In June of this year, Robinhood announced that it would offer tokenized U.S. stock and ETF trading to European users, providing a product service similar to OTC financial derivatives through the signing of contracts for difference.

In September, Nasdaq officially submitted a proposal to the U.S. Securities and Exchange Commission, hoping that the exchange could publicly issue securities in token form, officially bringing the topic of U.S. stock tokenization to the official table.

On October 29, Ondo Finance, known as the "on-chain BlackRock," announced that its core product, Ondo Global Markets (Ondo GM), officially integrated with the BNB Chain, marking the first large-scale introduction of tokenized stocks and ETFs into the BNB ecosystem, sparking a new wave of enthusiasm for U.S. stock tokenization.

In the RWA (Real World Asset) craze, why is stock tokenization a direction we must pay attention to? What does it mean for intermediaries, institutions, and ordinary investors to enter the U.S. stock tokenization market? Does buying tokenized stocks equate to owning the stocks themselves, and what is the core difference? What are the compliance boundaries for such products? …

Crypto Law will systematically outline some key issues regarding stock tokenization today and provide its perspective from the professional viewpoint of Web3 lawyers.

1. First, why does Crypto Law believe that stock tokenization is one of the most important branches of the current RWA narrative?

Everyone can sense that the crypto space has not been peaceful in recent months. After experiencing large-scale liquidations like the 1011 incident, investors gradually realized that DeFi currently has a significant BUG: products are becoming increasingly complex, protocols are layered upon each other, and various lending, leverage, arbitrage, and contract structures are interdependent, almost to the point of being convoluted. However, any issue in one link can quickly transmit to every layer, leading to a chain reaction of liquidations. The tricky part is that the market finds it challenging to predict which layer will start to spiral out of control, leaving no time to react; once a crisis occurs, overall liquidity can dry up in a very short time.

In this context, funds originally in DeFi are also beginning to seek valuable assets that can smoothly traverse cycles.

RWA, as a tokenized product based on real-world assets, naturally meets the above requirements. According to the latest data from rwa.xyz, as of today, on-chain RWA funds have exceeded $35.6 billion and continue to show a growth trend. The Crypto Law team has been at the forefront of RWA practice and can intuitively sense the market's temperature. However, to date, our view has always been: RWA has not yet reached its explosive moment.

Crypto Law believes that there are not many assets that can be tokenized and have yield value at this stage, due to various dimensions such as regulation, technology, non-standardization, and liquidity, many of which need to be resolved from the top down. Therefore, major institutions generally prefer to tokenize and package existing financial securities products like money market funds and bonds for trial, as they already have a clear rights and obligations structure and legal definitions under securities law and corporate law, making them highly standardized and compliant "products."

Stocks, on the other hand, are a type of financial product with relatively high risk and return, satisfying investors' risk preferences while also being more easily incorporated into on-chain applications like collateral and lending in DeFi scenarios. Additionally, mature stock markets have considerable liquidity, with intermediary institutions being comprehensive and mature, making large-scale allocation and instant trading feasible.

As for U.S. stocks, under the objective reality of U.S. dollar hegemony, U.S. stocks are undoubtedly the most core, mature, and liquid asset class globally. Especially the U.S. stock giants represented by the "Seven Sisters of Wall Street," whose fluctuations affect financial investments across the U.S. and even globally. Moreover, the U.S. is at the forefront of the crypto industry, making the popularity of U.S. stock tokenization a natural development.

2. So, what can stock tokenization actually achieve? What forms does it take? How do various parties earn profits? Is it compliant?

Taking U.S. stocks as an example, if we precisely define stock tokenization from the perspectives of anchoring logic and investor rights, it can be divided into several mainstream models.

The narrowest definition of U.S. stock tokenization is the proposal submitted by Nasdaq to the SEC, requesting approval to issue securities in token form on the main market. It is important to clarify that it does not seek to issue a new stock but hopes to issue the same stock in two forms, with the distinction being whether blockchain technology is used to represent ownership and conduct registration. The only difference is that the DTC (the Depository Trust Company) will determine whether to use the tokenized method for settlement and clearing based on user choice, and this process will not affect transaction speed.

This is the official definition of U.S. stock tokenization, and based on the content of this proposal, it is hard to say it will truly change anything, much like the same delivery being made by a different delivery service—same price, same merchant, same electric bike. For those who cannot download the app (investors lacking identity, address, funds, etc.), they still cannot place an order and enjoy this delivery.

Under this "market demand," a batch of broadly defined U.S. stock tokenization platforms has emerged:

For example, Robinhood provides users with a tokenized form of contracts for difference (CFD). Users can select U.S.-listed stocks or ETFs to purchase Stock Tokens on the platform, with each Token representing a corresponding share of the underlying stock or unit. For each contract signed, the platform will purchase the corresponding U.S. stocks through the U.S. economic firm Alpaca.

Another example is MSX, which recently gained popularity due to its points season plan, relying on payment for order flow (PFOF), routing users' on-chain orders to off-chain market makers to purchase U.S. stocks at real-time synchronized prices, with the goal that owning the tokens allows one to receive corresponding stock dividends. Both Robinhood and MSX essentially represent a form of financial derivative rather than actual stocks.

Although most users are aware, Crypto Law must reiterate that purchasing tokens on these platforms does not confer actual shareholder rights. Nevertheless, investors are still eager to experience the ups and downs of U.S. stocks and share in the enticing market.

3. Conclusion

However, these broadly defined U.S. stock tokenization platforms have long faced several persistent and difficult-to-solve issues. For instance, due to insufficient participants and KYC thresholds, the buy and sell orders on-chain are not deep enough, leading to insufficient liquidity in this market. Consequently, when investors buy and sell tokens, price slippage may occur, meaning they may not sell at the expected price. Additionally, the conversion from stocks to tokenized assets involves multiple intermediary processes and participants, leading to high fees and friction costs for minting and redeeming, resulting in poor arbitrage efficiency, which can easily create a vicious cycle. Such issues have formed typical pain points in the early stages of U.S. stock tokenization.

Recently, Ondo Finance seems to have proposed a solution to this.

First, to address the liquidity issue, Ondo's approach is to first purchase a batch of real stocks from the traditional market and store them with licensed brokers or custodial banks. This way, when users place orders, an equivalent portion can be allocated from the real stock inventory, generating a corresponding token on-chain for the user, achieving the goal of "instant" availability. The link between the token market and the U.S. stock market is shortened, allowing arbitrageurs to enter with low transaction costs, and the price fluctuations of tokens become lighter, effectively solving part of the liquidity problem.

Crypto Law believes that the core compliance challenges of U.S. stock tokenization focus on two aspects:

When a trading platform concentrates investor funds to purchase underlying stocks and distributes profits or dividends in token form, it may essentially create a collective investment tool, which needs to be registered or exempted within the securities regulatory framework;

Additionally, if tokens can be freely bought and sold on-chain and are matched by the platform, that platform may be classified as an "Alternative Trading System (ATS)," and must comply with relevant brokerage, clearing, and disclosure requirements.

These two regulatory determinations almost decide whether tokenized stocks can "legally exist" within the current legal framework and are the parts that various platforms must carefully weigh when designing their business and technical architecture. So how does Ondo Finance achieve compliance?

• First, Ondo Finance acquired Oasis Pro, directly obtaining licenses including the SEC-registered Broker-Dealer license, ATS (Alternative Trading System) license, and Transfer Agent license, meaning it can legally hold real stocks, conduct clearing, custody, tokenization, and transfer registration, providing ample compliance basis.
• Second, Ondo Finance is backed by large institutional funds and a top-tier financial background team. It is often said that Ondo Finance is the on-chain BlackRock because Ondo plays a role on-chain similar to that of BlackRock in traditional finance, and their scale and funding background are also comparable.
• BlackRock is the world's largest asset management company, and one of its core values is issuing safe, transparent, and large-scale funds and fixed-income products, such as U.S. Treasury ETFs and money market funds. Ondo Finance has been working hard to bring treasury and cash products on-chain through tokenization, including USDY (a yield-generating "on-chain dollar" backed by short-term U.S. Treasury bills and cash equivalents like bank deposits) and OUSG (a tokenized short-term treasury fund backed by short-term U.S. Treasury ETFs managed by BlackRock and a small amount of institutional bonds).

Therefore, Ondo Finance has sufficient strength and reason to elevate U.S. stock tokenization to a new level. The emergence of U.S. stock tokenization is an important signal of the gradual integration of crypto finance and traditional capital markets. It is not only a technological innovation but also a testing ground for regulatory and financial infrastructure reconstruction. In the short term, tokenized stocks are still in the exploratory stage, with compliance paths and market mechanisms continuously being refined; but in the long run, those who can find a balance between compliance and efficiency will have the opportunity to occupy a high ground in the next wave of asset tokenization.

In the view of Crypto Law, the traditional financial system generally remains resistant to stock tokenization. This resistance is not hard to understand: the new model is too "disruptive," causing significant shocks to the existing financial order, and the regulatory framework currently cannot keep up. Once problems arise, who will take responsibility? However, from another perspective, stock tokenization does indeed address certain pain points. From technological innovation to market feedback, it clearly responds to the real demands of the present, so we believe that the future of stock tokenization is still worth looking forward to.

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