Arbitrage and Investment Opportunities in the Wave of Stock Tokenization

1. Introduction

Recently, stock tokenization has become a market hotspot, attracting the attention of numerous investors. This article will systematically outline the principles of stock tokenization, deeply explore the arbitrage and investment opportunities present in the current market, and provide detailed explanations of different types of arbitrage logic, operational processes, and potential limitations to help investors more efficiently identify market opportunities. At the same time, we will also focus on the opportunities for individual investors in this trend, such as fragmented trading, diversified asset allocation, and other new paths. Although stock tokenization offers many opportunities, it still faces challenges in terms of technical implementation, price anchoring, and various other aspects, so investors need to maintain rational judgment.

2. The Mechanism of Stock Tokenization

2.1 Definition

Stock tokenization refers to the process of converting traditional company stocks into tokens on the blockchain through smart contracts and custodial mechanisms, allowing for on-chain holding, trading, and combination. Its essence is a derivative of traditional stocks and does not represent direct ownership of the stocks; thus, the value and risk of stock tokens are closely related to the underlying stocks.

2.2 Mainstream Implementation Path

Currently, there are three mainstream structures for stock tokenization:

• Third-party Custody + Exchange Integration: Regulatory companies prove that the issuer indeed holds real company stocks, and after dual verification by oracles, tokens are issued at a 1:1 ratio. The exchange is responsible for front-end display, user transactions, and trade matching. The advantage of this structure is transparency, with the price deeply anchored through the staking of real stocks.

• Licensed Brokers + Self-Operated Links: Some platforms leverage specific licenses to provide a complete issuance, settlement, and self-custody cycle on their proprietary blockchain, ensuring maximum compliance while also presenting high technical and legal complexities.

• Contract for Difference (CFD) Structure: Users are not trading "mapped assets," but rather contract products linked to stock prices, and users cannot obtain actual shareholding rights or receive dividends. These products are typically priced by the platform itself and take on market-making responsibilities, lacking support from underlying assets. Therefore, they do not grant shareholders any rights and are subject to strict regulatory constraints, facing significant de-pegging risks.

3. Arbitrage Opportunities in Stock Tokenization

Currently, the market mainly discusses third-party custodial issued stock tokens. The price of these tokens is based on the underlying real stocks, possessing strong anchoring attributes and lower investment risks.

According to data platforms, as of July 9, 2025, the total market value of stock tokens is $422 million, while the market value of Nvidia stock alone has reached $3.9 trillion. This shows that, compared to the traditional stock market, the liquidity of stock tokens is severely lacking.

Insufficient liquidity combined with time differences in trading leads to a certain deviation between the token prices and the corresponding stock prices on different platforms and time periods. Price deviations can create arbitrage opportunities. This article focuses on the application of three classic arbitrage strategies in stock tokens.

3.1 Hedging Arbitrage between Spot Market and Token Market

• Arbitrage Principle

When the token exchange and the stock market open simultaneously, if the token price is significantly higher than the spot stock price, arbitrageurs can buy spot stocks (Long Spot) while shorting the corresponding stock tokens (Short Token) in the token market. If the price subsequently returns, arbitrageurs can realize profits by selling the spot and buying back the token to close their position. The reverse is also true.

• Arbitrage operation process

For example, at a certain point in time on July 9, 2025: at this moment, the price of Nvidia (NVDA) spot stock is $160.00; at the same time, on a certain trading platform, the stock token corresponding to NVDA, NVDAX, is quoted at $160.40.

A positive price difference of $0.40 has emerged between the two, indicating that the token price is higher than the spot price. Arbitrageurs can execute the following operations accordingly:

1. Buy NVDA spot stocks to lock in low-priced assets;

2. At the same time, short sell the NVDAX stock token on the token trading platform to short overvalued assets at high prices;

3. Subsequently, continuously monitor the price trends and order book depth of the two markets;

4. When the prices of the two markets revert and approach $158.00:

   • Spot stocks bought before selling in the traditional market;
   • Open a limit order in the token market to cover the short position, completing the hedging liquidation;

5. Each share completes a risk-free arbitrage, with profits coming from the initial price difference, resulting in a profit of $0.22 after deducting fees.

• Arbitrage conditions

Hedge arbitrage is highly sensitive to slippage and fees, and requires quick identification of buy and sell signals for execution. It is suitable for quantitative institutions with high-frequency trading capabilities to achieve lower fees.

3.2 Arbitrage of price differences of the same stock token across different exchanges

• Arbitrage Principle

Cross-exchange arbitrage is one of the most classic types of crypto arbitrage. Its principle is to buy tokens on a trading platform with lower prices and transfer them to a trading platform with higher prices to sell. If the price difference between different exchanges is large enough, and there is still a profit after deducting fees, the operation can be executed.

• Arbitrage operation process

Assuming that the price of a certain Token on exchange A is 100 USDT, and the price on exchange B is 103 USDT.

Arbitrageurs can buy tokens on exchange A, then transfer them to exchange B and sell at a price of around 103 USDT to complete the arbitrage, still making a profit after deducting the buying fee, withdrawal fee, and selling fee.

• Arbitrage conditions

This type of Arbitrage is limited by factors such as on-chain transfer speed, withdrawal restrictions, exchange deposit times, and trading pair depth. If on-chain transfers are involved, network congestion and delays need to be considered. Arbitrageurs often need to use pre-stored liquidity, quantitative trading, and multi-account collaboration to complete "risk-free Arbitrage."

3.3 Arbitrage

• Arbitrage principle

Traditional stock settlements usually have a T+2 or longer delay, while the trading and settlement of tokenized stocks are based on blockchain, theoretically achieving settlement in minutes or even seconds. Arbitrageurs can take advantage of the settlement time difference to arbitrage by using the instant price adjustments in the token market before traditional stock settlements are completed.

For example, the opening hours of traditional markets are from Monday to Friday, 09:30 - 16:00, while the cryptocurrency market operates 24/7 without interruption. This means that during non-trading hours, such as weekends and pre/post-market hours, the prices of stock tokens may experience significant volatility driven by news events, while the actual stock prices have not yet adjusted, creating a temporary arbitrage window. Pre-market information arbitrage is one of the main forms of time difference arbitrage, for instance, news such as earnings releases, geopolitical events, and favorable macro policies can cause tokens to rise or fall before the spot market.

• Arbitrage operation process

Arbitrageurs deploy monitoring systems or rely on news sources to capture significant news (such as Nvidia releasing strong quarterly earnings, a certain country's central bank raising interest rates, escalation of international geopolitical conflicts, etc.) during non-trading hours.

Analyze the impact direction and magnitude of the news on related stocks, which can usually be estimated by backtracking historical events. If the news is judged to be positive, immediately buy the related stock tokens on the token platform; if judged to be negative, short the related stock tokens.

Wait for the spot market to open for closing positions: If the actual stock price moves in the direction of arbitrage, then choose an opportunity to close positions after the spot market opens; or wait for the token price to return and close positions in the token market when it aligns with the spot price to capture the price difference.

• Arbitrage conditions

Arbitrage opportunities of this kind often last only a few minutes or even seconds, requiring a high-performance news push system and automated trading response. In addition, the accuracy of the news source is essential to avoid misjudging investment direction due to false news.

In addition, stock tokens can also be applied in some classic arbitrage strategies, such as triangular arbitrage and funding rate arbitrage.

4. Opportunities for Individual Investors

Arbitrage often requires a very high level of technical skills, capital, and speed of information acquisition from investors, making it more suitable for professional investors. However, there are also opportunities for individual investors amid the wave of stock tokenization.

4.1 Purchase of Fragmented Stocks

In traditional securities, some markets have a minimum purchase of 1 share, while others require a minimum of 100 shares. Investors looking to buy stocks of leading companies like Google, Amazon, and Tesla often have to pay a high price per share, which can be a significant burden, especially for novice investors. However, after the tokenization of stocks, a share can be divided into smaller units, such as 0.1 shares or even 0.001 shares.

For example, the current price of Nvidia stock NVDA is $162.88, and you must purchase at least one share at a time. However, on a certain trading platform's stock token section, you can purchase a minimum of 0.001 shares, which means you only need 0.16 USDT to hold Nvidia stock tokens.

4.2 Diversified Asset Allocation

The all-weather trading system allows users to trade at any time without worrying about opening hours, enabling diverse asset allocation to resist regional financial risks.

4.3 lower trading costs

In traditional stock market trading, intermediaries often charge various fees. However, trading tokenized stocks through decentralized exchanges (DEX) can significantly reduce trading costs, minimizing friction for investors. For example, the brokerage trading fee for stocks is 0.1% - 0.5%, while on certain crypto trading platforms, the fees are only 0.025% - 0.1%.

5. Risks and Challenges

Although stock tokenization arbitrage provides investors with unprecedented cross-market and high-efficiency trading opportunities, different arbitrage paths themselves also carry various risks.

The core basis of the above arbitrage is that different financial product prices of the same underlying asset will have a tendency to revert. If the price difference does not converge but continues to widen, investors will face losses. Therefore, investors need to manage their positions and control risks well. Additionally, there are common risks in arbitrage such as slippage risk, delay risk, and transaction fees eroding profits.

Trading stock tokens also carries unique systemic risks:

• Oracle and Price Decoupling Risk: Most stock tokens rely on oracles or centralized matching systems to update prices. If a failure, delay, or attack occurs, it can cause severe fluctuations in token prices or permanent decoupling.

• Legal and Challenges: In most jurisdictions, stock tokens have not been clearly defined, and arbitrageurs may unknowingly encounter risks such as unregistered securities transactions and cross-border flow of foreign assets.

6. Conclusion

Stock tokenization is not only a technology-driven asset on-chain practice but also a typical path for the crypto market to penetrate into "real-world assets" (RWA). The emergence of this new type of asset provides opportunities for both professional and individual investors. Investors can choose different investment strategies based on their own characteristics. It is important to note that stock tokens also face systemic risks such as price decoupling and legal challenges, and investors need to closely monitor the security of the underlying assets.