Ondo, xStocks, Hyperliquid "Three Kingdoms Battle": Who is Building the "Foundation" for Future Finance?

Original Author: Castle Labs

Original Compilation: AididiaoJP, Foresight News

$69 trillion—this is the estimated market capitalization of the U.S. stock market, driving the total global stock market cap to $130 trillion.

Opportunities to participate in the stock market are increasingly coming into view for on-chain native participants, despite their initial lack of interest. The reasons are varied, but the general consensus is that cryptocurrencies were once believed to offer faster returns. However, more and more investors are opting for diversification. The Wall Street Journal highlighted this trend, noting that funds are shifting from Bitcoin to gold or the "Magnificent Seven" (MAG7).

Until recently, the crypto space's proposition was characterized by exclusive loyalty to digital assets and acceptance of the cyclical pattern where everything mysteriously crashes every four years—almost astrological in nature. Most crypto assets have not recovered since reaching their all-time highs in Q2 2025. Meanwhile, the stock market has repeatedly hit new highs, prompting investors to question: is loyalty to blockchain just an obsession disguised as conviction?

The real utility of tokenization is not "financial inclusion" or "democratizing access," but providing traders with a tool that enables them to short Tesla (TSLA) to zero, borrow Nvidia (NVDA) shares as collateral without KYC, trade pre-IPO stocks, or earn yield in Kamino vaults.

This article analyzes three distinct paths to on-chain tokenization:

• OndoFinance launched Global Markets in September, elevating tokenization on the Ethereum network to institutional-grade standards.
• xStocksFi (now owned by Kraken) under Backed Finance emerged in June, targeting the retail market with multi-chain composability.
• HyperliquidX activated HIP-3 in October, enabling permissionless perpetual contract trading on any asset, including commodities and stocks.

This article will delve into the internal mechanics of each protocol, focusing on how they achieve the "tokenization" of assets on-chain.

We will provide a general analysis of the legal framework behind each protocol and its implications for investors.

Finally, we will explore where the broader tokenization trend is headed and what it means for the crypto ecosystem we are familiar with.

Ondo: The On-Chain BlackRock

Founded in 2021 by Nathan Allman and Justin Schmidt, both with Goldman Sachs backgrounds, Ondo spent years building tokenized treasury products (USDY for retail and OUSG for institutions). Before launching Global Markets in September 2025, its assets under management exceeded $2 billion. Currently, the Total Value Locked (TVL) across all Ondo products (including treasuries) stands at $2.47 billion.

Ondo's tokenization model falls under what the industry calls indirect tokenization. It works as follows: an offshore Special Purpose Vehicle (SPV) purchases and holds the underlying shares on behalf of token holders, then issues on-chain structured notes. These notes pass through economic risk but do not confer legal ownership. Token holders have a claim against the Ondo issuing entity, which is collateralized by the underlying shares held in segregated accounts with a U.S.-registered broker-dealer.

Ondo tokens are essentially debt instruments collateralized by stocks, not the stocks themselves. For example, token holders do not have the voting rights that holders of the underlying shares possess.

Its main features are as follows:

• Adopts institutional-grade tokenization standards, featuring a bankruptcy-remote SPV, daily proof-of-reserves, use of U.S.-registered custodians, and support for instant minting during market trading hours.
• If Apple stock trades at $180 on NASDAQ, users can instantly mint AAPLon with $180 worth of stablecoins and redeem at any time. Arbitrageurs maintain a tight peg for the on-chain price by balancing the price of tokenized shares between DEXs and Global Markets. The arbitrage loop is key to price stability. Ondo achieves atomic settlement: stablecoins go in, tokens come out, in one step. If AAPLon trades above $180 on a DEX, market makers mint new tokens on Global Markets and sell them on the market to suppress the premium; conversely, if the price is below $180, they buy tokens on-chain and redeem them at par value, pocketing the difference.

Ondo tokens are fully collateralized by U.S. stocks and ETFs held with one or more U.S.-registered broker-dealers. Holders do not directly own the shares but gain economic exposure through the tokens, with dividends automatically distributed.

No fees are charged for minting or redeeming; Ondo profits from the spread.

The platform initially launched with over 100 assets on Ethereum, later expanding to BNB Chain and Solana, and recently announced Ondo Chain. Ondo Chain introduces a specific Proof-of-Stake (PoS) mechanism for staking Real World Assets (RWA).

The current product catalog is extensive: including large-cap stocks (Apple AAPL, Tesla TSLA, Nvidia NVDA, Google GOOGL), Exchange-Traded Funds (ETFs, like SPY, QQQ), and commodities.

However, its geographic restrictions are extremely strict: U.S. citizens or residents are not allowed to participate. Ondo tokenized stocks are only for qualified investors and require mandatory KYC.

The tokenization process of each protocol has its own characteristics worth noting.

Alpaca, a U.S.-based self-clearing broker-dealer, currently custodies over 94% by value of tokenized U.S. stocks and ETFs, including Ondo's products. Alpaca's instant tokenization network provides a physical mint and redemption channel. This means the underlying shares are transferred via book entry between brokerage accounts, not sold and repurchased, eliminating slippage and maintaining token price stability. Ondo also recently filed a registration statement with the SEC; once effective, Global Markets will become the first transferable tokenized stock issuer subject to SEC reporting requirements. The SEC concluded a two-year investigation in November 2025 without recommending charges against Ondo. Subsequently, Ondo acquired the SEC-registered broker-dealer Oasis Pro Markets to accelerate its domestic U.S. expansion.

Ondo believes that institutions value regulatory clarity and operational efficiency more than ideological purity.

xStocks: A Powerful Tool for Retail Users

xStocks finds an ideal balance between cryptocurrency and traditional finance: it's more accessible than Ondo, more compliant than HIP-3, and open to all users.

Launched in June 2025, xStocks offers over 60 tokenized stocks and ETFs. Each is backed 1:1 by securities held under the supervision of Swiss regulators by Swiss or U.S. custodians. Its tokens follow SPL or ERC-20 standards and can be freely transferred across different blockchains.

Its timely success prompted Kraken to acquire Backed in 2025. Currently, xStocks holds publicly listed stocks worth $250 million, with Tesla stock accounting for over a quarter.

In this model, token holders do not own the stock itself but have a claim against the issuer. Each xStock is backed 1:1 by the underlying stock. Dividends are automatically reinvested, similar to Ondo's model: when the underlying stock pays a dividend, holders' wallets receive an airdrop of additional xStock tokens equivalent to the dividend amount.

Its tokenization mechanism compresses the traditional structured finance model onto the blockchain. Legally, each xStock is a tracking certificate, classified as a bearer debt instrument. It is issued by Backed Assets Limited, an SPV registered in Jersey, a wholly-owned subsidiary of Swiss Backed Finance AG. The token's financial value tracks a specific underlying stock or ETF but does not grant ownership or voting rights. Token holders are creditors of the issuer, not shareholders of the underlying company. This is the same indirect tokenization model used by Ondo, but the specific legal structure and post-issuance mechanics differ.

The issuance process is as follows:

1. An Authorized Participant (AP) submits a minting request via Alpaca's API, specifying the ticker, quantity, target blockchain, and receiving wallet address.
2. Alpaca, as a U.S.-based self-clearing broker-dealer, validates the request and transfers the corresponding shares from the AP's brokerage account to the issuer's account.
3. Upon Backed's confirmation of receipt of the underlying securities, equivalent xStock tokens are minted on-chain and sent to the AP's wallet.

The redemption process is the reverse: the AP burns the tokens, Alpaca confirms the burn, and the corresponding shares are transferred back to the AP's brokerage account. This physical transfer mechanism keeps the token price tightly linked to the underlying stock.

On March 5th, xStocks launched xChange—a swap engine designed to directly pull capital market liquidity into DeFi during trading hours, while retaining on-chain liquidity pools on weekends for price discovery.

The system consists of three parts:

• On-chain liquidity, supporting price discovery during non-trading hours.
• xChange itself, responsible for connecting DeFi and TradFi during trading hours.
• xPort, for bringing assets on-chain.

xChange is powered by Chainlink oracles, already live on Solana aggregators, and soon to launch on Ethereum's CoW Swap and 1inch. Integrations with PancakeSwap, LiFi, DFlow, and Kamino Swap are also underway.

Vertically, off-chain liquidity is pulled onto the blockchain via arbitrage, tightening spreads in on-chain trading pools; horizontally, it opens access to xStocks' vast product catalog without needing pre-seeded liquidity for each ticker.

Its regulatory framework spans three jurisdictions:

• The issuing entity is based in Jersey, regulated by the Jersey Financial Services Commission under the Borrowing Control Order.
• The prospectus is approved by the Liechtenstein Financial Market Authority (FMA), allowing tokens to circulate freely across EU countries.
• Tokenization operations are performed by Swiss Backed Finance AG.

Underlying collateral is held in segregated accounts at regulated custodial banks in Switzerland and the U.S. (including InCore Bank and Maerki Baumann), subject to tri-party account control agreements. A collateral agent has the right to seize these collateral accounts if token holders' interests are impaired.

Distribution channels are broad, with stocks available on centralized exchanges like Kraken, Bybit, and Gate. Kraken offers instant settlement, fractional investing (minimum $1), and competitive rates (0.1% taker, -0.02% maker rebate).

Unlike Ondo, xStocks' philosophy is to serve retail users where they are. There are no specific KYC or whitelist restrictions; anyone can buy stocks and freely transfer them between self-custody wallets.

On February 25th, xStocks' trading volume reached $25 billion.

Kraken has designated Alpaca as its preferred 1:1 underlying stock source and custody partner. Alpaca's instant tokenization network provides real-time minting and redemption services for institutions. In early February 2026, Deutsche Börse's 360X platform began offering xStocks to its clients! The exchange, regulated by Germany's BaFin and Europe's ESMA, is the gold standard in Europe.

The core idea of xStocks is that retail users value self-custody and multi-chain access more than institutional-grade custody. Naturally, they crave tools on par with institutions. Stock tokenization is the first step in bridging the information asymmetry gap: now, anyone can make buy or sell decisions immediately after listening to an earnings call, even before the market opens.

Hyperliquid: Everything is Tradable

Hyperliquid promotes a completely different model, simplifying the concept of tokenization to its most basic form: traders gain price exposure by going long or short on derivative contracts, nothing more, involving no economic ownership of any underlying asset.

HIP-3, activated in October 2025, allows any user staking 500,000 HYPE to launch their own perpetual contract exchange on HyperCore. Deployers can set their own oracles, define leverage, manage risk, and earn 50% of trading fees.

The operating mechanism here is fundamentally different. In the Ondo and xStocks models, real stocks exist in custody accounts, tokens are structured claims against these stocks, and when holders burn tokens, the corresponding stocks are sold. The asset custody chain is as follows:

NASDAQ → Broker → Special Purpose Vehicle (SPV) → Blockchain

In Hyperliquid's model, this chain does not exist at all. HIP-3 markets are isolated cross-margin markets, not directly listed on Hyperliquid's main interface, but entirely built and distributed by third-party builders. Oracles are the key variable: each deployer chooses their own price feed source and defines rules for when U.S. markets are closed but perpetuals need to trade 24/7. During market closure periods, exchanges rely on internally priced Exponential Moving Averages (EMA), protocol-set price limits, and specific trust tiers based on asset liquidity depth.

This is not tokenized stock like Ondo Global Market. There are no stocks, no dividends, no redemption mechanism, no SPV—only contracts that track prices via oracles and settle in stablecoins or HYPE.

For example, XYZ100, deployed by trade.xyz, tracks the value of a "market-cap-weighted index of 100 large non-financial companies listed on U.S. exchanges, adjusted." It reached $72 million in daily volume and $55 million in open interest within two weeks, ranking in Hyperliquid's top ten; monthly volume is now in the billions.

Hyperliquid's advantage lies in its decentralized market creation mechanism. Any builder meeting the 500,000 HYPE staking requirement can deploy three markets for free; more markets require a Dutch auction.

This has spawned an explosion of niche markets:

• trade.xyz (offering XYZ100, NVDA, TSLA, AAPL, GOOGL, etc.)
• Ventuals (offering SpaceX perpetuals in the Pre-IPO stage)
• Felix (offering 20% lower taker fees with USDH as collateral)
• Kinetiq, a liquid staking protocol with over $1 billion in monthly volume

Through HIP-3, Hyperliquid is becoming the AWS (Amazon Web Services) of perpetuals: it no longer competes with each niche market but provides the underlying infrastructure for builders to compete on top of it.

Just as AWS rents computing, storage, and networking resources for users to freely build applications on, Hyperliquid replicates this model with financial infrastructure:

• HyperCore provides the order book, margin engine, and settlement layer.
• Deployers decide which assets to list, which oracle to use, what leverage to allow, and how to manage risk.
• The protocol itself doesn't care if a market tracks Tesla, Pre-IPO SpaceX, gold, or a basket of GPU manufacturers. It collects 50% fee share regardless. This is fundamentally different from the business models of Ondo or xStocks, which must individually structure, arrange custody, and build legal frameworks for each tokenized asset. Hyperliquid delegates these functions to builders, taking a completely laissez-faire approach to tokenization.

The current market environment is extremely favorable for perpetual DEXs, with 2026 trading volume showing no signs of slowing. Crypto speculators value leverage and accessibility more than ownership. But as mentioned earlier, this is partly because the culture hasn't shifted, and accessibility was poor until the rise of tokenization in recent years.

However, the risks are far higher than with tokenized stocks. During high volatility or market closure periods, oracle failures, mass liquidations, or market makers withdrawing to avoid losses can lead to total loss of principal. Unlike tokenized stocks, once a position is liquidated, the funds are gone.

Institutional trading desks require auditable counterparties and clear regulatory classification for derivatives, neither of which HIP-3 provides. For compliance-bound funds, trading stock perpetuals on Hyperliquid would immediately raise questions from auditors and risk committees, especially regarding ISDA standards. Hyperliquid's current user base remains predominantly retail, as it is open to the public. However, there are signs this is changing. Ripple has integrated Hyperliquid into its institutional prime brokerage platform, Prime, providing clients with perpetual access—another sign of the times. During the weekend of the Iran attack, gold, silver, and oil markets on Hyperliquid remained available, increasingly making it an important reference benchmark for tokenized asset prices during non-trading hours.

Tokenizing Everything

Hyperliquid proves that decentralized protocols can and will compete with traditional exchanges.

Other platforms are following suit. Binance relaunched its tokenized stock business on February 24, 2026, partnering with Ondo to list 10 tokenized U.S. stocks and ETFs on Binance Alpha. This marks the first time Binance has offered such services since July 2021, when the UK's FCA and Germany's BaFin raised compliance concerns, triggering subsequent events.

The current exclusion of the U.S. market is another point of contention. Once the SEC approves domestic tokenized securities (almost inevitable given the momentum after the GENIUS Act passes), the on-chain RWA space will explode. Regardless of crypto market downturns, stock values (whether listed or not) generally trend upward.

The real competition lies