Two Paradigms of Stock Tokenization: Open Ecosystem and Walled Garden

Stock tokenization has transitioned from a futuristic vision within the blockchain community to a financial reality that is happening now. With the entry of fintech giants like Kraken and Robinhood, this blockchain technology-driven structural transformation has officially begun. For the first time, global investors have the opportunity to trade "digital stocks" of companies like Apple and Tesla in a nearly frictionless manner, around the clock. However, behind the market's noise, deeper issues await answers.

This report will focus on the intrinsic logic of current mainstream stock tokenization products, delving into "how to achieve it" and "where the risks lie," providing clients, investors, developers, and regulators with a reference that is both in-depth and practical.

We will conduct an in-depth comparative analysis using two typical cases: xStocks(, representing the "Open DeFi" path, issued by Backed Finance and traded on exchanges like Kraken), and Robinhood, representing the "Compliance Walled Garden" path. We will also incorporate practices from key industry participants such as Hashnote and Securitize to collectively explore a core question:

How do these platforms strike a balance between stringent financial regulations, complex technical implementations, and significant market opportunities? What paths have they chosen, and what are the fundamental differences in their underlying logic and compliance designs?

1. Core Analysis ( 1 ): The "Tightening Spell" and "Amulet" of Compliance

The primary challenge of stock tokenization is not technical, but regulatory. Any attempt to "move" traditional securities onto the blockchain must confront the complex global financial regulations. In the long-term game with regulators, the market has quietly differentiated into two distinctly different compliance paths: 1:1 asset-backed security tokens and derivative contract tokens. The underlying legal structure and operational logic of these two models are vastly different, determining their product forms, user rights, and risk characteristics.

Model One: xStocks - Embracing the Open Road of DeFi

Core Definition: The Token ( held by users, for example, TSLAX) representing Tesla stock, legally represents directly or indirectly the ownership or rights to the real stock ( TSLA). This is a mapping of a "real" stock on the blockchain, pursuing the authenticity and transparency of assets.

Legal Framework and Market Performance:

The compliance design of xStocks is ingenious, with its core being to embrace the openness of blockchain while maximizing the avoidance of legal risks through multiple layers of legal entities and a clear regulatory framework.

Currently, xStocks supports 61 stocks and ETFs, of which 10 have generated on-chain transactions, demonstrating initial market vitality. Following support from Bybit and Kraken, its trading volume has seen explosive growth. As of July 1, its daily trading volume has reached $6.641 million, with over 6,500 trading users and more than 17,800 transactions.

Issuing entities and regulatory framework:

xStocks is issued by the Swiss company Backed Finance, and its operations comply with the Swiss DLT( Distributed Ledger Technology) Act. Switzerland was chosen as the legal base because the country provides a relatively clear and friendly regulatory environment for digital assets and blockchain innovation.

Special Purpose Vehicle ( SPV ):

This is the cornerstone of the entire architecture. Backed Finance has established a special purpose vehicle (SPV) in Liechtenstein, where the legal and tax environment is stable. This SPV acts like an "asset vault," whose sole function is to hold real stocks. This design achieves key risk isolation: even if the trading platforms ( such as Kraken or Bybit) or the issuer encounters operational problems, the underlying assets held in the SPV remain safe and independent.

Asset Support and Liquidity Strategy:

To ensure the value and credibility of on-chain tokens, xStocks has established a transparent asset-backed and dual-track liquidity system.

1:1 pegged ( coin = 1 share of ):

Every xStock Token that circulates on the chain strictly corresponds to a share of real stock held in a third-party custodian. This 1:1 anchoring relationship is at the core of its value proposition. Currently, the total number of stock tokens for NVIDIA, Circle, and Tesla has exceeded 10,000.

Issuance Process:

Professional qualified investors can apply for a Backed Account to purchase stocks through Backed. Backed acts as a primary investor, buying stocks at brokerage firms, which are then custodied by a third-party institution. Finally, xStocks mints the corresponding number of tokens based on the quantity of stocks purchased and returns them to the primary investors. These primary investors can issue and redeem stock tokens at any time.

Proof of Reserve (:

Transparency is the cornerstone of trust. xStocks is integrated with the industry-leading oracle network Chainlink PoR. This means anyone can independently query and verify the reserves of Backed Finance on-chain in real-time, ensuring that the actual number of shares held is sufficient to support all issued Tokens.

Dual-track liquidity strategy:

1. Centralized Exchange ) CEX ( Market Maker:

At mainstream exchanges like Kraken and Bybit, professional market makers are responsible for providing liquidity, ensuring that users can buy and sell xStocks as easily as trading regular cryptocurrencies.

2. Decentralized Finance ) DeFi ( Protocol:

The xStocks Token is open, and users can deposit it into DeFi protocols on the Solana chain such as lending platforms, DEX liquidity pools ), providing liquidity themselves and earning returns. Currently, xStocks has partnered with the DEX aggregator Jupiter and the lending protocol Kamino to fully leverage the composability of DeFi, creating additional value for assets. For example, the token for the highest trading volume SP500 ( SPY ) has reached $1 million in USDC-based liquidity on-chain.

( Model 2: Robinhood - Compliance-First "Walled Garden"

Core Definition: Unlike xStocks, the stock tokens purchased by users on the Robinhood platform do not represent ownership of the stock in a legal sense, but rather are financial derivative contracts that track the price of specific stocks, signed between the user and Robinhood Europe. Its legal essence is an over-the-counter ) OTC ### derivative, while the on-chain tokens are merely digital certificates of the rights to this contract.

1. Legal framework and technical implementation:

Robinhood's model is a very pragmatic "regulatory arbitrage" that cleverly packages products as existing financial instruments with clear regulatory frameworks, and deploys them quickly at a very low cost.

Issuing entities and regulatory framework:

These tokens are issued by Robinhood Europe UAB, an investment company registered in Lithuania and regulated by its central bank. Its products are regulated under the EU's MiFID II( Markets in Financial Instruments Directive II) framework. According to MiFID II, these tokens are classified as derivatives, thereby bypassing more complex securities issuance regulations.

Low-cost rapid deployment:

Robinhood has deployed 213 stock tokens on the Arbitrum chain, with a total cost of only $5.35 ( on-chain gas fees ), demonstrating the extremely high efficiency of utilizing Layer 2 technology. Among them, 79 tokens have set up metadata, preparing for subsequent transactions.

Pioneering attempt:

Robinhood boldly made its first attempt at the tokenization of private company stocks, launching tokens for OpenAI and SpaceX, aiming to seize an opportunity in the high-value field of private equity. Currently, Robinhood has minted 2,309 OpenAI(o) tokens. The ( OpenAI tokens will provide investors with an indirect opportunity to invest in OpenAI through Robinhood's ownership in the SPV, and then link the price of the OpenAI tokens to the value of the OpenAI shares held by that SPV ).

2. "Walled Garden" style technology and compliance design:

Robinhood's technical implementation is closely tied to its compliance strategy, together forming a closed but compliant ecosystem.

On-chain KYC and whitelist:

Through reverse analysis of the Robinhood stock token smart contract, community developers found that its contract embeds strict permission controls. Every token transfer operation ( transfer ) triggers a check to verify whether the receiving address is registered in the "approved wallet" registry maintained by Robinhood. This means that only EU users who have passed Robinhood KYC/AML can hold and trade these tokens, thus forming a "Walled Garden" (.

Limited DeFi composability:

The direct consequence of this "walled garden" model is that its stock Tokens are almost unable to interact with the vast, permissionless DeFi protocols. The on-chain value of the assets is firmly locked within the Robinhood ecosystem.

Future Planning ) Robinhood Chain (:

In order to better serve its RWA strategy, Robinhood plans to develop its own Layer 2 network - Robinhood Chain, based on the Arbitrum tech stack, demonstrating its ambition to control the underlying technology.

Although Robinhood's model has found a compliant path within the EU framework, it has also sparked considerable controversy and potential risks.

"Fake Equity" Storm:

The most representative event is the launch of the OpenAI and SpaceX Tokens. Shortly thereafter, OpenAI officially stated that it denies any collaboration with Robinhood and clearly pointed out that these tokens do not represent company equity. This incident exposed the significant risks of the derivatives model in terms of information disclosure and user understanding.

Centralized risk:

The security of users' assets and the execution of trades completely depend on the operational status and credit of Robinhood Europe. If there is an issue with the platform, users will face counterparty risk.

3. Summary of the comparison between the two models:

Through the above analysis, we can clearly see the fundamental differences between the two models. The xStocks model is closer to the open spirit of Crypto Native and DeFi, while the Robinhood model seeks a "shortcut" within the existing regulatory framework.

Key points:

The path of xStocks is "asset on-chain", which attempts to map the value of traditional assets to the blockchain world in a real and transparent way, embracing open finance. In contrast, the path of Robinhood is "business on-chain", using blockchain as a technological tool to package and deliver its traditional derivatives business, essentially more like a "CeFi") centralized finance( blockchain upgrade.

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2. Core Analysis ) 2 (: The "Game of Ice and Fire" of Technical Architecture

Under the compliance framework, the technical architecture is the backbone of achieving the product vision. The differences in technology selection and component design between xStocks and Robinhood also reflect their two different philosophies of "open" and "closed."

) 1. Choosing the underlying public chain: the triangular game of performance, ecology, and security.

Choosing which public chain to use as the "soil" for asset issuance is a strategic decision concerning performance, cost, security, and ecology.

xStocks chooses Solana:

Its core motivation is to pursue extreme performance. Solana is known for its high throughput with theoretical TPS reaching tens of thousands, low transaction costs typically below 0.01 USD, and sub-second transaction confirmation speeds. This is crucial for stock tokens that require support for high-frequency trading and real-time interaction with complex DeFi protocols. However, several historical network outages have also exposed its challenges in stability, which is a risk that must be accepted when choosing Solana.

Robinhood chooses Arbitrum:

Arbitrum is a Layer 2 scaling solution for Ethereum, and the logic behind its choice is "standing on the shoulders of giants". By adopting Arbitrum, Robinhood not only gains higher performance and lower fees compared to the Ethereum mainnet, but more importantly inherits the Ethereum ecosystem.