The issue facing stock tokenization now is not whether the technology can achieve it, but rather a series of more practical problems.

Written by: Blockchain Knight

After the rise of Robinhood Chain, stock tokenization has been pushed back into the spotlight.

However, the questions before the industry now are: after tokenization, how to integrate the original securities rules, how to set up the clearing system, and most importantly, what exactly are investors purchasing?

First, let's look at regulation. The U.S. SEC clearly stated in January of this year that securities tokenization does not change their securities attributes. Whether securities are directly tokenized by the issuer or issued as tokens linked to stocks by a third party, they may fall under the existing securities regulatory framework.

For instance, with the Stock Tokens currently launched by Robinhood, investors get economic exposure to the relevant stocks, but do not own the underlying stocks themselves, nor do they have corresponding shareholder voting rights. This is not the same as directly holding stocks.

Next is clearing. The traditional stock market appears to simply buy and sell stocks, but it is linked to brokers, custodians, and clearing agencies. While blockchain can place some records and settlements on-chain, these legal and financial functions do not disappear automatically.

Currently, DTCC is taking a cautious approach; its pilot for tokenization starts with certain securities and plans to record tokenized rights within the existing securities infrastructure framework, rather than knocking the entire system down and starting over.

Another often-overlooked issue is liquidity.

The market often regards 24/7 trading and global investor participation as advantages of tokenized stocks, but longer trading hours do not equate to increased liquidity.

The liquidity of the stock market comes from market makers, institutional investors, financing mechanisms, and mature order systems. If the same stock appears on different chains and platforms, each platform having its own liquidity pool, it may instead fragment the market.

After the U.S. stock market closes, stock tokens on the chain can still continue to trade. Without continuous pricing from traditional exchanges, who provides this price? Perhaps this can be resolved once the stock market is tradable 24 hours.

Of course, the current market demand has not yet been fully validated.

Data shows that the current scale of tokenized stocks on-chain has exceeded $2 billion, but in comparison to the global stock market, it is still very small.

The truly attractive aspect is that once stocks enter the blockchain, they can be directly combined with stablecoins, lending, derivatives, and other on-chain assets.

Stocks can become collateral, stablecoins can complete capital settlement directly, and transactions can continue after the traditional market closes.

This is where tokenization can truly change the financial market.

However, at the same time, risks will also come onto the chain. After all, tokenization of financial assets may lead to issues such as liquidity mismatches, increased leverage, and risk transmission.

Therefore, the challenge facing stock tokenization now is not whether technology can achieve it, but a series of more practical problems.

This is also why what is truly worth paying attention to now is not which chain has the highest trading volume, but how regulatory agencies set rules to truly allow assets to flow.

If these attempts ultimately succeed, the significance of stock tokenization will no longer just be that there is one more type of asset, but it will be a significant upgrade in the way securities are issued, traded, and settled.

Before that, we still have a long way to go.