Original article by @Web3_Mario
Overview of the development history of tokenized stocks
In fact, tokenized stocks are not a new concept. Since 2017, attempts at STO have already begun. The so-called STO (Security Token Offering) is a financing method in the field of cryptocurrency. Its essence is to digitize and chain the rights and interests of traditional financial securities and realize the tokenization of assets through blockchain technology. It combines the compliance of traditional securities with the efficiency of blockchain technology. As an important category of securities, tokenized stocks are the most concerned application scenario in the field of STO.
Before the emergence of STO, the mainstream financing method in the blockchain field was ICO (Initial Coin Offering). The rapid rise of ICO mainly relies on the convenience of Ethereum smart contracts, but the tokens issued by most projects do not represent real asset rights and interests, and lack supervision, resulting in frequent fraud and running away.
In 2017, the US SEC (Securities and Exchange Commission) issued a statement in response to the DAO incident, stating that some tokens may be securities and should be regulated by the Securities Act of 1933. This was the starting point for the formal germination of the STO concept. In 2018, STO became increasingly popular as a compliant ICO concept and began to attract industry attention. However, due to the lack of unified standards, poor liquidity in the secondary market, and high compliance costs, the market has developed slowly.
With the advent of DeFi Summer in 2020, some projects have begun to try to create derivatives linked to stock prices through smart contracts through decentralized solutions, so that on-chain investors can directly invest in the traditional stock market without the need for complex KYC processes. This paradigm is often referred to as the synthetic asset model. It does not directly hold US stocks, and transactions do not require trust in centralized institutions, which can bypass expensive regulatory and legal costs. Representative projects include Synthetix and Terras Mirror Protocol.
In these projects, market makers can mint synthetic U.S. stocks on the chain and provide market liquidity by providing excess cryptocurrency collateral, while traders can directly trade these targets through the secondary market in DEX to gain price exposure to the anchored stocks. I still remember that the most popular stock in the U.S. stock market at that time was Tesla, not Nvidia in the previous cycle. Therefore, most project slogans have the selling point of trading TSLA directly on the chain.
However, from the perspective of the final market development, the trading volume of synthetic U.S. stocks on the chain has been unsatisfactory. Taking sTSLA on Synthetix as an example, including the casting and redemption in the primary market, the total cumulative on-chain transactions are only 798 times. After that, most projects announced that they would remove synthetic assets of U.S. stocks due to regulatory considerations and turn to other business scenarios, but the essential reason is probably because they have not found PMF and cannot establish a sustainable business model. The premise of the establishment of the business logic of synthetic assets is that there is a large demand for on-chain transactions, which attracts market makers to cast assets in the primary market and earn fees in the secondary market. If there is no such demand, market makers will not only fail to obtain income through synthetic assets, but also have to bear the risk exposure of short-selling anchored U.S. stocks brought by synthetic assets, so liquidity will further shrink.
In addition to the synthetic asset model, some well-known CEXs are also trying to bring the ability to trade U.S. stocks to Crypto traders through a centralized custody model. In this model, a third-party financial institution or exchange custody the actual stocks and directly creates tradable targets in the CEX. The more typical ones are FTX and Binance. FTX launched its tokenized stock trading service on October 29, 2020, in cooperation with German financial company CM-Equity AG and Swiss Digital Assets AG, allowing users in non-U.S. and restricted regions to trade tokens linked to stocks of U.S. listed companies, such as Facebook, Netflix, Tesla, Amazon, etc. In April 2021, Binance also began to provide tokenized stock trading services, and the first stock to go online was Tesla (TSLA).
However, the regulatory environment at that time was not particularly friendly, and the core initiator was CEX, which meant that it formed a direct competitive relationship with traditional stock trading platforms, such as Nasdaq, and naturally came under considerable pressure. FTXs tokenized stock trading volume reached an all-time high in the fourth quarter of 2021. The trading volume in October 2021 was US$94 million, but after bankruptcy in November 2022, its tokenized stock trading service was stopped. Binance announced the cessation of tokenized stock trading services in July 2021, just three months after launching the business, due to regulatory pressure.
As the market entered a bear market, the development of this track also stagnated for a time. Until Trumps election, his deregulated financial policy brought about a change in the regulatory environment and rekindled the markets attention to tokenized stocks, but now it has a new name, RWA. This paradigm emphasizes the use of compliant architecture design to introduce qualified issuers to issue tokens on the chain that are 1:1 secured by real-world assets, and the creation, trading, redemption, and management of secured assets of tokens are strictly carried out in accordance with regulatory requirements.
Current Market Status of Stock RWA
Next, lets take a look at the current stock RWA market. In general, the market is still in its early stages and is still dominated by US stocks. According to data from RWA.xyz, the total issuance of the current stock RWA market has reached $445.40 M, but it is worth noting that $429.84 M of the issuance is attributed to a single target, EXOD, which is an on-chain stock issued by Exodus Movement, Inc., a software company focused on developing self-hosted cryptocurrency wallets. The company was founded in 2015 and is headquartered in Nebraska, USA. The companys stock is listed on the New York Stock Exchange (NYSE America) and allows users to migrate their common Class A shares to the Algorand blockchain for management. Users can directly view the price of this part of the on-chain assets in Exodus Wallet. The companys total market value is currently $1.5 B.
The company also became the only company in the United States to tokenize its common stock on the blockchain. But it is worth noting that the on-chain EXOD is only the on-chain digital identification of its stock, which does not contain voting, governance, economic or other rights. At the same time, the token cannot be directly traded and circulated on the chain.
This event has a certain symbolic significance, marking a significant change in the SECs attitude towards on-chain stock assets. In fact, Exodus attempt to issue on-chain stocks was not smooth sailing. In May 2024, Exodus submitted its first application for common stock tokenization, but because the SECs regulatory policy did not change at that time, the plan to go on the chain was initially rejected. But then in December 2024, after continuous improvement of technical solutions, compliance measures and information disclosure, Exodus finally obtained the approval of the SEC and successfully completed the on-chain tokenization of common stock. This event also made the companys stock sought after in the market, and the price reached an all-time high.
In addition, the remaining market share of about $16 M is mainly attributed to a project called Backed Finance. This is a Swiss company that operates through a compliance framework to allow users who meet KYC requirements to pay USDC to cast on-chain stock tokens through its official primary market. After receiving the crypto assets, Backed will exchange them for US dollars and purchase COIN stocks in the secondary market (there may be some delays in the middle due to the opening hours of the stock market). After the purchase is successful, the stocks are managed by a Swiss custodian bank, and then the 1: 1 mint bSTOCK token is sent to the user. The redemption process is the opposite. The security of the reserve assets is guaranteed by an audit company called Network Firm, which regularly issues reserve certificates. On-chain investors can directly purchase such on-chain stock assets through DEXs such as Balancer. In addition, Backed does not provide stock token holders with ownership of the underlying assets or any other additional rights, including voting rights. And only users who have passed KYC can redeem USDC through the primary market.
In terms of issuance volume, Backed’s adoption is mainly concentrated on two assets, CSPX and COIN, of which the former has an issuance volume of about $10M and the latter is about $3M. In terms of on-chain liquidity, it is mainly concentrated on the Gnosis and Base chains, of which bCSPX has a liquidity of about $6M and wbCOIN has a liquidity of about $1M. In terms of transaction volume, it is not very high. Taking the largest liquidity pool of bCSPX as an example, since its deployment on February 21, 2025, the cumulative transaction volume is about $3.8M and the cumulative number of transactions is about 400 times.
Another trend worth noting is the progress of Ondo Finance. With Ondo announcing its overall strategy for Ondo chain and Ondo Global Markets on February 6, 2025, tokenized stocks are the core trading targets in Ondo Global Markets. Perhaps Ondo, with its broader TradFi resources and better technical background, can accelerate the development of this track, but it remains to be seen.
Opportunities and Challenges of Equity RWA
Next, let’s explore the opportunities and challenges of stock RWA. Generally speaking, the market believes that stock RWA has the following three advantages:
7-24 hour trading platform: Due to the technical characteristics of blockchain, it has the characteristics of 24-hour operation. This allows the trading of tokenized stocks to get rid of the trading hours of traditional exchanges and fully tap the potential trading needs. Take Nasdaq as an example. Although it has achieved 24-hour trading service capabilities by extending pre-market and after-market trading, regular trading hours are limited to mid-week. If a trading platform is developed directly through blockchain, 24-hour trading will be achieved at a lower cost.
Low-cost access to U.S. assets for non-U.S. users: With the large-scale adoption of payment stablecoins, non-U.S. users can directly use stablecoins to trade U.S. assets without having to bear the handling fees and time costs of cross-border and cross-bank funds. Assuming a Chinese investor invests in U.S. stocks through Tiger Brokers, without considering the exchange fee, the cross-border remittance fee is about 0.1%, and the settlement of cross-border remittances usually takes 1-3 working days. If transactions are conducted through on-chain channels, these two costs can be avoided.
Financial innovation potential brought by composability: With its programmable nature, tokenized stocks will embrace the DeFi ecosystem, giving it stronger on-chain financial innovation potential, such as on-chain lending and other scenarios.
However, I believe that tokenized stocks are still facing two uncertainties:
The speed of regulatory policy advancement: Based on the cases of EXOD and Backed, we can know that the current regulatory policy cannot solve the problem of same rights for stocks and tokens, that is, the purchase of tokenized stocks and physical stocks have the same rights at the legal level, such as governance rights. This limits many trading scenarios, such as corporate mergers and acquisitions through the secondary market. And the compliance use scenarios of tokenized stocks are still unclear, which has also hindered the pace of financial innovation to a certain extent. Therefore, its progress is very dependent on the speed of regulatory policy advancement. Considering that the core policy goal of the Trump administration is still in the stage of manufacturing repatriation, the timetable may continue to move back.
Development of stablecoin adoption: From past developments, the core target users of tokenized stocks are most likely not crypto native users, but traditional, non-US US stock investors. For this group, whether the adoption of stablecoins is increasing is also a question worth paying attention to, and this will be closely related to the stablecoin policies of other countries. For example, for Chinese investors, compared with regular official channels for currency exchange, obtaining stablecoins through the OTC market requires a premium of about 0.3% to 1%, which is much higher than the cost of investing in US stocks through traditional channels.
Therefore, in summary, in the short term, I believe that stock RWA has the following two market opportunities:
For listed companies, they can refer to the EXOD case and issue on-chain stock tokens. Although there are not many actual use scenarios in the short term, at least the potential financial innovation capabilities can make investors willing to give companies higher valuations. For example, for some companies that can provide on-chain asset management services, this method can be used to transform investors into product users, and convert the stocks held by investors into the companys AUM, thereby enhancing the companys business growth potential.
For tokenized high-dividend U.S. stocks, some yield-based DeFi protocols will become potential users. With the reversal of market sentiment, the yields of most on-chain native real-income scenarios will drop significantly, and yield-based DeFi protocols such as Ethena need to constantly look for other real-income scenarios to increase overall yields and enhance market competitiveness. For details, please refer to the example of Ethena configuring BUIDL. High-dividend stocks usually belong to mature industries, with stable corporate profit models, sufficient cash flow, and the ability to continuously distribute profits to shareholders. Moreover, most of them have the characteristics of low volatility and strong ability to resist economic cycles, and the investment risks are also controllable. Therefore, if some high-dividend blue-chip stocks can be launched, they may be adopted by yield-based DeFi protocols.
