Stock Tokenization: The New Frontier of Financial Innovation

Recently, many well-known fintech companies have launched stock token services, attracting widespread attention in the market. This innovative product provides investors with a new way to trade stocks, which is worth exploring in depth.

Pioneer of Stock Tokenization

A certain US-listed fintech company has taken the lead in launching stock token services in the EU market, allowing users to trade derivatives that track stock prices priced in USD. The company will automatically complete euro exchanges and charge a 0.1% currency exchange fee.

The core of this innovative model lies in its unique custody and mapping mechanism. Stock tokens are essentially derivatives that track prices, with the underlying assets held by institutions licensed in the United States. The issuing company is responsible for recording these contracts on the blockchain. It is worth noting that due to the derivative nature of the tokens, users cannot directly redeem the corresponding securities.

In terms of regulation, the company's stock Tokens are offered as derivative contracts under the MiFID II framework, complying with the EU's licensing requirements for companies providing derivative trading services. This provides users with a certain level of compliance assurance. However, this service is currently only available in the EU region.

In terms of trading hours, stock tokens are available for trading five days a week, from Monday 02:00 to Saturday 02:00 Central European Time/Summer Time. For corporate actions ( such as dividends, stock splits, etc. ), the issuing company will act on behalf of the shareholders, including position adjustments, cash distributions, and dividend payments.

Technically, these stock tokens utilize blockchain technology, initially based on Arbitrum, with plans to migrate to a self-built Layer 2 blockchain in the future. This demonstrates the issuing company's commitment to improving trading efficiency and transparency.

It is worth mentioning that the company has also achieved access to private equity for the first time through blockchain technology, launching tokenized stocks of certain well-known private companies to European users. This innovation allows ordinary investors to access equity in private companies that is usually only available to insiders and high-net-worth investors.

Another more open model

At the same time, a well-known cryptocurrency exchange platform has also launched its own stock token product, adopting a more open design philosophy.

In terms of the custody mechanism, the platform's stock tokens are purchased and held by a third-party financial company that manages real stocks or ETF assets, stored in a compliant third-party custodian. Each token is 1:1 pegged to the underlying asset, and the custody process is strictly regulated to ensure asset security and transparency. The reserve proof mechanism is regularly verified through Chainlink to ensure the matching of tokens with actual assets.

These Tokens are based on the Solana blockchain, representing partial ownership of underlying stocks or ETFs. The tokenization process is achieved through smart contracts, with prices synchronized in real-time with traditional markets via Chainlink oracles. Users can transfer Tokens to compatible wallets for trading, liquidity mining, or collateral in decentralized finance protocols.

On the regulatory compliance front, the platform actively collaborates with issuers and global regulatory authorities to implement strict KYC and AML processes. Currently, this stock Token is only available to non-U.S. customers and does not support users from markets such as the United States, Canada, the United Kingdom, the European Union, and Australia.

In terms of trading hours, the platform supports 24/5 trading ( from Monday to Friday all day ), breaking the time limitations of the traditional US stock market. During market closures, on-chain trading can still be conducted, but prices may fluctuate.

In company actions, token holders do not have the voting rights or participation rights in shareholder meetings that traditional shareholders enjoy. Dividends are indirectly distributed through a token price adjustment mechanism, while other corporate actions are handled by the issuer, with the number or value of tokens adjusted accordingly to reflect changes in the underlying assets.

Technically, these tokens are currently based on the Solana blockchain and may expand to other high-performance blockchains in the future. The first batch includes 60 US stocks and ETFs, covering several well-known technology companies and ETF products.

Comparison of Two Modes

The stock tokenization models of the two companies each have their own characteristics. The former excels in compliance and coverage of mainstream audiences, providing non-listed stocks; the latter covers more regions, supports native on-chain trading and DeFi protocols, and aligns better with the characteristics of the cryptocurrency ecosystem.

For startup teams, directly participating in the issuance of new stock token assets may face intense competition. However, there are still two potential opportunities: the first is to provide services targeting niche groups or regions, similar to the logic of replacing traditional brokerages; the second is to innovate financial products. After stock tokens are included in the asset pool, new derivative assets and trading strategies can be offered, such as high-leverage contracts and leveraged ETFs, to create differentiated competitive advantages.

Overall, stock tokenization represents a new direction in financial innovation, providing investors with more diversified options. However, as a new type of financial product, investors need to fully understand its mechanisms, risks, and relevant regulatory requirements before participating. In the future, with the development of technology and the improvement of regulations, stock tokenization is expected to play a greater role in the global financial market.