Article Author: Prathik Desai
Article Compilation: Block unicorn
Foreword
In the late 1980s, Nathan Most worked at the American Stock Exchange. He was not a banker or a trader, though. He was a physicist who had worked in logistics for years, transporting metals and commodities. Financial instruments were not his starting point, practical systems were.
At the time, mutual funds were a popular way to gain broad market exposure. They offered investors diversification, but also delays. You couldn't buy and sell at any time during the trading day. You placed an order and waited until the market closed to find out the execution price (which, by the way, they still trade this way today). The experience felt dated, especially for those accustomed to buying and selling individual stocks in real time.
Nathan came up with a workaround: creating a product that tracked the S&P 500 index but traded like a single stock. Packaging the entire index into a new form and then listing it on an exchange. The proposal was questioned. Mutual funds weren't designed to be bought and sold like stocks. The relevant legal framework didn't exist at the time, and the market didn't seem to need it.
He went ahead anyway.
Tokenized Stocks
In 1993, Standard & Poor's Depositary Receipts (SPDRs) debuted under the ticker SPY. This was essentially the first exchange-traded fund (ETF). A tool representing hundreds of stocks. Initially seen as a niche product, it has gradually become one of the most traded securities in the world. On many trading days, SPY trades more than the stocks it tracks. A synthetic structure gains higher liquidity than its underlying assets.
Today, this story feels relevant again. Not because of another fund launch, but because of what's happening on-chain.
Robinhood, Backed Finance, Dinari, and investment platforms like Republic have begun to offer tokenized stocks—blockchain-based assets designed to reflect the prices of Tesla, Nvidia, and even private companies like OpenAI.
These tokens are advertised as a way to gain exposure, not ownership. No shareholder status, no voting rights. You're not buying equity in the traditional sense. You're holding a token related to equity.
This distinction is important because it has already sparked controversy.
Even OpenAI and Elon Musk have expressed concern about tokenized stocks offered on Robinhood.
Robinhood CEO Tenev subsequently had to clarify that these tokens actually give retail investors exposure to these private assets.
Unlike traditional shares issued by the companies themselves, these tokens are created by third parties. Some claim to hold real shares in custody, providing 1:1 backing. Others are entirely synthetic. The experience feels familiar: prices fluctuate like stocks, the interface resembles brokerage apps, although the legal and financial substance behind them is often thinner.
Nevertheless, they still attract a specific type of investor. Especially those outside the United States who cannot directly invest in U.S. stocks. If you live in Lagos, Manila, or Mumbai and want to invest in Nvidia, you usually need a foreign brokerage account, a high minimum balance, and long settlement cycles.
The tokens traded on-chain track the movements of the underlying stock on the exchange. Tokenized stocks eliminate friction in the trading process. Think no wire transfers, no paperwork, no gatekeepers. Just a wallet and a marketplace.
This access feels novel, although its mechanism is similar to something older.
But there's a practical problem here. Many of these platforms—Robinhood, Kraken, and Dinari—cannot operate in many emerging economies outside the U.S. For example, it is not yet clear whether an Indian user can legally or practically buy tokenized stocks through these channels.
If tokenized stocks are to truly expand access to global markets, the friction will not only be technical, but also regulatory, geographic, and infrastructural.
How Derivatives Work
Futures contracts have long offered a way to trade without touching the underlying asset. Options allow investors to express views on volatility, timing, or direction, often without buying the stock itself. In each case, the option product becomes another avenue to invest in the underlying asset.
The emergence of tokenized stocks comes with a similar intention. They don't claim to be better than the stock market. They simply provide another avenue for investment, especially for those who have long been excluded from the fringes of public investment.
New derivatives typically follow a recognizable trajectory.
At first, the market was chaotic. Investors didn't know how to price, traders hesitated on risk, and regulators stood back to watch. Then, speculators flooded in. They tested the limits, expanded the product range, and exploited inefficiencies to arbitrage. Over time, if the product proves effective, it will be adopted by more mainstream participants. Eventually, it becomes infrastructure.
This is the evolution of index futures, ETFs, and even Bitcoin derivatives on CME and Binance. They weren't designed as tools for everyone at first. They began as a playground for speculation: faster, riskier, but more flexible.
Tokenized stocks may follow the same path. Initially used by retail traders, chasing exposure to hard-to-reach assets like OpenAI or pre-IPO companies. Then adopted by arbitrageurs, exploiting price differences between the token and its underlying stock. If trading volume continues to grow and the infrastructure matures, institutional investors may also start using them, especially in jurisdictions where a compliance framework emerges.
Early activity can look noisy, illiquid, with wide spreads and noticeable weekend price gaps. But that's often how derivative markets start. They are by no means perfect replicas. They are stress tests. A way for the market to discover demand before the asset itself adjusts.
This structure has an interesting feature or flaw, depending on how you see it.
Time difference.
Traditional stock markets have opening and closing times. Even most derivatives based on stocks trade during market hours. But tokenized stocks don't always follow these rhythms. If a U.S. stock closes at $130 on a Friday and a major event occurs on Saturday—like an earnings leak or a geopolitical event—the token might start reacting to it, even though the stock itself is static.
This allows investors and traders to factor in news that breaks when the stock market is closed.
The time difference only becomes an issue if the trading volume of tokenized stocks is significantly greater than the stock itself.
The futures market addresses this challenge through funding rates and margin adjustments. ETFs rely on authorized participants and arbitrage mechanisms to maintain price consistency. Tokenized stocks, at least so far, lack these systems. Prices can fluctuate. Liquidity may be insufficient. The link between the token and its reference asset still depends on trust in the issuer.
However, this level of trust varies. When Robinhood launched tokenized stocks of OpenAI and SpaceX in the EU, both companies denied any involvement. There was no coordination, no formal relationship.
This isn't to say that tokenized stocks are inherently problematic. But it's worth asking what you're buying in these cases. Is it exposure to a price, or a synthetic derivative with unclear rights and recourse?
The infrastructure behind these products also varies widely. Some are issued under a European framework. Others rely on smart contracts and offshore custodians. A few platforms, like Dinari, are trying a more regulated approach. Most are still testing the possible boundaries of the law.
In the United States, securities regulators haven't taken a definitive stance. The SEC's (Securities and Exchange Commission) attitude toward token sales and digital assets is clear, but the representation of tokenized traditional stocks remains a gray area. Platforms remain cautious. Robinhood, for example, chose to launch its product in the EU rather than its home market.
Even so, the demand is evident.
Republic has provided synthetic access to private companies like SpaceX. Backed Finance wraps public stocks and issues them on Solana. These attempts are nascent, but ongoing, and the supporting model behind them promises to address friction, not financing. Tokenized stock offerings may not improve the economics of ownership, because that's not what they're trying to do. They just want to simplify the participation experience. Perhaps.
And for retail investors, participation is often the most important thing.
In this sense, tokenized stocks aren't competing with stocks, but with the effort required to acquire them. If an investor can get targeted exposure to Nvidia with a few taps through an app that also holds their stablecoins, they may not care if the product is synthetic.
This preference is not new, though. Research on SPY suggests that packaging products can become a major market. The same is true of CFDs (Contracts for Difference), futures, options, and other derivatives, which began as tools for traders but eventually served a wider audience.
These derivatives often lead even the underlying assets. At the same time, they absorb market sentiment, reflecting fear or greed faster than the slower markets below.
Tokenized stocks may follow a similar path.
The infrastructure is still in its early stages. Liquidity is uneven. Regulatory transparency is lacking. But the underlying dynamic is evident: building a system that reflects assets, is more accessible, and good enough for people to participate in. If this representation can hold its form, more trading volume will flow through it. Eventually, it will no longer be a shadow, but a signal.
Nathan Most didn't set out to redefine the stock market. He saw inefficiencies and sought a smoother interface. Today's token issuers are doing the same thing. Only this time, the wrapper is a smart contract, not a fund structure.
It is worth watching whether these new packages can stand firm when the market becomes difficult.
They are not shares. They are not regulated products. They are tools of approximation. For many users, especially those far from traditional finance or in remote locations, this approximation may be enough.
