Coincatch App
Trade smarter
RWAHot Topics
Tokenized Stocks Explained: The Bridge Between Crypto and Traditional Finance
Intermediate
2025-08-01 | 15m
The financial landscape is undergoing a transformative fusion as traditional stock trading collides with blockchain technology. Tokenized stocks represent ownership in real-world companies through digital tokens on distributed ledgers, effectively creating programmable versions of equity that operate beyond the constraints of traditional market structures. This innovation has accelerated dramatically in mid-2025, propelled by regulatory breakthroughs and institutional adoption that signal its evolution from experimental concept to viable financial infrastructure. The convergence promises unprecedented accessibility, efficiency, and interoperability between once-siloed financial systems.
What Are Tokenized Stocks?
Tokenized stocks are blockchain-based digital assets that represent ownership in publicly traded companies, combining the regulatory frameworks of traditional securities with the technological advantages of cryptocurrencies. Each token corresponds to one or more shares of actual stock held in reserve by a custodian, with the tokens themselves functioning as programmable, transferable proxies for that underlying equity. Unlike indirect exposure through derivatives or synthetic assets, these tokens grant direct ownership rights to the holder, typically including both economic benefits (like dividends) and corporate governance rights (such as voting), though specific implementations vary by platform.
These tokens leverage smart contract functionality to automate corporate actions. Dividend distributions, for instance, execute automatically through pre-coded instructions that transfer stablecoins or additional tokens to holders' wallets on specified dates. Voting mechanisms transform through token-based balloting systems where shareholders participate directly via blockchain-signed transactions, enhancing transparency in corporate governance. Crucially, tokenization maintains a 1:1 backing ratio with traditional shares held in regulated custodial accounts, ensuring that for every token circulating on-chain, an equivalent share exists off-chain. This bridges regulatory requirements with blockchain innovation, creating a hybrid model that respects existing securities laws while enabling novel functionality.
How Tokenized Stocks Work?
While tokenized stocks feel simple to trade, there’s a sophisticated system working behind the scenes to make it all possible. The process usually involves three key players: a custodian, an issuer, and a trading platform.
-
Custody: A licensed financial institution purchases and securely holds the real shares of a publicly traded company, like Apple or Tesla. These stocks remain under custody to back the value of each corresponding token issued on-chain.
-
Tokenization: A blockchain-based issuer then creates digital tokens that represent these stocks on a 1:1 basis. Each token reflects the price of the underlying asset in real time, using oracles or market feeds to stay updated.
-
Trading: These tokens are listed on crypto exchanges or DeFi platforms, where users can buy, sell, and hold them just like any other digital asset. Since the tokens exist on-chain, they benefit from blockchain-native features like 24/7 trading, fractional ownership, and instant settlement.
Although you don’t technically “own” the underlying stock, you're gaining full price exposure to it, similar to a CFD (Contract for Difference) or synthetic asset. In some models, platforms also offer redemption options, where users can exchange tokens back for cash or, in limited cases, the real shares themselves.
This structure gives tokenized stocks the speed and flexibility of crypto, while still being tied to real-world equities. It’s a hybrid system that’s unlocking a new way to interact with traditional assets, on blockchain terms.
Market Explosion: From Niche Experiment to Mainstream Ambition
The tokenized stock market has transitioned from obscurity to explosive growth within a remarkably compressed timeframe. As of July 2025, the total market capitalization for tokenized real-world assets (RWAs) has surged to $21.3 billion, with equities representing a rapidly expanding segment currently valued at approximately $418 million—a staggering ascent from the $500 million total tokenized asset market recorded just eighteen months earlier. Projections indicate this trajectory will continue its parabolic rise, with Ripple and Boston Consulting Group forecasting the overall tokenized asset market could reach $18.9 trillion by 2033, fundamentally reshaping global capital markets.
Three catalysts are fueling this expansion:
-
Regulatory Tailwinds: Europe's Markets in Crypto-Assets (MiCA) regulation created a harmonized framework across the EU when it took full effect in December 2024, while the U.S. GENIUS Act (passed June 2025 and signed by President Trump in July) provided unprecedented legal clarity for blockchain-based financial products.
-
Institutional Onboarding: Major fintech platforms have entered the space almost simultaneously, signaling a sector-wide strategic pivot. eToro's announcement of 100 tokenized U.S. stocks and ETFs followed Robinhood's European tokenized stock launch in June, while Kraken, Bybit, and Gemini have rapidly expanded partnerships with tokenization specialists like Backed Finance and Dinari.
-
Investor Demand: The promise of 24/7 trading, fractional ownership, and DeFi integration has attracted both crypto-native traders seeking traditional market exposure and conventional investors desiring enhanced flexibility. eToro's planned August rollout specifically targets European users first, reflecting pent-up demand in regions with limited after-hours access to U.S. Markets
Pioneering Platforms and Implementation Approaches
The competitive landscape for tokenized equity distribution has fragmented across technological and geographic lines, with prominent platforms adopting distinct approaches to blockchain infrastructure and market access:
eToro (Ethereum ERC-20)
Building on its 2019 acquisition of Danish blockchain firm Firmo and experience with tokenized commodities (GOLDX, SLVX), eToro selected Ethereum for its established DeFi ecosystem and liquidity depth. Launching in August 2025 with 100 U.S. stocks and ETFs, eToro emphasizes regulatory compliance through its 1:1 custodial structure while enabling future DeFi integrations like using Tesla stock tokens as loan collateral in Aave. The platform's roadmap reveals ambitions to tokenize "every asset on eToro," signaling a comprehensive transformation of its trading ecosystem.
Exodus & Robinhood (Alternative L1s/L2s)
Software company Exodus pioneered the Algorand-based tokenized equity model, leveraging the chain's 6,000+ TPS throughput and sub-5-second latency for efficient settlement. Its successful SEC approval for a NYSE uplisting in December 2024 validated the technical and regulatory model. Meanwhile, Robinhood adopted Arbitrum (an Ethereum Layer-2 scaling solution) for its European tokenized stock launch, emphasizing cost efficiency and transaction speed while maintaining Ethereum compatibility. Both models demonstrate that while Ethereum remains dominant, high-throughput alternatives are gaining traction for specific use cases.
Backed Finance (Multi-Chain SPV Model)
Operating behind giants like Kraken and Bybit, Backed employs a special purpose vehicle (SPV)structure that holds the underlying stocks while issuing tokens across multiple blockchains, currently offering over 60 U.S. equities on Solana through its xStocks platform. This approach creates a layer of abstraction between the issuer and blockchain, enabling cross-chain distribution while concentrating regulatory compliance within the SPV framework.
Technological Foundations: Beyond Simple Tokenization
The technological architecture underpinning tokenized stocks extends far beyond simple representation of ownership on-chain. Modern implementations incorporate sophisticated mechanisms that automate traditional financial functions while enhancing security and compliance:
Automated Compliance and Corporate Actions
Leading platforms utilize programmable security tokens that embed regulatory requirements directly into the asset's smart contract. Transfer functions incorporate whitelisting checks that automatically verify recipient addresses against KYC/AML databases, preventing unauthorized transactions. Corporate actions like stock splits execute through governance-triggered upgrades, where approved entities (usually the issuer) deploy modified token contracts that redistribute balances according to corporate event specifications. For dividend distributions, oracle-fed price feeds trigger stablecoin payments proportional to holdings, eliminating manual claim processes.
Scalability Solutions and Interoperability
As transaction volumes surge—eToro anticipates "millions of monthly transactions" once fully scaled—platforms confront blockchain limitations. eToro's development of a proprietary sidechain (currently in discussion with 4–5 blockchain ecosystems) highlights the infrastructure evolution required to support mass adoption. This specialized chain will handle core trading and settlement while maintaining interoperability with Ethereum for DeFi access, creating a hybrid architecture balancing throughput demands with ecosystem connectivity. Similarly, Robinhood's custom L2 development reflects the industry's recognition that public mainnets alone cannot yet support global equity trading volumes.
Decentralized Finance Integration
The most revolutionary technical aspect lies in tokenized stocks' composability with DeFi primitives. Holders can deposit tokenized Apple shares into lending protocols like Compound to earn yield on otherwise idle assets, or use them as collateral for stablecoin loans without closing their equity positions. This creates novel financial strategies like "buy-and-borrow" where investors maintain long-term holdings while accessing liquidity against their appreciated positions. Automated market makers (AMMs) enable 24/7 decentralized trading, with platforms like Uniswap already hosting pools for early tokenized equity entrants.
Regulatory Frameworks: From Barrier to Catalyst
The regulatory environment for tokenized securities has shifted dramatically from cautious resistance to structured encouragement, providing the essential legal scaffolding for institutional participation:
Europe's MiCA: The Comprehensive Blueprint
The Markets in Crypto-Assets Regulation, fully effective since December 30, 2024, established a unified licensing regime across 27 member states, replacing fragmented national regulations with harmonized rules for asset-referenced tokens (including tokenized stocks). MiCA mandates robust custody requirements, transparency in reserve auditing, and investor protection mechanisms like mandatory whitepapers detailing token mechanics. Crucially, it recognizes tokenized securities as distinct from both traditional securities and pure cryptocurrencies, creating a tailored regulatory category that acknowledges their hybrid nature.
U.S. GENIUS Act: The Stablecoin Foundation
Signed into law in July 2025, the Global Economics and National Innovation for United States Stablecoins Act primarily focuses on stablecoin regulation but establishes broader principles for blockchain-based financial instruments. It empowers state and federal regulators to issue "tokenized asset licenses" to qualified custodians, clarifies redemption rights for token holders, and establishes reserve auditing standards. Treasury Secretary Scott Bessent's public projection of a $2 trillion+ U.S. stablecoin market signals high-level governmental endorsement of the underlying technology. Concurrently, SEC Commissioner Hester Peirce's proposed "regulatory sandbox" would permit controlled experimentation with tokenized securities, potentially accelerating approved innovation.
Asia's Fragmented Landscape
While not uniform, progressive jurisdictions like Singapore and the UAE have introduced digital asset service provider licenses that encompass tokenized securities, while Japan's revised Payment Services Act explicitly recognizes security tokens as regulated financial instruments. This uneven but generally favorable global regulatory shift has enabled platforms to identify compliant pathways to market, though significant jurisdictional arbitrage remains as companies prioritize launches in crypto-friendly regions like the EU before expanding globally.
Challenges and Emerging Risks
Despite rapid progress, the tokenized equity ecosystem confronts significant technical, regulatory, and market structure challenges that could impede its maturation:
Price Divergence and Market Fragmentation
Early implementations reveal concerning valuation anomalies. In July 2025, Robinhood's tokenized Apple stock traded at a 12% premium to the underlying NASDAQ-listed shares, while its Amazon token briefly spiked to four times the actual share price due to liquidity imbalances and speculative trading. These dislocations stem partly from market fragmentation—identical stocks tokenized across multiple blockchains (e.g., Tesla tokens on Ethereum, Solana, and Arbitrum) create siloed liquidity pools that cannot efficiently arbitrage price differences. Without cross-chain settlement mechanisms or unified order books, these inefficiencies may persist, potentially exposing investors to unnecessary volatility and tracking error risk.
Regulatory Gaps and Compliance Uncertainties
The regulatory framework remains incomplete, particularly regarding cross-border enforcement and investor protection. Jurisdictional conflicts arise when tokens issued under MiCA trade into non-EU jurisdictions lacking equivalent frameworks. The SEC's ongoing scrutiny of Robinhood's unauthorized tokenization of pre-IPO companies like SpaceX highlights unresolved questions about issuer consent and disclosure requirements. Furthermore, the DeFi integration of tokenized stocks creates regulatory gray zones—when tokenized Tesla shares serve as collateral in an unlicensed lending protocol, which jurisdiction's laws apply, and who bears liability for compliance failures?
Technical and Custodial Risks
Blockchain-specific vulnerabilities present novel threats. Smart contract exploits could compromise token integrity, as seen in several high-profile DeFi hacks, while cross-chain bridges—essential for multi-chain distribution—remain susceptible to attacks with over $2 billion stolen industry-wide since 2021. Custodial concentration introduces counterparty risk; if a single entity like eToro holds billions in underlying stocks for token backing, its failure could cascade across both traditional and crypto markets.
Future Trajectory
Tokenized stocks represent merely the initial wave of a broader transformation in financial market infrastructure. Several converging trends suggest their role as a gateway to comprehensive asset digitization:
Corporate Finance Transformation
Figma's groundbreaking on-chain IPO in July 2025 demonstrated tokenization's potential to overhaul capital raising. By issuing stock directly on blockchain, Figma slashed underwriting costs from 3-7% to under 1%, saving tens of millions while enabling continuous secondary trading from day one8. This model could democratize public listings, particularly for growth-stage companies seeking cost-efficient access to global capital. Post-listing, corporations may leverage programmable equity for targeted investor engagement—automatically distributing shareholder rewards to long-term holders or implementing token-weighted governance for strategic decisions.
Expansion to Illiquid Assets
The technology proven in public equities now extends toward private markets. eToro's exploration of tokenized pre-IPO shares suggests imminent disruption in venture capital, enabling fractional ownership and secondary trading of previously illiquid startup equity. Real estate tokenization projects are proliferating, with commercial properties in Dubai and Singapore issuing blockchain titles that enable micro-investment and automated rental distribution. Even commodities like fine art and vintage automobiles are entering tokenization platforms, suggesting a future where virtually any asset class gains blockchain representation.
Institutional DeFi and Automated Markets
The convergence of traditional finance (TradFi) and decentralized finance (DeFi) will accelerate as tokenized Treasuries, corporate bonds, and equities flow into blockchain-based financial protocols. BlackRock's BUIDL fund (tokenized U.S. Treasuries) already integrates with DeFi lending markets, creating yield-generating dollar equivalents. Similar models will emerge for equities, with institutions using tokenized stocks as capital-efficient collateral in rehypothecation systems that operate 24/7 with automated margin calls. These integrations will gradually dissolve boundaries between traditional and crypto finance, creating a unified global capital marketplace operating on blockchain rails.
Tokenized stocks represent far more than a technical novelty—they embody the convergence of two financial paradigms. By merging the regulatory robustness and real-world asset backing of traditional finance with the efficiency, accessibility, and programmability of blockchain technology, they create a hybrid model with transformative potential. The developments of 2024–2025—regulatory frameworks like MiCA and GENIUS, institutional deployments from eToro to Robinhood, and technological innovations across Ethereum, Algorand, and proprietary blockchains—collectively signal that tokenization has transitioned from speculative experiment to institutional reality. As the infrastructure matures and adoption broadens, tokenized equities may well become the default mechanism for global equity ownership, fundamentally redefining what it means to own a share in the digital age.
References:
Brave New Coin. (2025, July 30).
eToro plans to tokenize US stocks on Ethereum as crypto regulation improves.
https://bravenewcoin.com/insights/etoro-plans-to-tokenize-us-stocks-on-ethereum-as-crypto-regulation-improves
Gate Research. (2025, July 31).
Gate Research: Thoughts on Exodus Issuing Tokenized Stocks On-Chain.
https://www.gate.com/announcements/article/46394
The Currency Analytics. (2025, July 30).
eToro set to tokenize 100 U.S. stocks on Ethereum as blockchain finance expands.
https://thecurrencyanalytics.com/altcoins/etoro-set-to-tokenize-100-u-s-stocks-on-ethereum-as-blockchain-finance-expands-187921
Pintu News. (2025, July 30).
eToro ready to launch tokenized shares on Ethereum next August.
https://pintu.co.id/en/news/186976-etoro-ready-to-launch-tokenized-shares-on-ethereum-next-august
Crypto Times. (2025, July 30).
eToro to launch tokenized stocks on Ethereum in August.
https://www.cryptotimes.io/2025/07/30/etoro-to-launch-tokenized-stocks-on-ethereum-in-august/
DeFi Planet. (2025, July 30).
eToro launches tokenized U.S. stocks on Ethereum to enable 24/7 trading and DeFi integration.
https://defi-planet.com/2025/07/etoro-launches-tokenized-u-s-stocks-on-ethereum-to-enable-24-7-trading-and-defi-integration/
AInvest. (2025, July 30).
eToro developing blockchain to scale tokenized asset transactions as offerings expand.
https://www.ainvest.com/news/etoro-developing-blockchain-scale-tokenized-asset-transactions-offerings-expand-2507/
AInvest. (2025, July 30).
Figma's on-chain IPO cuts underwriting costs to under 1% from 3-7% boosting RWA market.
https://www.ainvest.com/news/figma-chain-ipo-cuts-underwriting-costs-1-3-7-boosting-rwa-market-2507/
CoinCatch Team
Disclaimer:
Digital asset prices carry high market risk and price volatility. You should carefully consider your investment experience, financial situation, investment objectives, and risk tolerance. CoinCatch is not responsible for any losses that may occur. This article should not be considered financial advice.
Share
