Written by: PRATHIK DESAI
Compiled by: Saoirse, Foresight News
In the late 1980s, Nathan Most worked at the American Stock Exchange. But he was neither a banker nor a trader, but a physicist who had been deeply involved in the logistics industry for many years and had worked in metal and commodity transportation. His focus was not on financial instruments, but on practical systems.
At that time, mutual funds were the mainstream way for investors to gain broad market exposure. Although these products can provide diversification opportunities, there are transaction delay problems: investors cannot buy and sell at any time during the trading day, and they need to wait for the market to close to know the transaction price (it is worth noting that this transaction model is still in use today). For investors who are accustomed to real-time trading of individual stocks, this lagging trading experience is outdated.
To this end, Nathan Most proposed a solution: to develop a product that tracks the S&P 500 index but can be traded like a single stock. Specifically, the entire index would be structurally packaged and listed on the exchange in a new form. This idea was initially met with skepticism, as the design logic of mutual funds is different from stock trading, the relevant legal framework was still blank, and the market did not seem to have such a demand.
But he insisted on pushing this plan forward.
In 1993, Standard & Poor's Depositary Receipts (SPDR), ticker symbol SPY, made its debut, which is essentially the first exchange-traded fund (ETF): an investment vehicle representing hundreds of stocks. Initially it was seen as a niche product, but it has gradually become one of the most actively traded securities in the world. On most trading days, SPY's trading volume even exceeds that of its constituent stocks. The liquidity of this synthetic product has surpassed its underlying assets.
Today, this history is once again enlightening. The reason is not that there are new funds being launched, but the changes that are taking place on the blockchain.
Investment platforms such as Robinhood, Backed Finance, Dinari and Republic are launching tokenized stocks one after another. These blockchain-based assets are designed to map the stock prices of private companies such as Tesla, Nvidia and even OpenAI.
These tokens are positioned as "risk exposure tools" rather than ownership certificates. Holders are neither shareholders nor have voting rights. This is not a traditional purchase of equity, but holding a token linked to the stock price. This distinction is crucial and has sparked controversy. OpenAI and Elon Musk have expressed concerns about tokenized stocks offered by Robinhood.
@OpenAINewsroom
Robinhood CEO Tenev later had to clarify that these tokens are actually providing retail investors with access to these private assets.
Unlike traditional stocks issued by companies, these tokens are created by third parties. Some platforms claim to provide 1:1 backing by托管real stocks, while others are completely synthetic assets. Although the trading experience is familiar, the price trend is consistent with the stock, and the interface is similar to brokerage applications, the legal and financial substance behind it is often weaker.
Even so, they still attract a certain type of investor, especially those who cannot directly access U.S. stocks. Suppose you live in Lagos, Manila, or Mumbai and want to invest in Nvidia. You usually need to open an overseas brokerage account, meet high minimum deposit requirements, and go through a long settlement cycle. Tokenized stocks, as tokens that are traded on the chain and track the movements of underlying stocks on the exchange, are precisely the ones that eliminate these trading barriers. No wire transfers, no forms to fill out, no access restrictions, just a wallet and a trading market.
This investment channel seems novel, but its operating mechanism has commonalities with traditional financial instruments. However, the reality remains: most platforms such as Robinhood, Kraken and Dinari do not operate in emerging markets outside of U.S. stocks. Taking Indian users as an example, it is still unclear whether they can legally or practically purchase tokenized stocks through these channels. If tokenized stocks want to truly broaden global market participation, the obstacles they face will not only be technical, but also regulatory, regional and infrastructural.
Derivatives operating logic
Futures contracts have long provided a way to trade based on expectations without directly holding the underlying asset; options allow investors to bet on its volatility, up or down timing, or trend without actually buying the stock. In either case, these tools have become an 'alternative channel' for investing in underlying assets.
The birth of tokenized stocks also has a similar logic. They do not claim to replace the traditional stock market, but provide another way for people who have long been excluded from public investment to participate.
The development of new derivatives often follows a pattern: the initial market is full of confusion, investors are unsure how to price, traders are wary of risk, and regulators are hesitant; then speculators enter the market, testing product boundaries and exploiting market inefficiencies; if the product proves useful, it will gradually be accepted by mainstream participants and eventually become market infrastructure. Index futures, ETFs, and even CME (Chicago Mercantile Exchange) and Binance's Bitcoin derivatives are all like this. They were not originally intended for ordinary investors, but more like a playground for speculators: although trading is faster and riskier, it is also more flexible.
Tokenized stocks may follow the same path: first, retail investors use it to speculate on hard-to-buy assets like OpenAI, or unlisted companies; then, arbitrageurs discover that the price difference between tokens and stocks can make money, and they also enter the market; if the trading volume can stabilize and the infrastructure can keep up, institutional departments may also join, especially in jurisdictions with sound compliance frameworks.
The early market may look chaotic: insufficient liquidity, large bid-ask spreads, and sudden price jumps on weekends. But the derivatives market started like this, it's never a perfect replica, more like a stress test - to see if there's demand before the asset itself adjusts.
There is an interesting aspect to this model, which can be seen as an advantage or a disadvantage, depending on how you think about it - the time difference issue.
Traditional stock markets have opening and closing times, and most stock derivatives are traded according to the stock market time, but tokenized stocks do not follow this rule. For example, if a U.S. stock closes at $130 on Friday, and suddenly a big news breaks on Saturday (such as early disclosure of financial reports or geopolitical events), the stock market is not open at this time, but the token may have already started to rise or fall. In this way, investors can factor the impact of news during stock market closures into their trades.
The time difference will only become a problem when the trading volume of tokenized stocks significantly exceeds that of traditional stocks. The futures market copes with such problems through funding rates and margin adjustments, and ETFs stabilize prices through designated market makers and arbitrage mechanisms, but tokenized stocks have not yet established these mechanisms, so prices may deviate, liquidity may be insufficient, and whether they can keep up with stock prices depends entirely on the reliability of the issuer.
But this trust is unreliable. For example, when Robinhood launched tokenized stocks of OpenAI and SpaceX in the EU, both companies denied involvement, claiming that they had no collaboration or formal relationship with the business.
This is not to say that tokenized stocks are inherently problematic, but you have to think clearly: are you buying price exposure or a vague synthetic derivative with rights and recourse?
@amitisinvesting
For those who are anxious about this, it's not a big deal. OpenAI released this statement just to be on the safe side, after all, they had to. And Robinhood, just launched a token to track OpenAI's valuation in the private market, just like the tokens of more than 200 other companies on their platform. You're not really buying stock in these companies, but the stock itself is just a certificate, and the digital form of these assets is key. In the future, there will be thousands of decentralized exchanges that will allow you to trade OpenAI whether it is private or public. By then, liquidity will be sufficient, bid-ask spreads will be greatly reduced, and people all over the world will be able to trade. And Robinhood, is just taking this first step~
The underlying architecture of these products also varies. Some are issued under the European regulatory framework, while others rely on smart contracts and offshore custodians. A few platforms like Dinari are trying to operate in a more compliant manner, while most are still testing the boundaries of the law.
U.S. securities regulators have not yet taken a clear position. Although the U.S. SEC has stated its position on token issuance and digital assets, tokenized products of traditional stocks are still in a gray area. Platforms are very cautious about this. For example, Robinhood launched its products in the EU first, and did not dare to launch them in the U.S.
But the demand is already obvious.
Republic platform provides synthetic investment channels for private companies such as SpaceX, and Backed Finance packages publicly traded stocks and issues them on the Solana chain. These attempts are still in their early stages, but they have never stopped. The model behind them promises to solve the problem of participation threshold, rather than the logic of finance itself. Tokenized stocks may not increase the return on stock holdings, because it doesn't intend to do so at all, perhaps it just wants to make it easier for ordinary people to participate.
For retail investors, the ability to participate is often the most important thing. From this perspective, tokenized stocks are not competing with traditional stocks, but are competing on the 'convenience of participation'. If investors can get exposure to the ups and downs of Nvidia stock with a few clicks on an app that holds stablecoins, they may not care if it's a synthetic product.
This preference is not without precedent. The SPY exchange-traded fund has proven that packaged products can become mainstream trading markets, as have other derivatives such as contracts for difference (CFDs), futures, and options. Initially, they were just tools for traders, but eventually they served a wider range of users.
These derivatives often lead the underlying asset's movements. In market volatility, they capture sentiment faster and amplify fear or greed more than slow-reacting traditional markets.
Tokenized stocks may follow a similar path.
The current infrastructure is still in its early stages, liquidity is hit-or-miss, and the regulatory framework is vague. But the underlying logic is clear: create something that reflects the price of the asset, is easy to buy, and that ordinary people are willing to use. If this 'alternative' can stabilize, more trading volume will flow into it. Eventually, it will no longer be a shadow of the underlying asset, but will become a bellwether for the market.
Nathan Most did not intend to reshape the stock market at first. He just saw efficiency loopholes and wanted to find a smoother way to interact. Today's token issuers are doing the same thing, except that they have replaced the 'packaging' of the fund with a smart contract.
It remains to be seen whether these new tools can maintain trust in a market crash. After all, they are not real stocks and are not regulated, just 'tools that are close to stocks'. But for many people who are far from traditional finance or live in remote areas, being 'close' is enough.