jakiro
Author: Sha Jun, Guo Fangxin
In June this year, Robinhood announced that it would provide tokenized U.S. stock and ETF trading to European users, and provide users with a product service similar to OTC financial derivatives by signing contracts for difference.
In September this year, Nasdaq officially submitted a proposal to the U.S. Securities and Exchange Commission, hoping that the exchange could publicly issue securities in the form of tokens. The topic of tokenization of U.S. stocks has officially come to the table.
On October 29, Ondo Finance, known as “BlackRock on the chain,” announced that its core product Ondo Global Markets (Ondo GM) was officially connected to the BNB Chain, introducing tokenized stocks and ETFs into the BNB ecosystem on a large scale for the first time, setting off a new wave of tokenization in the U.S. stock market.
Amid the RWA craze,Why is stock tokenization a direction we must pay attention to?As intermediaries, institutions, and ordinary investors, what is the significance of getting involved in the U.S. stock tokenization market?Is buying tokenized stocks equivalent to buying the stocks themselves? What is the core difference?Where are the compliance boundaries for this product?…
CryptoSalad will systematically sort out some key issues regarding stock tokenization today and put forward its own views from the professional perspective of Web3 lawyers.
Why stock tokenization is one of the most important branches of the current RWA narrative
I believe everyone can feel that the currency circle has not been peaceful these past few months.After experiencing large-scale liquidations such as the 1011 incident, investors gradually realized that DeFi now has a huge BUG: products are becoming more and more complex, protocols are layered on top of each other, and various lending, leverage, arbitrage, and contract structures are interdependent, making it difficult to play tricks.However, no matter where a problem occurs, it will be quickly transmitted to every layer, leading to a series of liquidations.The thorny problem is that it is difficult for the market to judge in advance which layer will start to lose control, and it is too late to react. Once a crisis occurs, the overall liquidity will dry up in a very short period of time.
In this case,Funds originally invested in DeFi have also begun to look for some valuable assets that can smoothly pass through the cycle.
As a tokenized product based on real assets, RWA naturally meets the above requirements.According to the latest data from the rwa.xyz website, as of today, the RWA funds on the chain have exceeded 35.6 billion US dollars, and are showing a continued growth trend.The Crypto Salad team has also been at the forefront of RWA practice and can feel the temperature of the market most intuitively.But so far, our point of view has always been: RWA has not yet reached a good time for it to explode.
Crypto Salad believes that,At this stage, there are not many assets that can be put on the chain and have income value.There are multiple reasons for this, including regulation, technology, non-standardization, and liquidity, and many of them need to be resolved from the top down.Therefore, major institutions now generally like to tokenize and package ready-made monetary funds, bonds and other financial securities products to test the waters, because they themselves have a clear structure of rights and obligations and clear legal definitions under the framework of securities laws and company laws, and they are already a highly standardized and compliant “product”.
Stocks, among financial products, have relatively high risks and returns. While satisfying investors’ risk preferences, stocks are also more likely to be included in on-chain applications such as mortgages and lending in DeFi scenarios.In addition, a mature stock market has considerable liquidity, comprehensive and mature intermediaries, and the feasibility of large-scale allocation and instant trading.
As for U.S. stocks, given the objective reality of U.S. dollar hegemony, U.S. stocks are of course the core, most mature, and most liquid asset class in the world.In particular, the rise and fall of U.S. stock giants represented by the “Seven Sisters of U.S. Stocks” affect financial investments across the United States and even around the world.Moreover, the United States is at the forefront of the encryption industry, and the tokenization of U.S. stocks is as it should be.
What exactly can stock tokenization do?What are the forms?How do all parties obtain benefits?Is it compliant?
Let’s take US stocks as an example.If accurately defined from aspects such as anchoring logic and investor rights, U.S. stock tokenization can be divided into several mainstream models.
Tokenization of U.S. stocks in the narrowest sense,It was Nasdaq that submitted a proposal to the Securities and Exchange Commission asking for its consent to issue securities in the form of tokens on the main market.To be clear, it is not calling for a new stock to be issued;Issuing the same stock using two forms,The difference is whether blockchain technology is required to represent ownership and register it.The only difference is that DTC (the Depository Trust Company) will determine whether to use tokenization for settlement and liquidation based on the user’s choice, and the process will not have any impact on the transaction speed.
This is the official definition of tokenization of US stocks. Based on the content of this proposal, it is difficult to say what it will really change.It’s like the same takeout, delivered from Blue Knight to Yellow Knight, with the same price, the same merchant, and the same battery car.For those who cannot download the APP (investors who do not have identity, address, funds, etc.), they still cannot order and eat this takeaway.
Under this “market demand”, a group ofGeneral Tokenization of U.S. StocksThe platform came into being:
Robinhood, for example, provides users with a tokenized form of Contract For Difference (CFD).Users select U.S. listed stocks or listed ETFs to purchase Stock Tokens on the platform. Each Token represents a corresponding underlying stock or unit. Every time a contract is signed, the platform will purchase the corresponding U.S. stocks through Alpaca, a U.S. broker.
Another example is MSX, which has recently become popular because of its points season plan. It also relies on payment for order flow (PFOF), which means that users’ orders on the chain are packaged and routed to off-chain market makers, so that they can buy U.S. stocks at real-time and synchronized prices. The goal is that as long as you own the tokens, you can get the corresponding stock dividends.Both Robinhood and MSX are essentially financial derivatives, not real stocks.
Although most users know it, CryptoSalad must also explicitly prompt again,Purchasing tokens on these platforms does not entitle you to actual shareholder rights.But investors are still eager to experience the rise and fall of U.S. stocks and get a share of the attractive market.
Problems with tokenization of U.S. stocks in a broad sense
However, these broad tokenizations of U.S. stocks have been facing several long-standing and difficult-to-solve problems.For example, because there are not enough participants and there are KYC thresholds, the buying and selling orders for on-chain transactions are not deep. The market’sLiquidity is not sufficient.Because of this, when investors buy and sell tokens,Price slippage may occur,Just can’t sell for the expected price.At the same time, the conversion from stocks to tokenized assets involves multiple intermediate processes and even multiple participants. The handling fees are high and the friction costs of minting and redemption are high.The arbitrage efficiency is relatively poor.At this point it is easy to form a vicious cycle.Issues such as these formed typical pain points in the early stages of tokenization of U.S. stocks.
Recently, Ondo Finance seems to have come up with a solution to this.
First of all, in response to the liquidity problem, Ondo’s approach is to first buy a bunch of real stocks from the traditional market and store them at a licensed brokerage or custodian bank. In this way, after the user places an order, the equivalent part can be allocated from the real stock inventory and a corresponding token is generated on the chain and given to the user, achieving the “instant” goal.The link between the token market and the U.S. stock market has been shortened, arbitrageurs can enter with low transaction costs, and token prices fluctuate more lightly, which indeed solves part of the liquidity problem.
Crypto Salad believes that the core compliance challenges of U.S. stock tokenization focus on two aspects:
When the trading platform concentrates investor funds to purchase underlying stocks and distributes income or dividends in the form of tokens, it may essentially create acollective investment vehicles,This requires registration within the securities regulatory framework or obtaining an exemption;
In addition, if tokens can be freely bought and sold on the chain and the transactions are matched by the platform, the platform may be deemed“Alternative Trading System (ATS)”,Corresponding brokerage, clearing, disclosure and other compliance requirements must be followed.
These two regulatory determinations almost determine whether tokenized stocks can “legally exist” in the existing legal system. They are also the most careful trade-offs when designing commercial and technical structures for various platforms.So how does Ondo Finance achieve compliance?
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First of all, Ondo Finance acquired Oasis Pro and directly obtained the U.S. SEC-registered Broker-Dealer license, ATS (Alternative Trading System) alternative trading system license, and Transfer Agent equity agency license, which means that it can legally hold real stocks, do liquidation, custody, tokenization, and transfer registration, and has sufficient compliance basis.
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Second, Ondo Finance is backed by large institutional funds and top-level financial background teams. People often say that Ondo Finance is BlackRock on the chain. This is because Ondo’s role on the chain is similar to BlackRock’s role in traditional finance. At the same time, their size and capital background are also similar.
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BlackRock is the world’s largest asset management company. One of its core values is to issue safe, transparent, and large-scale funds and fixed-income products, such as U.S. Treasury bond ETFs and money market funds.Ondo Finance has been working hard to move treasury bonds and cash products to the chain through tokenization, including USDY (an income-based “on-chain dollar” with short-term U.S. treasury bonds and cash equivalents (bank deposits, etc.) as the underlying assets), OUSG (a tokenized short-term treasury bond fund with short-term U.S. Treasury bond ETFs managed by BlackRock and a small number of institutional bonds as the underlying assets).
Therefore, Ondo Finance has sufficient strength and reasons to take the tokenization of US stocks to a higher level.The emergence of tokenization of U.S. stocks is an important signal for the gradual integration of crypto finance and traditional capital markets.It is not only a technological innovation, but also a testing ground for regulatory and financial infrastructure reconstruction.In the short term, tokenized stocks are still in the exploratory stage, and compliance paths and market mechanisms are constantly adjusting; but in the long term, whoever can find a balance between compliance and efficiency will have the opportunity to occupy the commanding heights in the next wave of asset on-chain.
According to Crypto Salad, the traditional financial system is still generally resistant to stock tokenization.This kind of resistance is not difficult to understand: the new model is too “subversive” and has a great impact on the existing financial order. The regulatory framework is currently unable to keep up. Who will be responsible if problems arise?But looking at it from another perspective, stock tokenization does solve certain pain points.From technological innovation to actual market feedback, it clearly responds to the current real needs, so we feel that the future of stock tokenization is worth looking forward to.
