Author: Lawyer Liu Honglin
The term "stock tokenization" frequently appears in market news. Whether it's explorations by Robinhood and xStocks, or Nasdaq's research into the feasibility of stock tokenization, it seems a wave of "turning stocks into tokens" is on the rise.
Many view it as a revolutionary breakthrough in the stock market, with some even claiming it is the best entry point for the integration of blockchain and traditional finance.
However, in my opinion, stock tokenization is more like a transitional product rather than the ultimate form. Its excitement stems from regulatory arbitrage and market imagination, rather than genuine business logic. To summarize in one sentence: stock tokenization may be a false proposition; the real proposition is the blockchainization of exchange systems.
The Essence and Transitional Value of Tokenization
To understand stock tokenization, we must first return to the essence of tokens. A token is a certificate that records "what I own and what rights I can enjoy." It can represent currency, points, tickets, or stocks.
However, when a stock is "tokenized," its legal attributes and shareholder rights do not fundamentally change simply because it is placed on the blockchain. Tokenized stocks are still subject to company law, securities law, and exchange rules; they do not confer any more rights than traditional stocks, nor do they carry any less responsibility. In other words, the essence of stock tokenization is merely moving a certificate from system A to system B.
The question arises: since tokenization does not change the rights and obligations of stocks and cannot solve fundamental issues, why are so many companies and platforms promoting it in reality?
The reason lies in the gap between reality and ideals.
The ideal of "exchanges on the blockchain" still requires time, but market demand and arbitrage impulses do not wait. Thus, before the system is fully updated, tokenized stocks have become a "patchwork" solution. They exist not because they change the essence of stocks, but because they fill the gap between the old system and new technology.
The appeal of this model is mainly reflected in three aspects:
1. Lowering Barriers: Investors do not need to open cross-border accounts; they only need a wallet to access U.S. stocks or other securities;
2. Enhancing Liquidity: Tokenized stocks can be traded 24/7, bypassing the time restrictions of traditional stock markets;
3. Creating Arbitrage Opportunities: Price discrepancies may arise between different markets, attracting cross-market capital flows.
However, these advantages, while seemingly novel, are essentially transitional products. They can exist because there are institutional gaps between the current securities market and the crypto market: regional restrictions, account opening thresholds, and inconsistent clearing processes. Tokenized stocks exploit these imbalances to find market space.
If we were to find a more intuitive analogy, its role is similar to some "offshore intermediary accounts" from earlier years—mainland investors wanting to buy U.S. stocks could not find compliant channels and had to rely on intermediaries. But once cross-border trading gradually opens up and official compliant channels are established, such models will naturally disappear. The fate of stock tokenization is no different.
More critically, tokenized stocks cannot address the core pain points of the capital market. Whether it’s clearing efficiency, lack of transparency, or inconsistent global regulatory standards, it cannot provide fundamental answers. It is a product of the gaps, and its legitimacy comes more from the misalignment between the old system and new demands, rather than a definition of the future.
Future Scenario: Exchanges on the Blockchain
Imagine a scenario ten years from now: the NYSE, Nasdaq, Hong Kong Stock Exchange, and even the Shanghai Stock Exchange (which is indeed a bit exciting) gradually migrate to a blockchain architecture. At that time, every stock from the moment of its birth will be a token on the blockchain. Its registration, circulation, dividends, stock distribution, and voting will all be completed through smart contracts. Stocks will inherently be tokens, and the concept of tokenization will automatically dissolve.
What does this transformation mean? In the past, the issuance, registration, clearing, and settlement of stocks relied on multiple links: registration and clearing companies, custodial banks, clearing institutions, and exchanges, often requiring T+2 to complete. In a blockchain system, registration equals settlement, and trading equals clearing, with ownership and transaction records updated in real-time on the blockchain, significantly reducing intermediary costs. For investors, this is not just an improvement in efficiency, but a revolution in the transparency and security of financial markets.
When exchanges complete their blockchain transformation, the boundaries between securities firms and cryptocurrency exchanges will gradually disappear: you can directly buy Bitcoin in your securities firm account, or purchase stocks of Apple and Tesla without barriers in a crypto exchange. The underlying infrastructure of both will converge, completely breaking down the boundaries between traditional and emerging markets. Furthermore, the design of financial products will also change. For example, on-chain stocks can be combined with stablecoins and RWAs (real-world assets) to automatically generate structured financial products, and even achieve second-level settlements and on-chain pledges.
To understand this evolution, one can refer to the changes in music formats over the past 30 years. Initially, people used cassette tapes, then came portable players, followed by MP3s and MP4s. Each generation of products was once popular, but the ultimate winner was the smartphone—it integrated all functions, leading to the rapid obsolescence of previous products. The current situation of stock tokenization is akin to portable players; it seems trendy but is essentially a transitional form. The true disruptor will inevitably be the "smartphone moment" that redefines the entire ecological chain, which is the blockchain transformation of exchanges.
This transformation is, to some extent, also a competition in the global capital market.
The advantage of the United States lies in its mature stock market system and unparalleled liquidity. If it completes the blockchain transformation first, it can extend the dollar's financial hegemony to the blockchain layer, directly upgrading "dollar settlement" to "dollar chain settlement." Imagine if in the future, the on-chain trading and dividends of Apple and Tesla stocks are all settled in dollar stablecoins; the dominance of the dollar will not only be as a currency but also as the underlying protocol of the entire global capital market.
Hong Kong's exploration can be seen as a pioneering experiment in the integration of China's capital market and blockchain. Through its institutional advantage of "first trial," it has attracted global Web3 entrepreneurs and capital. Especially after the implementation of compliant exchanges and stablecoin legislation, Hong Kong is building a capital market model that combines Eastern and Western elements. If it can successfully navigate the blockchain transformation path, it may become a new entry point for international capital—not only connecting funds from Wall Street and Silicon Valley but also providing new avenues for mainland Chinese investors and enterprises to go global.
Conclusion
The excitement around tokenized stocks is essentially a transitional product born from regulatory gaps. It offers investors some short-term conveniences and arbitrage opportunities but cannot fundamentally change the essence of stocks. The real revolution is the blockchain transformation of exchanges.
This is an upgrade in both technological and institutional terms, and it represents a new strategic competition in the global capital market.
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