Recently, on-chain trading of US stocks has become the latest hot topic, with mainstream trading platforms like Kraken and Robinhood launching on-chain stock trading services that allow investors to buy and sell tokens representing real stocks. These services enable investors to trade popular US stocks like Apple, Tesla, and NVIDIA 24/7.
So, what exactly is the mechanism behind on-chain trading of US stocks? Do the tokens users purchase really equal stocks? What opportunities are there?
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Basic Overview
The above image describes the basic operational principles of stock tokenization, highlighting several key pieces of information:
1. When you purchase tokenized Apple stocks through Kraken's xStocks, you are not buying derivatives or futures contracts. Instead, Kraken's partner Backed Finance buys and holds actual Apple stocks at a regulated custodian. Then, a corresponding token is issued on the Solana blockchain, creating a digital representation of that actual stock.
2. Stocks ≠ Cryptocurrencies. On-chain stocks introduce interesting arbitrage opportunities. During off-market hours, when the NYSE is closed but blockchain trading continues, token prices may slightly deviate from the last known stock price due to trading activity and market sentiment. Arbitrageurs can profit by buying and selling tokens and redeeming them via the issuer, realigning the prices. Caution is required when buying on-chain stocks during off-market hours.
3. This structure means that token holders cannot gain traditional shareholder rights, such as voting rights—these rights are retained by custodians. What you are buying is economic exposure to stock performance, not actual shareholder status. This is a trade-off that enables blockchain-based trading while maintaining regulatory compliance.
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24/7 Trading?
The most obvious advantage of tokenized stocks is continuous trading. Unlike traditional exchanges that operate about 6.5 hours a day and only on weekdays, blockchain-based tokens can trade continuously. Kraken's xStocks offers 24/7 trading, while Robinhood currently provides 24/5 trading and plans to expand to round-the-clock trading after launching its Arbitrum-based Layer 2.
This continuous availability creates interesting market dynamics. When significant news is released outside traditional trading hours—such as earnings announcements, geopolitical events, or company-specific developments—your tokenized stocks can respond immediately. Token prices become real-time indicators of market sentiment, potentially providing price discovery that traditional markets cannot match during off-hours.
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Traditional vs. Tokenized?
This chart illustrates the differences between traditional US stock trading methods and on-chain US stock trading via platforms like Kraken and Robinhood. However, like traditional US stock trading methods, KYC is still required, but there is a fundamental difference in the custodial model.
1. KYC (Know Your Customer)
In fact, any compliant platform offering stock exposure needs KYC and must comply with regulations—fully anonymous stock trading is virtually illegal unless the platform wants to operate unlawfully. There have been past attempts at decentralized non-KYC stock tokens, but they encountered legal troubles. A notable case is Terra's Mirror Protocol, which allowed anyone to mint and trade synthetic 'mAssets' of US stocks (like Tesla, Google, etc.) using only a crypto wallet from 2020 to 2022 without KYC. The SEC later deemed Mirror's stock tokens as unregistered securities and took legal action against Terraform Labs and its founder Do Kwon.
Different entry paths
This time is different; even large exchanges like Kraken and Bybit support trading stocks on their platforms. You can simply view these 'stock coins' as MeMe coins, with the promise from third parties that each coin is backed by a stock. I think Trump might really like this approach. It provides a more convenient way for retail investors to enter the US stock market via stablecoins. As long as final settlements are done in USD, I believe regulatory pressure will not be too great.
2. Custodial Model Relevance
Tokenized platforms prioritize accessibility and flexibility. Kraken and Robinhood offer zero-commission trading on their stock tokens, earning revenue through spreads and other services. They natively support fractional ownership, allow 24/7 trading, and may integrate with decentralized finance protocols.
But the trade-offs are also evident. Traditional brokers offer regulatory protection, established customer service, and direct shareholder rights. Tokenized platforms provide higher accessibility and innovative features, but with lower regulatory clarity and newer operational infrastructure.
There are fundamental differences in custodial models. Traditional brokers hold stocks in 'street name' through central depositories, and your ownership records are in their systems. Tokenized platforms issue blockchain tokens, allowing you to choose self-custody, giving you direct control over your holdings, but also requiring you to manage private keys and security.
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Why I think this is a bull market
1. Capital Magnet Effect
Consider the structural advantages of tokenized stocks compared to traditional stock markets. Retail investors in Nigeria can now buy Apple stocks without complex international brokerage relationships or currency conversion fees. This is not just convenience; it is a fundamental expansion of market access that could drive unprecedented capital inflows into crypto infrastructure.
The mechanism here is more complex than simple user acquisition. When someone purchases tokenized Tesla stock, they are not just entering the crypto market—they are also creating continuous demand for stablecoins, generating transaction fees for Layer 2 networks, and validating the entire crypto tech stack as legitimate financial infrastructure.
2. Compound Effects
Ethereum and its Layer 2s (like Robinhood) will gain continuous trading volume from stock trading, creating real economic value for ETH holders through fee destruction and network effects. Solana's (Kraken and Bybit) high-throughput architecture may capture market share in high-frequency stock trading, driving demand for SOL transaction fees.
Tokenized stocks can address the 'ghost town' issue in the crypto market during bear markets. Historically, when crypto prices crash, trading volumes evaporate, and users flee to traditional assets. With on-chain stocks, capital may be more likely to stay within the crypto ecosystem, maintaining liquidity and platform participation even when altcoins struggle.
3. Invisible Adoption
Tokenized stocks may achieve a goal that years of crypto evangelism have failed to accomplish: seamless large-scale adoption. Users trading stock tokens on Robinhood in the EU are not consciously deciding to enter the crypto market—they are simply using better financial services. This invisible adoption model could attract millions of users who would never actively choose to buy cryptocurrencies, but who would happily use them when crypto infrastructure is abstracted.
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Summary
In the long run, most stocks (and even other assets) may trade on the blockchain, benefiting greatly from the low transaction costs and efficiencies of on-chain trading. Of course, this largely depends on the acceptance of on-chain asset trading and regulatory developments in the future.
Optimistically, on-chain stock trading could become a killer app, allowing the crypto user base to grow exponentially and bringing millions of real-world assets onto the chain.
