Tokenized Stocks Reach $3.8 Billion as Trading and Use Expand
Key Facts
The total value of tokenized stocks rose to $3.8 billion in the week of October 5, according to DWF Labs' "The Bright Side: Tokenized Stocks" report. The value stood at $654 million in the week of January 5, as the market for these instruments expanded. Weekly spot trading volume in tokenized stocks on decentralized exchanges reached $2.54 billion in the week of October 5. The value of tokenized stocks actively used in decentralized finance reached $313 million on October 15, according to the report. Among issuers, xStocks' issuance was valued at about $954 million, keeping it the second-largest issuer in the report's ranking.
Demand for trading these instruments is evident in trade sizes and timing, according to an International Monetary Fund analysis. The fund found that about 80% of the tokenized stock trades it analyzed involved less than a full share. It said "more than half of trading takes place outside traditional market hours," reflecting demand for round-the-clock trading access. But it described tokenized markets as "relatively illiquid," with higher volatility than their traditional counterparts. It attributed part of the liquidity weakness to fragmentation across networks and trading platforms, which also hampers efficient price discovery and contributes to price deviations.
The rights these products give investors vary. Robinhood says its classic stock tokens are "derivative contracts between the customer and Robinhood." These contracts track the prices of the underlying securities without giving customers rights in those securities. The company currently does not allow these tokens to be sent to other wallets or platforms and charges a 0.1% currency conversion fee on each order. In an earlier market reaction coinciding with the announcement of stock tokens for European customers, Robinhood shares hit a record high, according to Reuters. The stock was up about 10% at the time of the report during the session, in a move accompanying the product announcement.
Under a U.S. custodial model announced by Ondo Finance, tokens are issued on the Ethereum network with 1:1 backing by underlying shares held with regulated custodians. The model includes giving investors access to issuer communications as part of the services associated with tokenized securities. It also includes blockchain-based proxy voting through Broadridge's platform. The company says its "Ondo Stocks" products are backed by U.S. stocks, exchange-traded funds and cash held with U.S. brokers, with independent verification of the backing. These products automatically reinvest dividends in the underlying stock after deducting applicable withholding taxes, so the token reflects the total return.
On institutional infrastructure, the U.S. Depository Trust & Clearing Corporation announced that more than 30 firms participated in its initiative, announced in July, to execute live transactions involving tokenized assets. The initiative brought together traditional financial institutions and digital market participants, with the assets used held at the corporation's depository subsidiary. On the regulatory front, the U.S. Securities and Exchange Commission issued an exemption it described as "temporary and conditional" to facilitate tokenized stock trading. The exemption allows tokenized securities platforms to trade stocks using automated market makers and liquidity pools. Trading takes place in a permissioned environment under conditions set by the commission.
The U.S. Securities and Exchange Commission requested public comments on amending the exemptions granted to tokenized securities trading platforms. The request covers potential next steps for this regulatory framework. The exemptions expire 5 years after publication of the decision, according to the commission. Among exchanges, Nasdaq expects to begin operating its stock tokenization program in the first half of 2027. It also expects to offer additional issuer services based on distributed ledger technology from the same period.