This article is reprinted with permission from Mankun Blockchain Legal Services, author: Lawyer Shao Jiadian, copyright belongs to the original author.
"Stock Tokenization" refers to the conversion of company shares (equity) into digital tokens issued on the blockchain, with each token representing ownership similar to traditional shares. In other words, you no longer hold a physical stock certificate but instead hold a stock token recorded on the blockchain. These tokens can be managed, transferred, and traded electronically.
This concept emerged during the blockchain wave in the late 2010s. In 2016, Overstock.com became the first publicly traded company to issue stock via blockchain; during the ICO frenzy of 2017-2018, many believed that "Security Token Offerings" (STO) would become the next trend. Startups like Harbor raised tens of millions of dollars to try to enhance the liquidity of private equity using blockchain. However, due to a lack of mature compliance markets and trading infrastructure, early implementation was slow.
By 2025, stock tokenization has transitioned from experimentation to reality. Robinhood partnered with Bitpanda to allow European investors to buy and sell U.S. stocks 24/7; Kraken and Coinbase are also exploring stock tokenization businesses under compliance frameworks.
As of mid-2025, the global market value of tokenized stocks is approximately $424 million, but the growth momentum is astonishing—some analysts predict it could exceed $1 trillion in the future. It is moving from a fringe innovation to the core of mainstream capital markets.
For both investors and issuers, the appeal of stock tokenization lies in one word: efficiency. It makes capital markets more open, automated, and transparent.
Benefits for investors:
- Liquidity: Tokens can be traded on 24-hour open digital platforms, and private equity is no longer "locked up."
- Fragmented investment: High-priced stocks can be split into very small units, lowering the entry barrier.
- On-chain transparency: All transactions and changes in holders are permanently recorded on the blockchain, making them traceable and auditable.
- Global access: As long as permitted by the jurisdiction, investors from around the world can participate in the same round of financing.
Benefits for companies:
- Global fundraising: Companies can reach a broader investor base through tokenization.
- Automated compliance: Smart contracts can directly embed regulatory requirements such as KYC, lock-up periods, and transfer restrictions into the code, achieving "compliance as code."
- Operational efficiency: The shareholder register is automatically updated; dividends, voting, and stock splits can all be executed on-chain.
- Cost savings: Reduces costs associated with brokers, registration, clearing, etc., leading to faster settlements and less capital occupation.
In short: stock tokenization is not about evading regulation but about digitizing compliance.
The key to the implementation of stock tokenization lies not in technology but in regulation. The attitudes of different jurisdictions vary greatly, but the trend is consistent: recognized as securities and managed under existing frameworks.
United States
The SEC views tokenized stocks as traditional securities. If the tokens represent ownership or dividend rights, they must be registered or issued under exemptions (such as Reg D, Reg CF, Reg A+, etc.).
In the U.S., secondary trading typically must occur on national securities exchanges registered with the SEC or approved ATS, and the matching, brokerage, and custody entities must also have the appropriate licenses and compliance capabilities.
In short: doing stock tokenization in the U.S. still follows the complete securities issuance process, just with the medium changed to on-chain tokens.
European Union
The EU includes tokenized stocks under the definition of "financial instruments" in MiFID II, applying the same rules as traditional stocks.
Regulatory attitudes vary slightly among countries; for example, Germany's BaFin requires a complete securities prospectus submission unless exempted.
The DLT Pilot Regime, effective from 2023, allows compliant institutions to trial blockchain-based securities trading and settlement in a "sandbox," marking the EU's active embrace.
Singapore
The Monetary Authority of Singapore (MAS) adopts a "technology-neutral" principle:
If the tokens essentially represent shares or securities, they are regulated under the Securities and Futures Act.
Issuers must comply with prospectus requirements or applicable exemptions, and trading platforms must be approved.
MAS also has a regulatory sandbox for innovative companies to test tokenized securities issuance in a controlled environment, such as in the international project "Project Guardian," where MAS collaborates with multiple regulatory agencies to explore use cases for tokenized bonds, funds, etc.
Overall, Singapore is one of the jurisdictions with the clearest compliance pathways and the most open pilot atmosphere.
United Arab Emirates (UAE)
The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) officially recognizes tokenized stocks as securities; Dubai's VARA is also developing a virtual asset framework.
All tokenized issuance or trading platforms must operate with a license, and KYC/AML and investor protection standards are consistent with traditional securities.
The UAE is becoming a Web3 financial hub in the Middle East.
Hong Kong
The Hong Kong Securities and Futures Commission (SFC) clearly states that tokenized stocks fall under the Securities and Futures Ordinance as securities. Any STO targeting Hong Kong investors must meet the full securities issuance or exemption conditions; institutions distributing or matching tokenized securities must hold a Type 1 (securities trading) license.
Additionally, the SFC views tokenized equity as a "complex product" under the Securities and Futures Ordinance. In practice, it is often distributed to professional investors; if intending to reach retail investors, it must meet full prospectus and licensing, suitability, and disclosure requirements, with a relatively cautious regulatory attitude.
Tokenization is not as simple as "putting it on-chain." The key is: how to legally structure the tokens to correspond to real equity. In practice, there are mainly three solutions:
- Legal Wrapper Model
An intermediary entity (SPV or trust) holds the actual shares of the company, and then that entity issues tokens representing the corresponding rights.
Token holders have beneficial rights in the SPV, thereby indirectly holding company equity.
Advantages: Compatible with the existing legal system, high investor recognition.
- Native Token Model
The company directly registers shares on the blockchain, and the tokens themselves serve as equity certificates.
The advantage is a simple structure and complete on-chain operation, but it is only feasible in jurisdictions that recognize the legal status of "digital shares" (such as Switzerland and Liechtenstein).
Currently, this remains a minority of cases.
- Hybrid Model
Legally, the traditional shareholder register is retained, but it is mirrored on-chain.
Companies can use specialized equity tokenization platforms to maintain the cap table in real-time and automatically execute dividends and governance.
Most startup projects tend to adopt this solution to balance legal certainty and operational convenience.
Another core decision is: who will custody the tokens?
- Self-custody: Investors manage their wallets; companies need to embed logic for whitelisting, lock-up, regional restrictions, etc., in the contract.
Advantages are decentralization, but the downside is high compliance complexity.
- Compliant Custody: Tokens are held by licensed institutions (banks, brokers, trusts). The platform is responsible for KYC/AML, whitelisting, transaction monitoring, and reporting, suitable for projects wishing for secondary trading or retail access.
For projects targeting retail and secondary trading, qualified custodians/platform custody usually more easily meets regulatory expectations; if using self-custody + whitelisting, the target jurisdiction's hard requirements and acceptability for "qualified custodians" should still be assessed.
The core issue that stock tokenization must address is: how to ensure that on-chain records are consistent with the legal shareholder register.
Some jurisdictions (like Switzerland) have allowed the blockchain itself to serve as the statutory share register; other regions need to maintain a mirrored register internally within the company.
There are now specialized blockchain Cap Table management systems in the market that can automatically sync each token transfer to the register and prevent overselling or unauthorized transfers through smart contracts.
Common technical standards include the ERC-1400 series (designed specifically for security tokens), supporting compliance features such as identity verification and transfer restrictions.
Companies should also design a remedy mechanism for lost private keys (such as reissuing tokens after verifying identity) to prevent investors from "losing shares when losing chains."
Exodus (USA) is the most representative success story to date.
In 2021, the company raised approximately $75 million by issuing common stock through tokenization under the SEC Reg A+ framework, attracting over 6,000 investors.
Exodus circulated on an approved platform after setting a lock-up period, using a prospectus and employing a transfer agent to manage the register—becoming the first tokenized equity issuance project in the U.S. to receive regulatory approval.
Other success factors include:
- Hiring legal and compliance advisors early;
- Implementing KYC and whitelisting mechanisms from day one;
- Planning secondary market trading channels (ATS or sandbox platforms) in advance;
- Maintaining transparent communication with investors, managing token holders like shareholders.
The stock tokenization of 2025 marks the deep integration of traditional finance and blockchain technology. It provides startups with new fundraising channels, a global network of investors, and automated compliance infrastructure.
Of course, challenges remain: compliance thresholds, regulatory uncertainties, and investor education. But the trend is irreversible—equity will be digitized, financing will be globalized, and compliance will be proceduralized.
Future IPOs, mergers, and even employee stock incentives may all be carried out in the form of tokens. Entrepreneurs who begin to understand and layout stock tokenization in 2025 will gain an advantage in the next round of capital transformation.
Related: Cryptocurrency exchange Kraken submits confidential documents for U.S. IPO
Original text: “A Comprehensive Compliance Guide to Tokenizing Equity in Private Companies”
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