What Challenges Does Stock Tokenization Face?

Stock tokenization is currently facing not the question of whether technology can achieve it, but rather a series of more practical issues.

Written by: Blockchain Knight

After the rise of Robinhood Chain, stock tokenization has once again been brought to the forefront.

However, the issues facing the industry now are how to connect the original securities rules after tokenization, how to establish a clearing system, and most importantly, what exactly investors are buying?

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

For example, with the Stock Tokens currently launched by Robinhood, investors gain 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 may seem like just buying and selling stocks, but behind it are brokers, custodians, and clearing institutions. Blockchain can place some records and settlements on-chain, but these legal and financial functions will not automatically disappear.

For instance, the current approach of DTCC is quite cautious, starting its tokenization pilot with a portion of securities and planning to record tokenized rights within the existing securities infrastructure framework, rather than directly overturning the entire system.

Another often-overlooked issue is liquidity.

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

Liquidity in 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, with each platform having its own liquidity pool, it may actually fragment the market.

After U.S. stock markets close, stock tokens on the chain can still be traded. Without continuous quotes from traditional exchanges, who provides this price? Perhaps this will be resolved when the stock market can be traded 24 hours a day.

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

Data shows that the scale of tokenized stocks on-chain has already exceeded $2 billion, but it remains very small compared to the global stock market.

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 directly complete fund settlements, and trading can continue even after traditional markets close.

This is where tokenization could truly change the financial market.

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

Therefore, the challenges facing stock tokenization now are not about whether technology can achieve it, but rather a series of more practical issues.

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

If these attempts ultimately succeed, the significance of stock tokenization will no longer just be an additional type of asset, but a significant upgrade in the methods of securities issuance, trading, and settlement.

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