Apple, Tesla Go Live on Solana: Can Tokenized Stocks Attract Crypto Users?

Original Article Title: Apple, Tesla on Solana: Can Tokenized Stocks Lure Crypto Traders?

Original Article Author: Jeffrey Gogo

Original Article Translation: Tim, PANews

Key Points:

With $23.3 billion in real-world assets going on-chain, an increasing number of crypto-native platforms are seeking favor with traditional finance. Several trading platforms like Kraken and Binance have launched tokenized versions of popular U.S. stocks such as Apple and Tesla. Some analysts suggest that tokenized stocks have great potential in the cryptocurrency space, while others believe that tokenized stocks will only succeed focusing on high-risk, highly volatile stocks.

Cryptocurrency trading platform Kraken has announced the launch of xStocks, including tokenized versions of popular U.S. stocks like Apple, Nvidia, Tesla, among others. In the expanding landscape of real-world assets on the blockchain, this innovation merges cryptocurrency with traditional finance. Now, as crypto trading platforms increasingly converge with traditional finance, can tokenized stocks succeed where past attempts have failed? Can they attract the "degen" traders known for pursuing high-risk, high-volatility investments?

Ryan Lee, Chief Analyst at Bitget, told Cryptonews, "Tokenized stocks have great potential in the crypto space because they can achieve asset ownership fragmentation, 24/7 trading, and enhanced liquidity through blockchain platforms." Tokenized securities are digital versions of common stock that can be traded on the blockchain. In the case of Kraken, its offerings of over 50 tokens and ETFs are all issued on the Solana blockchain.

Each xStock token is pegged to the value of its underlying physical stock, with these physical shares held in custody by Backed Finance, the company partnering with Kraken on this initiative. For example, one Apple Inc. (AAPLx) token will track the price of AAPL stock on Nasdaq and can be redeemed 1:1 for cash. Investors do not need to directly hold the stock; they only need to hold the token representing ownership of the security. Kraken has stated that its tokens are not available for use by U.S. clients and will only be sold in specific markets outside the U.S.

American crypto exchanges offering tokenized stocks are not industry pioneers in this area. The Bybit platform recently announced a similar product, while the world's largest cryptocurrency exchange Binance attempted such business back in 2021 but quickly halted the project under pressure from Hong Kong regulators.

Is There a Demand for Stock Tokenization in the Crypto Space?

Stock tokenization has not yet seen widespread adoption in the cryptocurrency space, but supporters believe that such products have the potential to fundamentally change how people participate in financial market investments. As noted by Bitget analyst Lee:

“Products like tokenized stocks are increasingly gaining market interest, driven mainly by retail investors' demand for lower barriers to entry and more flexible operations in traditional stock investment opportunities.” Sam MacPherson, co-founder and CEO of Phoenix Labs (developer of the decentralized lending protocol Spark), stated that tokenized securities “transform static, closed-market instruments into composable modules in the on-chain economy.”

“This technology enables 24/7 global access, real-time settlement, and has spurred a whole new range of financial applications,” MacPherson told Cryptonews, adding that this financial application landscape could encompass various financial products such as collateralized lending and automated portfolio strategies, signifying a convergence and interoperability between traditional finance and the DeFi market, ultimately forming an integrated financial ecosystem.

However, not everyone shares the same enthusiasm, at least not initially. Georgii Verbitskii, founder of the DeFi service platform Tymio, is cautious about which assets crypto traders will favor. In an interview with Cryptonews, Verbitskii stated that for tokenized stocks to succeed, their listing strategy must be tailored to the preferences of cryptocurrency investors, focusing on what he described as “trend-driven or uncorrelated asset” types.

“While the concept looks promising, the actual demand will heavily depend on the specific asset types that are listed on the trading platforms,” Verbitskii pointed out, stating that “on cryptocurrency asset trading platforms, high-volatility thematic stocks may be more favored by investors.” He added that stocks like GameStop, rather than traditional blue-chip stocks like Nvidia or Microsoft, tend to have smaller fluctuations, making them less attractive to cryptocurrency traders, while higher volatility attracts more interest.

In recent years, cryptocurrency investors have tended to choose assets built around meme culture narratives or with speculative upside potential. For example, meme stock influencer Keith Gill (self-proclaimed as Roaring Kitty on Twitter and YouTube, and DeepFxxingValue on Reddit's WallStreetBets forum) rose to fame for his bullish bet on GameStop, igniting retail investors' trading enthusiasm, including cryptocurrency investors.

During January 2021, GameStop's stock price skyrocketed by 1600% following Gill's social media posts, causing a significant loss for a hedge fund that was shorting the Texas-based video game retailer. This frenzy also extended to meme stocks like AMC Entertainment and has continued to spill over into the crypto market. Cryptocurrency traders have spurred the creation of new meme tokens inspired by companies like GameStop and AMC.

Tokenized Stocks Target $250 Billion Market: Face Regulatory Challenges

Verbitskii believes that tokenized commodities such as gold or silver are more likely to "generate strong interest" compared to tokenized stocks in the crypto market. He stated, "These assets attract investors seeking risk diversification or hedging, and there are precedents to follow," mentioning the example of the crypto exchange FTX, which launched perpetual gold futures before its monumental collapse in 2022.

Experts point out that Kraken's foray into tokenized securities is a new initiative to bridge the gap between crypto and traditional finance, but the key to the success of this business lies in whether it can meet regulatory requirements in regions offering xStocks services. The main reason for the failure of Binance's launch of tokenized stock products in 2021 was compliance-related, as it did not obtain a securities trading license. The Hong Kong regulatory authority has also inquired about the stock token custody arrangement of the exchange.

Analysts suggest that in the absence of public trust, tokenized stocks could evolve into a regulatory time bomb. The collaboration between Kraken and the regulated tokenization platform Backed Finance is aimed at proactively alleviating such concerns. "xStocks was designed from the ground up to address these regulatory challenges," said Adam Levi, co-founder of Backed, in an email response to Cryptonews inquiries.

"They are fully collateralized by underlying stocks at a 1:1 ratio, issued based on an EU prospectus compliant with MiFID II (EU's financial instrument market regulations), including full investor disclosure terms, and subject to clear legal and regulatory framework constraints. This gives the tokenized form an institutional-grade standard." Levi added that the xStocks product provided by Kraken is issued in full compliance with regulatory requirements in Jersey, Switzerland, and the EU.

He believes that the demand for tokenized stocks "will significantly increase over time." Levi predicts that this segment will follow the development trajectory of stablecoins, with the market size expected to expand to $250 billion in the next few years. He stated, "The infrastructure is already in place, market demand is growing rapidly, and the momentum of transformation is unstoppable."

Democratization of Real-World Assets

The crypto industry once saw regulation as a betrayal of Bitcoin's ethos, but now a new product launched by Kraken in partnership with Backed is testing the innovative capacity of crypto companies within a regulatory framework. Several companies have now begun offering security tokenized stock services.

The Dubai-based tokenized securities exchange platform Allo has completed the tokenization of $22 billion in real-world assets, covering 11,000 US stocks and exchange-traded funds. Users can purchase on-chain stocks of companies like MicroStrategy, Tesla, Google, and others through this platform.

Allo CEO Kingsley Advani stated that the company has tokenized over a thousand planned IPOs, including Musk's SpaceX, OpenAI, and Anthropic. "Investors can access these assets with a lower entry barrier and faster pace, democratizing physical asset investment," Advani pointed out. Tokenization has increased liquidity on their platform, expanded investment channels for small investors, and accelerated settlement times.

He noted that tokenization has increased liquidity on their platform, expanded investment channels for small investors, and accelerated settlement times. For instance, stock fractionization, which involves splitting stocks into smaller, tradable tokens. This model reduces the capital threshold required for investment, attracting more investors to participate, according to Advani.

Today, international banks can settle trades in "seconds or minutes," whereas the traditional brokerage model takes at least two business days. "This reduces counterparty risk and enhances capital efficiency," the Allo CEO stated.

Advani did not specifically mention whether Allo has faced any obstacles from US or EU regulatory authorities, only mentioning that the company has a "proud compliance team" with regulatory experience in the US market. According to RWA Website data, the total value of on-chain issued RWAs currently stands at $23.3 billion. The data shows a nearly 6% growth in this scale over the past 30 days.

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