC's statement on the DAO incident marked the official emergence of the STO concept. In 2018, STO began to gain attention as a "compliant ICO," but development was slow due to the lack of unified standards and other reasons.

After the rise of DeFi in 2020, some projects began to attempt to create derivatives linked to stock prices through decentralized solutions. This synthetic asset model allows investors to invest in the traditional stock market without complex KYC procedures. Synthetix and Mirror Protocol are representative projects.

Some well-known trading platforms have also attempted to provide U.S. stock trading services for cryptocurrency traders through a centralized custody model. For example, FTX and another trading platform once launched tokenized stock trading but later stopped due to regulatory pressure.

As the regulatory environment improves, the market is regaining interest in tokenized stocks. The current model emphasizes designing a compliant framework to issue tokens on-chain that are 1:1 backed by real-world assets, strictly adhering to regulatory requirements.

Current Status of the RWA Stock Market

The current RWA stock market is still in its early stages, primarily focused on US stocks. According to data, the total issuance of RWA stocks currently reaches $445.40M, of which $429.84M comes from EXOD, which is the on-chain stock issued by Exodus Movement, Inc. The company focuses on developing self-custody cryptocurrency wallets, is listed on the New York Stock Exchange, and allows the migration of Class A shares to be managed on the Algorand blockchain.

Exodus is the only company in the United States to tokenize common stock, which is iconic. The company first applied for common stock tokenization in May 2024, and after multiple refinements, it received SEC approval in December, successfully bringing common stock on-chain.

The remaining market share of approximately $16M mainly belongs to Backed Finance. This Swiss company allows users who have completed KYC to mint on-chain stock tokens in the official primary market using USDC. After receiving the crypto assets, Backed exchanges them for USD, purchases stocks in the secondary market, managed by a Swiss custodian bank, and then mints bSTOCK tokens to users on a 1:1 basis. On-chain investors can directly purchase such assets through DEX.

The adoption of Backed mainly focuses on two assets, CSPX and COIN, with liquidity primarily on the Gnosis and Base chains. However, the trading volume is not high; for example, the cumulative trading volume of the largest liquidity pool of bCSPX is about $3.8M, with around 400 trades.

Another noteworthy development is the progress of Ondo Finance. With Ondo announcing its Ondo chain and Ondo Global Markets overall strategy, tokenized stocks have become one of its core trading targets.

Opportunities and Challenges of Stock RWAs

RWA in stocks is typically considered to have three main advantages:

1. 24/7 Trading: Blockchain technology allows for the tokenization of stock trading without the time constraints of traditional exchanges.

2. Non-US users can acquire US assets at a low cost: Stablecoins can be used for direct trading, avoiding cross-border fees and time costs.

3. Composability brings financial innovation: programmable features allow it to integrate into the DeFi ecosystem and expand innovative scenarios.

However, the current tokenization of stocks still faces two major uncertainties:

1. Speed of regulatory policy advancement: Currently, the regulatory policies have not yet addressed the "same rights for stocks and coins" issue, which limits trading scenarios and financial innovation. Progress depends on the speed of policy advancement, and it may continue to be delayed.

2. Stablecoin Adoption: Core users may be traditional non-U.S. investors, and their stablecoin adoption is closely related to the policies of various countries.

In the short term, there are two market opportunities for stock RWA:

1. Listed companies can refer to the EXOD case to issue on-chain stock tokens, enhancing the company's valuation and business growth potential.

2. Tokenization of high-dividend US stocks may be favored by income-generating DeFi protocols, providing them with new real yield scenarios.