This is one of the most recent battlegrounds that will play out over the next few years. The tokenization of real world assets (RWA) is something long discussed.
It is finally coming to fruition.
Over the last year, institutions have set up funds in the United States, tokenizing things such as US Treasuries. The regulatory requirement is much lower when dealing with institutions, which is one of the reasons this path was taken.
The major step forward is when these assets will be available to the general public. For now, the situation is starting to brew in Europe, where regulation allows for the establishment of these assets.
Robinhood is one company that is jumping headfirst into the mix.
What is a tokenized stock?
Simply it is a token that represents a share of stock. The swapping of the token is moving ownership yet the stock itself is stagnant (residing with the custodian). It is similar to the Bitcoin Spot ETF that were set up. When people buy units in that, they are not holding Bitcoin. Instead, they have an asset that represents that. When that is traded, the Bitcoin is still remaining in place.
The advantages to this system are multiple.
To start, stock exchanges offer structured trading hours. Crypto, as a comparison, trades 24/7/365. There is never a time when trading is closed.
Another advantage is the cost. We see blockchain systems operate with greater efficiency. Much of this comes from the reduction in the number of intermediaries, also known as rent seekers. With the traditional financial system, everyone has their hands out.
Robinhood chose to build their system on Arbitrum. This is an Ethereum layer 2, which is providing highly popular. It also provides access to other entities within the Ethereum ecosystem.
Robinhood is not the only entrant into this realm.
Kraken also decided to offer tokenized stocks such as Nvidia, Tesla, and Microstrategy. This is through the XStocks program that it built.
Instead of Arbitrum, Kraken decided to head to Solana. Obviously, this is a very popular chain, a move that makes sense. It does, however, create an isolated situation.
Robinhood believes the ties to Ethereum will help with liquidity. By having separate chains with assets on them, it spread the liquidity out, perhaps being counterproductive to the replacement of the existing financial system.
The reason this is not a certainty is the fact that the entire crypto market cap is now accessible. Tokenized stocks enable the swapping for crypto. This means that one can seamlessly go from USDC or LTC to MCD. The stocks are the same as crypto, just tokens on the chain.
XStocks is not a mirrored system. The tokens are actually backed with a 1:1, held by a third party. My guess is we will see this being the default of the majority of the tokenized stocks traded. Some will opt for the speculation of a mirrored system but, ultimately, nothing is owned there.
Much of this will be resolved with regulation. While DeFi will certainly enter the mix at some point, most of the larger entities (and managed money) will go through the centralized systems.
Nevertheless, as we see with both Kraken and Robinhood, the network being used is decentralized.
Blockchain is starting to emerge as a viable solution in many instances. We are moving away from the simply coin creation to something more in depth. Wall Street is not going to stop. The next 5 years are likely to see a major transformation in the financial system.
Tokenized stock is going to be one major area.
