Introduction
RWA (Real World Assets on-chain) is rapidly becoming the mainstream narrative in the Web3 world, and one particularly "down-to-earth" direction—stock tokenization (Tokenized Stocks) is currently one of the most viable directions.
The reason is simple:
The underlying assets are mature enough that no effort is needed to "prove value."
The technical threshold is relatively controllable; on-chain issuance and mapping already have mature tools.
Regulatory paths are gradually becoming clear, especially in Europe and some offshore areas, where real projects have already been implemented.
However, many people subconsciously think when they hear the word "stocks": Is this a security? Can it be sold to retail investors? Is a license required?
But in reality, some projects have found a way to balance both ends. They can reduce compliance pressure while reaching the retail market; a representative case is:
Robinhood: The most popular retail securities platform in the U.S.
xStocks: Implementing stock token trading in non-EU, non-U.S. regions, can be bought and sold on-chain.
As a lawyer focused on Web3 compliance, I have also started to frequently receive similar inquiries.
How does a stock tokenization platform operate?
Do small and medium-sized teams like us have opportunities?
If you want to do this, where should you start, and how should you structure it to be legal?
This article does not use complicated terms or elaborate concepts, but focuses on answering one question:
If you want to create a stock tokenization platform that is accessible to retail investors and has controllable compliance pressure, how should you do it?
Robinhood model: Ultimate productization of retail securities trading.
Robinhood is not a traditional on-chain platform, but its operating model is highly enlightening for Web3 product design.
1. Core characteristics:
Minimalist interface, discarding the complex terminology of traditional brokers.
Zero commission, no minimum deposit, directly serving retail investors.
All securities clearing and custody are completed by partner institutions.
2. Registration location and compliance structure:
Robinhood Markets Inc. was founded in Menlo Park, California, USA.
Subsidiaries Robinhood Financial LLC and Robinhood Securities LLC hold licenses related to U.S. securities trading and are subject to dual regulation by the SEC and FINRA.
In addition to securities business, Robinhood also has subsidiaries engaged in cryptocurrency asset services in regions like the UK, but its stock trading services are explicitly not open to non-U.S. users.
3. Reasons for regional restrictions:
Robinhood only serves the U.S. market, mainly for two reasons:
If securities trading is opened to overseas users, it will face complex securities sales licensing and registration obligations in regions such as the EU, Canada, and Japan.
Securities regulation in various regions shows a strong trend of local regulation; compliance costs for overseas expansion are high and risks are uncertain.
xStocks model: Token mapping of real stocks + non-security declaration + targeting retail investors.
xStocks is currently one of the few platforms that have turned "stock price mapping" into a Token and provided trading, allowing retail investors to participate while deliberately avoiding the red line of securities classification.
1. Core structure:
Each xStock Token is 1:1 mapped to a stock, actually held by a broker or custodian.
Tokens do not confer voting rights, dividend rights, or governance rights, and the platform does not promote them as "securities."
The platform’s "dividend" for Token holders adopts an "automatic reinvestment" structure in the form of tokens; that is, if a stock pays dividends, the user's wallet will not receive cash but will gain an equivalent amount of tokens.
Users must complete basic KYC; tokens can be traded on-chain, but access for users from high-regulation legal domains is not opened.
2. Entity structure and registration location:
The issuer of the token is Backed Assets (JE) Limited, registered in Jersey, which is not part of the EU and is not directly subject to MiCA or Prospectus Regulation.
The service entity is Payward Digital Solutions Ltd., registered in Bermuda, which belongs to a loosely regulated financial zone.
xStocks products are issued by non-U.S. entities, deliberately avoiding the applicability of U.S. laws.
3. Forbidden regions and restriction logic:
xStocks explicitly states that it does not provide services to the following countries or regions:
United States (including all U.S. Persons), EU member states, the UK, Canada, Japan, Australia.
The reason is:
1. These regions have very strict regulations on securities issuance; if xStocks sells locally, it is likely to be deemed as illegal securities issuance.
2. The platform has not obtained licenses or compliance exemptions for these regions, therefore actively avoiding regulation through IP restrictions + KYC restrictions.
3. The issuing entity chooses to register in Jersey and Bermuda, which is a common strategy to reduce compliance risks.
The essential differences and common insights between these two models.
The two paths essentially represent two different logics:
Robinhood: "Doing securities within the regulatory framework"
xStocks: "Avoiding securities regulation through structural design"
Entrepreneurs do not have to take sides but should learn how to isolate themselves from compliance through legal structures and technical paths, making the platform "capable of going online, growing, and avoiding pitfalls."
If you really want to do this, how should it be implemented structurally?
Tokenization of stocks is not as simple as copying a contract; you need to design the following roles and responsibilities.
The key is:
The platform is responsible for "price mapping + token issuance + user interaction."
Partners are responsible for "holding + reporting + risk isolation."
Both parties interact through agreements and information synchronization mechanisms, but regulatory responsibilities are clearly separated.
What institutions need to be coordinated with, and what agreements need to be signed?
Stock tokenization is not an isolated system; it must rely on the following resources.
1. Partners:
Licensed broker-dealers (responsible for real stock custody or trading execution);
Blockchain issuance platforms and technology providers (deploy contracts + permission control modules + oracles);
Legal advisors (Token classification analysis, structural design, user agreements);
KYC/AML service providers;
Smart contract auditors.
2. Agreements to be signed include:
Token issuance white paper + legal disclosure statement (Offering Terms);
Asset custody service agreement / Custody proof (Custodial Agreement);
Platform user agreement + risk disclosure statement (T&C);
Compliance service integration agreement (KYC, IP blocking, etc.);
Token and platform linkage contract documentation.
Several points you might not realize but must consider.
Once these points are hit, what you face is not community FUD, but real regulatory repercussions:
Tokens cannot confer any "profit promises," "governance rights," or "claims."
Do not open user access to high-sensitive legal domains such as the EU, the U.S., and Japan.
Do not use terms such as "stocks," "shareholder rights," or "dividends."
Must control location and identity through both technology and agreements.
Prepare legal classification opinions, risk disclosure statements, and KYC audit records for reference.
Whether you can do it does not depend on licenses, but on structure.
Stock tokenization is a viable project direction that requires precise design. It is not "unregulated" like NFTs, nor is it "rules-closed" like traditional securities. What you need to do is not to break out aggressively but to:
Find a suitable landing point.
Design a clear structure.
Clarify what your token represents.
Avoid touching the three red lines of users, markets, and laws.
This market is not saturated; instead, it is in a gap where institutions are cautious but interested, while entrepreneurs are interested but hesitant to enter. Stop looking at what others have done. The field of stock tokenization is not yet crowded; once it is occupied by giants, you will only be a user.
As a Web3 compliance lawyer, I prefer to help you design a platform that is "understandable by regulators, attractive to users, and technologically feasible." Not seeking to achieve everything at once, but certainly aiming to start off on the right foot.
/END.
Original authors: Shao Jiadian, Huang Wenjing