Two Paradigms of Stock Tokenization: Open DeFi and Compliance Walls

The tokenization of real-world assets has become a financial reality that is happening. The tokenization of stocks has been kicked off with the entry of fintech giants, giving global investors their first opportunity to trade "digital stocks" in an almost frictionless manner 24/7. This report delves into the intrinsic logic of current mainstream stock tokenization products, focusing on "how to achieve" and "what the risks are," providing references for clients, investors, developers, and regulators.

1. The Underlying Logic of Two Mainstream Models

The primary challenge of stock tokenization is compliance. The market has differentiated into two distinct compliance pathways: 1:1 asset-backed security tokens and derivative contract tokens.

Model 1: xStocks - Embracing the Open Road of DeFi

Core definition: The tokens held by users legally represent direct or indirect ownership or rights to real stocks. This is a "true" stock on-chain representation, pursuing the authenticity and transparency of assets.

Legal Framework and Market Performance:

xStocks is issued by the Swiss company Backed Finance and complies with the Swiss DLT Act. A special purpose vehicle (SPV) is established in Liechtenstein to hold real stocks, achieving risk isolation. Currently, it supports 61 types of stocks and ETFs, with a daily trading volume of 6.641 million USD.

Asset-backed and liquidity strategy:

• 1:1 peg: each token corresponds to one share of real stock
• Issuance process: Qualified investors purchase stocks through Backed, which are custodied by a third-party institution.
• Reserve Proof: Integrated with Chainlink PoR for real-time verification of reserves
• Dual-track liquidity: centralized exchange market makers + DeFi protocols

Model 2: Robinhood - Compliance First "Walled Garden"

Core Definition: The stock tokens purchased by users are financial derivative contracts that track the prices of specific stocks and are signed with Robinhood Europe. Their legal nature is over-the-counter derivatives.

Legal Framework and Technical Implementation:

Issued by Robinhood Europe UAB, registered in Lithuania, in compliance with the EU MiFID II framework. A total of 213 stock tokens have been deployed on the Arbitrum chain, with a total cost of only $5.35. This is the first attempt at tokenization of stocks for private companies, launching tokens for OpenAI and SpaceX.

"Walled Garden" style technology and compliance design:

• On-chain KYC and whitelist: Strict permission control embedded in the contract.
• Limited DeFi composability: Assets are locked within the Robinhood ecosystem.
• Future Plan: Develop Robinhood Chain based on Arbitrum

2. Comparison of Technical Architectures

1. Selection of underlying public chains

xStocks chooses Solana: Pursuing ultimate performance, supporting high-frequency trading and complex Decentralized Finance interactions.

Robinhood chooses Arbitrum: inheriting Ethereum's security and ecosystem, and will migrate to a self-built Layer 2 network in the future.

2. Analysis of Core Technology Components

Smart Contract Design:

• xStocks: Standard SPL Token, freely transferable
• Robinhood: Embedded transfer restriction logic

The key role of oracles:

• Price information: Keep in sync with real stock prices
• Reserve Proof: Proof of the sufficiency of off-chain reserve assets

Cross-chain interoperability:

• Allow assets to be securely transferred across different blockchains
• Expand asset liquidity pools and application scenarios

3. Detailed Explanation of Asset On-Chain and SPV Operations

1. Asset Isolation: Purchase real stocks and deposit them into SPV
2. Minting Token: SPV authorizes the minting of an equal amount of tokens after confirming the assets.
3. Token distribution: through compliant exchanges or direct sales to qualified investors
4. Lifecycle Management: Handling corporate actions such as dividends and stock splits
5. Redemption and Destruction: Investors destroy tokens upon redemption, and SPV sells corresponding stocks.

3. Business Model and Risk Assessment

1. Business Model and Revenue Sources

Robinhood:

• A 0.1% foreign exchange conversion fee will be charged to non-Eurozone users.
• Potential introduction of order flow payments, member value-added services, etc.
• Expand the private equity market

xStocks:

• Transaction fee
• Minting/Redeeming Fee
• B2B asset tokenization solutions

2. Risk Assessment Matrix

• Regulatory risks: changes in regulatory policies, cross-border compliance challenges
• Technical Risks: Smart contract vulnerabilities, oracle failures
• Market Risk: Insufficient liquidity, price volatility
• Operational Risk: Asset custody errors, KYC/AML deficiencies
• Legal Risks: Ownership disputes, cross-border jurisdiction conflicts
• Credit Risk: Default by the issuer or custodian
• Reputation risk: insufficient information disclosure, user misunderstanding of the product

4. Market Landscape and Future Outlook

1. Comparison of Major Player Matrix

Three major camps:

• Open DeFi model: xStocks, Hashnote
• Compliance Wall Mode: Robinhood, Securitize
• Institutional-level solutions: Franklin Templeton, BlackRock

2. Market Trends and Evolution Path

• From Isolation to Integration: Deep Integration with Mainstream Financial Institutions and Decentralized Finance Ecosystem
• Regulation-driven innovation: EU MiCA, Swiss DLT Act, etc. provide clear rules
• Institutional entry and product diversification: expanding into structured products, private equity, etc.
• Private equity tokenization has become a new blue ocean: opening up the high-net-worth asset market

Future Outlook and Reflections

• The open vs. closed debate: Two models may coexist in the long term
• The race between technology and law: Continuous evolution of cross-chain technology, Layer 2, privacy computing, etc.

Stock tokenization is fundamentally reshaping the paradigms of asset issuance, trading, clearing, and ownership. It promises a more efficient, transparent, and inclusive global financial market. Market participants need to actively and prudently embrace this upcoming financial revolution based on a deep understanding of its underlying logic and potential risks.