From bonds to commodities to real estate, talk of tokenization is spreading through the financial world. On blockchains, it “may facilitate capital formation and enhance investors’ ability to use their assets as collateral,” Hester Peirce of the Securities and Exchange Commission said in July. Yet “tokenized securities are still securities” and subject to federal securities laws.
Why not equities? In the name of market modernization and democratization, digital marketplaces are blazing a trail into tokenized representations of shares. Robinhood Markets did so controversially in Europe with tokens tied to privately held OpenAI.
Amid competing moves by the likes of Gemini and Kraken, Coinbase has sought SEC approval to offer tokenized equities. The crypto trading platform includes tokenized real-world assets, stocks and other instruments in its vision of an “everything exchange.”
In recent days, Ondo Finance and Backed Finance’s XStocks have launched or expanded equity tokenization offerings. A “bridge” between traditional and on-chain markets enabled Galaxy Digital common stock to be the first publicly listed U.S. equity security tokenized on a major public blockchain (Solana).
Leading traditional financial institutions are increasingly receptive to tokenization and other blockchain applications. Banks and others are mapping strategies for stablecoins in the wake of President Donald Trump’s signing in July of the GENIUS Act.
“Every stock, every bond, every fund – every asset – can be tokenized,” Laurence Fink, chairman and CEO of BlackRock, whose BUIDL Institutional Digital Liquidity Fund is the biggest tokenized fund of its kind, wrote in his 2025 annual letter. “If they are, it will revolutionize investing. Markets wouldn't need to close. Transactions that currently take days would clear in seconds. And billions of dollars currently immobilized by settlement delays could be reinvested immediately back into the economy, generating more growth.”
Fink also maintained that tokenization can “democratize” access by smaller investors to the markets, shareholder voting and yield.
If “tokenized securities are still securities,” then they are subject to similar market forces and risks.
Robinhood chief executive Vlad Tenev stressed in an earnings call the opportunity presented by tokenized access to private market assets. He called market reaction to stock tokens “very positive.”
Robinhood’s Vlad Tenev
“It’s clear customers want this,” Tenev said, according to an Investopedia report. “They not only want it in Europe, but they want it in the U.S. as well.”
Robinhood’s OpenAI tokenization – which was disavowed by the artificial intelligence company – is not unlike a swap or option, explains Jim Toes, president and CEO of the Security Traders Association (STA). Tokens can represent stocks, ADRs and security-based swaps.
“If you structure your token to replicate the performance of what investors get today in these products, then you need to adhere to the federal securities laws when transacting in these securities,” Toes says. “Transacting applies to issuers, dealers, trading platforms/exchanges, custodians, etc.”
As SEC Commissioner Peirce put it, a token could be “a receipt for a security which is itself a security but is distinct from the underlying security held by the distributor of the token.” The token doesn’t give its holder “legal and beneficial ownership of the underlying security.”
Just as companies cannot dictate how options are traded, the same holds true for the OpenAI tokenization, according to Toes. “Companies really have no say as far as, ‘I only want calls issued on my company, and I only want strikes going out three months after.’ It's just another marketplace that exists.”
Jim Toes of the STA
In the U.S., however, only institutional investors are allowed to trade security-based swaps, Toes points out.
In addition, securitized instruments are as much subject as traditional finance is to anti-money laundering, fraud and manipulation concerns.
In the European Union, where Robinhood was offering over 200 tokenized U.S. equities, the Bank of Lithuania required clarification of how the OpenAI tokens were structured. They were classified as derivatives under EU regulations.
While securitized equities are seen as potentially disruptive to traditional exchanges, Rob Hadick, general partner of Dragonfly.xyz, in a Markets Media article deemed Robinhood’s to be “not good products,” in part because of access to collateral.
“Market makers,” Hadick said, “because they will have to take massive amounts of weekend and after-hours price risk, will have to blow out spreads that will make trading these things outside of market hours untenable for most professional traders and firms.”
Writing in CoinDesk, EY global blockchain leader Paul Brody judged tokenized stocks to be “a notably inferior product to the traditional market offering . . . The underlying infrastructure isn’t really crypto-native yet. The restrictions that exist so far mostly appear to be the result of efforts to comply with as yet not-fully-defined regulations or shortcomings in the underlying markets (such as a lack of weekend hours).”
Liquidity fragmentation, investor protection and regulatory arbitrage were among concerns raised by the World Federation of Exchanges in an August appeal to the SEC, International Organization of Securities Commissions (IOSCO) and European Securities and Markets Authority (ESMA) to crack down on third-party tokens that “mimic equities.”
“It is important to recognize that despite ongoing regulatory developments, legal analysis surrounding the nature of tokens is still in its early stages,” said a Baker McKenzie note in late June. “While many tokens replicate traditional commercial transactions through digital means, there are many novel and innovative forms of tokenization that play directly into the issuer’s business model . . . There remains a lack of international consensus and coordination among lawmakers and regulatory authorities,” and international standard-setting efforts have been limited.
Under a cautionary headline in mid-July – “Want to Trade Amazon on Crypto Exchange? The Price Might Be Off by 300%” – the Wall Street Journal reported, “Digital tokens designed to track popular stocks such as Amazon and Apple have deviated wildly from the price of the underlying shares since their launch two weeks ago."
The STA’s Toes says U.S. traders are receptive to tokenization within the existing regulatory framework. The 24-hour availability of blockchain is seen as a positive, as is the possibility of “a new and better marketplace” with lower market data costs.
“It’s having an impact on equity markets,” Toes observes. “Using fractional shares as an example: You can buy a notional amount to bitcoin, but three or four years ago, you could not buy a notional amount of Tesla, because that would require a fraction. Traditional markets are not standing still and just letting this other marketplace develop. It's doing things to improve itself to compete.”
Regarding concerns raised about new risks via blockchain technology, Toes responds, “Everything carries risk.” He adds that existing regulations have to be taken into account, just as in traditional markets.
Metavesco, a diversified holding company whose shares trade over-the-counter, advocates in a white paper for tokenization of OTC stocks: “By bringing OTC equities on-chain, we can create a future where small-cap companies enjoy transparency, access to global liquidity and a lower cost of capital, while investors gain fairness, visibility and opportunity.”
Equity tokenization “opens up whole new opportunities for financing and trading,” founder and CEO Don Wilson of Chicago trading firm DRW told Politico. “Ten years out, we’re not even going to talk about it as tokenized equities. We’re not going to use that phrase.”