Written by: Jeffrey Gogo
Translated by: Tim, PANews
Key Points:
With $23.3 billion in real-world assets issued on-chain, more and more crypto-native platforms are beginning to seek favor with traditional finance.
Several trading platforms such as Kraken and Binance have launched tokenized products for popular U.S. stocks like Apple and Tesla.
Some analysts say that tokenized stocks hold enormous potential in the cryptocurrency space, while others believe that tokenized stocks will only succeed if they focus on high-risk, highly volatile stocks.
Cryptocurrency exchange Kraken announced the launch of xStocks, which includes tokenized versions of popular U.S. stocks such as Apple, Nvidia, and Tesla. This innovation integrates cryptocurrency with traditional finance in the expanding realm of real-world assets enabled by blockchain technology.
Now, as cryptocurrency exchanges increasingly align with traditional finance, can tokenized stocks succeed where others have failed in the past? Can they attract ‘degen’ traders known for chasing high-risk, high-volatility investments?
Ryan Lee, chief analyst at Bitget, told Cryptonews: ‘Tokenized stocks have enormous potential in the crypto space, as they enable fractional ownership of assets, 24/7 trading, and greater liquidity through blockchain platforms.’
Tokenized securities are digital versions of ordinary stocks that can be traded on the blockchain. In Kraken's case, the over 50 tokens and ETFs offered are issued on the Solana blockchain.
Each xStock token is pegged to the value of its corresponding underlying stock, with these physical shares held in custody by Backed Finance, which is a peer partner of Kraken in this collaboration. For example, an Apple (AAPLx) token will track the price of AAPL stock on NASDAQ and can be redeemed for cash on a 1:1 basis.
Investors do not need to directly hold the stocks; they only need to hold tokens representing ownership of the securities. Kraken stated that its tokens are not available for U.S. customers and will only be sold in specific markets outside the U.S.
U.S. cryptocurrency exchanges providing tokenized stock services are not industry pioneers. The Bybit platform recently announced the launch of similar products, while the world's largest cryptocurrency exchange, Binance, tried this type of business back in 2021 but quickly halted the project under pressure from Hong Kong regulators.
Is there demand for stock tokenization in the crypto space?
Tokenized stocks have not yet gained widespread adoption in the cryptocurrency space, but supporters believe these products have the potential to fundamentally change how people participate in financial market investments. As Bitget analyst Lee pointed out:
‘Products like tokenized stocks are increasingly in demand in the market, primarily driven by retail investors' need for lower-barrier, more flexible traditional stock investment opportunities.’
Sam MacPherson is the co-founder and CEO of Phoenix Labs (developer of the decentralized lending protocol Spark), and he stated: tokenized securities ‘will transform static, closed market instruments into composable modules within the on-chain economy.’
‘This technology enables 24/7 global access, real-time settlements, and gives rise to entirely new financial application scenarios,’ MacPherson told Cryptonews, adding that:
This financial application scenario can cover various financial products like collateralized lending and automated portfolio strategies, marking a new stage of integration and interoperability between traditional finance and the DeFi market, ultimately forming an integrated financial system.
But not everyone shares the same enthusiasm, at least not initially. Georgii Verbitskii, founder of the DeFi service platform Tymio, is cautious about which assets cryptocurrency 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 cryptocurrency investors, focusing on the type of ‘trend-driven or non-correlated assets’ he proposed.
‘Although the concept holds promise, actual demand will greatly depend on the specific types of assets listed on exchanges,’ Verbitskii noted. ‘In cryptocurrency trading platforms, highly volatile thematic stocks may be more favored by investors.’ He added:
Meme stocks like GameStop, rather than traditional blue-chip stocks like Nvidia or Microsoft, which tend to have lower volatility and thus weaker appeal to cryptocurrency traders, while high volatility attracts more interest.
In recent years, cryptocurrency investors tend to choose assets built around meme culture narratives or those with speculative upside potential.
For example, meme stock KOL Keith Gill (known as Roaring Kitty on Twitter and YouTube, and as DeepFxxingValue on Reddit’s WallStreetBets forum) became famous for his bullish bets on GameStop, igniting trading enthusiasm among retail investors, including cryptocurrency investors.
In January 2021, the stock price of GameStop surged 1600% due to Gill's social media posts, causing significant losses for hedge funds that shorted the Texas-based video game retailer.
This frenzy extended to meme stocks like AMC Entertainment and continued to spread to the cryptocurrency market. Cryptocurrency traders spawned new meme tokens inspired by companies like GameStop and AMC.
Tokenized stocks target a $250 billion market: facing regulatory challenges
Verbitskii believes that tokenized commodities such as gold or silver are more likely to ‘spark strong interest’ compared to tokenized stocks in crypto assets.
He stated, ‘These assets attract investors seeking to diversify risk or hedge, and there is already a precedent,’ referring to the cryptocurrency exchange FTX, which launched perpetual gold futures products before its spectacular collapse in 2022.
Experts point out that Kraken's entry into the tokenized securities field is a new initiative to bridge cryptocurrency with traditional finance, but the key to success in this business lies in meeting regulatory requirements in regions where xStocks services are offered.
The main reason for the failure of Binance's tokenized stock product launch in 2021 was compliance issues, as it did not obtain a securities trading license. Hong Kong regulators also inquired about the exchange's stock token custody arrangements.
Analysts point out that in the absence of public trust, tokenized stocks could evolve into a regulatory time bomb. The collaboration between Kraken and the regulated tokenization platform Backed Finance is precisely to proactively eliminate such concerns.
‘xStocks is designed to address these regulatory challenges from the ground up,’ Backed co-founder Adam Levi said in response to Cryptonews' inquiry via email.
‘They are fully collateralized by the underlying stocks on a 1:1 basis, issued according to EU prospectus requirements compliant with MiFID II (EU Markets in Financial Instruments Directive), containing complete investor information disclosure clauses, and are subject to clear legal and regulatory frameworks. This gives tokenization a level of institutional-grade standards.’
Levi added that the xStocks product provided by Kraken is issued in full compliance with the regulatory requirements of Jersey, Switzerland, and the EU.
He believes that the demand for tokenized stocks ‘will grow significantly over time.’ Levi predicts that this niche will follow the trajectory of stablecoins, expecting the market size to expand to $250 billion in the coming years. He stated:
The infrastructure is ready, market demand is surging, and the momentum for transformation is unstoppable.
Democratization of Real-World Assets
The cryptocurrency industry once viewed regulation as a rebellious act against Bitcoin, but now the new products jointly launched by Kraken and Backed are testing the innovative capabilities of crypto companies under regulatory frameworks. Several companies have already begun offering securities tokenized stock services.
The Dubai-based tokenized securities exchange Allo has completed tokenization of $2.2 billion in real-world assets, covering 11,000 U.S. stocks and exchange-traded funds. Users can purchase on-chain stocks of companies like MicroStrategy, Tesla, and Google 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 faster with a lower entry barrier, which democratizes investment in physical assets,’ Advani noted, adding that tokenization has improved liquidity on their platform, broadened investment channels for small investors, and accelerated settlement speeds.
He pointed out that tokenization has improved the liquidity of their platform, broadened investment channels for small investors, and accelerated settlement speeds.
For example, stock fragmentation is the process of splitting stocks into smaller, tradable tokens. This model lowers the capital threshold required for investment, attracting more investors to participate, Advani said.
Today, international investment banks can complete trade settlements in just ‘seconds or minutes,’ whereas the old brokerage business model required at least two working days. ‘This reduces counterparty risk and improves capital efficiency,’ said Allo's CEO.
Advani did not specify whether Allo has faced obstruction from U.S. or EU regulatory agencies, only mentioning that the company has a ‘proud compliance team’ with regulatory experience in the U.S. market.
According to data from the RWA website, the total amount of on-chain issued RWAs currently stands at $23.3 billion. The data shows that this scale has grown nearly 6% in the past 30 days.
