Source: TokenInsight Research, Compiled by Shaw Jinse Finance. Abstract: Tokenized stocks leverage blockchain technology, enabling global investors to access traditional assets like US stocks without traditional brokerages, simplifying know-your-customer (KYC) procedures and supporting 24-hour trading. Furthermore, these stocks can be used as ERC-20 tokens to participate in the DeFi ecosystem, providing access to liquidity pools and greater fund security, resulting in greater capital efficiency and strategic flexibility. Currently, tokenized stocks are mostly synthetic assets that do not confer shareholder rights (such as voting or dividends) and are legally not equivalent to actual stocks. Their liquidity is subject to the trading hours of traditional stock markets, exposing them to price volatility. They remain a legal gray area in many jurisdictions, particularly in the US, where regulatory uncertainty remains and potential regulatory crackdowns are likely. Tokenized stocks are blockchain-based digital assets that represent or mirror shares in real-world companies. Essentially, they allow investors to invest in traditional stocks through crypto tokens that can be bought, sold, and held on a blockchain network. This innovative fusion of cryptocurrency and stocks has recently gained traction, with several major platforms beginning to offer tokenized versions of popular securities. For example, in mid-2025, Robinhood announced the launch of stock tokens for European customers, enabling commission-free, 24/7 trading of over 200 US stocks and exchange-traded funds (ETFs). Similarly, Backed Finance partnered with exchanges like Kraken and Bybit to launch xStocks, offering on-chain trading of over 60 US blue-chip stocks (such as Apple, Tesla, and Amazon) pegged 1:1 to real-world shares. These developments highlight the growing belief that tokenization has the potential to transform how people invest, making markets more accessible, efficient, and enabling 24/7 trading. At the same time, they also highlight new uncertainties regarding regulation and investor protection. In this article, we will explore the key advantages and disadvantages of tokenized stocks on the blockchain. Advantages: Global Accessibility and DeFi Integration Global Accessibility and Lower KYC Requirements One of the most frequently cited advantages of tokenized stocks is greater global accessibility. By listing stocks on a public blockchain, companies can offer exposure to stocks to investors beyond the geographical limitations of traditional stock exchanges. For example, Robinhood recently launched tokenized US stocks on Arbitrum for customers in 30 European countries. This means that even EU users without access to a US brokerage account can purchase shares in US companies like Apple or Tesla through tokens. These platforms typically have lower KYC requirements, especially compared to traditional brokerage firms. Some tokenized stocks are transferable ERC-20 tokens; as we'll explain in the next section, these tokens can be traded on-chain through decentralized exchanges without any KYC requirements. Equally important is the improved user experience. Platforms like Robinhood are integrating tokenized stocks into familiar, user-friendly interfaces, lowering the barrier to entry for non-cryptocurrency users. Notably, Robinhood's app eliminates the need to manage separate cryptocurrency wallets or seed phrases when trading these stock tokens. Users can gain exposure to blockchain-based stocks just as easily as using traditional brokerage apps. By circumventing regional restrictions and technical challenges, tokenized stocks can open the stock market to a wider audience. 24/7 Trading and DeFi Integration Traditional stock markets have limited trading hours. In contrast, tokenized stocks have the potential to be traded 24 hours a day, 7 days a week, just like cryptocurrencies. Currently, tokens for products like xStocks and Robinhood are tradable almost 24/7 (initially 24/5). Besides extending trading hours, tokenized stocks have the potential to integrate into the decentralized finance (DeFi) ecosystem, increasing composability and new financial use cases. Once stocks exist as on-chain tokens, they become programmable financial Lego blocks. A particularly vivid example of programmable finance comes from Backed Finance. This protocol submits orders to partner brokers for real-world stocks, which then mint corresponding bSTOCK tokens—unrestricted ERC-20 tokens. These bSTOCK tokens can be freely traded or added to DeFi liquidity pools. Retail investors can purchase bSTOCK or wbSTOCK directly on-chain and provide liquidity in automated market makers (AMMs). For example, users have created liquidity pools pairing bSTOCK tokens with stablecoins on DeFi platforms such as Gnosis’ Balancer and Swapr, Base’s Aerodrome, and Avalanche’s Pharaoh. As of now, the total liquidity (TVL) of these pools is close to $8 million, with an average annualized return of 163%. While still relatively small, this demonstrates how tokenized stocks can become yield-generating assets within the DeFi economy, highlighting the programmability and economic utility of on-chain stocks. Risk Diversification: Regardless of whether they can be converted into actual stocks, tokenized stocks offer investors an underlying asset with low correlation to the crypto market. Consider that the US stock market offers not only stocks but also exchange-traded funds (ETFs) that include other non-equity exposures, such as GLD (gold exposure) and TLT (Treasury bond exposure). As shown in the chart below, the correlation between GLD (Portfolio 3) and IBIT is only 0.07, while the correlation between QQQ (Portfolio 2) and IBIT is only 0.57, and the correlation between TLT (Portfolio 1) and IBIT is -0.79. Source: www.portfoliovisualizer.com Low and negative correlations mean that investors can diversify their portfolios by combining exposure to these underlying assets, thereby avoiding significant losses from over-concentration in investments during a market crash, which was difficult to do before. Similarly, the multiple exposure offered by tokenized stocks has made some strategies previously difficult to execute in the cryptocurrency market feasible. For example, cross-asset long-short trades—a strategy previously only feasible in traditional markets—are now increasingly feasible in the cryptocurrency market. Furthermore, in theory, some strategies that integrate cryptocurrency with traditional markets can also be executed in the cryptocurrency market at a relatively low cost. For example, arbitrage opportunities can be sought in BTC, BITO, and IBIT options, similar to decentralized trading of SPY. Cryptocurrency institutions often choose to regularly sell covered call options and cash-secured put options for medium- to long-term fund management, achieving the goal of "buying Bitcoin low, selling it high, and earning additional income." This systematic option selling behavior is quite common in the cryptocurrency market. In the US stock market, retail investors often use options as a leverage tool and are willing to pay relatively high premiums for them. As a result, market makers typically hold more positive gamma in Bitcoin options and more negative gamma in IBIT options. This means that if an event occurs, market makers' hedging actions will stabilize the price of Bitcoin but increase IBIT price volatility, creating trading opportunities. When holding tokenized stocks and their derivatives, investors can easily arbitrage on a single exchange, enjoy the capital efficiency benefits of portfolio margin, and eliminate cross-exchange risk—a feature not previously available when executing similar strategies. Disadvantage 1: Currently Not Real Stocks—Lack of Shareholder Rights A key flaw of current tokenized stocks is that they generally do not confer the same rights as actual stock. In most implementations, these tokens are essentially synthetic derivatives of stocks rather than the stocks themselves. For example, Robinhood's tokens are considered derivatives under EU regulations—each token is backed by actual shares held by a licensed broker or special entity, but token holders do not directly own the shares. Similarly, Backed Finance's xStocks on Solana are backed one-to-one by shares held in a special purpose vehicle (SPV) in Liechtenstein. The SPV, or custodian, holds the actual shares, while the on-chain tokens are merely claims on these underlying assets. Due to this structure, token holders lack standard shareholder rights like voting at company meetings or influencing management, and in some cases, may not even automatically receive dividends (unless the issuer chooses to pass them on). Critics point out that holding tokenized equity is "simply a synthetic representation of shares...and does not confer any of the shareholder rights and protections that come with true ownership." A prime example is Robinhood's tokenization of investments in private companies like SpaceX and OpenAI. These tokens give investors exposure to the companies' price fluctuations, but without equity rights, as the companies themselves have not authorized or endorsed the tokens. In fact, OpenAI publicly condemned Robinhood's issuance of tokens pegged to its stock as unauthorized and potentially illegal. Disadvantage 2: Poor Liquidity Tokenized stocks may present liquidity risks that are somewhat more severe than those of altcoins. Because their liquidity relies primarily on a bridge to the US stock market and, like the crypto market, employs a 24/7 trading mechanism, tokenized stocks are subject to unexpected price fluctuations during US stock market closures and present significant risk of price manipulation, potentially resulting in significant losses for investors. Furthermore, due to the additional price and time costs incurred through bridge transactions, trading costs for tokenized stocks are higher than those in traditional markets, and these costs are unlikely to be reduced in the short term. Due to the liquidity issues caused by transaction costs, tokenized stocks are only attractive to relatively cost-insensitive investors, such as market makers seeking exposure outside of normal trading hours to hedge against potential price volatility. However, for most retail investors, transaction costs may discourage them from investing directly in the US stock market through a broker. Disadvantage 3: Legal Gray Area and Regulatory Uncertainty The regulatory status of tokenized stocks is uncertain at best and potentially illegal at worst. These products operate in a legal gray area in many jurisdictions. Robinhood's tokenized US stocks are currently only available in Europe (EU) and are regulated by the Bank of Lithuania, precisely because of the regulatory uncertainty in the US. US regulators could find such offerings to violate securities laws or exchange regulations, especially if they circumvent existing rules. There are concerns that tokenized stock platforms could be operating as unregistered exchanges or broker-dealers. Another particularly sensitive issue is the tokenization of private stocks (pre-IPO companies). As previously mentioned, Robinhood's attempt to sell tokens tracking private companies like OpenAI essentially circumvents the disclosure and transparency rules governing public companies. Typically, companies go public to raise capital through an initial public offering (IPO), which triggers strict financial disclosure and investor protection requirements. If tokenization allows companies to raise money from the public without an IPO—and without these disclosures—it poses a serious regulatory challenge. Why would companies go through the costly IPO process if they can appeal directly to retail investors through tokenized shares?
Overall, providers of tokenized shares will be under a regulatory microscope until the relevant laws are improved. Even if the current environment (such as the SEC's more cryptocurrency-friendly stance under certain leadership) appears relaxed, these products must still comply with existing securities laws.
Weiliang
Alex
Miyuki
Brian
Joy