Who is qualified to trade, how are prices set, where do stocks and cash come from.

Written by: Thejaswini M A

Translated by: Saoirse, Foresight News

The United States Securities and Exchange Commission (SEC) was established because the U.S. realized that even a bustling market may not be trustworthy.

Before the Great Depression of 1929, companies could issue stocks with limited information disclosure; traders could set up pools of funds to manipulate stock prices; and stock exchanges basically relied on self-regulation. The outbreak of the stock market crash made the costs of this mechanism impossible to ignore. Congress first enacted the Securities Act of 1933, requiring companies issuing securities to provide real and effective information to investors.

Subsequently, the Securities Exchange Act of 1934 was implemented, and the SEC was established to oversee exchanges, brokers, and the secondary market. The government established a principle: the rights represented by equity certificates must be genuine, and the market for transferring these rights must also comply with rules.

@guides.loc.gov

When paper stock certificates were fully digitized, and trading halls turned into server rooms, the underlying logic did not fundamentally change. Issuers still issue stocks, transfer agents still record shareholders, exchanges still facilitate transactions, and market makers still provide counterparties, ensuring the continuous operation of market prices.

Blockchain can highly integrate the above functions. Equity certificates, ownership registration, payment settlement, and trading pools can all be completed by interrelated smart contracts.

Over the past decade, the SEC has devoted significant efforts to defining which types of cryptocurrencies should be considered securities. The CLARITY Act ultimately did not pass in Congress, but the SEC launched a smaller temporary tool - the Innovation Exemption. This mechanism gives companies a five-year experimental window. Qualified Tokenized Securities Trading Platforms (TSV) can conduct on-chain trading of U.S. stocks through automatically market making (AMM) and liquidity pools under a licensing system.

So, if a token itself represents real stocks, can it trade in a crypto-style liquidity pool that only allows accredited investors?

The SEC's answer is yes, but the protective mechanisms of traditional finance must be fully retained:

• The token must have all the shareholder rights of ordinary stocks;
• The listing company corresponding to the stocks must be informed and have veto power;
• Only approved wallet addresses are allowed to trade;
• Once the stock is delisted from NASDAQ or the NYSE, the corresponding token version must also stop trading simultaneously;
• The smart contract code must be public, available for review by regulators and investors.

Generating real stock tokens and completing trading pool approvals is just the starting point for the market. It also requires someone to provide stocks and cash, maintain fair prices, and bear trading risks, which is the core of this article's discussion.

The logic of traditional stock exchanges is to match sellers and buyers. The automatic market maker AMM allows buyers and sellers to complete transactions directly in the same liquidity pool.

Sellers need to hold sufficient cash in the pool; buyers need to have enough shares of stock in the pool. Liquidity providers who inject assets into the pool can earn a portion of the transaction fees.

This logic sounds simple. For example: Apple stocks are quoted at $200 on NASDAQ, but the price of Apple tokens in the on-chain liquidity pool is $198. Traders can buy the cheaper on-chain tokens while hedging in the traditional market, profiting from the price difference. Arbitrage will eliminate the price difference, but the liquidity pool essentially sells the stocks at too low a price.

In the crypto space, this type of loss is referred to as impermanent loss. When stocks significantly drop in value, the pool will hold more devalued stocks, and cash will keep diminishing; when stocks rise quickly, the pool will prematurely sell out of its stocks.

Traditional market makers address this issue with means like widening the bid-ask spread, reducing trading volume, hedging in external markets or simply exiting the market. But ordinary AMMs will strictly follow preset code logic. For listed company stocks, financial reports, lawsuits, and CEO tweets can lead to drastic stock price fluctuations, while on-chain liquidity pools operate continuously around the clock.

The Innovation Exemption opens up compliance space for such liquidity pools while providing conditional regulatory exemptions for some institutions using their own capital. However, it cannot guarantee that transaction fee income will be enough to cover losses from outdated pricing, reverse trades, and inventory imbalances.

From this perspective, tokenized stock liquidity operations face three core challenges:

1. Trading platforms must verify the qualifications of traders. Relying solely on wallet addresses cannot confirm the actual identity of the address owner, whether identity verification has been completed, or whether they have legal stockholding qualifications.
2. The liquidity pool must reserve enough stocks and cash. If the pool has shallow positions, even a small transaction could deplete it, causing significant deviations between on-chain prices and NASDAQ prices.
3. Liquidity providers need substantial capital to keep the pool running. They need to provide stocks and cash and ensure that the transaction fees and spread profits are sufficient to cover risks for the business to be meaningful.

Now let’s see how various industry players address each of these layers of challenges.

Uniswap can control the entry of liquidity pools

The Permissioned Pools feature of Uniswap v4 directly addresses the first access verification challenge.

Uniswap v4 is by default permissionless: anyone can create pools, trade exchanges, and provide liquidity. However, regulated securities cannot do this, and the securities token contracts need to reject transfers from wallet addresses that have not passed the issuer's review.

Uniswap v4 aggregates all balances under the PoolManager contract, updating virtual account balances when transactions occur. If restricted securities only verify wallets when real token transfers happen, transactions within the pool will bypass verification, allowing unauthorized users to indirectly gain asset exposure without triggering the standard transfer checks of securities tokens.

The solution for permissioned liquidity pools is: before executing each transaction, verify wallet permissions first.

Real stocks are stored in a separate smart contract: Permissions Adapter, which requires permission from the issuer. Uniswap uses virtual shares of stocks within the pool to record transactions. Whenever a user wishes to buy, sell, or inject stocks or cash, the adapter queries the issuer's compliance system to confirm whether the wallet has operational permissions.

It does not matter whether the issuer uses Securitize’s DS Protocol, Tokeny’s ERC-3643, or develops its own investor registration system. Uniswap only needs the "approved/rejected" results returned by that system.

@uniswap

Transaction permissions and liquidity provision permissions are independent of each other: a user may be allowed to buy tokenized stocks but may not have the right to inject assets into the pool as a market maker. Uniswap verifies traders before each swap transaction and checks liquidity providers before receiving liquidity assets. Permissions can be revoked at any time; if a liquidity provider's qualification becomes invalid, the issuer can close their position. The liquidity provider can withdraw unrestricted assets like USDC, with the corresponding tokenized stocks transferred to a designated address from the issuer. Even in DeFi, securities remain subject to regulatory constraints.

This system has been deployed. According to Uniswap, Superstate, Securitize, and Dowgo have all developed based on this technology, but none of the above projects have yet obtained TSV (Tokenized Securities Trading Platform) certification, and the SEC has not published a list of any approved institutions. Uniswap has successfully realized the licensed AMM technology, which is precisely the solution envisioned by this regulatory mandate.

The underlying source of stock tokens is crucial

A token, even if branded with the name of Apple Inc. and priced according to Apple’s stock price, does not guarantee that its holder is a legitimate shareholder of Apple.

For instance, Robinhood's stock tokens are debt securities issued in Jersey. Users only receive economic exposure to the corresponding stocks, but Robinhood clearly states that holders do not have legal ownership rights to the underlying stocks. The SEC's exemption explicitly requires that tokens must have exactly the same shareholder rights as traditional stocks. Let’s put aside the Robinhood case for now and look at players in the market who genuinely achieve this capability.

Superstate’s Opening Bell product helps publicly listed companies deploy real stocks to the Ethereum and Solana blockchains. Galaxy Digital is the first significant case, allowing shareholders to migrate Class A common stocks to the Solana chain in September 2025. These tokens are real stocks from Galaxy registered with the SEC, possessing the same shareholder rights as traditional stocks. When verified investors transfer tokens among themselves, Superstate updates Galaxy's official shareholder register in real time.

As the SEC-registered transfer agent, Superstate maintains both traditional book-entry stocks and on-chain token holdings, as well as the complete shareholder registration within DeFi applications. If a company already has a cooperating transfer agent, Superstate can collaborate with them to bridge the traditional registration system and the blockchain. Superstate also offers a direct issuance plan: publicly listed companies can sell new shares directly to accredited investors; investors use stablecoins to pay and receive real stock tokens after being approved.

Securitize operates in a similar field. It issues and manages regulated digital securities, maintains investor records, and enforces ownership and transfer permissions. When Uniswap liquidity pools need to determine whether wallets can trade or provide liquidity, they can call and query Securitize's DS Protocol.

The tokenization and transfer agent for BlackRock’s BUIDL fund is precisely Securitize. In February 2026, the BUIDL fund began conducting on-chain trading through UniswapX, but this scenario does not involve an AMM liquidity pool; it uses a request-for-quote (RFQ) model: accredited investors receive quotes from whitelisted institutions (such as Flowdesk, Tokka Labs, Wintermute, etc.), and Securitize Markets facilitates trades; all participants must undergo Securitize’s qualification review. From this, we can see how different technical layers collaborate:

Securitize controls who can legally hold and trade securities; UniswapX is responsible for seeking quotes and completing on-chain settlements. The two are not in competition: the transfer agent records ownership and determines transfer validity, while Uniswap handles asset exchanges among qualified participants.

The SEC requires that TSV platforms must verify that each token is fully equivalent to the rights of the corresponding traditional stocks. If the stocks of a company are tokenized by an unrelated third party, the platform must notify the original issuing company and provide them with an opportunity to raise objections. If the underlying stocks halt trading on the main exchange, the corresponding on-chain tokens must also be taken offline.

During the regulatory exemption period, the SEC also sets limits on both the number of stock codes supported by each TSV platform and the total transaction scale. Even after obtaining certification, institutions still need to provide sufficient stocks and cash for the licensed trading market to truly be operational.

How to prevent prices from seriously deviating from reality?

Ordinary passive AMMs (such as standard Uniswap pools) are open for trading around the clock, and the pricing of the pool is entirely determined by the proportion of stocks and cash held within the pool.

The concentrated liquidity mechanism allows liquidity providers to concentrate most of their funds near the current stock price. Under the precondition of occupying less capital, the pool can provide better pricing.

But a bigger issue arises over time. Simple AMMs rely on the assets within the pool to generate quotes and depend on arbitrage traders to realign prices with external markets. For example: Nvidia closes at $200 on Friday, and on Saturday the company announces major bad news, leading the market to expect a sharp decline in stock prices, but NASDAQ does not provide the latest market quotations to the pool. The liquidity pool keeps accepting buy orders at the old Friday price, and traders who are aware of the news will sell stocks into the pool, causing liquidity providers to ultimately bear devalued positions.

RedStone’s Chief Operating Officer Marcin Kaźmierczak points out that the NYSE and NASDAQ have a regular trading duration of only 32.5 hours a week, with a total of 168 hours per week. Pre-market and after-market trading can supplement some of the market, but weekends still create gaps in market activity.

Oracles are responsible for bringing external real-world data on-chain, which can alleviate this pain point to some extent. Chainlink’s U.S. stock 24/5 data feed covers regular hours, pre-market, after-market, and overnight periods, and will synchronize buying and selling prices, market status, and data timestamps. However, when traditional markets close for weekends and holidays, the prices pushed by oracles will be outdated. If we switch to read the tokenized market's quotes, that market itself is no longer a reliable reference for the underlying stocks.

Source: Chainlink documentation

This leaves a question for trading systems: even if we have the latest available prices, how much inventory should the pool deploy, and how conservative should the pricing buffers be when that price information is outdated?

Byreal, a Solana exchange incubated by Bybit, offers a solution of providing multiple execution paths for each trade. It compares concentrated liquidity pools with quotes from professional market makers using RFQ inquiries. In simple terms, it involves asking trading institutions what transaction price they are willing to offer for this order.

Professional trading institutions can provide superior quotes by combining their inventory with the overall market situation. Byreal also connects with its pools and external AMMs such as Raydium, Orca, and Meteora, along with market maker quotes. Its innovation lies in comparing multi-source quotes instead of relying on a single liquidity pool to fulfill all orders.

Jump Crypto has launched BisonFi, a proprietary AMM (PropAMM). It possesses an off-chain pricing engine that continuously monitors external markets and pushes updated prices to on-chain trading programs. Asset custody and settlement are still processed on-chain, but this mechanism allows avoiding outdated pricing before traders complete transactions.

This program also responds to inventory status and price freshness: if a one-sided asset holding is too high, it automatically adjusts prices to guide trading back towards inventory balance; when price data sources are outdated, it widens the bid-ask spread and reduces the inventory size available. This mechanism accomplishes the continuous provision of market liquidity while controlling the risk cap borne by institutions.

In March 2026, a comparative chart showed that the spot trading volume of proprietary AMMs on Solana reached $19.87 billion, slightly higher than the total spot trading volume of $19.22 billion across the four major centralized exchanges: Binance, Coinbase, OKX, and Bybit.

UniswapX addresses similar pricing challenges through a competitive mechanism: multiple institutions compete to take on user orders, calling on various liquidity sources. This is independent of Uniswap's permissioned pools; when traders are not confined to a single pool's quotes, the quality of order execution can improve.

All of the above solutions are ideas for achieving more robust trading in uncertain information environments. For developers building real tokenized stocks, the opportunity lies in integrating reliable market data sources and competitive multi-source quotes while activating risk control constraints in the absence of price information. The current technical capabilities in the crypto market serve as a solid foundation, but implementing under the SEC's exemption framework remains a separate challenge.

Assuming all other conditions are in place: tokens represent real stocks, the liquidity pool has completed trader verification, and market makers possess the technology to maintain fair pricing. This institution still needs enough stock to sell and enough cash to absorb market sell orders.

An institution serving as a market maker for ten tokenized stocks must be prepared with stocks and stablecoins for each of the ten liquidity pools. Without financing tools, every penny supporting all quotes comes from the institution's own assets. In traditional finance, prime brokers specialize in lending to trading institutions; when assessing loan margin requirements, they can bundle a basket of investment portfolios for comprehensive evaluation. For example, an institution may hold a batch of stocks while also holding a hedging position that profits when prices drop. Evaluating risk by combining these two positions is often more objective than viewing one item in isolation.

Arkis has introduced this portfolio margin mechanism into the digital asset market. Lenders provide funds, while Arkis uniformly assesses all supporting assets of borrowing institutions, continuously monitoring loan collateral; once the value of the collateral falls below a threshold, the system automatically liquidates part of the positions to ensure loan repayment.

Arkis is not a stock AMM itself, but it has the potential to provide financing to market makers injecting stocks and cash into the liquidity pools. If market makers can use a portfolio of investments as collateral for borrowing, they can use the same capital to support larger-scale trading.

However, bridging this potential to adapt to the SEC exemption framework presents a significant gap. Arkis has not yet validated whether U.S. stocks can be accepted as collateral, whether TSV positions can access its margin system, or whether the lending framework complies with all securities regulatory rules.

The SEC has also granted temporary conditional trading exemptions to liquidity providers using their own capital within TSV pools, eliminating one of the regulatory obstacles.

A tokenized stock trade brings multiple service providers into participation: one party maintains ownership records; another operates the trading liquidity pool; and another institution provides stock targets, sets prices, and supplies lending funds.

Each party can earn management fees, trading profits, or interest; not all are competing for the same revenue. Who profits the most depends, to some extent, on where users choose to trade. Buyers and sellers pursue favorable transaction prices while hoping for sufficient assets to complete large orders; meanwhile, the institutions providing the assets require enough trading volume to justify the efforts expended. Both sides await each other’s growth.

The true test occurs during significant price fluctuations when users want to sell large amounts: can the liquidity pool complete this sell-off at a reasonable price while keeping the institutions providing stocks and cash willing to continue participating in the market? Only after this test can we determine whether tokenized stocks have truly created a trustworthy market.

World affairs are always full of variables. Perhaps Robinhood is currently devising a new feature.