Two Models of Stock On-Chain: Open Ecosystem and Closed Loop Compliance

Recently, stock on-chain has become a hot topic in the blockchain community, represented by the models of xStocks and Robinhood. xStocks adopts a more open and composable approach, allowing ordinary users to trade freely on-chain. In contrast, Robinhood follows strict Compliance requirements, only opening to exchange users in the European Union and restricting token transfers to non-compliant addresses. Let's delve into the characteristics of these two models through a series of data.

xStocks: Open Ecological Model

Transaction Status

xStocks currently supports 61 stocks, with 10 having generated trading volume on-chain. As of July 2, the cumulative trading volume of SPY, TSLA, CRCL, MSTR, and NVDA has exceeded 1 million dollars. Additionally, AAPL, GOOGL, QQQ, META, and AMZN have also seen user trading.

After receiving support from certain trading platforms, the trading volume of xStocks has increased significantly. On July 1, its trading volume reached $6.641 million, with more than 6,500 trading users and over 17,800 transactions. On that day, the daily trading volumes of TSLA, SPY, and CRCL all exceeded $1 million.

Issuance Mechanism

xStocks adopts a mechanism where 1 token corresponds to 1 share of stock. Professional investors or compliance investors can apply for an account to purchase stocks through the platform, which will assist these primary investors in buying stocks through brokers, and the number of stocks purchased will be minted into the corresponding number of tokens returned to the investors. Primary investors can issue and redeem stock tokens at any time.

Source of Liquidity

The issuance rights of stock tokens are concentrated in the hands of primary professional investors, but liquidity mainly relies on the market makers of the exchange. xStocks collaborates with exchanges not only to provide distribution channels but also to make exchanges participants in the primary issuance, utilizing the market maker resources of the exchange to provide better liquidity.

Trading activity and liquidity pool depth promote each other. The SP500 (SPY) with the highest trading volume has on-chain USDC-based liquidity reaching 1 million dollars, even surpassing the market value of issued stock tokens. However, stock tokens with lower trading volumes still face liquidity issues.

To address this issue, xStocks is actively collaborating with decentralized finance protocols on the blockchain, using third-party protocol tokens to incentivize and guide retail investors to provide liquidity for stock tokens. Known partners include a certain DEX aggregator and a certain lending protocol.

Robinhood: Closed-loop Compliance Model

deployment status

Robinhood chose to issue its stock tokens on a certain second-layer network, having deployed 213 types of stock tokens, with a deployment cost of only $5.35, averaging a cost of just $0.03 per token. The low transaction fees are one of the important factors for Robinhood's choice of this network. In the future, Robinhood plans to develop its own proprietary chain based on this network.

non-listed company stock token

Robinhood has announced the launch of the world's first tokens for private company stocks, including tokens for a well-known AI company and a space company. This move could allow cryptocurrency users to access stocks of upcoming public companies earlier than traditional stock market investors. Currently, Robinhood has minted 2,309 tokens for the well-known AI company.

Compliance requirements

Robinhood's stock token contracts embed strict compliance requirements. Each transfer needs to check the approved wallet registry (KYC/AML), and these tokens may not be able to interact with decentralized finance protocols, but centralized finance platforms with distribution capabilities may benefit. Even EU users buying stocks on-chain cannot transfer stock tokens to other non-registered address lists; such transfers will be blocked.

upcoming stock token

Metadata has been set for 79 deployed stock tokens related to Robinhood, including stocks from Robinhood Markets, a media technology group, a game retailer, as well as an ETF for a US stock dividend rights, and an options income strategy fund for a Bitcoin mining company. Some of the stock tokens with metadata have undergone a small amount of minting.

These two stock on-chain models each have their characteristics, xStocks pursues openness and composability, while Robinhood strictly adheres to Compliance requirements. In the future, the development trend of stock on-chain is worth our continued attention.