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

Words: Jeffrey Gogo

Compiler: Tim, PANews

Key Takeaways:

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

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

• Some analysts say that 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.

Crypto exchange Kraken has announced the launch of xStocks, a tokenized version of popular US stocks such as Apple, Nvidia, Tesla, and more. In the ever-expanding realm of real-world assets with blockchain technology, this innovation merges cryptocurrencies with traditional finance.

Now, as crypto exchanges move closer to traditional finance, can tokenized stocks build on past failures? Will they be able to attract "degen" traders who are known for chasing high-risk, high-volatility investments?

Ryan Lee, principal analyst at Bitget, told Cryptonews, "Tokenized stocks have great potential in the crypto space due to their ability to split ownership of assets, 24-hour uninterrupted trading, and enhanced liquidity through a blockchain platform."

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

Each xStock token is pegged to the value of its corresponding entity shares, which are held in escrow by Backed Finance, which is working together as Kraken's peer partner in this partnership. For example, an Apple Inc. (AAPLx) token will track the price of AAPL stock on the NASDAQ and be redeemable for cash 1:1.

Investors do not need to hold the stock directly, they can simply hold the token, which represents the ownership of the security. Kraken said its tokens are not open for use by customers in the United States and will only be sold in select markets outside of the United States.

U.S. crypto exchanges that offer tokenized stock services are not pioneers in the industry. Bybit's platform recently announced a similar product, and Binance, the world's largest cryptocurrency exchange, tried such a business back in 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 yet to gain 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 investing. As Bitget analyst Lee points out, "

Products such as tokenized stocks are becoming increasingly popular in the market, mainly due to the demand from retail investors for traditional stock investment opportunities with lower barriers to entry and more operational 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 enables new financial use cases," MacPherson told Cryptonews, adding:

"This financial use case can cover a wide range of financial products such as mortgage lending and automated portfolio strategies, marking a new phase of convergence between traditional finance and DeFi markets, and ultimately an integrated financial system."

But not everyone has the same enthusiasm, at least not at first. Georgii Verbitskii, founder of DeFi service platform Tymio, is cautious about 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, with a focus on what he proposes as "trend-driven or non-correlated assets."

"While the concept is promising, the actual demand will depend heavily on the specific asset type listed on the exchange," Verbitskii noted, adding, "On crypto asset trading platforms, highly volatile thematic stocks are likely to be preferred by investors." He added:

Influencer stocks like GameStop, not traditional blue-chip stocks like Nvidia and Microsoft. The latter tend to be less volatile, making them less attractive to crypto traders, while higher volatility attracts more interest.

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

For example, influencer 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 for making a bullish bet on GameStation, which has sparked trading enthusiasm among retail investors, including crypto investors.

During January 2021, GameStation's share price skyrocketed 1,600% on Gill's social posts, costing hedge funds that shorted the Texas-based video game retailer.

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

Tokenized Stocks Target $250 Billion Market: Facing Regulatory

ChallengesVerbitskii believes that tokenised commodities such as gold or silver are more likely to "generate strong interest" than tokenised stocks in crypto assets.

"There are precedents for these assets to attract investors looking for diversification or hedging," he said, referring to crypto exchange FTX, which launched perpetual gold futures before its shocking bankruptcy in 2022.

Experts point out Kraken's foray into tokenized securities as a new way to bridge the gap between crypto and traditional finance, but the key to the business's success will be meeting regulatory requirements in the regions where xStocks are available.

The main reason for Binance's failure to launch a tokenized stock product 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 equity tokens.

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

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

"They are fully collateralized and secured by the underlying shares at a 1:1 ratio, issued under an EU prospectus that complies with the requirements of MiFID II (Markets in Financial Instruments Directive), contains full investor disclosure provisions, and is subject to a clear legal and regulatory framework. This brings the tokenized form to an institutional-grade standard."

Levi added that the xStocks products offered 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 the segment will continue the trajectory of stablecoins, with the market size expected to expand to $250 billion in the next few years. He said that the

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

Democratizing real-world assetsThe

crypto industry once saw regulation as a radical reversal of Bitcoin, and now Kraken and Backed are testing the ability of crypto companies to innovate under the regulatory framework. At present, a number of companies have begun to provide security tokenized stock services.

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

Allo CEO Kingsley Advani said the company has tokenized more than 1,000 publicly traded companies that plan to go through IPOs, including Elon Musk's SpaceX, OpenAI and Anthropic.

"Investors can access these assets faster with lower barriers to entry, which democratizes physical asset investment," Advani noted, adding that tokenization has increased the liquidity of his platform, broadened investment access for small investors, and accelerated settlements.