Source: Plain Blockchain
Original link: https://mp.weixin.qq.com/s/b7f1kdm-Cg3_Xf87tFPOGQ
Recently, on-chain stock trading has become the latest hot topic, with mainstream trading platforms like Kraken and Robinhood launching on-chain stock trading services, allowing investors to buy and sell Tokens representing real stocks. These services enable investors to trade popular US stocks such as Apple, Tesla, and NVIDIA 24/7.
So, what exactly is the mechanism of on-chain stock trading, and are the Tokens users purchase truly equivalent to stocks? What opportunities exist within this?
01 Basic Overview
The above image describes the basic operating principle of stock tokenization, with several key points:
1. When you purchase a tokenized Apple stock through Kraken's xStocks, you are not buying a derivative or futures contract. Instead, Kraken's partner Backed Finance will purchase and hold the actual Apple stock in a regulated custodian. Then, a corresponding Token is issued on the Solana blockchain, creating a digital representation of the actual stock.
2. Stock ≠ Cryptocurrency. On-chain stocks introduce interesting arbitrage opportunities. During non-market hours, when the NYSE is closed but blockchain trading continues, the Token price may slightly deviate from the last known stock price due to trading activity and market sentiment. Arbitrageurs can profit by buying and selling Tokens and redeeming them through the issuer, thus realigning the price. Purchasing on-chain stocks during non-market hours requires caution.
3. This structure means Token holders cannot obtain traditional shareholder rights, such as voting rights—these rights are retained by the custodian. You are purchasing the economic exposure of the stock's performance, not actual shareholder status. This is a trade-off that enables blockchain-based trading while maintaining regulatory compliance.
02 24/7 Trading?
The most obvious advantage of tokenized stocks is continuous trading. Unlike traditional exchanges that operate only about 6.5 hours per day and on workdays, blockchain-based Tokens can be traded continuously. Kraken's xStocks offer 24/7 trading, while Robinhood currently provides 24/5 trading and plans to expand to round-the-clock trading after launching on Arbitrum's Layer 2.
This continuous availability creates interesting market dynamics. When major news is released outside traditional trading hours—such as earnings announcements, geopolitical events, or company-specific developments—your tokenized stock can react immediately. Token prices become real-time market sentiment indicators, potentially offering price discovery that traditional markets cannot match during closed hours.
03 Traditional vs. Tokenized?
This image shows the differences between traditional US stock trading and on-chain US stock trading by Kraken, Robinhood, etc. However, like traditional US stock trading, KYC is still required, but the custody model differs fundamentally.
1. KYC (Know Your Customer)
In fact, any compliant platform offering stock exposure requires KYC and regulatory compliance—completely anonymous stock trading is practically legally unfeasible unless the platform wants to operate illegally. There have been previous attempts at decentralized, non-KYC stock Tokens, but they encountered legal troubles. A notable case is Terra's Mirror Protocol, which from 2020 to 2022 allowed anyone to mint and trade synthetic "mAssets" of US stocks (like Tesla, Google, etc.) using only a crypto wallet without KYC. The US SEC later determined Mirror's stock Tokens to be unregistered securities and took legal action against Terraform Labs and its founder Do Kwon.
Different Entry Paths
The situation is different this time, with even large exchanges like Kraken and Bybit supporting stock trading on their platforms. You can simply view these "stock coins" as MEME coins, just with third-party promises that each coin is backed by a stock. I believe Trump would likely love this approach. It provides a more convenient way for retail investors to enter the US stock market through stablecoins. As long as the final settlement is in US dollars, I believe regulatory pressure won't be too significant.
2. Custody Model
Tokenization platforms prioritize accessibility and flexibility. Kraken and Robinhood offer zero-commission trading on their stock Tokens, earning revenue through spreads and other services. They natively support fractional ownership, allow 24/7 trading, and may integrate with decentralized finance protocols.
However, the trade-offs are obvious. Traditional brokers provide regulatory protection, mature customer service, and direct shareholder rights. Tokenization platforms offer higher accessibility and innovative features but have lower regulatory clarity and newer operational infrastructure.
The custody models fundamentally differ. Traditional brokers hold stocks in "street name" through central depositories, with your shareholding recorded in their systems. Tokenization platforms issue blockchain Tokens, allowing you to choose self-custody, giving you direct control over your holdings but also requiring you to manage private keys and security.
04 Why I Think This Is a Bull Market
1. Capital Magnetic Effect
Consider the structural advantages of tokenized stocks compared to traditional markets. Nigerian retail investors can now buy Apple stock without complex international brokerage relationships or currency conversion fees. This is not just convenience but a fundamental expansion of market access that could drive unprecedented capital inflow into crypto infrastructure.
The mechanism here is more complex than simple user acquisition. When someone buys a tokenized Tesla stock, they're not just entering the crypto market—they're creating continuous demand for stablecoins, generating transaction fees for Layer 2 networks, and validating the entire crypto technology stack as a legitimate financial infrastructure.
2. Compound Effect
Ethereum and its Layer 2 (like Robinhood) will gain continuous trading volume, creating actual economic value for ETH holders through fee burning and network effects. Solana's (used by Kraken and Bybit) high-throughput architecture might capture market share in high-frequency stock trading, driving demand for SOL transaction fees.
Tokenized stocks could solve the "ghost town" problem in crypto markets during bear markets. Historically, when crypto prices crash, trading volume evaporates, and users flee to traditional assets. With on-chain stocks, capital might be more likely to remain in the crypto ecosystem, maintaining liquidity and platform engagement even when Altcoins struggle.
3. Invisible Adoption
Tokenized stocks might achieve what years of crypto evangelism could not: seamless mass adoption. A user in the EU trading stock Tokens on Arbitrum via Robinhood isn't consciously deciding to enter the crypto market—they're just using better financial services. This invisible adoption model might attract millions of users who would never actively choose to buy cryptocurrency but would gladly use it when crypto infrastructure is abstracted.
05 Summary
In the long term, most stocks (and even other assets) might be traded on the blockchain, greatly benefiting from low transaction costs and efficiency. Of course, this largely depends on future acceptance of on-chain asset trading and regulatory evolution.
Optimistically, on-chain stock trading could become a killer application, enabling exponential growth of the crypto user base and bringing hundreds of millions of real-world assets on-chain.
