The Emergence of Tokenized Stocks on Wall Street: 5 Key Points to Know

[Block Media Reporter Lee Jeong-hwa] A new era is opening where stocks can be stored in digital wallets and traded 24/7 like cryptocurrencies.

According to a report by the Wall Street Journal (WSJ) on the 7th (local time), tokenized stocks, which record stock rights on the blockchain, have emerged as a new topic in the U.S. stock market.

With the U.S. Securities and Exchange Commission (SEC) paving the way for tokenized stock trading, existing financial markets like NASDAQ and the New York Stock Exchange (NYSE) have begun to take action. However, many of the tokens currently in circulation are not actual stocks but rather price-tracking products, making it crucial for investors to distinguish what they actually own.

WSJ has summarized five key issues that investors must know about approved tokenized stocks.

1. What are Tokenized Stocks?

The basic concept of tokenized stocks is simple. It involves implementing publicly traded company stocks in the form of digital tokens that can be traded on the blockchain. The problem is that not all products labeled as 'tokenized stocks' are the same.

Many of the tokenized stocks currently traded are closer to derivatives that track the price of specific stocks rather than the stocks themselves. For example, even if you hold a token based on GameStop stock, you may not actually become a GameStop shareholder. While the token price may rise when the stock price goes up, there are no dividends or voting rights, and it cannot be exchanged for actual GameStop shares.

Conversely, there are cases where tokens directly issued by companies have the same rights as actual stocks. Blockchain stocks issued by financial technology company Figure Technology Solutions provide the same dividend rights as existing stocks and also offer one voting right per share.

Investors can purchase tokens representing a fraction of a stock for a small investment, such as $10.

Ultimately, the most important question for investors is not 'Which stock does this token's price follow?' but rather 'Does buying this token make me an actual shareholder?'

2. Who, When, and Where Can Buy Tokenized Stocks?

Why go through the trouble of making stocks into tokens? The biggest advantage of tokenized stocks is the trading hours. The existing U.S. stock market operates around fixed trading hours. In contrast, blockchain-based tokens can be traded 24/7 like digital assets such as Bitcoin (BTC).

For global investors who are serious about trading and are awake 24/7, tokenized stocks are undoubtedly attractive.

They can also lower barriers across borders. Overseas investors who find it difficult to access the U.S. stock market can access U.S. stocks or tokens that track them through digital wallets.

Platforms like Robinhood, Coinbase, Kraken, and Gemini are already offering blockchain-based products for U.S. stocks and exchange-traded funds (ETFs) to customers outside the U.S.

3. Changes in Trading and Settlement Structure

The changes brought by tokenized stocks do not stop at trading hours. The blockchain could also change the settlement process, which involves transferring actual ownership and completing transactions after buying stocks.

In the existing securities market, various intermediaries, including brokerage firms and clearing and settlement institutions, participate in the trading process. Proponents of tokenization argue that by utilizing blockchain, some intermediate steps can be reduced, lowering transaction costs and speeding up settlements.

There are also discussions about using tokenized money market funds (MMFs) as collateral. This means that collateral needed during market fluctuations can be quickly moved via blockchain.

For this reason, tokenized stocks are not simply a service for trading stocks like cryptocurrencies. They represent a shift in financial infrastructure aimed at moving stock trading, storage, clearing, and settlement onto the blockchain.

4. SEC Opens the Door for U.S. Tokenized Stocks

The direct catalyst for the rise of tokenized stocks as a major issue on Wall Street is regulatory changes in the U.S. The SEC has opened the door for U.S. trading platforms to offer tokenized stocks through two five-year 'innovation waivers.'

This involves temporarily waiving certain regulations that had been obstacles to trading digital tokens representing publicly traded company stocks for approved trading platforms and market makers.

However, there are conditions.

Tokens allowed under the SEC's waiver system must provide the same shareholder rights as regular stocks. Investors must be able to receive dividends and have voting rights on shareholder meeting agendas.

If a third party wants to tokenize a company's stock, they must notify the company 30 days in advance. If the company objects, the trading platform cannot offer that token.

This is a significant difference from synthetic stock tokens currently circulating outside the U.S. The tokenized stocks being promoted in the U.S. are designed not just as simple stock price tracking products but to implement the rights of existing stocks on the blockchain as well.

5. New Risks Arise

During low trading volumes at night, even small orders can cause significant price movements in tokens. If liquidity between existing stocks and tokenized stocks becomes dispersed, there is a possibility of larger price discrepancies.

Regulatory authorities are also concerned about the potential for insider trading and market manipulation. Existing U.S. stock exchanges monitor unusual trading, and brokerage firms verify customer identities. WSJ pointed out that the tokenized stock market does not yet have the same level of control mechanisms as the existing securities market.

Cyber risks are also a challenge that needs to be addressed. Caution is being expressed even on Wall Street. Citadel Securities argued in a letter to the SEC that discussions are needed on investor protection, fair market access, and the same regulatory standards as existing securities.

The Trend is 'Stocks on Blockchain'

The competition for tokenization is already extending beyond the realm of digital asset companies. BlackRock and JP Morgan Chase's asset management divisions have launched tokenized MMFs. NASDAQ and NYSE are also pursuing tokenized stock businesses.

If tokenized stocks become widespread, the way investors hold stocks could change fundamentally. A market could emerge where tokens stored in digital wallets represent actual ownership in companies, not just stocks recorded in brokerage accounts.

However, what needs to be confirmed first is the rights. Even if tokens track the price of the same company's stock, one may be an actual stock while the other is a derivative that only tracks the price. While price movements may be similar, the legal status of investors and their rights to dividends and voting can be completely different.

Wall Street no longer asks whether stocks can be traded on the blockchain. Tokenization is already the trend.

This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.