Written by: Castle Labs

Translated by: @Golden Finance xz

$69 trillion: This is the estimated total market value of the U.S. stock market, which could bring the total size of the global market to $130 trillion.

Despite an initial disregard for the stock market, on-chain native participants are now considering engaging in stock market investments. The reasons behind this are varied, but a consensus has emerged that cryptocurrencies are believed to provide faster returns. However, an increasing number of investors are opting for diversified allocations; The Wall Street Journal has emphasized this trend as a rotation of assets from Bitcoin towards gold or the "Tech Giants 7" (MAG7).

Until recently, the core logic of the cryptocurrency sector has been reflected in a steadfast loyalty to digital assets, accepting their cyclical fluctuations—markets mysteriously collapse every four years; this almost astrological pattern causes most crypto assets to hit historical highs after the second quarter of 2025, yet they fail to recover afterward. Meanwhile, the stock market continues to hit new highs, prompting investors to question: Is loyalty to blockchain just a paranoid disguise for belief?

Tokenization use cases are not limited to "financial inclusion" or "democratizing access," but rather serve as a way for traders to short Tesla without restrictions, collateralize Nvidia stock financing without KYC, trade pre-IPO equity, or earn yields in the Kamino vault.

This article will analyze three different pathways of on-chain asset tokenization:

• Ondo Finance launched "Global Markets" in September, introducing an institutional-grade tokenization scheme on the Ethereum network.

• Backed Finance's product xStocks (now owned by Kraken) debuted in June, providing multi-chain composability for retail users.

• Hyperliquid activated the HIP-3 proposal in October, facilitating permissionless perpetual contract trading for any asset, including commodities and stocks.

This article will delve into the internal operating mechanisms of each protocol, focusing on how they achieve on-chain "tokenization" of assets. We will provide a comprehensive analysis of the legal risk frameworks behind each protocol and their impact on investors. Finally, we will look forward to the evolving direction of the broad tokenization trend and discuss its deeper significance for the current crypto ecosystem.

1. Ondo: On-chain BlackRock

Ondo was founded in 2021 by former Goldman Sachs employees Nathan Allman and Justin Schmidt. Before launching "Global Markets," the company had spent years focusing on tokenizing treasury products (USDY for retail and OUSG for institutional), with assets under management surpassing $2 billion at one point. According to the latest data, the total locked value of all products under Ondo (including treasury tokens) reached $2.47 billion.

Ondo's tokenization model is referred to in the industry as indirect tokenization. An offshore special purpose vehicle (SPV) purchases and holds the underlying equity on behalf of token holders, subsequently issuing structured notes on-chain that convey economic risk exposure but do not confer legal ownership. Purchasers hold a debt claim against the entity issuing Ondo tokens, secured against underlying stocks held in an independent account at a U.S. registered broker.

Ondo tokens are debt instruments collateralized by equity, rather than the equity itself. For example, voting rights for the underlying equity are not retained by the token holders.

The most notable features are as follows:

• Institutional-grade tokenization scheme using a bankruptcy-remote special purpose vehicle (SPV), which provides daily proof of reserves, held by a U.S. registered custodian, and supports instant minting during trading periods.

• If Apple’s stock price on NASDAQ is $180, users can mint AAPL tokens with an equivalent value in stablecoins and redeem instantly. Arbitrageurs maintain on-chain price stability by balancing prices between decentralized exchanges (DEX) and the average price of tokenized stocks on the “Global Markets” platform: the arbitrage cycle is a core support for the anchoring mechanism. Ondo accomplishes atomic-level settlement: stablecoins in, tokens out, one transaction completed. If AAPL trades above $180 on the DEX, market makers will mint new tokens on the "Global Markets" to sell on the market to balance the premium; if below $180, they will buy tokens on-chain and redeem at par, earning the difference.

• Ondo tokens are fully collateralized by U.S. stocks and ETFs held by one or more U.S. registered brokerages. Holders do not directly own the stocks, but gain economic risk exposure through the tokens, with dividends automatically distributed.

• The model does not charge minting or redemption fees; Ondo profits from the spread between buy and sell prices.

Upon launch, the platform supported over 100 assets on Ethereum, later expanding to BNB Chain and Solana, recently announcing the launch of the Ondo Chain, adding a specific proof-of-stake mechanism for real-world asset (RWA) collateral.

The current asset classes cover a wide range: mega-cap stocks (Apple, Tesla, Nvidia, Google), exchange-traded funds (SPY, QQQ), and commodities.

However, geographical restrictions are very strict: U.S. citizens or residents are prohibited from participation. Ondo tokenized stocks are open only to accredited investors, and identity verification must be completed.

The tokenization process is noteworthy because each protocol has a unique technical architecture.

U.S.-based self-clearing broker Alpaca currently holds more than 94% of the market value of tokenized U.S. stocks and ETFs, including Ondo’s assets. Its instant tokenization network provides physical minting and redemption pathways, allowing direct transfers of underlying stocks between brokerage accounts rather than liquidating into cash and repurchasing, thus eliminating slippage and maintaining stable token prices. Ondo has recently submitted a registration statement to the U.S. Securities and Exchange Commission; once effective, “Global Markets” will become the first transferrable tokenized stock issuer required to disclose information as per SEC guidelines. The SEC concluded its two-year investigation of Ondo in November 2025 without filing charges; the protocol subsequently acquired SEC-registered brokerage Oasis Pro Markets to accelerate its strategic positioning in the U.S. market.

Ondo believes that institutional investors care more about regulatory clarity and operational efficiency than purely ideological purity.

2. xStocks: The Best Partner for Retail Users

xStocks found an ideal balance between crypto and traditional finance: more accessible than Ondo, more compliant than HIP-3, and open to everyone.

The platform launched in June 2025, offering over 60 tokenized stocks and ETFs, each token backed by securities held in a 1:1 ratio by Swiss/U.S. custodians supervised by Swiss regulatory authorities. The tokens adopt SPL/ERC-20 standards and can be freely transferred across chains.

xStocks achieved timely success, prompting Kraken to acquire Backed in 2025. Currently, the publicly-held stock assets in xStocks amount to $250 million, with Tesla comprising over a quarter of its total holdings.

In this specific model, token holders do not own the stocks but hold a debt claim against the issuer. Each xStock is backed by underlying stocks at a 1:1 ratio; dividends are automatically reinvested, following Ondo’s model: when the underlying stocks distribute dividends, holders receive additional xStock tokens equivalent to the dividend value airdropped into their wallets.

The tokenization mechanism effectively compresses traditional structured finance into a blockchain mapping. From a legal perspective, each xStock is a tracking certificate that is an unregistered debt instrument issued by Backed Assets Limited, a special purpose vehicle registered in Jersey, which is a wholly-owned subsidiary of Switzerland’s Backed Finance AG. The financial value of the tokens tracks specific underlying stocks or ETFs, but does not confer ownership or voting rights. Token holders are creditors of the issuer, not shareholders of the underlying company. This is similar to Ondo’s indirect tokenization model, but the legal framework and post-issue management mechanisms differ.

The issuance process is as follows:

• Authorized Participants (AP) submit minting requests through Alpaca’s API, specifying the stock code, quantity, target blockchain, and wallet address.

• Self-clearing broker Alpaca in the U.S. verifies the request and credits the corresponding shares in the AP’s brokerage account to the issuer's account.

• After Backed confirms receipt of the underlying securities, an equivalent number of xStock tokens are minted on-chain and sent to the AP's wallet.

The redemption process is the reverse: AP destroys the tokens, Alpaca confirms the destruction, and the underlying shares are credited back to the original account. This is a physical settlement process that anchors the token price to the underlying stocks.

On March 5th, xStocks launched xChange, a swapping engine aimed at directly integrating capital market liquidity into DeFi during trading hours, while maintaining an on-chain liquidity pool for price discovery during weekends.

This system includes three main components:

• An on-chain liquidity pool for price discovery during non-trading hours.

• The xChange engine itself, which connects DeFi with traditional finance during trading hours.

• The xPort tool for cross-chain asset migration.

Driven by Chainlink oracles, xChange is already live on Solana aggregators and is set to launch on Ethereum’s CoW Swap and 1inch, with integration with PancakeSwap, LiFi, DFlow, and Kamino Swap also in progress.

Its vertical effect is to bring off-chain liquidity onto the blockchain through arbitrage, thereby narrowing the buy-sell spread of the on-chain liquidity pool; the horizontal effect is that there’s no need to inject liquidity in advance for each stock code, thereby opening access to long-tail assets of xStocks.

Its regulatory framework spans three jurisdictions:

• The issuer is located in Jersey, regulated by the Jersey Financial Services Commission under the Borrowing Regulation Ordinance.

• The issuance prospectus is approved by the Financial Market Authority of Liechtenstein, allowing the tokens to circulate within the EU.

• The tokenization operations are specifically executed by Backed Finance AG in Switzerland.

The collateral assets are held in independent accounts of regulated custodial banks in Switzerland and the U.S. (including banks like InCore and Maerki Baumann) and are bound by a three-party account control agreement: if the rights of token holders are infringed, the collateral agent may enforce the collateral accounts.

The issuance channel is strong, with tokenized stocks launched on centralized exchanges like Kraken, Bybit, and Gate. Kraken offers instant settlement, fractional investments (starting from $1), and competitive rates (0.1% taker fee, -0.02% maker rebate).

In contrast to Ondo, xStocks’ core philosophy is to reach the scenes where retail users are located. The platform does not require specific identity verification or whitelisting, allowing anyone to purchase its tokenized stocks and transfer freely between self-custody wallets.

On February 25th, xStocks’ daily trading volume surpassed $25 billion.

Kraken designated Alpaca as its preferred partner for 1:1 acquisition and custodianship of its underlying stocks. Alpaca's instant tokenization network provides real-time minting and redemption services for institutions. In early February 2026, the Deutsche Börse-owned 360X platform began offering xStocks products to its clients! This exchange is regulated by the German Federal Financial Supervisory Authority and the European Securities and Markets Authority and is considered the gold standard in the European market.

xStocks’ philosophy is that retail users care more about asset self-custody and multi-chain accessibility rather than institutional custodial schemes. Retail investors naturally desire the same trading tools as institutions; stock tokenization is the first step to bridging the information asymmetry gap: nowadays, anyone can sell or buy immediately before the market opens after listening to earnings call conferences.

3. Hyperliquid: Anything Can Be Traded

Hyperliquid promotes a fundamentally different model, reducing tokenization to its simplest form: traders can only go long or short on derivatives without exposing themselves to economic risks of the underlying assets.

The HIP-3 proposal, activated in October 2025, allows any user staking 500,000 HYPE to launch their own perpetual contract exchange on HyperCore. Deployers can set their own oracles, define leverage ratios, manage risks, and earn 50% of trading fees.

Its operational mechanism fundamentally differs. In the models of Ondo and xStocks, the custodial account actually holds corresponding stocks; tokens are structured debt on those stocks, with stocks being sold when the holder destroys tokens. Its custodial chain is as follows:

NASDAQ → Brokers → Special Purpose Vehicle (SPV) → Blockchain.

In Hyperliquid's model, none of the above links exist. The HIP-3 market adopts a segregated margin system, not presented in the Hyperliquid frontend, completely built and distributed through third-party builders who choose to list in the market. Oracles are the key variable: each deployer independently chooses price sources and defines pricing mechanisms for non-trading hours (during U.S. market closure), while perpetual contracts maintain 7×24 hours of trading. During non-market trading hours, the exchange relies on internally smoothed EMA pricing, protocol limit price mechanisms, and specific trust levels based on asset liquidity depth.

This is different from tokenized equity models like Ondo's Global Market. There are no stocks, no dividends, no redemption mechanisms, no special purpose vehicles (SPV), only contracts tracking prices through oracles, settled in stablecoins or HYPE.

The XYZ100 index deployed by trade.xyz tracks "the market capitalization-weighted value of 100 large non-financial companies listed on U.S. exchanges adjusted." This product achieved $72 million in daily trading volume and $55 million in open contracts within two weeks, ranking in the top ten for trading volume on the Hyperliquid platform, with a current monthly trading volume reaching several billion dollars.

Hyperliquid’s core advantage lies in its decentralized market creation ability. Any builder who meets the 500,000 HYPE staking requirement can deploy three markets for free; additional markets must be obtained through Dutch-style auctions.

This has spurred explosive growth in niche sectors:

• trade.xyz (XYZ100, Nvidia, Tesla, Apple, Google perpetual contracts)

• Ventuals (pre-IPO SPAC perpetual contracts for SpaceX)

• Felix (with USDH as collateral, taker fee reduced by 20%)

• Kinetiq (liquidity staking protocol with monthly trading volume exceeding $1 billion)

Through HIP-3, Hyperliquid is becoming the "Amazon Web Services" of perpetual contracts: no need to compete with every market, but rather provide infrastructure for builders to compete with each other.

Amazon Web Services (AWS) rents computing, storage, and network resources to users, who can build any applications based on it. Hyperliquid employs the same logic for financial infrastructure:

• HyperCore provides order books, margin engines, and settlement layers.

• Deployers can independently decide the types of assets to list, choose oracles, set leverage ratios, and manage risks.

The protocol itself does not care whether the market tracks Tesla, pre-IPO SpaceX, gold, or a GPU manufacturers portfolio. Regardless of the underlying assets, the protocol takes a 50% fee cut. This represents a fundamentally different business model from Ondo or xStocks— the latter two require individual structural designs for each tokenized asset, arrange custody, and build legal frameworks, whereas Hyperliquid delegates these functions to builders and takes a laissez-faire approach to tokenization.

The current market environment is extremely favorable for decentralized perpetual contract exchanges, with no decline in trading volume in 2026. Crypto speculators care more about leverage and accessibility than ownership, but as previously mentioned, part of the reason is that the industry culture has not yet shifted, and before the emergence of tokenization solutions in recent years, the on-chain accessibility of traditional assets has been poor.

However, risks are far greater than for tokenized stocks. Oracle failures, forced liquidations during high volatility periods or non-trading hours, and market makers withdrawing liquidity to avoid losses may all result in total loss of capital. Unlike tokenized stocks, once positions are liquidated, funds will be permanently lost and irretrievable.

Institutional trading departments require auditable counterparties and clear regulatory definitions of derivative classifications, both of which HIP-3 does not provide. For funds with compliance obligations, trading equity perpetual contracts on Hyperliquid will immediately raise questions from auditors and risk committees, especially concerning compliance with the International Swaps and Derivatives Association agreement. Hyperliquid’s current users are primarily retail, as it focuses on public accessibility; however, signs indicate that this status is changing. Ripple has integrated it into its institutional prime brokerage platform Prime, providing clients access to perpetual contracts, marking another sign of changing times. During the weekend attacks in Iran, Hyperliquid maintained normal operations in the gold, silver, and crude oil markets, which increasingly supports its argument to become a key benchmark for on-chain asset prices during non-trading hours.

4. Everything Can Be Tokenized

Hyperliquid has proven that decentralized protocols can and will compete with traditional exchanges.

Other institutions are following suit. Binance relaunched its tokenized stock service on February 24, 2026, partnering with Ondo to list 10 tokenized U.S. stocks and ETFs on the Binance Alpha platform. This marks Binance's first return to the tokenized stock space since it closed this service in July 2021 due to compliance questions raised by the UK's Financial Conduct Authority and Germany's Federal Financial Supervisory Authority, during which regulatory inquiries triggered a series of unfavorable events for Zhao Changpeng.

Currently, the exclusion of the U.S. market from such services is another controversial focal point. Once the U.S. Securities and Exchange Commission approves domestic tokenized securities (as the momentum continues with the passing of the GENIUS Act, this approval is inevitable), the on-chain real-world asset sector will witness explosive growth. If cryptocurrencies are slowly bleeding out and dying, then whether public or not, the stock market will only continue to rise.

The real competition will be: once U.S. regulations are approved, who controls the core infrastructure.

Hyperliquid, xStocks, and Ondo do not constitute direct competition, as their functionalities are inherently different. Ondo and xStocks provide economic exposure to equities, with tokens backed by real stocks, dividends being automatically reinvested, and a redemption mechanism linked to the underlying assets. Their core value lies in accessibility: holding, collateral lending, and portfolio configuration of assets that could only be traded on traditional platforms like Charles Schwab or Interactive Brokers. Meanwhile, Hyperliquid’s HIP-3 offers leverage and speculation functionality: a synthetic contract that tracks prices without conferring any rights to assets, no custodial chains, and no creditor rights. In a sense, this represents the ultimate expression of financial freedom—anyone can instantly access nearly all assets with just a wallet and a small amount of funds.

For retail users, this should not become a dilemma, as different options lead to different outcomes. Traders can execute both strategies simultaneously: holding xTSLA tokenized stocks long-term in a self-custody wallet while shorting TSLA-USDC perpetual contracts on Hyperliquid to hedge against risks from earnings call conferences—just as many traders do arbitrage through channels like Polymarket, pre-market, and over-the-counter points platforms.

The former belongs to long-term portfolio allocation, while the latter is a trading action. The confusion arises because both access via crypto wallets, are priced in stablecoins, and are collectively referred to as "tokenized stocks." However, such comparisons are not fair: xStocks and Ondo bear issuer and custody risks (special purpose vehicles must remain solvent, and collateral assets must be independently custodied), while Hyperliquid bears oracle and liquidation risks (the price source must remain accurate, and margins maintain healthy levels, otherwise positions will incur permanent losses). Therefore, despite sharing certain concepts, the protocols cannot be reasonably compared.

Hyperliquid's true advantage lies in speed and flexibility. The permissionless nature of HIP-3 means that the market itself is the product—any asset with oracle-fed pricing can launch perpetual contracts within hours, without the months of legal architecture design required for issuing tokenized equity.

Three nearly incomparable protocols, each deeply exploring specific niche segments, are sufficient to meet various demands: the competition among them is essentially an illusion. This is fundamentally a discussion about choice, autonomy, and creativity.

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