Stock Tokenization: A New Chapter in Financial Innovation

Recently, many well-known financial technology companies have launched stock tokenization services, attracting widespread attention in the market. What exactly is this innovative product? Why does it deserve investors' favor? Let's explore the mysteries behind it together.

Innovation in Stock Tokenization of Certain US Listed Companies

The company recently launched its highly anticipated stock token service in the EU market, offering European users a brand new way to trade stocks.

This innovative service allows users to buy and sell derivatives tracking stock prices denominated in US dollars, with automatic euro conversion handled in the background, charging a 0.1% exchange fee.

Custody and Mapping Mechanism

The core of the company's stock Token lies in its unique custody and mapping method. These Tokens are price-tracking derivatives, with the underlying assets securely held by a US-licensed institution. The company's European branch is responsible for issuing these contracts and recording them on the blockchain. It is worth noting that due to the derivative nature of stock Tokens, the corresponding securities can only be held in the company account, and users cannot directly redeem them.

EU regulatory compliance

The company's stock tokens are offered as derivative contracts under the MiFID II (Markets in Financial Instruments Directive II) framework. A previously acquired exchange by the company holds an MFT (Multilateral Trading Facility) license, which complies with the EU's licensing requirements for companies providing derivative trading services. This means that the service is subject to corresponding regulations in the EU region, providing users with a certain level of compliance assurance. However, it is important to note that this service is currently only available in the EU region and is not tradable in the United States.

Transaction time and corporate actions handling

In terms of trading hours, the first phase of stock tokens is available for trading five days a week, from Monday 02:00 to Saturday 02:00 Central European Time / Daylight Saving Time.

In cases involving corporate actions (such as dividends, bonuses, splits, etc.), the company will execute on behalf of the shareholders:

• Position Adjustment: For actions such as stock splits, reverse splits, changes in stock codes, or spin-offs, the number of stock Tokens in a user's account may be automatically adjusted to reflect changes in the underlying stocks.
• Cash Distribution: In the event of mergers, acquisitions, liquidations, or delistings, users may receive cash distributions denominated in euros based on the event.
• Dividends: Cash dividends will be processed automatically. Users will receive dividends paid in euros, which will be displayed as cash distributions in the transaction history. There are no currency conversion fees for dividend payments, but withholding taxes may be charged based on the user's region.
• In terms of capital turnover, the funds obtained from selling stock tokens can be immediately used for trading and can be withdrawn on T+1.

stock token on-chain

The issuance of the company's stock tokens utilizes blockchain technology, initially based on the Arbitrum blockchain, with plans to migrate to the company's self-built Layer2 blockchain in the future. This indicates that the company is committed to leveraging blockchain technology to enhance trading efficiency and transparency.

entered the private equity market

As part of its broader cryptocurrency promotion plan, the company has achieved access to private equity through blockchain technology for the first time, launching tokenized stocks of two well-known technology companies to European users. This milestone move is attributed to the more flexible regulatory environment in the EU, allowing ordinary investors to access equity in these private companies, which is typically only available to insiders and high-net-worth investors.

Open Design of a Cryptocurrency Exchange Platform

Custody and Mapping Mechanism

Custody mechanism: xStocks are purchased and held by a financial institution responsible for real stocks or ETF assets, stored in a compliant third-party custodian. Each xStocks Token is 1:1 pegged to the underlying assets, and the custody process is subject to strict regulation to ensure asset safety and transparency. The official website emphasizes that the reserve proof mechanism is regularly verified by an oracle to ensure the alignment of tokens with the actual assets.

Mapping mechanism: xStocks is an SPL Token based on the Solana blockchain, representing partial ownership of underlying stocks or ETFs. The tokenization process is achieved through smart contracts, with prices synchronized in real-time with traditional markets via an oracle. Users can transfer xStocks to compatible wallets and use them for trading, liquidity mining, or collateral in decentralized finance (DeFi) protocols. The official website specifically states that xStocks can be redeemed at any time for the cash value of the underlying assets, with a fast and efficient settlement process.

xStocks supports fractional investing, with a minimum investment threshold as low as 1 dollar, making it suitable for retail investors. Tokenization eliminates the cumbersome processes of traditional brokers, reducing the costs and delays of cross-border investments.

regulatory compliance license

Compliance Framework: The platform actively collaborates with global regulatory agencies to ensure that xStocks complies with local laws and regulations. The official website states that the platform implements strict KYC and AML processes, and all users must undergo identity verification. The issuance and trading of xStocks are governed by the regulatory framework of its partners, and specific terms can be viewed in its official website's "Basic Prospectus."

Regional restrictions: xStocks is currently only open to non-US clients and does not support users from markets such as the United States, Canada, the United Kingdom, the European Union, and Australia. The target markets include Europe (some regions), Latin America, Africa, and Asia.

Regulatory Challenges and Prospects: The official website acknowledges that tokenized securities face a complex international regulatory environment. The platform is communicating with regulatory authorities and plans to gradually expand the supported jurisdictions, emphasizing its compliance-first strategy to mitigate legal risks.

The platform holds a MiCA (Markets in Crypto-Assets) license in the EU, which supports its compliant operations in Europe and may lay the groundwork for future expansion of xStocks in certain regions of Europe.

transaction time and corporate actions processing

Trading hours: xStocks supports 24/5 trading (full day from Monday to Friday), breaking the traditional US stock market limitation of 9:30-16:00 (Eastern Time). According to the official website, xStocks can be traded on the platform or on the Solana chain through compatible wallets. During off-hours (weekends and US holidays), on-chain trading can still take place, with prices based on the last closing price provided by oracles and market supply and demand, which may result in price fluctuations similar to "prediction markets." The platform plans to achieve 7/24 trading in the future.

Company actions handling: The official website clarifies that xStocks holders do not enjoy the voting rights or participation rights in shareholders' meetings that traditional shareholders do. Dividends are indirectly distributed through a token price adjustment mechanism, equivalent to airdropping tokens of equal value to users based on their holdings proportion, ensuring the transmission of economic interests. Other corporate actions (such as stock splits and mergers) are handled by partners, and the number or value of tokens is adjusted accordingly to reflect changes in the underlying assets.

xStocks' on-chain trading supports instant settlement (T+0), significantly improving efficiency compared to the traditional market's T+2 clearing cycle. The participation in the DeFi ecosystem further enhances the flexibility of xStocks, but the liquidity pool depth may be limited during market closures, so caution should be taken regarding slippage risks.

Supported blockchains and issuance status

Supported Blockchains: xStocks is currently based on the Solana blockchain, utilizing the SPL Token standard. According to the official website, Solana was chosen as the launch platform due to its high throughput, low transaction costs, and mature ecosystem. The platform and its partners plan to expand xStocks to other high-performance blockchains in the future to enhance interoperability and market coverage.

Issuance Status: xStocks is issued by partners, with the first batch listing 60 US stocks and ETFs, including several well-known technology companies and the SPDR S&P 500 ETF. The official website states that the platform will launch xStocks on June 30, 2025, and plans to continuously increase the types of supported assets. xStocks is also tradable on other trading platforms and the Solana DeFi platform, expanding market coverage.

Issuance Background and Ecosystem: The partners are founded by the core team of a well-known project, backed by renowned institutional investments, focusing on tokenization of financial assets. The issuance of xStocks is supported by multiple partners, forming the "xStocks Alliance" to provide liquidity, technology, and ecosystem integration for the tokens. The official website emphasizes that xStocks is not only a business expansion but also a milestone in the integration of traditional finance and blockchain.

The issuance of xStocks is dynamically adjusted and linked to the purchase and redemption of underlying assets. Users can trade xStocks on the platform using fiat currency, cryptocurrency, or stablecoins, with an investment threshold as low as 1 dollar, making it suitable for retail investors worldwide.

Comparison of Two Modes

In comparison, the former has better compliance and coverage among mainstream populations, and offers unlisted stocks; while the latter covers more regions and supports native on-chain transactions and DeFi protocols, making it more aligned with the cryptocurrency ecosystem.

It can be said that the former follows a route similar to a well-known stablecoin, while the latter targets another widely used stablecoin; one leans towards the mainstream, while the other is more down-to-earth.

For startup teams, participating in the issuance of new stock token assets may not necessarily compete with these two large companies, but at present, there are still two types of opportunities:

1. Focus on specific demographics or regions, similar to the logic of replacing certain traditional brokerages, targeting areas and populations that traditional finance finds difficult to reach but where cryptocurrency can make an impact;

2. Financial product innovation. After stock tokens are incorporated into the asset pool, the startup team can offer new derivative assets and trading strategies to differentiate from large exchanges, such as high-leverage contracts, leveraged ETFs, and other innovative products.