Traditional finance (TradFi) and decentralized finance (DeFi) are increasingly resembling two peas in a pod and Block Street, a platform for tokenized stocks has tapped Ondo Finance, a developer of DeFi protocols and RWA tokenization, to bring sophisticated stock lending strategies to crypto.
Tokenizing stocks which are already digital and liquid, may seem redundant, but apparently, putting equities on the blockchain results in faster execution and 24/7 year-round availability, unlike traditional markets that typically open at 9:30am, shut down at 4:00pm, and don’t operate on weekends and holidays.
(The RWA sector is projected to grow to $30.1 trillion by 2034 according to a June 2024 research paper by Standard Chartered Bank.)
But Ondo and Block Street aren’t just betting on scratching an itch for speed and convenience, the firms want to bring sophisticated lending strategies such as shorting and hedging to tokenized equities, opening up an entirely new market for onchain stock-based derivatives.
“We saw stablecoins export the U.S. dollar by bringing it on-chain,” said Ondo CEO Nathan Allman. “Now, Ondo Global Markets is doing the same for U.S. securities.”
Tokenized equities work very much like wrapped tokens. A stock is deposited at a custodial firm that mints a tokenized version of that share onchain. The resultant token takes on the price and sometimes even the shareholder privileges of the underlying asset. Investors can then use the tokenized stock for any purpose including DeFi transactions. When the token is returned to the custodian, the underlying stock is given back to the user and the old token is burned.
There are multiple versions of tokenized equities, including those that don’t even use underlying assets at all, but many simply follow the wrapped token model because it’s tried and tested. And now, regardless of their structure, Ondo and Block Street’s partnership may give those tokenized equities, a much-needed upgrade.
“Our mission has always been to make stock trading as free and global as the Internet,” said Block Street co-founder Hedy Wang. “Integrating with Ondo supercharges this vision…Together, we’re turning tokenized stocks from static wrappers into financial primitives.”
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