Can the tokenization of US stocks become the next hot spot? A detailed explanation of its history, current situation and future direction

Author | @Web3_Mario

Abstract: As Trump's policies are being gradually implemented, attracting manufacturing back through tariffs, actively bursting the stock market bubble to force the Federal Reserve to lower interest rates, and promoting financial innovation through deregulation to accelerate industrial development, this combination of strategies is substantially changing the market. The RWA track under the favorable deregulation policy is increasingly attracting attention in the crypto industry. This article mainly introduces the opportunities and challenges of tokenized stocks.

Overview of Tokenized Stocks Development History

In fact, tokenized stocks are not a new concept. Since 2017, attempts at Security Token Offering (STO) have begun. STO is a financing method in the cryptocurrency field, essentially digitizing and chaining the equity of traditional financial securities through blockchain technology to tokenize assets. It combines the compliance of traditional securities with the efficiency of blockchain technology. As an important securities category, tokenized stocks are the most notable application scenario in the STO field.

Before STO, the mainstream financing method in the blockchain field was ICO (Initial Coin Offering). The rapid rise of ICO mainly relied on the convenience of Ethereum smart contracts, but most tokens issued did not represent real asset rights and lacked regulation, leading to frequent fraud and project abandonment.

In 2017, the US SEC issued a statement regarding the DAO incident, indicating that certain tokens might be securities and should be regulated under the 1933 Securities Act. This marked the formal emergence of the STO concept. In 2018, STO began to be recognized as a "compliant ICO" and gained industry attention. However, due to lack of unified standards, poor secondary market liquidity, and high compliance costs, market development was slow.

With the arrival of DeFi Summer in 2020, some projects began attempting decentralized solutions, creating derivatives linked to stock prices through smart contracts, allowing on-chain investors to directly invest in traditional stock markets without complex KYC processes. This paradigm is usually called the synthetic asset model, which does not directly hold US stocks and requires no trust in centralized institutions, thus avoiding expensive regulatory and legal costs. Representative projects include Synthetix and Mirror Protocol in the Terra ecosystem.

In these projects, market makers could mint on-chain synthetic US stocks by providing over-collateralized crypto assets and provide market liquidity, while traders could directly trade these assets on DEX secondary markets to gain exposure to the anchored stock prices. At that time, Tesla was the most prominent stock in the market, not NVIDIA from the previous cycle. Therefore, most projects' slogans emphasized direct on-chain TSLA trading.

However, the trading volume of on-chain synthetic US stocks has always been unsatisfactory. Taking sTSLA on Synthetix as an example, including primary market minting and redemption, its total cumulative on-chain transactions were only 798. Most projects subsequently claimed to delist US stock synthetic assets due to regulatory considerations and shifted to other business scenarios, but the essential reason was likely the failure to find product-market fit and establish a sustainable business model.

Besides the synthetic asset model, some well-known CEXs have been attempting to provide US stock trading capabilities for crypto traders through centralized custody models. This model involves third-party financial institutions or exchanges custodying actual stocks and creating tradable assets directly on CEX. Notable examples include FTX and Binance. FTX launched tokenized stock trading services on October 29, 2020, collaborating with German financial company CM-Equity AG and Swiss Digital Assets AG, allowing non-US users to trade tokens linked to US-listed company stocks. In April 2021, Binance also began offering tokenized stock trading services, with Tesla (TSLA) being the first listed stock.

However, the regulatory environment was not particularly friendly at the time, and since the core initiators were CEXs, they directly competed with traditional stock trading platforms like Nasdaq, facing significant pressure. FTX's tokenized stock trading volume reached its historical peak in the fourth quarter of 2021, with October 2021 trading volume at $94 million. However, after its bankruptcy in November 2022, its tokenized stock trading service stopped. Binance also ceased its tokenized stock trading service in July 2021, just three months after launching, due to regulatory pressure.

Subsequently, as the market entered a bear market phase, the track's development stagnated. Until Trump's election and his deregulatory financial policies brought a change in the regulatory environment, reigniting market interest in tokenized stocks, now known as RWA. This paradigm emphasizes creating tokens backed 1:1 by real-world assets through a compliant architectural design, with approved issuers launching tokens on-chain, and token creation, trading, redemption, and underlying asset management strictly following regulatory requirements.

Current Market Status of Stock RWA

Let's introduce the current market status of stock RWA. Overall, the market is still in its early stages and primarily focused on US stocks. According to RWA.xyz data, the current stock RWA total issuance reaches $445.40M, but notably, $429.84M is attributed to one asset, EXOD, issued by Exodus Movement, Inc., a software company focusing on self-custodial crypto wallets, founded in 2015 and headquartered in Nebraska, USA. The company's stock is listed on NYSE America and allows users to migrate its common A-class shares to the Algorand blockchain, with users able to view on-chain asset prices directly in the Exodus Wallet. The company's total market value is $1.5B.

The company has become the only US company to tokenize its common stocks on the blockchain. However, it's worth noting that the on-chain EXOD is merely a digital identifier of its stock and does not include voting, governance, economic, or other rights, and the Token cannot be directly traded or circulated on-chain.

This event is significant, indicating a clear shift in the SEC's attitude towards on-chain stock assets. In fact, Exodus's attempt to issue on-chain stocks was not smooth. In May 2024, Exodus first submitted an application for common stock tokenization, but due to the SEC's previous regulatory policy, the on-chain plan was initially rejected. However, in December 2024, after continuously improving the technical solution, compliance measures, and information disclosure, Exodus finally received SEC approval and successfully completed the tokenization of common stocks. This event also drove the company's stock price to a historical high.

In addition, the remaining approximately $16M market share mainly belongs to a project called Backed Finance. It is a Swiss company that operates through a compliant structure, allowing KYC-compliant users to mint on-chain stock Tokens on its official primary market by paying USDC. After receiving crypto assets, Backed converts them back to US dollars and purchases COIN stocks in the secondary market (with potential delays due to stock market opening hours). After successful purchase, the stocks are managed by a Swiss custodian bank, which then mints bSTOCK Token 1:1 and sends it to the user. The redemption process is the reverse. The reserve asset security guarantee is provided by an audit company called Network Firm, which regularly publishes reserve proofs. On-chain investors can directly purchase such on-chain stock assets through DEXs like Balancer. Additionally, Backed does not provide ownership or any additional rights to stock Token holders, including voting rights. Only KYC-verified users can redeem USDC through the primary market.

In terms of issuance volume, Backed's adoption is mainly concentrated on two assets: CSPX and COIN, with the former having an issuance of around $10M and the latter around $3M. In terms of on-chain liquidity, it is mainly focused on Gnosis and Base chains, with bCSPX liquidity at about $6M and wbCOIN liquidity at about $1M. The trading volume is not very high. For example, the largest liquidity pool for bCSPX has a cumulative trading volume of about $3.8M and approximately 400 transactions since its deployment on February 21, 2025.

Another noteworthy development is Ondo Finance's progress. With Ondo announcing its Ondo chain and Ondo Global Markets overall strategy on February 6, 2025, tokenized stocks are the core trading objects in Ondo Global Markets. Perhaps Ondo, with its broader TradFi resources and better technical background, can accelerate the development of this track, though it remains to be observed.

**Opportunities and Challenges of Stock RWA** Let's explore the opportunities and challenges of stock RWA. Typically, the market believes stock RWA has the following three advantages: **· 7-24 Trading Platform:** Due to blockchain's technical characteristics, it possesses the ability to operate around the clock. This allows tokenized stock trading to break free from traditional exchange trading hours, fully exploring potential trading demands. Using Nasdaq as an example, while it has extended pre-market and post-market trading to provide 24-hour trading services, regular trading hours are still limited to weekdays. By developing a trading platform directly through blockchain, full-time trading can be achieved at a lower cost. **· Low-Cost Access to US Assets for Non-US Users:** With the widespread adoption of payment stablecoins, non-US users can directly trade US assets using stablecoins without incurring cross-border and inter-bank transfer fees and time costs. Assuming a Chinese investor uses Tiger Securities to invest in US stocks, the cross-border remittance fee is about 0.1% without considering exchange costs, and settlement typically takes 1-3 working days. By trading through on-chain channels, these costs can be avoided. **· Financial Innovation Potential through Composability:** With its programmable nature, tokenized stocks can embrace the DeFi ecosystem, offering stronger on-chain financial innovation potential, such as on-chain lending scenarios. However, the author believes that current tokenized stocks still face two areas of uncertainty: **· Regulatory Policy Advancement Speed:** From EXOD and Backed's cases, we can see that current regulatory policies cannot effectively resolve the "stock-token equity" issue, meaning tokenized stock purchases do not legally have the same rights as physical stocks, such as governance rights. This limits many trading scenarios, like company acquisitions through secondary markets. The compliant usage scenarios for tokenized stocks remain unclear, which somewhat hinders financial innovation. Its progress heavily depends on regulatory policy advancement, and considering the current Trump administration's core policy goal of manufacturing reshoring, the timeline may continue to be pushed back. **· Stablecoin Adoption Development:** Historically, the core target users of tokenized stocks are likely traditional, non-US US stock investors. For this group, the increasing adoption of stablecoins is worth noting and closely related to other countries' stablecoin policies. For Chinese investors, obtaining stablecoins through OTC markets involves a 0.3%-1% premium compared to official exchange channels, which is far higher than traditional US stock investment costs. Therefore, in the short term, the author believes stock RWA has the following two market opportunities: For listed companies, they can issue on-chain stock Tokens following EXOD's example. Although there are not many actual use cases in the short term, the potential financial innovation capability might encourage investors to give the company a higher valuation. For companies that can provide on-chain asset management services, this method can transform investors' identities into product users and convert their stock holdings into the company's AUM, thereby enhancing business growth potential. For high-dividend tokenized US stocks, some yield-generating DeFi protocols may become potential users. As market sentiment reverses, most on-chain native real yield scenarios' yields will significantly decline. Yield-generating DeFi protocols like Ethena need to continuously seek other real yield scenarios to improve overall yield and market competitiveness. Referring to Ethena's BUIDL allocation example, high-dividend stocks typically belong to mature industries with stable profit models, sufficient cash flow, and ability to continuously distribute profits to shareholders. They usually have low volatility, strong anti-economic cycle capabilities, and controllable investment risks. Therefore, introducing high-dividend blue-chip stocks might attract yield-generating DeFi protocols.