Original Article Title: Apple, Tesla on Solana: Can Tokenized Stocks Lure Crypto Traders?

Original Article Author: Jeffrey Gogo

Original Article Translation: Tim, PANews

Key Points:

With $233 Billion in real-world assets tokenized, more and more native crypto platforms are beginning to court traditional finance. Several trading platforms such as Kraken and Binance have gone live with tokenized versions of popular U.S. stocks like Apple and Tesla. Some analysts argue that tokenized stocks have immense potential in the cryptocurrency space, while others believe that tokenized stocks will only succeed when focused on high-risk, highly volatile stocks.

Cryptocurrency exchange Kraken has announced the launch of xStocks, featuring tokenized versions of popular U.S. stocks such as Apple, Nvidia, and Tesla. In the expanding world of real-world asset tokenization enabled by blockchain technology, this innovation merges cryptocurrency with traditional finance. Now, as cryptocurrency trading platforms increasingly converge with traditional finance, can tokenized stocks succeed where past endeavors have failed? Can they attract the "degen" traders known for pursuing high-risk, high-volatility investments?

Ryan Lee, Chief Analyst at Bitget, told Cryptonews, "Tokenized stocks have immense potential in the crypto space due to their ability to achieve asset ownership fragmentation, 24/7 trading, and enhanced liquidity through blockchain platforms." Tokenized securities are digital versions of regular stocks that can be traded on a blockchain. In Kraken's case, its offering of over 50 tokens and ETFs is issued on the Solana blockchain.

Each xStock token is pegged to the value of its corresponding underlying stock, with these physical holdings backed by Backed Finance, the company serving as Kraken's counterpart in this collaboration. For example, an Apple Inc. (AAPLx) token will track the AAPL stock price on Nasdaq and be redeemable 1:1 for cash. Investors do not need to hold the stock directly but rather hold the token representing ownership of the security. Kraken has stated that its tokens will not be available to U.S. customers and will only be sold in specific markets outside the U.S.

U.S.-based cryptocurrency exchanges offering tokenized stock services are not industry pioneers. The Bybit platform recently announced a similar product, while the world's largest cryptocurrency exchange, Binance, attempted such a business as early as 2021 but quickly halted the project under pressure from Hong Kong regulators.

Is There Demand for Stock Tokenization in the Crypto Space?

Stock tokenization has not yet seen widespread adoption in the crypto space, but proponents believe that such products have the potential to fundamentally change how people participate in financial market investments. As highlighted by Bitget analyst Lee:

“Products like tokenized stocks are increasingly gaining traction in the market, primarily driven by retail investors' demand for lower barriers to entry and more flexible operations in traditional stock investment opportunities.” Sam MacPherson, Co-Founder and CEO of Phoenix Labs (developers of the Spark decentralized lending protocol), stated that tokenized securities “transform static, closed market instruments into composable modules in the on-chain economy."

“This technology enables round-the-clock global access, real-time settlement, and has catalyzed entirely new financial application scenarios,” MacPherson told Cryptonews, adding: This financial application scenario can cover various financial products such as collateralized lending and automated portfolio strategies, signaling a new phase of integration and interoperability between traditional finance and the DeFi market, eventually forming an integrated financial system.

However, not everyone holds the same level of enthusiasm, at least not initially. Founder of the DeFi service platform Tymio, Georgii Verbitskii, maintains a cautious stance on which assets cryptocurrency traders will favor. In an interview with Cryptonews, Verbitskii stated that for tokenized stocks to succeed, their listing strategy must be tailored to the preferences of cryptocurrency investors, focusing on what he termed as “trend-driven or uncorrelated assets”.

“While the concept holds promise, actual demand will heavily rely on the specific asset types launched on the trading platforms,” Verbitskii pointed out, “On cryptocurrency exchanges, high-volatility meme stocks may be more appealing to investors.” He added: assets like GameStop, rather than traditional blue-chip stocks like Nvidia and Microsoft. The latter often have lower volatility, making them less attractive to cryptocurrency traders, whereas high volatility tends to draw more interest.

In recent years, cryptocurrency investors have tended to choose assets built around meme culture narratives or those with speculative upside potential. For example, meme stock influencer Keith Gill (known as Roaring Kitty on Twitter and YouTube, and DeepFxxingValue on Reddit's WallStreetBets forum) rose to fame for his bullish bet on GameStop, sparking retail investors' trading frenzy, including cryptocurrency investors.

During January 2021, GameStop's stock price soared 1600% following Gill's social media posts, causing a significant loss for the hedge funds that were shorting the Texas-based video game retailer. This frenzy also spilled over to meme stocks like AMC Entertainment and further into the cryptocurrency market. Crypto traders have spawned new meme tokens inspired by companies like GameStop and AMC.

Tokenized Stocks Target $2.5 Trillion Market: Facing Regulatory Challenges

Verbitskii believes that tokenized commodities such as gold or silver are more likely to "generate strong interest" compared to tokenized stocks in the crypto space. He stated, "These assets appeal to investors seeking risk diversification or hedging, and there are precedents to follow," referencing the crypto exchange FTX, which prior to its monumental collapse in 2022, introduced perpetual gold futures products.

Experts point out that Kraken's foray into tokenized securities is a new move to bridge crypto and traditional finance, but the key to the success of this business lies in whether it can meet regulatory requirements in regions offering xStocks services. The main reason for the failure of Binance's launch of tokenized stock products in 2021 was compliance issues, as it did not obtain a securities trading license. The Hong Kong regulatory authority has also inquired about the stock token custody arrangements of the exchange.

Analysts note that in the absence of public trust, tokenized stocks may evolve into a regulatory time bomb. Kraken's collaboration with regulated tokenization platform Backed Finance is a proactive measure to address such concerns. "xStocks was designed from the ground up to tackle these regulatory challenges," said Backed co-founder Adam Levi in an email response to Cryptonews inquiries.

"They are fully collateralized by underlying shares on a 1:1 basis, issued based on an EU prospectus meeting MiFID II requirements, including full investor disclosure terms, and subject to clear legal and regulatory constraints. This gives the tokenized form an institutional-grade standard." Levi added that the xStocks product offered by Kraken is issued fully compliant with regulatory requirements in Jersey, Switzerland, and the EU.

He believes that the demand for tokenized stocks "will see significant growth over time." Levi predicts that this segment will follow the stablecoin development trajectory, with the market size expected to expand to $2.5 trillion in the coming years. He stated: The infrastructure is already in place, market demand is rapidly increasing, and the momentum of transformation is unstoppable.

Democratization of Real-World Assets

The crypto industry once saw regulation as a betrayal of Bitcoin's core tenets, but now a new product launched by Kraken in partnership with Backed is testing crypto companies' innovation under regulatory frameworks. Several companies have begun offering tokenized stock services.

Dubai-based tokenized security exchange platform Allo has completed the tokenization of $22 billion worth of real-world assets, including 11,000 U.S. stocks and exchange-traded funds. Users can purchase on-chain stocks of heavyweights like MicroStrategy, Tesla, Google, and other companies through the platform.

Allo CEO Kingsley Advani stated that the company has tokenized over a thousand planned IPO-listed companies, including Musk's SpaceX, OpenAI, and Anthropic. "Investors can access these assets at a lower entry barrier and faster pace, democratizing physical asset investments," Advani pointed out. Tokenization has improved the platform's liquidity, expanded investment avenues for small investors, and accelerated settlement speeds.

He highlighted that tokenization has improved the platform's liquidity, expanded investment avenues for small investors, and accelerated settlement speeds. For example, stock fragmentation, the process of dividing stocks into smaller, tradable tokens. This model reduces the capital threshold required for investment, attracting more investors, according to Advani.

Today, international banks are able to settle transactions in "seconds or minutes," compared to the traditional brokerage model that takes at least two working days. "This reduces counterparty risk and enhances fund utility efficiency," stated Allo's CEO.

Advani did not specifically mention whether Allo has faced obstacles from U.S. or EU regulatory bodies, only mentioning that the company has a "proud compliance team" with experience in the U.S. market's regulations. According to RWA website data, the total value of on-chain issued RWAs is currently $23.3 billion. The data shows that this scale has grown by nearly 6% in the past 30 days.

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