Crypto Firms Push Tokenized Stocks Despite Regulatory Hurdles

Crypto companies are once again pushing to bring traditional equities onto the blockchain. Coinbase, Kraken, Robinhood, Ondo Finance, and Dinari are among the firms working to offer tokenized shares. Kraken’s Bermuda unit is planning to start trading tokenized stocks by late June, while Robinhood is developing a similar rollout for the European market. Securitize, which has previously digitized a BlackRock fund, is now assisting traditional firms in shifting equities on-chain. Michael Sonnenshein, the chief operating officer at Securitize, mentioned that they are in discussions with various asset issuers.

Previous attempts to launch a blockchain-based stock market encountered significant regulatory hurdles and technical complexities. The process of stock tokenization, while feasible, faces practical challenges. Legal ownership, custody, and corporate governance structures often do not align with blockchain-based systems. Bryan Routledge, a finance professor at Carnegie Mellon University, noted that tokenization changes not just the format but the entire trading mechanism. This structural shift complicates integration with existing financial systems and laws, particularly in regulated markets like the U.S.

Tokenized stocks are designed to enhance trading by eliminating intermediaries and accelerating settlement times. In secure models, tokens represent real shares held by regulated custodians and are stored in digital wallets, treating tokens as verifiable claims on physical shares. In weaker models, tokens function more like IOUs and rely on the issuer’s credibility. Without strong oversight, there is a risk that the token’s value may not match the actual stock. These variations in model strength raise investor concerns about reliability and legal protection across different offerings.

Firms are proceeding with caution, especially in regions lacking regulatory clarity. Galaxy Digital is reportedly considering tokenizing its own stock and has engaged with regulators. Michael Novogratz, the CEO of Galaxy Digital, stated, “I expect to see tokenized equities for crypto and non-crypto.” Meanwhile, the Depository Trust & Clearing Corporation (DTCC), which processes most U.S. stock trades, is planning a limited pilot. Nadine Chakar, head of DTCC Digital Assets, explained, “We have no desire to do this in a big bang.” This cautious stance suggests that major institutions are not yet ready to embrace full-scale stock tokenization efforts.

The current market size for tokenized stocks is very small compared to traditional equities. RWA.xyz values the tokenized equity market at $388 million, versus over $120 trillion globally. Most of this comes from Exodus Movement Inc., which tokenized its shares in 2021 using Securitize. These shares now represent 78% of the tokenized market. Past failures like Terra’s Mirror Protocol still impact investor confidence. That project ended under SEC investigation and contributed to $40 billion in crypto-related losses. These past issues make many cautious about engaging with new tokenized stock offerings.

Some U.S. regulators are exploring safer ways to test blockchain-based equity trading within sandbox environments. SEC Commissioner Hester Peirce has voiced support for such test zones. She noted that many financial rules were created long before blockchain technology existed. These sandbox structures aim to balance innovation and consumer protection by limiting exposure while testing new systems. It remains to be seen whether these zones will produce workable models for long-term adoption.

Interest in tokenized stocks varies depending on the stability of local financial systems. According to Wyatt Lonergan of VanEck Ventures, “Crypto-native investors… want the comfort of, say, Apple stock.” This demand increases during times of crypto market uncertainty. Bryan Routledge noted, “It was this analog of tokenization that really lit the fuse.” But it’s unclear whether this momentum will shift over to traditional stock markets.