You’re buying tokenized stocks, not real equities, on CEXs: Unpacking the 94% clearing monopoly and the evaporation of rights under a five-layer pipeline

Original Authors: Ethan, Xinyang, IOSG

In 2026, CEXs intensively launched U.S. stock trading products, creating a booming narrative at the industry's forefront about "seamlessly buying and selling NVIDIA with USDT." However, peeling back the sleek trading interface to examine the underlying legal relationships and clearing processes reveals that this is far from a simple "RWA asset revolution." Instead, it is a complex game of interests involving spot pricing, equity ownership, and underlying custody monopolies.

TL;DR

• Three Divergent Paths: CEX U.S. stock products have diverged into three parallel routes: Traditional API, Tokenized, and Perpetual Contracts.
• Tokenized Model Heavily Relies on Alpaca: Monopolizing 94% of tokenized U.S. stock clearing, it presents risks from the time lag between on-chain real-time processing and off-chain T+1 settlement. Ultimate hidden costs and liquidity gaps during black swan events are borne by the user.
• Tokenized U.S. Stocks Market Remains in Blue Ocean: Asset size expanded approximately 15x in 10 months. DeFi collateral potential emerges, while Traditional API routes are rapidly diverting capital.

The Three Paths of U.S. Stocks Divergence

Based on fund flow, asset form, and fundamentally, legal relationships, the U.S. stock trading products offered by current CEXs are not a single category. Beneath their homogenous front-end trading interfaces, they have diverged into three completely different evolutionary paths based on differences in underlying assets and legal structures:

The coexistence of these three modes is not merely a result of product design overnight. It is the product of continuous compromise and iteration within the on-chain ecosystem over the past few years, balancing liquidity efficiency against traditional compliant clearing frictions.

Early Exploration and Liquidity Limitations of Offshore Tokenization

The starting point of this track dates back to 2021-2024, with early on-chain asset tokenization (Tokenized Securities) attempts by projects like Backed Finance (xStocks) and Ondo Finance. The core business at this stage involved establishing Special Purpose Vehicles (SPVs) in offshore jurisdictions, fully collateralizing real stocks off-chain, and minting corresponding token certificates (e.g., AAPLx) on-chain as mirrors. These assets possess the native characteristics of crypto assets, allowing them to be withdrawn to a Web3 wallet and transferred permissionlessly on-chain. This successfully proved the paradigm of moving assets from 0 to 1 on-chain.

However, during the window period before traditional financial clearing giants substantially entered the crypto ecosystem, this model exhibited severe supply-side scarcity and scale limitations. Lacking underlying liquidity support from mainstream centralized exchanges (CEXs), these tokenized assets could only circulate on a few decentralized protocols or second-tier platforms. This kept the Total Value Locked (TVL) of the entire track low for an extended period, with the total on-chain U.S. stock market cap below $100M as of August 2025. This characteristic of having "asset mapping but lacking transaction friction efficiency" inevitably relegated early tokenized U.S. stocks to illiquid on-chain sinks, failing to truly reach mainstream retail traders.

Synthetic Perpetual Contracts: Pure Price Derivative Games

To address the liquidity shortage of spot tokenization, U.S. stock/ETF perpetual contracts quickly became market protagonists. In September 2025, Bitget was the first to launch U.S. stock perpetual futures, quickly expanding the underlying assets to over 40, with cumulative trading volume exceeding $15 billion. However, the real catalyst that ignited the track was the HIP-3 (Permissionless Perpetual Contract Deployment Mechanism) launched by Hyperliquid on October 13, 2025, fully activating the 24/7 equity derivatives market. As of June 2026, the notional Open Interest (OI) for U.S. stock-related perpetual contracts has exceeded $2.25 billion. Hyperliquid holds a dominant share thanks to HIP-3, with OI for its Nasdaq-100 (XYZ100) and S&P 500 index perpetuals exceeding $310 million and $340 million respectively.

Binance followed aggressively in early 2026, capturing over 56% of the CEX market share in RWA perpetuals. Particularly for Pre-IPO derivatives like SpaceX (SPCX), single-day trading volumes have reached billions of dollars. Additionally, Binance launched Korean stock perpetual futures (Samsung, SK Hynix, Hyundai) in early June 2026, which saw a cumulative trading volume of approximately $470 million in their first week. SK Hynix contributed over 90% of this, frequently exceeding $100 million in daily volume. This highlights the strong interest from retail leveraged traders in globally hot assets like AI semiconductors. It also reflects a key advantage of crypto perpetual platforms: the ability to rapidly integrate international hot assets that traditional brokers find difficult to service or under-serve, providing global retail investors with timely leveraged trading channels.

These synthetic perpetual contracts involve no actual off-chain stock delivery. They rely entirely on oracle price feeds for real-time pricing, with long/short competition occurring entirely within the crypto exchange. This design offers extremely high capital efficiency and continuity, providing efficient price discovery and liquidity even during U.S. market off-hours. In contrast, real tokenized spots, due to the need to interface with traditional T+1 clearing, custody, and underwriting processes, often exhibit significant liquidity gaps, high slippage, and price distortions on-chain. This irony – "derivative pricing efficiency surpassing spot" – has become a structural pain point inherent to the current tokenized stock model.

Traditional API Model: Exchanges Reverting to Online Brokers

Entering 2026, although the U.S. Securities and Exchange Commission (SEC) continues to push frameworks like "Project Crypto Innovation Exemption" aimed at providing regulatory sandboxes for digital assets, native on-chain securities (Tokenized Securities) face uncontrollable delays in legal characterization and full compliance implementation. Consequently, mainstream exchanges have turned their attention to a more pragmatic path. In June 2026, Binance officially announced a deep partnership with U.S. licensed self-clearing broker Alpaca to launch U.S. stock and ETF trading services.

This "Traditional API routing model" is essentially an extension of the traditional retail broker architecture onto the front-end of a crypto exchange. Through its associated broker Nest Trading for routing, blockchain technology plays zero role in settlement throughout the entire product lifecycle. A user's holdings are merely a data mapping within the exchange App; orders are ultimately executed on the NYSE or NASDAQ, with the underlying securities custodied in Alpaca accounts.

The cost of this model is sacrificing all native characteristics of crypto assets: stocks cannot be withdrawn to a Web3 wallet, cannot be transferred on-chain, and are impossible to move across platforms. The user's "position" is just a numerical mapping in the exchange App. However, its underlying logic is the most robust. Legally, the user is the "beneficial owner" of the security, enjoying not only full dividends and nominal voting rights but also legal protection from the U.S. Securities Investor Protection Corporation (SIPC). This might seem like a compromise or regression for a crypto exchange, but it is currently the only path where a user can truly "own" the stock.

Multi-route Strategy by Exchanges

Looking at the current mainstream U.S. stock product lines, a deeper industry consensus is evident: most top-tier exchanges have not placed all their bets on a single path. Instead, they have adopted a multi-model product layout. For example, platforms like Binance, Bitget, and Bybit often simultaneously operate Traditional API routing, Tokenized assets, and Synthetic Perpetual Contracts as underlying systems. This multi-route design is not product redundancy. The core reason is to cater to the actual needs of different customer segments within the crypto ecosystem. High-frequency speculators value the high capital utilization and leverage of synthetic contracts, while long-term allocators (whales) prioritize the compliance assurance and SIPC legal protection offered by the Traditional API model.

This mixed layout is also a hedge for exchanges against regulatory uncertainty. The Traditional API model leverages and compromises with the existing Web2 securities compliance system. The Tokenized model pushes the boundaries of RWA innovation in offshore jurisdictions. Synthetic derivatives purely digest risk within the crypto intranet. By preparing multiple channels, exchanges can flexibly adjust their product focus based on different regional regulatory policies, diversifying policy risk.

Architecture Layers: Rights Stripping Through the Five-Layer Pipeline

To understand the dilution of equity rights in on-chain U.S. stocks, one must look away from the sleek user experience and audit the data pipeline downstream. The difference stems not from the token's name or on-chain narrative, but from the number of intermediary layers placed between the end-user and the ultimate underlying asset.

The Traditional API model can fully preserve shareholder rights because it follows a clean Web2 three-layer architecture:

User → Broker → Depository Trust & Clearing Corporation (DTCC)

In this path, the broker acts merely as a custodial pipeline. The law ensures ownership protection penetrates directly to the end-user, guaranteeing their legal status as "beneficial owner."

However, to forcibly "move" stocks "on-chain," the Tokenized model introduces multiple nested intermediaries. It is forced into a complex five-layer structure:

[End User] ──> [Crypto Exchange] ──> [Token Issuer] ──> [Intermediary Broker (Alpaca)] ──> [DTCC]

This increase in layers is not a harmless engineering cost; it represents the high-frequency consumption of asset rights during transmission. Within this structure, each layer intercepts or distorts the legal rights originally belonging to the shareholder.

The Idle Cycle and Evaporation of Voting Rights

At the foundation of the traditional securities system, the underlying shares of all U.S. stocks are registered in the name of DTCC's nominee, Cede & Co. Entities like Alpaca or Apex, as DTCC participants, are the holders at the actual beneficial ownership level. This means that corporate actions like shareholder meeting notices and voting guidelines, at the end of the traditional clearing network, are only sent to licensed brokers like Alpaca.

When the architecture is stretched to five layers, the chain of rights transmission breaks directly here. Alpaca, as a standard broker, has legal obligations and system interfaces that only connect to its direct clients – i.e., token issuers like Backed Finance or Ondo. Alpaca has no legal duty to develop a complex voting rights pass-through system for these crypto entities.

Furthermore, the Issuer layer faces a systemic vacuum in both technology and compliance. They lack the infrastructure to map the daily voting decisions of thousands of underlying stocks to on-chain token holders in real-time and securely. Consequently, voting rights stop transmitting at the bridge broker layer and spin their wheels uselessly at the issuer layer, ultimately evaporating.

Dividend Redistribution and Contractualization

Unlike the direct extinction of voting rights, dividends—the most attractive economic right—evolve into an indirect, repackaged distribution mechanism within the complex five-layer architecture.

When Apple or NVIDIA pays a cash dividend, the dollars first flow into Alpaca's account. After deducting applicable taxes and fees, Alpaca credits the funds to the account's nominal owner—the token Issuer. From this moment, the funds leave the jurisdiction of securities law and become the Issuer's corporate assets. Whether on-chain token holders receive payment, and in what form, depends entirely on the contractual agreements and operational procedures established by the Issuer in its offshore jurisdiction.

In practice, to avoid the complex cross-border clearing and securities regulatory risks associated with directly distributing dollars, mainstream projects like xStocks and Ondo generally adopt an "automatic reinvestment" mechanism. After receiving the cash dividend off-chain, they automatically reinvest it in the secondary market to buy more underlying shares. Then, by adjusting the multiplier in the on-chain smart contract or the Net Asset Value (NAV) price of the token, this value is reflected non-intuitively in the user's token balance or token price.

Currently, only a very few platforms, such as Bitget Reality, attempt to directly distribute dividends on-chain in the form of USDT. However, in essence, neither of these models represents the shareholder dividends granted to you by securities law. Instead, they represent a contractual claim you hold against an offshore token issuer, dependent on the proper functioning of its technical nodes.

SIPC Protection Failure

Within the five-layer architecture, the most critical hidden danger is the legal vacuum in extreme risk scenarios. In the traditional U.S. securities market, the SIPC provides brokerage customers with bankruptcy protection of up to $500,000. This is the cornerstone of trust that allows retail investors to entrust assets to emerging brokers.

However, in the Tokenized model, the direct client on Alpaca's books is the SPV registered in the Cayman Islands or Seychelles (like Backed, Ondo, or Bitget's entity), not each individual user on the chain. This means the SIPC protection net covers, at best, the "token Issuer" layer.

If Alpaca itself faces a liquidation crisis, the Issuer might be able to file a claim with SIPC as a client. But if the token Issuer itself goes bankrupt, absconds, or is hacked, the protection umbrella of traditional securities law completely fails. There is no clear legal precedent in current bankruptcy and securities law systems to support "piercing" SIPC protection through to an on-chain token holder who holds a Solana SPL token on one side but has no record in the securities system on the other.

This harsh legal reality is frankly disclosed in the official compliance documents of major issuers. Ondo Finance's legal terms state explicitly: the token provides "Economic Exposure" to the performance of the underlying asset, and holders do not have the right to hold or receive the underlying asset.

This clearly defines the ultimate physical reality of on-chain U.S. stocks: you are not an owner of the stock; you are a holder of a digitized promissory note tracking the price of a U.S. stock, issued by some offshore entity.

Potential Risks Under SEC Regulatory Scrutiny

Under the nested five-layer architecture, risk outbreaks do not follow traditional securities law compensation pathways. Instead, they are directly governed by the compliance game between the offshore SPV and the upstream clearing broker. When regulators like the SEC conduct a look-through enforcement action against cross-border securities tokenization, the potential default and risk transmission path typically unfolds in three distinct stages:

First, the upstream licensed self-clearing broker, to mitigate compliance reputation risk, usually chooses to cut the API route to the offshore SPV. Without an actual off-chain clearing and settlement channel, the issuer's on-chain smart contracts are forced to halt all minting and redemption functions.

Second, because on-chain anonymous addresses lack compliant entitlement records within the traditional securities settlement system (DTCC), the SIPC bankruptcy protection umbrella stops entirely at the Issuer entity level. It cannot be pierced downwards to protect the end-holder. If the Issuer goes bankrupt, users holding the tokens face the risk of default, unable to recover the underlying assets.

Facing this legal void, the current path for on-chain U.S. stock tokenized spots is gradually evolving toward contractual trusts. Platforms like Ondo Finance are moving away from the simple SPV mapping stage towards embracing a more structurally robust off-chain compliant Trust Fund architecture. By contractualizing the distribution of dividends and liquidation rights, this design legalizes them. While unable to bypass regulatory friction entirely, this approach maximizes the preservation of the holder's legal creditor status in traditional courts, representing the best current solution to counter this legal vacuum.

On-Chain Financial Clearing Giant: Alpaca's Single Point Monopoly and Liquidity Gap

Dissecting the pipelines of all current Tokenized U.S. stock and Traditional API trading products reveals a startling fact within the five-layer architecture: almost the entire crypto industry's underground network connecting to U.S. stocks converges on a single point at its most critical execution and custody layer – Alpaca.

Whether it's on-chain RWA-focused projects like Ondo Finance, Backed Finance (xStocks), or exchange-backed products like Bitget Reality, or even Binance's traditional U.S. stock trading launched in June, the underlying asset purchase, clearing, and securities custody are all independently shouldered by Alpaca. According to an official announcement by Alpaca on December 4, 2025, Alpaca effectively monopolizes over 94% of the clearing and custody market share for tokenized U.S. stocks and ETFs (Source: Alpaca official).

Why Alpaca: Self-Clearing Qualification and Traditional Brokers' "Risk Aversion"

This highly concentrated single-point monopoly does not stem from Alpaca offering some irreplaceable cutting-edge Web3 technology, but rather from the extreme scarcity in the traditional finance supply side and a natural compliance chasm.

Within the U.S. securities system, brokers have a strict hierarchy. One category is the large number of Introducing Brokers, who only have order-taking capabilities and must outsource clearing, settlement, and custody to third parties. Another category is the very few Self-Clearing Brokers. Alpaca belongs to the latter. It is a formal member of DTCC, OCC, and FICC, capable of independently completing the full chain from order execution to final asset registration. For crypto asset issuers, connecting to Alpaca means they don't need to separately interface with different execution, clearing, and custody institutions; one broker provides the full-chain service.

Alpaca's core moat lies in the fact that other large traditional licensed institutions are generally unwilling to cooperate with offshore crypto exchanges due to compliance and reputational risk concerns. Giants like Interactive Brokers, with multi-hundred-billion-dollar