A Historical Transition
The term “stock tokenization” frequently appears in market news. From explorations by platforms such as Robinhood and xStocks to Nasdaq’s research into the feasibility of stock tokenization, it seems that a wave of “turning stocks into tokens” is emerging.
Many view it as a revolutionary breakthrough for the stock market, with some even claiming it is the optimal entry point for integrating blockchain with traditional finance.
In my view, however, stock tokenization is more akin to a transitional product rather than an ultimate form. Its prominence stems from regulatory arbitrage and market speculation, rather than sound commercial logic. To summarize in one sentence:Stock tokenization may be a false premise; the true proposition is the blockchain-based transformation of exchange systems.
The Essence and Transitional Value of Tokenization
To understand stock tokenization, we must first return to the essence of a token. A token is a credential that records “what I own and what rights I am entitled to.” It can represent currency, points, tickets, or even stocks.
However, when a stock is “tokenized,” its legal attributes and shareholder rights do not fundamentally change merely by being placed on a blockchain. Tokenized stocks remain subject to company law, securities law, and exchange rules; they confer no additional rights compared to traditional stocks, nor do they entail any fewer obligations. In other words, the essence of stock tokenization is simply migrating a credential from System A to System B.
This raises a question: If tokenization does not alter the rights and obligations associated with stocks, nor does it resolve fundamental issues, why do so many companies and platforms continue to promote it in practice?
The reason lies in the gap between reality and idealism.
While the ideal of “putting exchanges on-chain” will take time to realize, market demand and the impulse for arbitrage will not wait. Thus, before the regulatory framework is fully updated, tokenized stocks have become a “patch-style” solution. They exist not because they change the nature of stocks, but because they fill the void between legacy institutions and new technologies.
The appeal of this model is primarily reflected in three aspects:
1. Lowering Barriers to Entry:Investors are not required to open cross-border brokerage accounts; they can access U.S. equities or other securities with only a digital wallet;
2. Enhancing Liquidity:Tokenized stocks can be traded 24/7, bypassing the trading hour restrictions of traditional stock markets;
3. Creating Arbitrage Opportunities:Price discrepancies may arise between different markets, thereby attracting cross-market capital flows.
However, while these advantages appear novel, they are essentially transitional in nature. Their viability stems from the current institutional gaps between the securities market and the crypto assets market, including jurisdictional restrictions, account-opening barriers, and inconsistent clearing processes. Tokenized stocks have found market space precisely by exploiting these imbalances within the interstices of the existing systems.
A more intuitive analogy would be their resemblance to the “overseas intermediary accounts” prevalent in earlier years. Mainland investors seeking to purchase U.S. stocks, lacking compliant channels, could only do so through intermediaries acting as agents. However, once cross-border transactions were gradually facilitated and official compliance channels were established, such models naturally disappeared. The trajectory of stock tokenization will likely follow a similar path.
More critically, tokenized stocks do not address the core pain points of capital markets. Whether it is clearing efficiency, lack of transparency, or divergent global regulatory standards, tokenization fails to provide fundamental solutions. It is a product of institutional gaps; its rationale for existence arises more from the misalignment between legacy systems and emerging demands than from any definition of the future.
Future Outlook: On-Chain Exchanges
Envision the scenario over the next decade: the New York Stock Exchange, NASDAQ, the Hong Kong Stock Exchange, and even the Shanghai Stock Exchange (a somewhat provocative prospect), gradually migrate to blockchain architectures. In that future, every stock will exist as an on-chain token from the moment of its issuance. Its registration, transfer, dividend distribution, rights issues, and voting will all be executed via smart contracts. Stocks will inherently be tokens, and the concept of “tokenization” will automatically become obsolete.
What does this transformation imply? Previously, the issuance, registration, clearing, and settlement of stocks relied on multiple intermediaries—central securities depositories, custodian banks, clearing houses, and exchanges—requiring layered coordination and often taking T+2 days to complete. In an on-chain system,Registration equals settlement; trading equals clearing, with ownership and transaction records updated in real time on the blockchain, significantly reducing intermediary costs. For investors, this is not merely an efficiency gain, but a revolution in the transparency and security of financial markets.
As exchanges complete their blockchain migration, the boundary between securities firms and crypto asset exchanges will gradually disappear: you will be able to purchase Bitcoin directly through a securities firm account, and buy shares of Apple and Tesla without barriers on crypto asset exchanges. The underlying infrastructure of both is converging, thoroughly breaking down the boundaries between traditional and emerging markets. Furthermore, the design of financial products will also change. For example, on-chain stocks can be combined with stablecoins and real-world assets (RWA) to automatically generate structured wealth management products, and even achieve second-level settlement and on-chain staking.
To understand this evolution, one may refer to the changes in music carriers over the past 30 years. Initially, people used cassette tapes, followed by portable cassette players, then MP3 and MP4 players. Each generation of products was popular in its time, but the ultimate winner was the smartphone, which integrated all functions and rapidly rendered previous products obsolete. The current state of stock tokenization is akin to the portable cassette player: seemingly novel, but essentially a transitional form. The true disruptor must be the “smartphone moment” that redefines the entire ecosystem chain, namely, the blockchain transformation of exchanges.
This transformation is, to some extent, also a competition among global capital markets.
The United States's advantage lies in its mature stock market system and unparalleled liquidity. If it completes its blockchain transformation first, it can extend the hegemony of US dollar finance to the blockchain layer, directly upgrading “US dollar settlement” to “US dollar on-chain settlement.” Imagine if, in the future, on-chain trading and dividends for Apple and Tesla stocks are all settled in US dollar stablecoins; the dominance of the US dollar would extend beyond currency to become the underlying protocol of the entire global capital market.
Hong Kong's exploration can be seen as a frontier experiment in combining China’s capital markets with blockchain technology. Leveraging its institutional advantage of “pilot implementation,” it has attracted the convergence of global Web3 entrepreneurs and capital. Especially after the landing of compliant exchanges and pilot legislation on stablecoins, Hong Kong is constructing a capital market model that “integrates Chinese and Western elements.” If it can successfully pioneer the path of blockchain transformation in the future, it may become a new gateway for international capital—connecting funds from Wall Street and Silicon Valley, while also providing new overseas channels for investors and enterprises in mainland China.
Conclusion
The fervor surrounding tokenized stocks is, in essence, a transitional product arising from regulatory gaps. It offers investors some short-term conveniences and arbitrage opportunities, but cannot truly alter the fundamental nature of stocks. The true revolution is the on-chain transformation of exchanges.
This is an upgrade in both technological and institutional terms, and represents a new strategic competition in global capital markets.
