Multiple major global cryptocurrency exchanges are racing to launch crypto token trading services that track the performance of U.S. stocks, effectively creating a parallel market operating outside the jurisdiction of U.S. regulators.
According to an informed source, Binance is considering reintroducing stock tokens on its platform—a product it had delisted back in 2021. Separately, Haider Rafique, Global Managing Partner and Chief Marketing Officer of another major global crypto platform, OKX, indicated that the company is also evaluating the launch of tokenized stock services. Currently, exchanges including Kraken and Bitget, along with decentralized platforms like Jupiter, are seeing their stock token offerings gradually gain market traction.
Stock tokens come in various structural forms but are essentially tokenized certificates representing shares of companies like Apple and Nvidia. Investors can trade them on overseas cryptocurrency exchanges, even when U.S. stock markets are closed. Furthermore, investors who cannot open U.S. brokerage accounts can indirectly participate in the U.S. stock market through these tokens, with transactions supporting an anonymous mode.
"We see very high acceptance of stock tokens from customers in Europe, Latin America, and Asia," stated Mark Greenberg, Head of Consumer Products at Kraken, discussing the company's stock token offerings. Kraken acquired Backed Finance last year, whose xStocks brand specializes in issuing stock tokens.
Although the trading volume of stock tokens remains minuscule compared to actual stocks, the market is steadily expanding. Data from analytics platform RWA.xyz shows the total value of all tokenized stocks currently in circulation is $915 million, a 19% increase from a month ago. In contrast, the total market capitalization of S&P 500 index constituents is approximately $60 trillion.
Trading volume for stock tokens is also relatively small and highly concentrated in the same major names as traditional markets, primarily including Tesla, Nvidia, and Alphabet, alongside a few crypto-related firms like Circle. For example, the trading volume for Tesla stock tokens was $12 million on Wednesday, compared to roughly $29 billion worth of Tesla shares traded on the Nasdaq exchange during the same period.
The urgency among crypto exchanges to establish stock token services stems from the ongoing downturn in the cryptocurrency market, even as share prices of many U.S. tech giants continue to climb. With many clients holding idle capital, exchanges are keen to prevent these funds from flowing into traditional stock markets. "Crypto users hold significant amounts of Tether (USDT) stablecoin idle in their accounts... they are looking for other financial assets outside the crypto industry," explained Gracy Chen, CEO of crypto exchange Bitget, which launched its stock token service last September.
She also noted that stock tokens attract users who "might not be able to open accounts in traditional finance"—either because they struggle to meet broker identity verification requirements or lack a U.S. address.
A Binance spokesperson commented, "Exploring the possibility of launching tokenized stocks is a natural next step in our mission to further integrate traditional finance with cryptocurrency."
In 2021, Binance suspended its stock token service after receiving a warning from Germany's Federal Financial Supervisory Authority (BaFin), which stated it was conducting investment business without providing a prospectus. At the time, Binance said discontinuing support for stock tokens was to "focus our efforts on other business initiatives."
In the United States, lawmakers and regulators have yet to clearly define how to regulate tokenized stocks. This is partly because the prevalent tokens are not actual shares but are crypto tokens issued by third-party entities like xStocks and Ondo Finance—the two primary issuers. These companies purchase the underlying U.S. stocks on behalf of investors, hold them in offshore special purpose vehicles (SPVs), and use these holdings to back the token's value. Such tokens are currently not available to U.S. investors.
The New York Stock Exchange and Nasdaq are planning to allow trading of stock tokens, a move that promises benefits like faster settlement times. On Monday, the NYSE announced it is developing a platform for stock token trading and will seek regulatory approval.
The issue of stock tokens previously caused a cryptocurrency market structure bill progressing through Congress to stall. Industry officials suggest the bill could hinder the rapid rollout of stock token services by U.S. platforms. This prompted Coinbase CEO Brian Armstrong to publicly state that his company would not support the bill.
Coinbase seeks amendments to the bill to ensure the U.S. Securities and Exchange Commission (SEC) can exempt tokenized stock issuances from certain securities rules, thereby accelerating the market launch of such products. Kara Calvert, Head of U.S. Policy at Coinbase, stated the company believes the application of blockchain technology renders some existing securities rules unnecessary.
The crypto industry touts the "permissionless" nature of stock token trading—meaning users can trade and hold them via anonymous accounts. "This is precisely the advantage we want to highlight—the global, permissionless distribution of these assets," said Nathan Allman, CEO of Ondo.
However, anonymous accounts also make the market vulnerable to insider trading and market manipulation. Given the exceptionally low trading volumes of stock tokens, executing such illicit activities is relatively easier. Ondo and xStocks stated they perform identity verification on traders who buy or sell tokens directly from them, but the tokens can be traded anonymously thereafter. Both companies also claim to use analytical tools to prevent money laundering.
While stock tokens are designed to track the price of a specific stock, in practice, the token price often exhibits minor deviations from the corresponding stock price. Another risk for investors lies in the token's structural design and the credibility of its issuer. Companies issuing stock tokens typically use one of two models: either acquiring the actual shares and holding them in an SPV, or using financial derivatives. Both structures carry potential risks—investors could face losses if the fund or token issuer encounters operational difficulties.
Other firms, such as Superstate and Securitize, are attempting to obtain corporate authorization to directly convert company shares into tokenized stocks, granting investors direct equity ownership. However, progress with this model is slow, with only a few companies having agreed to participate so far.
"Once a compliant, regulated version of the product is launched, it will inevitably attract all the liquidity—after all, who wants to take on counterparty risk with a Tesla derivative?" said Carlos Domingo, CEO of Securitize, whose goal is to provide investors with direct equity ownership.
Comments