Apple, Tesla launch Solana: Can tokenised stocks attract crypto users?

Written by: Jeffrey Gogo

Compiled by Tim, PANews

Key takeaways:

• With the issuance of $23.3 billion in real-world assets on-chain, more and more crypto-native platforms are beginning to make overtures to traditional finance.

• Several trading platforms such as Kraken and Binance have launched tokenized products for popular US stocks such as Apple and Tesla.

• Some analysts say tokenized stocks have great potential in the crypto space, while others believe that tokenized stocks will only succeed if they focus on high-risk, volatile stocks.

Cryptocurrency exchange Kraken has announced the launch of xStocks, featuring tokenized versions of popular US stocks such as Apple, Nvidia, Tesla, and more. In the ever-expanding real-world asset landscape of blockchain technology, this innovation blends cryptocurrencies with traditional finance.

Today, as crypto exchanges move increasingly closer to traditional finance, can tokenized stocks build on past failures? Can they attract "degen" traders who are known for chasing high-risk and volatile investments?

Tokenized stocks have great potential in the crypto space due to their ability to enable split ownership, 24-hour non-stop trading, and enhanced liquidity through blockchain platforms," Ryan Lee, chief analyst at Bitget, told Cryptonews.

Tokenized securities are digital versions of regular stocks that can be traded on the blockchain. In Kraken's case, more than 50 tokens and ETFs offered are issued on top of the Solana blockchain.

Each xStock token is pegged to the value of its counterpart entity shares, which are held in custody by Backed Finance, which jointly advances the project as Kraken's peer-to-peer partner in this partnership. For example, an Apple Inc. (AAPLx) token will track the price of AAPL stock on the Nasdaq and can be cashed 1:1.

Instead of holding shares directly, investors can simply hold tokens that represent ownership of securities. Kraken said its token is not open to US customers and will only be sold in select markets outside the US.

US crypto exchanges that offer tokenized stock services are not industry pioneers. The Bybit platform recently announced the launch of a similar product, and Binance, the world's largest cryptocurrency exchange, tried such a business as early as 2021, but quickly halted the project under pressure from Hong Kong regulators.

Is there a demand for stock tokenization in the crypto space?

Tokenized stocks have not yet gained widespread adoption in the crypto space, but proponents believe that such products have the potential to fundamentally change the way people participate in financial market investments. As Bitget analyst Lee pointed out:

"Products such as tokenized stocks are becoming increasingly sought after by the market, mainly due to retail investors' demand for traditional stock investment opportunities with lower barriers and more flexibility."

Sam MacPherson, co-founder and CEO of Phoenix Labs (developer of decentralized lending protocol Spark), said that tokenized securities "transform statically closed market instruments into composable modules in the on-chain economy."

"This technology enables round-the-clock global access, real-time settlement, and gives rise to new financial use cases," MacPherson told Cryptonews, adding:

The financial application scenario can cover various financial products such as collateral lending and automated portfolio strategies, which marks a new stage of integration between traditional finance and the DeFi market, eventually forming an integrated financial system.

But not all of them had the same enthusiasm, at least not at first. Georgii Verbitskii, founder of DeFi services platform Tymio, is cautious about exactly which assets crypto traders will favor.

In an interview with Cryptonews, Verbitskii said that for tokenized stocks to be successful, their listing strategies must be tailored to the preferences of crypto investors, focusing on the types of "trend-driven or uncorrelated assets" he proposed.

"Although the concept is promising, the actual demand will greatly depend on the specific asset type listed on the exchange," Verbitskii noted. He added:

celebrity stocks like GameStop, not traditional blue chip stocks such as Nvidia and Microsoft. The latter tend to be less volatile, so it is less attractive to crypto traders, and high volatility attracts more interest.

In recent years, crypto investors have tended to choose assets that build narratives around meme culture or have the potential for speculative upside.

For example, influencer KOL Keith Gill (who calls himself Roaring Kitty on Twitter and YouTube and DeepFxxingValue on Reddit's Wall Street casino forum) has made a name for himself by placing bullish bets on gaming stations, sparking enthusiasm among retail investors, including crypto investors.

During January 2021, GameStation's stock price skyrocketed 1,600% on Gill's social posts, leaving the hedge fund that shorted the Texas video game retailer to lose heavily.

This frenzy has also extended to influencers like AMC Entertainment and continues to spread to the crypto market. Crypto traders have spawned new influencer tokens inspired by companies like GameStop, AMC, and others.

Tokenized Stocks Target $250 Billion Market: Facing Regulatory Challenges

Verbitskii believes tokenized commodities like gold or silver are more likely to "generate significant interest" than tokenized stocks in crypto assets.

"These assets attract investors looking to diversify or hedge their risk, and there are already precedents to follow," he said, referring to crypto exchange FTX, which launched perpetual gold futures products before its shocking bankruptcy in 2022.

Experts point out that Kraken's foray into tokenized securities is a new move to bridge the gap between cryptocurrencies and traditional finance, but the key to the success of this business lies in meeting regulatory requirements in regions where xStocks services are offered.

The main reason for Binance's failure to launch tokenized stock products in 2021 was compliance issues, and it did not obtain a securities trading license. Hong Kong regulators have also enquired about the exchange's custody arrangements for stock tokens.

Analysts point out that in the absence of public trust, tokenized stocks could evolve into regulatory time bombs. Kraken's partnership with Backed Finance, a regulated tokenization platform, is precisely to preemptively address such concerns.

"xStocks was designed from the ground up to address these regulatory challenges," Adam Levi, co-founder of Backed, said in an email in response to Cryptonews' questions.

"They are fully secured by the underlying stock at a 1:1 ratio, issued under an EU prospectus compliant with MiFID II (European Union Markets in Financial Instruments Regulation), with full investor disclosure provisions and subject to a clear legal and regulatory framework. This gives the tokenization form an institutional-grade standard."

Levi added that the xStocks products provided by Kraken are issued in full compliance with regulatory requirements in Jersey, Switzerland and the European Union.

He believes that the demand for tokenized stocks "will grow significantly over time." Levi predicts that this segment will continue the trajectory of stablecoins, with the market expected to expand to $250 billion in the next few years. He said: The

infrastructure is ready, the market demand is surging day by day, and the transformation is unstoppable.

Democratizing Real-World Assets

crypto industry, once seen regulation as a rebellion against Bitcoin, is now testing crypto companies' ability to innovate under the regulatory framework. At present, many companies have begun to provide security tokenized stock services.

Dubai-based tokenized stock exchange Allo has completed the tokenization of $2.2 billion in real-world assets, covering 11,000 U.S. stocks and exchange-traded funds. Users can purchase on-chain shares of Bitcoin heavy stocks MicroStrategy Technology, Tesla, Google, and other companies through the platform.

Allo CEO Kingsley Advani said the company has achieved tokenization of more than 1,000 listed companies that plan to pass IPOs, including Musk's SpaceX, OpenAI and Anthropic.

"Investors can access these assets faster and with lower barriers to entry, which democratizes real asset investing," Advani noted, noting that tokenization increases the liquidity of its own platform, broadens investment channels for small investors, and speeds up settlement.

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noted that tokenization has increased the liquidity of its own platform, broadened investment channels for small investors, and also accelerated settlements.

For example, stock fractionation, which is the process of splitting shares into smaller, tradable tokens. This model lowers the capital threshold required for investment and attracts more investors to participate, Advani said.

Today, international investment banks can now settle deals in "seconds or minutes", compared to at least two working days in the old brokerage business model. "This reduces counterparty risk and improves the efficient use of funds," said the CEO of Allo.

Advani did not say exactly whether Allo has ever encountered obstruction from US or EU regulators, only mentioning that the company has a "proud compliance team" with regulatory experience in the US market.

According to data from the RWA website, the total amount of RWA currently issued on-chain has reached $23.3 billion. Data shows that this scale has increased by almost 6% in the last 30 days.