Key Points
With $23.3 billion in real-world assets tokenized, more and more native crypto platforms are reaching out to traditional finance. Several exchanges like Kraken and Binance have launched tokenized products of popular US stocks such as Apple and Tesla.
Some analysts believe tokenized stocks have huge potential in the crypto field, while others think they will only succeed with a focus on high-risk, volatile stocks.
Can Tokenized Stocks Attract Crypto Users?
Crypto exchange Kraken announced the launch of xStocks, including tokenized versions of popular US stocks like Apple, Nvidia, and Tesla. This innovation combines crypto and traditional finance as blockchain technology expands into real-world assets.
As crypto exchanges increasingly embrace traditional finance, can tokenized stocks succeed where previous attempts failed? Can they attract “degen” traders known for chasing high-risk, high-volatility investments?
Bitget’s Chief Analyst Ryan Lee told Cryptonews, “Tokenized stocks have huge potential in the crypto field because they can achieve asset ownership division, 24/7 trading, and stronger liquidity through blockchain platforms.” Tokenized securities are digital versions of traditional stocks traded on the blockchain. In Kraken’s case, over 50 tokens and ETFs are issued on the Solana blockchain.
Each xStock token is pegged to the value of its corresponding physical stock, held in custody by Backed Finance, Kraken’s partner in this project. For example, an Apple Inc. (AAPLx) token will track the price of AAPL stock on Nasdaq and can be cashed out 1:1.
Investors don’t need to directly hold stocks, only tokens representing ownership. Kraken states its tokens are not available to US customers and will only be sold in specific markets outside the US.
US crypto exchanges offering tokenized stock services are not industry pioneers. The Bybit platform recently launched a similar product, while the world’s largest crypto exchange Binance tried such a business in 2021 but quickly halted the project under pressure from Hong Kong regulators.
Is There a Demand for Tokenized Stocks in the Crypto Field?
Tokenized stocks have yet to gain widespread adoption in the crypto field, but supporters believe these products could fundamentally change how people participate in financial market investments. As Bitget analyst Lee pointed out:
“Tokenized stocks and similar products are increasingly popular in the market, mainly due to retail investors’ demand for lower barriers and more flexible traditional stock investment opportunities.”
Sam MacPherson, co-founder and CEO of Phoenix Labs (developer of the decentralized lending protocol Spark), said tokenized securities “transform static, closed market tools into modular components in the chain economy.”
“This technology enables 24/7 global access, real-time settlement, and fosters new financial application scenarios,” MacPherson told Cryptonews, adding:
This financial application scenario can cover various financial products such as collateralized loans and automated portfolio strategies, marking a new stage of integration between traditional finance and the DeFi market, ultimately forming an integrated financial system.
However, not everyone shares the same enthusiasm, at least not initially. DeFi service platform Tymio founder Georgii Verbitskii takes a cautious approach to which assets crypto traders will favor.
In an interview with Cryptonews, Verbitskii stated that for tokenized stocks to succeed, their listing strategy must be tailored to the preferences of crypto investors, focusing on “trend-driven or non-correlated assets.”
“Despite the optimistic outlook, actual demand will largely depend on the specific asset types listed on the exchange,” Verbitskii noted, adding, “On crypto asset trading platforms, high-volatility thematic stocks may be more favored by investors,” he added.
Assets like GameStop, a meme stock, rather than traditional blue-chip stocks like Nvidia or Microsoft, which tend to have lower volatility and therefore less appeal to crypto traders, while high volatility will attract more interest.
In recent years, crypto investors have tended to choose assets built around meme culture narratives or with speculative growth potential.
For example, meme stock KOL Keith Gill (known as Roaring Kitty on Twitter and YouTube, DeepFxxingValue on Reddit’s WallStreetBets forum) gained fame for betting on GameStop, sparking trading enthusiasm among retail investors, including crypto investors.
During January 2021, GameStop’s stock price surged 1,600% due to Gill’s social media posts, causing significant losses for hedge funds shorting the Texas-based video game retailer.
This frenzy also extended to meme stocks like AMC Entertainment and spilled over into the crypto market. Crypto traders have created new meme tokens inspired by companies like GameStop and AMC.
Tokenized Stocks Targeting a $250 Billion Market: Facing Regulatory Challenges
Verbitskii believes tokenized commodities like gold or silver are more likely to “generate strong interest” compared to tokenized stocks in the crypto asset space.
“These assets attract investors seeking risk diversification or hedging, and there are precedents to follow,” he mentioned FTX, a crypto exchange that launched perpetual gold futures products before its dramatic bankruptcy in 2022.
Experts point out that Kraken’s foray into tokenized securities is a new move to bridge crypto and traditional finance, but the key to the success of this business is whether it can meet regulatory requirements in regions where xStocks services are offered.
The main reason for the failure of Binance’s launch of tokenized stock products in 2021 was compliance issues as they did not obtain a securities trading license. Hong Kong regulators also inquired about the stock token custody arrangements of the exchange.
Analysts suggest that in the absence of public trust, tokenized stocks could turn into regulatory time bombs. The collaboration between Kraken and regulated tokenization platform Backed Finance aims to proactively address such concerns.
“When designing xStocks at the foundational level, it aims to address these regulatory challenges,” Backed co-founder Adam Levi replied via email to Cryptonews questions.
“They are fully collateralized by the underlying stock at a 1:1 ratio, issued based on EU prospectuses compliant with MiFID II requirements, including full investor information disclosure terms, and subject to clear legal and regulatory frameworks. This gives the tokenized form institutional-grade standards.”
Levi added that the xStocks product provided by Kraken fully complies with regulatory requirements in Jersey, Switzerland, and the EU.
He believes the demand for tokenized stocks “will significantly grow over time.” Levi predicts this segment will follow the stablecoin development trajectory, with the market size expected to expand to $250 billion in the coming years.
Democratizing Real-World Assets
The crypto industry once saw regulation as a betrayal of Bitcoin’s ethos, but now new products like those jointly launched by Kraken and Backed are testing crypto companies’ innovation under regulatory frameworks. Several companies have begun offering securities-type tokenized stock services.
Dubai’s tokenized securities exchange Allo has completed tokenization of $2.2 billion in real-world assets, covering 11,000 US stocks and exchange-traded funds. Users can purchase on-chain stocks of heavyweights like MicroStrategy, Tesla, Google, etc., through the platform.
Allo CEO Kingsley Advani stated that the company has tokenized over a thousand companies planning to go public through IPOs, including Musk’s SpaceX, OpenAI, and Anthropic.
“Investors can access these assets at a lower entry threshold more quickly, making physical asset investment more accessible,” Advani noted. Tokenization increases liquidity on their platform, broadens investment channels for small investors, and speeds up settlement.
For example, stock fractionalization, the process of dividing stocks into smaller, tradable tokens. This model reduces the capital barrier required for investment, attracting more investors, according to Advani.
Today, international investment banks can settle trades in “seconds or minutes,” as opposed to at least two business days with the old brokerage model. “This reduces counterparty risk and improves capital efficiency,” the Allo CEO stated.
Advani did not specifically mention whether Allo has faced obstacles from US or EU regulatory bodies, only mentioning the company has a “proud compliance team” with regulatory experience in the US market.
According to RWA website data, the total amount of on-chain issued RWAs is $23.3 billion. The data shows a nearly 6% growth in this scale over the past 30 days.
This article is a collaborative reprint from: PANews
